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Ethical and Legal Challenges in the Pre-Unsealing Stages of Qui Tam Litigation,” ABA 9th Annual National Institute on the Civil False Claims Act and Qui Tam Enforcement, Washington, D.C.

admin on June 6, 2012

The nature of qui tam litigation presents unique ethical and legal challenges at each stage of litigation for the lawyers representing both relators and defendants. This article addresses some of the issues that arise in the early stages of qui tam litigation. A qui tam action is initiated when the relator serves a copy of the complaint under seal and written disclosure of all material evidence and information to the Department of Justice. Even before the complaint is filed, a lawyer that is approached by a putative relator must be guided by a multitude of ethical considerations prior to making a decision to take on the representation. The vast majority of False Claims Act (“FCA”) cases are initiated by relators who approach a lawyer with allegations that someone or some entity – often their current or former employer – has defrauded the government. The risk that such a putative relator may be motivated by animosity, a financial windfall and/or a desire to seek reprisal against their former employer means that a lawyer must investigate thoroughly whether there is a sound basis for bringing the suit. A lawyer who fails to take heed of the multiple ethical obligations involved in avoiding filing a frivolous suit risks professional discipline, personal liability and/or court imposed sanctions.

Co-Authors: Brian C. Elmer, Andy Liu, Dalal Hasan.

Two Steps Forward, One Step Back – The D.C. Circuit Expands The False Claims Act’s Reach, But Not for Mere Mistakes,” The Government Contractor, Vol. 53, No. 4

admin on January 5, 2011

Feature Comment: Two Steps Forward, One Step Back—The D.C. Circuit Expands The False Claims Act’s Reach, But Not For Mere Mistakes U.S. v. Sci. Applications Int’l Corp., 626 F.3d 1257 (D.C. Cir. 2010) For Government contractors, one of the most important cases of 2010 was the D.C. Circuit’s unanimous decision in U.S. v. Sci. Applications Int’l Corp. The Court expanded the scope of the False Claims Act (FCA) not only by adopting the implied certification theory of liability (which it had previously only implicitly endorsed), but also by holding that FCA plaintiffs need only show that a contractor withheld information about its noncompliance with a material contractual requirement, regardless of whether that requirement was an express condition precedent to payment. At the same time, however, the Court limited the reach of the FCA in other ways. The Court rejected “collective knowledge” as an appropriate vehicle for establishing corporate knowledge of employee wrong doing. The Court also made it more difficult to prove damages in many FCA cases, there by lessening the potential award against contractors even if the case is successful. So while SAIC may be viewed as expanding the FCA’s reach, it just as surely added important safeguards to protect defendants from the quasi-criminal nature of FCA liability for what are more properly breach of contract matters. Background—Science Applications International Corp. (SAIC) executed two contracts with the Nuclear Regulatory Commission (NRC), an indepen

Co-Authors: Andy Liu, Jonathan Cone.

The FAR Mandatory Disclosure Rules – You Do Not Have the Right to Remain Silent,” ABA 23rd National Institute on White Collar Crime 2009

admin on March 15, 2009

Embarrassed and outraged by recent headlines of allegations of contractor fraud—from Darlene Druyun to Duke Cunningham to the numerous cases related to the wars and reconstruction work in Afghanistan and Iraq—the Department of Justice (“DOJ”) and Congress have successfully pushed for sweeping regulatory changes within the Federal procurement system. The DOJ’s and Congress’s efforts have culminated in a final rule, issued on November 12, 2008, by the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (“Councils”), amending the Federal Acquisition Regulation (“FAR”) to require contractors to self-disclose credible evidence of certain violations of law and significant overpayments in connection with the award or performance of a Federal contract or subcontract. As the Councils recognized, the new FAR mandatory disclosure rules are a “sea change” and “major departure” from the former carrot-andstick approach of voluntary disclosure. In moving closer to a stick-only approach, the government has largely ignored or discounted the great strides that contractors have made in voluntarily uncovering and disclosing wrongdoing. This article describes the new regulatory requirements, implementation issues that remain unclear, and changes to existing codes of conduct and internal control systems that contractors should consider.

Co-Authors: Andy Liu, Gunjan Talati.

The Government’s Overlooked Weapon in Protecting the Public Fisc: Dismissals Under 31 U.S.C. § 3730(c)(2)(A),” ABA 7th Annual National Institute on the Civil False Claims Act and Qui Tam Enforcement

admin on June 30, 2008

For nearly 150 years, the civil False Claims Act (“FCA”) has been a valuable instrument in the government’s efforts to combat fraud and protect the public fisc. One feature of the FCA, its provision for qui tam suits, has been responsible for the most of the government’s success in thwarting fraud on the government since 1986 when the FCA was rewritten. Indeed, of the $20 billion that the government has recovered pursuant to the FCA since 1986, qui tam suits have accounted for $12.6 billion – nearly two thirds of the total recovery.1 Not all qui tam suits, however, are created equal. The government has declined to intervene in more than 75% of the nearly 5000 qui tam suits in which the government has made an intervention decision .2 Not with standing earlier protestations by the government that its decisions not to intervene in cases were no indication of its view of the merit of such cases, defendants have long suspected otherwise, a suspicion supported by the statistics – the 75% of non-intervened cases account for less than $282 million (1.4%) of the $20 billion recovered since 1986.3 Further support has been provided in recent testimony by a Deputy Assistant Attorney General for the U.S. Department of Justice’s Civil Division. Citing similar statistics, he testified that this “reveals that the Department has been appropriately judicious in its review of qui tam matters and has been highly successful in intervening in those cases that have true merit.”4 Notwithstanding that observation, the government has sought to dismiss as meritless only a handful of the nearly 4000 non-intervened cases. What has to date been largely ignored is the cost – monetary and otherwise – associated with those nearly 4000 qui tam suits that have accounted for only 1.4% of the government’s recovery. These cases have resulted in burdensome costs on defendants, some of which are eventually passed on to the taxpayer because they are often chargeable back to the government when the defendants ultimately prevail. Federal courts, in turn, bear the costs of managing these cases, sometimes for many years.

Co-Authors: Brian C. Elmer, Andy Liu, Ann Mason Rigby.

Combating Human Trafficking: The Long Arm of the FAR,” International Government Contractor, Vol. 5, No. 1

admin on January 2, 2008

Combating Human Trafficking: The Long Arm Of The FAR Human trafficking—often referred to as a modern-day form of slavery—has for years been among the U.S. Government’s “high-priority” enforcement areas. See, e.g., the Department of Justice Web site at www.usdoj.gov/whatwedo/whatwedo_ctip.html The effort is, without a doubt, an important one:
• As many as 800,000 people are trafficked across national borders each year, and approximately 17,500 victims are brought into the U.S. each year, according to DOJ. Report on Activities to Combat Human Trafficking, Fiscal Years 2001–2005, Department of Justice, February 2006, at 9.
• According to the International Labour Organization, there are 12.3 million people, including children, in forced labor, bonded labor and sexual servitude at any given time. Trafficking in Persons Report, Department of State, June 2007, at 8.
• The Federal Bureau of Investigation estimates that human trafficking generates $9.5 billion in revenue annually. Trafficking in Persons Report, Department of State, June 2006, at 13.
• Some project that human trafficking soon will surpass drug trafficking and weapons dealing as the world’s largest illegal industry. Jennifer Nam, The Case of the Missing Case: Examining the Civil Right of Action for Human Trafficking Victims, 107 Colum. L. Rev. 1655, 1660 (2007).

Despite these staggering numbers, the number of prosecutions globally has decreased each year from 7,992 prosecutions in 2003 to 5,808 prosecutions in 2006. Trafficking in Persons Report, Department of State, June 2007, at 36. On Aug. 17, 2007, the U.S. Government issued a revised interim rule amending the Federal Acquisition Regulation to implement the Trafficking Victims Protection Reauthorization Act of 2003, as amended by the Trafficking Victims Protection Reauthorization Act of 2005. The revised interim rule prohibits contractors, subcontractors and their employees from engaging in conduct that violates criminal human trafficking statutes and from procuring commercial sex acts, even if such activity is legal, as it is in Nevada. The revised interim rule also requires contractors and subcontractors to notify their employees of the prohibited activities and the disciplinary
actions that may be taken against them for violations. The consequences for contractor or subcontractor noncompliance are potentially draconian—termination of the contract for default or cause, suspension, and debarment.

Co-Authors: Andy Liu, Jane Foster.

The Insufficient Complaint – Consequences,” ABA 21st Annual National Institute on White Collar Crime 2007

admin on March 16, 2007

When amending the False Claims Act(“FCA”) in 1986, Congress enacted several new provisions that created a “race to the courthouse” between different relators, as well as between relators and the government itself. These provisions “were designed to inspire whistle-blowers to come forward promptly with information concerning fraud so that the government can stop it and recover ill-gotten gains” as soon as possible. Without question, early filing of a qui tam suit, when done properly, has its advantages for both the relator and the government. Not only does the early filing of a sufficient complaint commence the suit for statute of limitations purposes, it also reduces the risk that the relator’s action will be precluded by one of the FCA’s jurisdictional bars-e.g., the “first-to-file” bar, the “pending government action” bar and the “public disclosure” bar. As highlighted by several recent cases, however, the filling of an insufficient complaint (not to be confused with a meritless complaint) can have deleterious consequences that can lead to, inter alia, first-filing relators being supplanted by second-filing relators and be the dismissal of otherwise legitimate claims as time-barred. The FAC was originally enacted in 1863, during the Civil War, to combat Union contractor fraud. The original Act imposed civil and criminal penalties on persons who submitted a false claim for payment to the government. The original Act also provided for federal jurisdiction over civil qui tam action.

Co-Authors: Brian C. Elmer, Andy Liu.

Because of: “FCA Damages and Penalties”, American Conference Institute, False Claims Act Enforcement & Litigation

admin on June 12, 2005

Since most FCA cases are settled1 and those cases that are litigated principally involve issues of liability (e.g., falsity, presentment) or jurisdiction (e.g., public disclosure), relatively little jurisprudence deals with the calculation of damages under the Act — specifically the phrase “3 times the amount of damages which the government sustains because of the act of that person. . . .” 31 U.S.C. § 3729(a). A recent Supreme Court opinion in a securities fraud case may shed some light on how the courts may interpret the “because of” requirement in the Act. In that case, the Court held that “A private plaintiff who claims securities fraud must prove that the defendant’s fraud caused an economic loss. We consider a Ninth Circuit holding that a plaintiff can satisfy this requirement – a requirement that courts call ‘loss causation’ – simply by alleging in the complaint and subsequently establishing that ‘the price’ of the security ‘on the date of purchase was inflated because of the misrepresentation.’ In our view, the Ninth Circuit is wrong, both in respect to what the plaintiff must prove and in respect to what the plaintiffs’ complaint here must allege.” While there are unique aspects to securities fraud actions, there is substantial similarity between the statutory and common law concepts discussed by the Court in Dura Pharmaceuticals relating to causation and the “because of” requirement in the FCA. According to the Department of Justice, the United States government recovered more than $650 million from October 1, 2003 through September 30, 2004 in cases brought under the False Claims Act (FCA) — down sharply from the $2.2 billion recovered in the previous fiscal year.2 More than $13 billion has been recovered from 1986 to October 2004. 3 This steady stream of revenue flowing into the government’s coffers is likely to continue apace as qui tam actions flourish and the False Claims Act’s reach continues to expand beyond its origins as a weapon against military procurement fraud. The remarkable recoveries generated by the False Claims Act are attributable in part to its somewhat unique damages and penalties provisions. These provisions can yield forfeitures vastly out of proportion to the alleged violation and, because of this heightened litigation risk, tend also to force settlements in cases that defendants might otherwise litigate and win. Much of the FCA’s power therefore derives from its potential for quasi-criminal sanctions that have less to do with remediation than with simple punishment. Because of the potential for draconian sanctions under the FCA, its damages and penalties provisions are often vigorously contested. This paper surveys the evolving state of the law as courts struggle to interpret and apply these provisions to an ever-broadening range of conduct.

Co-Authors: Brian C. Elmer, Andy Liu.

FCA Damages and Penalties: “Recent Developments and Recurring Themes”, ABA 19th Annual National Institute on White Collar Crime 2005

admin on March 22, 2005

According to the Department of Justice, the United States government recovered more than $2.1 billion from October 1, 2002 through September 30, 2003 in cases brought under the False Claims Act (FCA).1 This was the highest total ever for a oneyear period. More than $12 billion has been recovered from 1986 to October 2003.2 This steady stream of revenue flowing into the government’s coffers is likely to continue apace as qui tam actions flourish and the False Claims Act’s reach continues to expand beyond its origins as a weapon against military procurement fraud.3 The remarkable recoveries generated by the False Claims Act are attributable in part to its somewhat unique damages and penalties provisions. These provisions can yield forfeitures vastly out of proportion to the alleged violation and, because of this heightened litigation risk, tend also to force settlements in cases that defendants might otherwise litigate and win. Much of the FCA’s power therefore derives from its potential for quasi-criminal sanctions that have less to do with remediation than with simple punishment. Because of the potential for draconian sanctions under the FCA, its damages and penalties provisions are often vigorously contested. This paper surveys the evolving
state of the law as courts struggle to interpret and apply these provisions to an everbroadening range of conduct.

Co-Authors: Brian C. Elmer, Andy Liu.

FCA Damages and Penalties: “Recent Developments and Recurring Themes”, ABA 5th Annual National Institute on the Civil False Claims Act and Qui Tam Enforcement

admin on June 25, 2004

According to the Department of Justice, the United States government recovered more than $2.1 billion from October 1, 2002 through September 30, 2003 in cases brought under the False Claims Act (FCA).1 This was the highest total ever for a oneyear period. More than $12 billion has been recovered from 1986 to October 2003. 2 This steady stream of revenue flowing into the government’s coffers is likely to continue apace as qui tam actions flourish and the False Claims Act’s reach continues to expand beyond its origins as a weapon against military procurement fraud.3 The remarkable recoveries generated by the False Claims Act are attributable in part to its somewhat unique damages and penalties provisions. These provisions can yield forfeitures vastly out of proportion to the alleged violation and, because of this heightened litigation risk, tend also to force settlements in cases that defendants might otherwise litigate and win. Much of the FCA’s power therefore derives from its potential for quasi-criminal sanctions that have less to do with remediation than with simple punishment. Because of the potential for draconian sanctions under the FCA, its damages and penalties provisions are often vigorously contested. This paper surveys the evolving state of the law as courts struggle to interpret and apply these provisions to an everbroadening range of conduct.