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Fourth Circuit Grants Rehearing En Banc in $680 Million Allergan FCA Case Dismissed Under Safeco’s Scienter (Knowledge) Standard

By Robert Rhoad, Andy Liu, and Haaleh Katouzian

On May 10, 2022, the Fourth Circuit granted a rehearing en banc for a case decided earlier this year, United States ex rel. Sheldon v. Allergan Sales, LLC.

In 2014, a relator brought a qui tam action against his employer, Forest Laboratories, LLC (Forest), alleging that Forest “engaged in a fraudulent price reporting scheme under the Medicaid Drug Rebate Statute[.]”  The Medicaid Drug Rebate Statute (Rebate Statute) requires a drug manufacturer to report its “Best Price” to the Centers for Medicare & Medicaid Services (CMS) so that CMS can calculate rebates it is owed based on that price.  The relator argued that Forest gave different discounts to different customers on the distribution chain but failed to aggregate those discounts when calculating its Best Price, resulting in the government paying $680 million more than if the discounts were aggregated.

The majority, in a 2-1 decision, included the following as an example of the allegation: “on one covered drug, [the relator] alleged that in FY2013 Forest gave a 20% discount to a patient’s insurance company and a 10% discount to the same patient’s pharmacy—two different entities on the distribution chain . . . [The relator] alleged that Forest was required to aggregate these discounts, report a Best Price of 70%, and give Medicaid a 30% rebate. Instead, Forest did not aggregate these discounts because they were given to different entities, reported a Best Price of 80% (based on the highest discount given to a single entity), and gave Medicaid a 23.1% rebate . . . [The relator] allege[d] that this led to the federal government paying 6.9% more for this drug than it would have if Forest had accurately reported Best Price.”

Forest moved to dismiss the action, arguing, among other things, that there could be no “knowing violation” of the False Claims Act (FCA) because its interpretation of the Rebate Statute was plausible and objectively reasonable.  The Fourth Circuit agreed.  Because “[t]he FCA defines ‘knowingly’ as including actual knowledge, deliberate ignorance, and reckless disregard” and “Safeco interpreted ‘willfully’ to include both knowledge and recklessness[,]” the Fourth Circuit, reasoned that the Supreme Court’s scienter standard set forth in Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007) (“Safeco”) (addressing willfulness/scienter under Fair Credit Reporting Act), applied to the FCA.[1]

The Court concluded that the relator “failed to plead scienter as required by the FCA” because “Forest’s reading of the Rebate Statute was not only objectively reasonable but also the most natural. And Forest was not warned away from its reading by authoritative guidance from CMS.”[2]  The Court held that the defendant’s reading of the statutory text was “the best reading of that text” and that “CMS knew as early as 2006 that manufacturers were not aggregating discounts given to different entities along supply chains” but “never clearly stated that discount aggregation to different entities was required, [so] it did not act with the specificity necessary to warn Forest away from its interpretation.”

The majority made clear that Safeco only applied to legally false claims, such as those in the case before it.  Additionally, the majority stated that Safeco does not “write defendants a blank check.”  The Safeco test still “requires an objectively reasonable reading of the statute”—“and not every objectively reasonable reading will suffice.”  The test also “allows the government to issue authoritative guidance that clarifies its interpretation of the law and so warns defendants away from otherwise reasonable interpretations.”  Thus, “Safeco’s standard duly ensures that defendants must be put on notice before facing liability for allegedly failing to comply with complex legal requirements.”

“If the government wants to hold people liable for violating labyrinthine reporting requirements, it at least needs to indicate a way through the maze.”  The relator’s position, the majority stated, “instead makes sinister actors out of parties who have followed the law in every respect and sought administrative guidance where none was ever provided” and ultimately “takes the FCA a very long step toward a strict liability statute.”  It went on to hold that “[t]he False Claims Act does not assess liability through ambush. Companies must instead knowingly submit a false claim to be liable. And Forest simply did not do so here.”

The dissent strongly disagreed.  The Safeco decision, the dissent reasoned, instead “concerned a narrow issue: the proper interpretation of the Fair Credit Reporting Act’s scienter requirement.”  The dissent stated that the majority’s opinion “effectively neuter[ed] the False Claims Act—the Government’s primary tool for fighting fraud—by eliminating two of its three scienter standards (actual knowledge and deliberate ignorance) and replacing the remaining standard with a test (objective recklessness) that only the dimmest of fraudsters could fail to take advantage of.”

The rehearing of Allergan en banc will be closely watched given the importance of the applicability of Safeco to FCA claims, especially with similar cases moving up toward the Supreme Court.[3]


[1] The Fourth Circuit, “[i]n adopting this standard, . . . join[ed] each and every circuit that has considered Safeco’s applicability to the FCA.”

[2] This reasoning follows the “two-step analysis as to reckless disregard” identified by Safeco.

[3] See e.g., United States ex rel. Schutte v. SuperValu Inc., 9 F.4th 455 (7th Cir. 2021).  A petition for a writ of certiorari was filed on April 1, 2022.  The question presented is “[w]hether and when a defendant’s contemporaneous subjective understanding or beliefs about the lawfulness of its conduct are relevant to whether it ‘knowingly’ violated the False Claims Act.”  For the petition, see here.

When “Late is Late” and When It Isn’t: GAO and the Court of Federal Claims Issue Decisions Addressing the Contours of Late Proposal Submissions

By Andrew Victor, Haaleh Katouzian, and Madison Plummer

Two recent decisions, one from the Government Accountability Office and another from the Court of Federal Claims demonstrate the deference afforded to agencies in accepting late proposals.

In VERSA Integated Solutions, Inc., the protester submitted a proposal, but the proposal got stuck in the agency’s email quarantine, never reached the contracting officer, and, thus, the protester was never considered for award.  The protester argued that the agency shouldn’t have rejected its proposal because it submitted the proposal before the deadline and the agency had control over it, albeit in quarantine.  GAO denied the protest, stating that it would not relax the late is late rule because doing so would undermine FAR clause 52.212-1, which governed the submission of proposals.

When “Late is Late” and When It Isn’t

This decision comes on the heels of Savantage Financial Services, Inc. v. United States, a bid protest at the Court of Federal Claims.  Like the solicitation in VERSA, the solicitation in Savantage also included FAR 52.212-1.  Here, however, while offerors submitted initial proposals on time, two offerors were late in submitting proposal revisions.  Despite being late, the agency made award to these two late offerors.  The protester argued that the agency should have rejected the revisions, pointing to the late is late rule.  The court rejected this argument, holding that, although the late is late rule is strict, the contracting officer had discretion to waive the deadline for the late proposal revisions, and under that discretion the determination that the revisions were minor, was reasonable.

Ultimately, agency discretion is paramount.  The juxtaposition of these two cases emphasizes, once again, the importance of proper and timely submission of offers, while also underscoring that even the “late is late” rule may bend to the discretion of a contracting officer.

Update: Chvotkin’s Second Interview on Government Contractor Confidence Index Study With ExecutiveBiz

Alan Chvotkin, partner at Nichols Liu LLP and a key member of Executive Mosaic’s GovCon Expert program, recently spoke with ExecutiveBiz regarding the results of the Government Contractor Confidence Index study he recently co-wrote and the current set of growth initiatives for Nichols Liu to drive value for its customers.

“Overall, I thought the results of the survey were extremely positive and useful. My sincere compliments to my co-writer Russell Smith and to OCI Proposal Consultants for conceiving and executing the ‘Government Contractor Confidence Index’ study. I think it shows the continued strength of the federal marketplace and that the confidence by the contractors makes this a good marketplace for business.”

Alan discussed following questions in the interview with ExecutiveBiz:

  1. What can you tell us about Nichols Liu’s recent growth initiatives and how you’re driving value for your customers?

  2. What are your strategic goals for the coming year and any new markets that you’re keeping an eye on in the federal sector?

  3. What can you tell us about the results on the confidence in the federal market and the top priorities for government contractors in cyber, infrastructure and emerging technologies?

  4. How will the pace of policy changes in acquisition regulations continue to accelerate for the rest of 2022 and beyond? What improvements do we need to make?

You can read the full Executive Spotlight interview with Alan Chvotkin here


Photo: EPStudio20/Shutterstock

Chvotkin Comments on Appropriations Enactment and Future Proposal Activity

On March 22, 2022., Nichols Liu partner Alan Chvotkin wrote a guest column for the blog published by Organizational Communications, Inc. The article addressed the March 15, 2022 enactment of the full-year appropriations act for the Federal government for Fiscal Year 2022 and the impact of that legislation on future government contracting proposal activity. This article on full year federal appropriations enactment covers:

  • A Few High Points
  • When does the Funding Flow?
  • Programs Awaiting Funding
  • Appropriations for FY 2023
  • Path Forward

This $1.5 trillion, 2,741-page Federal Appropriations enactment provides a 6.7 percent increase over the President’s budget request for non-defense agencies and a 5.6 percent increase for defense activities.

This enactment of the full-year appropriations is a welcome development – and beats the alternatives of a shutdown or a full-year CR. But agencies have a lot of work to do to take advantage of the funding Congress has made available. Contractors also have to be ready to respond rapidly to the flood of expected opportunities to come.

Read full article here

About the Author: Alan Chvotkin is a partner in a leading federal contracts law firm Nichols Liu LLP.  He is the former executive vice president and counsel for the Professional Services Council (PSC) and a recognized subject-matter expert (SME) in federal procurement.


Photo: Tunisia Colors | E+B Education

Chvotkin Co-Authors Government Contractor Confidence Index Study ; Discusses Results on FedNewsRadio

Chvotkin Co-Authors Government Contractor Confidence Index Study

Alan Chvotkin coauthored with Russell Smith, president of proposal support company OCI, a new study that quantifiably measures the overall confidence of federal contractors in the Federal market and the road ahead. The survey also assessed the impact of COVID-19 and the Biden Administration on their business.

Key Areas of the Government Contractor Confidence Index Study includes:

1. The effect of the Biden Administration on business prospects
2. Core growth areas for 2022
3. The level of challenge in finding new personnel
4. The effect of COVID-19 on their businesses

“In the government contracting arena, there has ever been a study that quantifiably measure the overall confidence of the government contracting community,” said Russell Smith, President of OCI Proposal Consulting.

“We found that overall confidence about future business and growth opportunities is high, especially in cybersecurity and infrastructure, Chvotkin noted.

Click here to download the full report.

On March 31, Chvotkin discussed the survey results and related federal market issues with Tom Temin, host of the “Federal Drive with Tom Temin,” on FedNewsRadio. Listen to the full interview below

Update: April 6, 2022, Chvotkin’s Second Interview on Government Contractor Confidence Index Study With ExecutiveBiz



Photo: EPStudio20/Shutterstock

Federal Acquisition Regulations: A Tidal Wave of Rules Coming in 2022

[fusion_builder_container hundred_percent=”no” equal_height_columns=”no” menu_anchor=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” class=”” id=”” background_color=”” background_image=”” background_position=”center center” background_repeat=”no-repeat” fade=”no” background_parallax=”none” parallax_speed=”0.3″ video_mp4=”” video_webm=”” video_ogv=”” video_url=”” video_aspect_ratio=”16:9″ video_loop=”yes” video_mute=”yes” overlay_color=”” video_preview_image=”” border_size=”” border_color=”” border_style=”solid” padding_top=”” padding_bottom=”” padding_left=”” padding_right=””][fusion_builder_row][fusion_builder_column type=”1_1″ layout=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” border_position=”all” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding_top=”” padding_right=”” padding_bottom=”” padding_left=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” center_content=”no” last=”no” min_height=”” hover_type=”none” link=””][fusion_text]Alan Chvotkin, a partner at Nichols Liu, has published his most recent article on Federal Acquisition Regulations 2022 as a part of Executive Mosaic’s  GovCon Expert program.

Previously, GovCon Expert Alan Chvotkin provided a review of the federal acquisition regulations issued over the past year. Despite the pandemic, and even with the Inauguration of President Biden and the transition to his new administration, it was still a busy and impactful year for these rules and for the acquisition community.

In his latest piece, Chvotkin offered a preview of the pace and scope of acquisition regulation changes we are likely to see during calendar year 2022. There is a lot on the acquisition regulations plate that could move into proposed and final rules. There is also the parallel process of the use of class deviations that could accelerate the timing of acquisition policy changes affecting contractors.

You can read Alan Chvotkin’s full GovCon Expert article : Here

Please refer : 2021 Federal Acquisition Regs Year-in-Review[/fusion_text][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

Will the ransomware surge impact Biden’s cyber EO?

FCW interview featuring Alan Chvotkin

July 09, 2021

As ransomware attacks increase in size and scope, officials say no one is safe: the public and private sector are both vulnerable to — and seen as major targets for — multi-pronged cyber attacks that can snarl an entire agency’s operations or shut down a global corporation until a ransom is paid or systems are restored from secure and uncompromised backups (if such backups exist). Meanwhile, the White House has sought to get ahead of these attacks by issuing a cybersecurity executive order featuring aggressive deadlines and sweeping reforms to current federal cyber policy.

If the federal government, its contractors and American businesses writ-large have a fighting chance against these increasingly sophisticated attacks, success will require collaboration, organization and new investments in technology and staffing, according to Alan Chvotkin, a partner at Nichols Liu LLP and the former executive vice president and counsel of the Professional Services Council.

Chvotkin spoke to FCW in a recent interview about the latest ransomware attack, and what federal officials can do to meet the moment and prevent similar attacks against government agencies. The following conversation has been lightly edited and condensed for clarity.

Read More

Reference : FCW


The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information.  Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter.