By Jason C. Lynch and Andy Liu
Last November, Duke University agreed to pay $112.5 million to resolve allegations that it violated the False Claims Act by submitting applications and progress reports that contained falsified research data under 30 federal grants awarded by the National Institutes of Health (NIH) and the Environmental Protection Agency (EPA).[1] The settlement agreement was subject to approval by DOJ, which had declined to intervene in the case. The judge spurred the parties to finalize settlement by convening a hearing on March 25, and DOJ issued a press release on the same day.
This is the latest reminder that the tentacles of the FCA extend to anyone who receives federal dollars. Many mistakenly believe that the FCA is relevant only to federal health care providers/plans or government “contractors,” when the reality is that its scope is much broader. Financial institutions (e.g., Citi, Wells Fargo), retailers (e.g., Home Depot, Staples), and awardees of federal grants and cooperative agreements are equally exposed. And, as evident here, the incentive for whistleblowers is significant: the former Duke employee who brought the suit will walk away with a relator’s share of $33.75 million.
It is also a reminder that while a DOJ decision not to intervene in a case is often a good sign for a defendant, large recoveries in such cases still occur.[2] Consider that, according to last year’s statistics, DOJ recovered $2 billion in intervened cases last year and only $118 in declined cases. That means that this Duke settlement alone almost equals the total recovered in declined cases last year. That makes the case an outlier, but also a good reminder that declined cases must still be taken seriously.[3]
Universities and other federal grantees must be mindful of the consequences of submitting false claims, statements, or records to the federal government. Upon receiving a whistleblower complaint or allegation, or an investigative request from a government agency, they should take it seriously and consider retaining outside counsel with experience in FCA investigations and litigation.
[1] The allegedly falsified research data had nothing to do with to the structural integrity of Nike basketball shoes, as many initially suspected, but rather to pulmonary studies performed on laboratory mice.
[2] To be precise, DOJ filed a “Notice that it is not intervening at this time.” ECF No. 35. DOJ sometimes refers to these as ‘notices of no decision,’ but since the statute only gives two options (intervene or decline), we consider them declinations. See 31 U.S.C. § 3730(b)(4).
It is also common for DOJ to tell the court in these types of notices, as it did here, that the government’s “investigation will continue.” ECF No. 35 at 1. But the notice was filed in August 2016, more than three years after the government “initiated an investigation of the allegations in Relator’s Complaint.” Statement of Interest (ECF No. 94) at 3. As of the November 2018 mediation, DOJ had still not made a decision, even though enough facts had apparently been uncovered to persuade Duke to pay more than a $100 million to settle the suit. DOJ then approved that settlement. Regardless of whether the government’s investigation had continued all those years, we question whether DOJ can have it both ways—by declining but not “declining.” Interestingly, had the government formally intervened, it would have reduced the relator’s share of the recovery.
[3] It may also fuel the debate about whether the government’s intervention decision should bear on materiality under Escobar. Some courts had begun to consider, rightly in our view, the government’s declination as evidence that the alleged fraud was not material. The Duke settlement may bolster relators who want to argue that the government declines even meritorious cases.
