FCA Alert : Lawyers & Attorneys for Whistleblower, False Claims Act & Qui Tam Defense : Kelley Drye & Warren LLP

In two prior posts, we reported on a case which an insurance company was deemed subject to liability under the False Claims Act even when it did not directly submit claims to the federal government.  See United States v. Hawley, No. 08-2992, 2010 WL 3292710 (8th Cir. Aug. 23, 2010) and click here and here for the prior posts.  In the most recent opinion in the Hawley case, the District Court held that the Fraud Enforcement and Recovery Act (FERA) amendments did not apply retroactively in Hawley, and such retroactive application would violate the Ex Post Facto clause of the United States Constitution.  See United States v. Hawley, No. C 06–4087–MWB, 2011 WL 3295419 (N.D.Iowa Aug. 1, 2011). 

Hawley, an insurance agent, was alleged to have caused farmers to submit false claims to North Central Crop Insurance, Inc., a private insurance company, which then submitted claims for reimbursement to the Federal Crop Insurance Corporation (FCIC), established pursuant to federal statute.  The Government argued that, since the FCIC was approving and paying claims, the FCA reached Hawley’s conduct.  The Eighth Circuit held that there was a genuine issue of material fact as to whether the Government had claims under Sections 3729(a)(2) and (a)(3) of the FCA prior to the 2009 amendments of the Fraud Enforcement and Recovery Act (FERA).  Prior to FERA, these provisions provided for liability where the defendant “intended that the false record or statement be material to the Government’s decision to pay or approve the false claim.”  See Allison Engine co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008).  The Eighth Circuit did not decide whether FERA, which modified these provisions of the FCA, was retroactive to the claims in Hawley. 

FERA eliminated the requirement that a false statement be made “to get a false or fraudulent claim paid or approved by the Government.”  See 31 U.S.C. § 3729(a)(1)(B).  FERA provides for liability where the false statement is material to a false or fraudulent claim.  FERA further states that these amendments “shall take effect as if enacted on June 7, 2008, and apply to all claims under the False Claims Act (31 U.S.C. 3729 et seq.) that are pending on or after that date.”  In dispute was the meaning of the term “claims”.  Hawley argued that “claims” refers to claims submitted to the Government for payment, which in this case were prior to June 7, 2008.  The Government, by contrast, argues that “claims” refers to when the case was filed, which was subsequent to June 7, 2008.  The court agreed with Hawley, relying on United States ex rel. Burroughs v. Central Ark. Development Council, 2010 WL 1542532 (E.D.Ark.2010).  Additionally, the District Court held that application of FERA retroactively would violate the Ex Post Facto clause of the United States Constitution because, though the FCA is a civil statute, the sanctions (treble damages and penalties) make the statute punitive in nature. 

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In United States ex rel. Yannacopoulos v. General Dynamics, et al., No. 09-3037, the 7^th Circuit affirmed summary judgment dismissal of a case alleging that General Dynamics and Lockheed Martin submitted false claims to the United States for payment in connection with a contract to manufacture and sell F-16 fighter jets and related parts and services to the government of Greece. 

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In New York ex rel. Westmoreland et al. v. Amgen, Inc. et al., 2011 WL 2937420 (1st Cir. July 22, 2011), the relator filed a qui tam action against pharmaceutical manufacturer Amgen and two other corporate defendants. The relator, a former Amgen employee, alleged that the defendants violated seven state FCAs by engaging in a kickback scheme to induce Medicaid providers to prescribe the anemia drug Aranesp. According to the relator, the kickback scheme had two prongs. First, the relator alleged that Amgen included extra Aranesp in its single-dose vials of the drug and encouraged providers to bill this free product to Medicaid. Second, the relator alleged that Amgen and the other two defendant companies channeled improper benefits to providers through allegedly sham consulting agreements, honoraria, retreats, and the like to encourage them to purchase Aranesp. The relator argued that the alleged kickbacks rendered the Medicaid reimbursement claims ineligible for payment in violation of the state FCAs of California, Georgia, Illinois, Indiana, Massachusetts, New Mexico, and New York. The states of California, Illinois, Indiana, Massachusetts, and New York intervened in the action. Georgia and New Mexico declined intervention. Amgen, at *1-2.

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In United States ex rel. Hutcheson et al. v. Blackstone Medical, Inc., 2011 WL 2150191 (1st Cir. June 1, 2011), the relator, a former regional sales manager for Blackstone Medical, Inc., filed a qui tam action against the medical device manufacturer alleging that it violated the federal FCA. The relator alleged that Blackstone caused hospitals and physicians to submit materially false claims to Medicare by engaging in a nationwide kickback scheme to induce physicians to use its medical devices in spinal surgeries. The relator further alleged that Blackstone knew this scheme would cause physicians and hospitals to present Medicare with payment claims that contained material misrepresentations. According to the relator, both hospital and physician claims for reimbursement were allegedly tainted by kickbacks provided to physicians (even though the hospitals were unaware of the kickbacks). The hospitals and physicians who submitted the claims to Medicare were not named as defendants in the action. Blackstone did not submit claims for reimbursement to Medicare. The government declined to intervene in the action (which is typically a sign that the merits of the relator’s claims are weak, the potential damages are low, or both). Blackstone moved to dismiss the action for failure to state a claim under Rule 12(b)(6). At issue was whether the claims were materially false under the FCA.

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