False Claims Act

Last month, the Sixth Circuit affirmed sanctions imposed by a district court against a relator and his counsel for bringing a frivolous False Claims Act (FCA) action. The ruling in United States ex rel. Jacobs v. Lambda Research, Inc., No. 14-3705, 2015 WL 1948247 (6th Cir. May 1, 2015) is a positive development for companies that have faced an increase in FCA actions in recent years. It also illustrates the use of a sanctions provision that is specific to FCA claims.

Lambda Research is a small business that contracts with the United States Navy to strengthen the metal components of warplanes. Terry Jacobs, the individual who brought the FCA case, worked for Lambda for two years before he left the company to become vice president of a competitor business, Ecoroll Corporation.

Lambda thereafter sued Jacobs in state court, alleging that Jacobs stole Lambda’s trade secrets and gave them to Ecoroll. A jury found Jacobs liable and awarded Lambda $8 million in damages. Additionally, the state court found that Jacobs misappropriated trade secrets willfully, and ordered him to pay Lambda $1.4 million in attorney’s fees.Continue Reading Relators Beware – Sanctions Upheld for “Vexatious” False Claims Act Suit

Employee severance packages and settlement agreements often include a broad waiver of any claims, known or an unknown, which an employee may have against the company.  Although such broad pre-filing releases are highly recommended, companies doing business with the government should be cautioned that these waivers do not always protect against False Claims Act (“FCA”) litigation.  A line of federal cases has established that these so-called “pre-filing releases” are sometimes unenforceable against suits filed by whistleblowers, or qui tam actions, for public policy reasons.

Pre-filing releases bar qui tam actions only if the government was already aware of the fraudulent conduct that forms the basis for the employee’s allegations.  The Ninth Circuit in an early case held that enforcing such a waiver where the government was not aware of the fraud until the filing of a qui tam complaint would be against public policy.  U.S. ex rel. Green v. Northrop Corp., 59 F.3d 953 (9th Cir. 1995).  The court noted that the FCA’s qui tam provisions are meant to incentivize whistleblowers to come forward with information that the government would not otherwise be able to obtain.  Thus, when the government first learns about alleged fraud from a whistleblower complaint, the pre-filing release will not be enforced.  This view is shared by the Fourth and Tenth Circuits.  See U.S. ex rel. Radcliffe v. Perdue Pharma, L.P., 600 F.3d 319 (4th Cir. 2010); U.S. ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161 (10th Cir. 2009).Continue Reading Enforceability of Employee Releases on Qui Tam Actions

United Parcel Service Inc.’s (“UPS”) recent settlement with the Department of Justice (“DOJ”) to resolve allegations that it submitted false claims to the federal government to conceal its failure to timely deliver packages serves as a reminder of the range of conduct that can lead to False Claims Act (“FCA”) liability for not satisfying the…

Despite fulfilling its contractual obligations and voluntarily disclosing its possible oversight, nLight Photonic, Inc. (“nLight”), a Washington-based small business, was pushed to a $420,000 settlement with the Department of Justice to resolve allegations that it violated the False Claims Act by knowingly submitting false certifications regarding its eligibility for contracts and grants under the U.S. Small Business Administration’s (“SBA”) Small Business Innovation Research (“SBIR”) program.

The SBIR program was created to encourage U.S. small businesses to conduct federal research & development that may also serve the community at-large. To be eligible for SBIR funds, a company must satisfy several conditions, including:

1. Having a U.S. place of business;
2. Being majority owned and controlled by individuals that are U.S. citizens (or permanent residents) or by another entity meeting this requirement; and
3. Employing fewer than 500 employees.

Continue Reading Small Business Reaches Settlement to Resolve Allegations it Falsely Certified Compliance with SBIR Program

On April 6, 2015, the Sixth Circuit delivered a costly blow to the United States government to the tune of $657 million when it issued its opinion in United States v. United Technologies Corporation and remanded the case back to the district court to review the damages award, yet again.

This was the second time that the Sixth Circuit heard arguments deriving from the United States False Claims Act case against Pratt & Whitney (“Pratt”), now owned by United Technologies, for false statements the company made when competing against GE Aircraft for contracts to build F-15 and F-16 jet engines. In 1983, in an attempt to outbid GE Aircraft and make it hard for the government to issue a split-award contract, Pratt misstated its projected costs and certified that the company’s bid included its “best estimates and/or actual costs.” After uncovering Pratt’s overstated costs projections, the government filed both an administrative action against the company in the Armed Services Board of Contract Appeals (“ASBCA”) under the Truth in Negotiations Act and a lawsuit in district court alleging violations of the False Claims Act.Continue Reading United Technologies is Saved from $657 million False Claims Act Verdict by the Sixth Circuit

A Maryland-based construction company required to pay “prevailing wages” under a Federal government contract recently settled for $400,000 claims that it had violated the False Claims Act (“FCA”) by failing to properly supervise lower-level contractors in the payment of prevailing wages to their workers. The case serves as a reminder that government contractors who fail to ensure compliance with wage requirements – whether under the Davis-Bacon Act (“DBA”), Service Contract Act (“SCA”), or Walsh-Healy Public Contracts Act (“PCA”) – can face significant liability. It also highlights the ongoing expansion of the federal government’s battle against procurement fraud.

Many Government Contractors Are Subject to a Prevailing Wage Rate Requirement

Most government contractors who provide services; do construction, alteration or repair work on public buildings; or manufacture certain goods are subject to a prevailing wage requirement. Those requirements include geographically determined wage rates and fringe benefit rates set by the Administrator of the Wage and Hour Division of the U.S. Department of Labor (“DOL”) for various labor classifications. Where a government contract incorporates such a requirement, government contractors, including their subcontractors, are required to pay wages at least as high as the prevailing wage rates.Continue Reading The Growing Risks of Non-Compliance with Wage Rate Determinations

We recently authored an article on False Claims Act (FCA) enforcement actions brought against pharmaceutical and medical device manufacturers during the past year. In the article, we analyzed the recent settlements for Ansun Biopharma, Inc. (formerly known as NexBio, Inc.); Smith & Nephew, Inc.; McKesson Corporation; and Stryker Corporation and Alliant Enterprises.

The article, “…

Following the federal government’s example, states are increasingly looking to their own false claims act (“FCA”) statutes to combat procurement and healthcare fraud. This trend is being driven by two main factors: (1) the huge recoveries by the Department of Justice (“DOJ”) under the federal FCA – $5.7 billion in Fiscal Year 2014 alone; and (2) a federal statute that provided a financial incentive for states to mirror their own FCAs on the federal FCA with regard to healthcare fraud. This state-level activity represents a new front in the battle against procurement fraud, one that government contractors must be aware of to fully analyze and mitigate risks when contracting with state entities.

Currently, 33 states and the District of Columbia have a false claims statute. Of these, 11 states have FCAs that are limited to healthcare fraud; the remaining statutes penalize a broad range of false claims. Many – but not all – of these state FCAs have provisions allowing for whistleblowers to file qui tam actions on behalf of the state government and to share in any recovery.Continue Reading A New Front in the Battle Against Fraud – the Continued Expansion of State False Claims Act Liability

U.S. ex rel American Systems Consulting Inc. v. ManTech Advanced Systems International, No. 14-3269 (6th Cir.)

The Sixth Circuit recently affirmed the dismissal of a False Claims Act (FCA) suit against ManTech Advanced Systems International (ManTech). At issue was whether a change in ManTech’s key personnel in a contract was a material false statement. By way of background, ManTech and American Systems Consulting Inc. (ASCI) were in competition for a Defense Information Technology Contracting Organization contract for inventory management support. Each offeror was required to submit a specific individual as the prospective Program Manager and address his skills and qualifications. Both ManTech and ASCI identified a prospective Program Manager but ASCI failed to address his specific skills and qualifications. ManTech received a higher score based on the experience of their proposed Program Manager and was ultimately awarded the contract. However, after initial proposals were submitted, the specific individual ManTech proposed resigned and ManTech did not advise the government nor did they modify their proposal. Subsequently, ASCI filed an FCA action against ManTech, alleging ManTech fraudulently induced the government into awarding it the contract by misrepresenting the person who would act as Program Manager.Continue Reading Change in Personnel Not Material False Statement Under False Claims Act

From the Bass, Berry & Sims Blog Network
From the Bass, Berry & Sims Blog Network

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