Last month, the Supreme Court granted certiorari in United States ex rel. Polansky v. Executive Health Resources, Inc., a case presenting the question whether the federal government forfeits the authority to dismiss False Claims Act (FCA) suits brought in its name if it first declines to intervene in them.
Seventh Circuit Suggests High Standard Under the FCA Whistleblower Retaliation Provision
Last month, the U.S. Court of Appeals for the Seventh Circuit affirmed summary judgement against an employee-whistleblower who had claimed that her former employer retaliated against her in violation of the False Claims Act’s (FCA) whistleblower protection provision. Lam v. Springs Window Fashions, LLC, 37 F.4th 431 (7th Cir. 2022). The court held that her former employer’s conduct fell short of “harassment” protected under the statute and that she failed to establish a causal connection between her informing management of potential false claims issues and her eventual termination. While the Seventh Circuit declined to adopt a strict test for the meaning of “harassment,” its holding shows that the court believes that harassment requires significant conduct to be actionable under the FCA.
Jennifer Lam, the employee-whistleblower, began working at defendant Springs in January 2019. In her role with Springs, she oversaw the global fabric inventory and tariffs on these fabrics. Springs discovered a possible tariff problem as Lam believed a specific fabric had originated in China, instead of the manufacturer designation of Taiwan/Malaysia, which, based on new country-of-original regulations, would require Springs to pay a steep 25 percent tariff on the fabric. Lam alleged that Springs was informed about this issue by her predecessor, who had been reprimanded and forced to resign.
Lam contends that she communicated her tariff concerns to the CEO at three meetings between June and September 2019 that Springs should pay higher tariffs on the fabric, at which point the CEO would become “frustrated and visibly irritated.” Lam also alleged that she was “scolded” by Senior Vice Presidents and threatened with her future job security by other members of Springs’s C-Suite.
In October 2019, the General Counsel informed Lam that Springs has made a “business decision” to classify the fabric as Taiwanese/Malaysian and Lam dropped the issue. Later in 2019, Lam was put on a performance review plan although Lam contends that her boss had never indicated there had been any issues with her performance. Lam was terminated in February 2020 based on Spring’s contention that Lam had failed to properly notify them and handle an audit of one of its facilities.
Lam sued in April 2020, claiming that Springs retaliated against her, in violation of the FCA’s whistleblower protection provision, for bringing up the tariff issues. To prevail on this claim, Lam needed to show that her actions were taken in furtherance of the statute, that Springs knew about it, and that Springs retaliated against her because of this protected conduct. While Springs concedes the first two elements, it maintains that they did not retaliate against her. The district court, and ultimately the Seventh Circuit, agreed.
Defining harassment under the FCA is an issue of first impression for the Seventh Circuit. While the court did not settle on a definition in this case—declining to adopt one of two proposed standards, either (a) whether the conduct described would have dissuaded a reasonable worker from complaining to management (adopted by two other federal circuits) or (b) whether the retaliatory acts were severe or persuasive enough to affect the terms and conditions of her employment—the court opined on what does not constitute harassment.
The court held that, under either test, no reasonable jury could find that Lam was harassed within the meaning of the FCA and therefore it need not settle on a standard. Based on similar cases, the court found that Springs’s executives comments toward her displayed a “lack of good manners” but that it would not dissuade a reasonable person from reporting a potential legal violation.
The court also rejected Lam’s argument that she had been terminated in retaliation for her contention that higher tariffs were owed by Spring. In so holding, the court found that Lam’s contention that she was told she did not have a long-term future at the company and being put on a performance improvement plan for reasons she believed to be pretextual could not give rise to a retaliatory discharge under the FCA. The court reasoned, in part, that Lam presented no evidence that the reasons for her firing were pretextual, principally because she failed to timely tell her boss about the audit, and it was unclear what her plan was to fix it. Given that, and the lack of evidence to the contrary, a reasonable jury would not connect her termination with her stance on tariffs.
The Seventh Circuit’s opinion serves as a helpful resource for defendants, as it evidences the exacting requirements that a plaintiff must adhere to in order to properly plead a claim for retaliation under the FCA.
Potential Anti-Kickback Prosecution Does Not Give Blanket Fifth Amendment Protection in a Medical Malpractice Suit
An Ohio Court of Appeals recently weighed in on the proper protocols one must take in order to successfully assert one’s Fifth Amendment Constitutional Right against self-incrimination in relation to a discovery request in a civil case that may have incriminating affects in an ongoing anti-kickback statute (AKS) investigation. The Fifth Amendment of the United States Constitution reads in pertinent part that, “No person shall . . . be compelled in any criminal case to be a witness against himself.” In Marilyn Williams-Salmon v Deepak Raheja, M.D., the court ruled that to assert the Fifth Amendment in a civil case which in turn would have shielding effects in an ongoing AKS prosecution, one must, “answer with sufficient specificity to provide the trial court with a record upon which to decide whether the privilege has been properly asserted to each [request].” The court found that because the defendants did not provide the requisite specificity, the court ordered that the defendants must respond to the civil requests.
DOJ and Aerojet Settle for $9 Million in Qui Tam Cybersecurity False Claims Act Case
On July 8, 2022, the U.S. Department of Justice announced a $9 million
settlement with federal government contractor Aerojet Rocketdyne, Inc. for
alleged violations of the False Claims Act in a case pending in the Eastern
District of California. The settlement results from alleged false
statements by Aerojet related to compliance with Department of Defense
cybersecurity requirements described in DoD Federal Acquisition Regulation
Supplement clause 252.204-7012 and National Aeronautics and Space
Administration Federal Acquisition Regulation Supplement clause
1852.204-76. The settlement further underscores DOJ’s commitment to FCA
enforcement actions involving cybersecurity considerations related to its
Civil Cyber-Fraud Initiative announced in October 2021. The settlement
serves as a clear reminder to contractors that DOJ and the plaintiffs’ qui tam bar are taking the Cyber-Fraud Initiative seriously.
Read on to learn why a close understanding of and adherence to federal
agency contractual cybersecurity requirements are important mandates for
the government contracting community broadly and the defense industrial
base in particular.
CMS Considers Streamlined Physician Group Stark Law Self-Disclosures
The Centers for Medicare & Medicaid Services recently announced an opportunity for public comment on its voluntary self-referral disclosure protocol (SRDP). The voluntary SRDP is a way to resolve technical violations under the physician self-referral law (commonly known as the Stark Law) by submitting information to CMS about prohibited conduct. During this period, CMS is accepting public comments on an updated SRDP submission process that could reduce the burdens on physician groups by limiting the information required to be disclosed to only a single form per disclosure instead of separate physician information forms for each physician included in a voluntary disclosure. This proposal may streamline the current SRDP process for physician group practices when they face technical violations of the Stark Law.
Read on for more details and information about commenting on this proposal.
Supreme Court Signals Interest in Clarifying Pleading Requirements in False Claims Act Suits
The Supreme Court (Court) will soon decide whether to take up a critical (and long-running) issue concerning applicability of Federal Rule of Civil Procedure 9(b) pleading standards in False Claim Act (FCA) suits. To satisfy Rule 9(b)’s particularity requirement for fraud allegations, FCA plaintiffs generally have needed to detail specific false claims submitted by defendants. The question that has divided federal courts for more than a decade is whether a plaintiff instead may plead the submission of false claims more generally without identifying specific claims if they provide sufficient reliable indicia that false claims were submitted—such as the qui tam plaintiff’s personal knowledge of or participation in the alleged fraudulent practices that are the basis of the FCA action. The issue is particularly salient in cases where the government declines intervention and the whistleblower (or relator), who is often a former employee of the defendant, may not have access to the relevant invoices at issue.[1]
OIG Permits Healthcare Organization’s Smartphone Loan Program For Telehealth Services
On April 22, 2022, the U.S. Department of Health and Human Services Office of Inspector General (OIG) issued a favorable advisory opinion (no. 22-08) (the “Advisory Opinion”) approving a healthcare organization loaning smartphones to promote telehealth care that it provides to underserved populations. The Advisory Opinion provides context for healthcare organizations that may similarly want to loan out smartphones to patients to assist such patients in obtaining reimbursed telehealth services, which otherwise could be considered renumeration to induce referrals and federal Anti-Kickback Statute (AKS) and Beneficiary Inducements Civil Monetary Penalty (CMP) repercussions.
OIG Approves Physician-Owned Medical Device Company With Several Safeguards
On April 20, the U.S. Department of Health and Human Services Office of Inspector General issued a favorable advisory opinion regarding physician ownership of a medical device company that manufactures products ordered by the physician owners and other affiliated physicians.
Read our alert to learn more about the opinion, which offers a path forward for these ownership arrangements but makes it clear that physician owners and their counsel must structure them carefully.
California Court: Fair Market Value Payments May Not Avert Anti-Kickback Liability
In February 2022, the U.S. District Court for the Central District of California denied a defendant’s motion to dismiss a qui tam action alleging that the defendant had violated the federal Anti-Kickback Statute (AKS). In its ruling, the court noted that “even some fair-market value payments will qualify as illegal kickbacks.”
Click here to read more.
District Court Adopts Middle of the Road Approach in Determining Causation in Anti-Kickback Statute-Based False Claims Act Case
The U.S. District Court for the District of Maryland recently weighed in on the appropriate causation standard when evaluating whether a claim “result[s] from” a violation of the Anti-Kickback Statute sufficient to constitute a false or fraudulent claim for purposes of the False Claims Act. In U.S. ex rel. Fitzer v. Allergan, Inc., the court adopted a middle of the road approach under which a causal link between the remuneration and the claim is required, but a showing that the remuneration succeeded in producing the prescription is not.