False Claims Landscape Could Change After Decision Drops

May 8, 2019, 9:43 AM

Defense attorneys are bracing for a Supreme Court ruling they resoundingly believe will give whistleblowers more time to act on behalf of the government and sue companies for allegedly defrauding federal programs.

The decision, due by the end of June, could lead to a swell in false claims cases, drive up settlement costs for companies accused of fraud, and encourage the government to ask for more cases to be dismissed, attorneys said in interviews. Others say it won’t have much of an impact at all.

The health-care industry plays an outsized role in such cases. It accounted for almost 90 percent of the government’s False Claims Act recoveries during 2017 and 2018, according to a recent Bloomberg Law analysis.

The dispute before the high court hinges on the reading of a provision in the False Claims Act that requires whistleblowers to file a case within six years of the alleged violation or no more than three years after an official of the U.S. charged with the responsibility to act knew or reasonably should have known about the alleged fraud.

That three-year window gives whistleblowers up to 10 years to bring a claim after the alleged fraud occurred.

Attorneys say that during oral arguments the Supreme Court appeared likely to uphold a U.S. Court of Appeals for the 11th Circuit decision that said whistleblowers can rely on that three-year window even in cases where the government has declined to intervene. Other courts have read the law differently.

The U.S. courts of appeal for the Fourth, Fifth, and 10th circuits said the three-year filing period only applies if the government has intervened in a case. Meanwhile, the Third and Ninth circuits said the three-year filing period is available when the government doesn’t intervene but that the whistleblower is the government official who starts the clock ticking.

Bracing for Clarity

Allowing whistleblowers more time to sue on claims when the government has decided not to intervene would encourage the Justice Department to seek to dismiss more cases, said Todd Garland, an associate at Smith, Pachter, McWhorter PLC, a Virginia-based firm that represents government contractors.

He reasoned that a company accused of the fraud would seek discovery to learn who the U.S. official charged with the responsibility to act was and when they learned of the fraud allegations—discovery that would take time and money.

“DOJ is going to want to dismiss because these requests are too burdensome,” he said.

Garland pointed to a brief Solicitor General Noel Francisco filed in a false claims case the Supreme Court ultimately refused to hear earlier this year.

In the brief urging the court to reject the case, Francisco said the government would ask to dismiss the whistleblower’s claims if the case was sent back to the lower court.

“Minimizing expenses and burdens on government resources is a legitimate ground for exercising the government’s dismissal authority” under the False Claims Act, Francisco said.

A concern that the government might dismiss more cases is valid, said Corbin Barthold, litigation counsel at the Washington Legal Foundation, but he’s not sure it’ll actually happen.

“I think the government has shown a lot of hesitancy about being pro-active in dismissing false claims actions,” he said.

Opening the Door?

The Justice Department in 2018 appeared to open the door for federal prosecutors to seek dismissal in more cases.

In a memo, Michael Granston, director of the agency’s civil fraud section, told federal prosecutors and DOJ attorneys they should be considering a number of factors when deciding whether to seek dismissal of a false claims case.

“Even in non-intervened cases, the government expends significant resources in monitoring these cases and sometimes must produce discovery or otherwise participate,” he wrote.

He added that a decision not to intervene in a particular case “may be based on factors other than merit, particularly in light of the government’s limited resources.”

However, the government has been careful about using its power to dismiss cases, Barthold said. There were 645 whistleblower lawsuits filed in fiscal year 2018, according to DOJ. The agency did not say how many of those actions it asked to be dismissed.

In a speech in March, Granston said attorneys trying to impose a burden on the government through litigation won’t automatically lead to a dismissal.

Some attorneys expect to see more whistleblower claims and higher settlements instead.

“I do think you’ll see more claims come forward,” said Megan Jeschke, an partner in the Tysons, Va., office of Holland & Knight, who defends companies against whistleblower claims.

If the limitations period is meant to force action earlier to protect defendants, she said some question what the point is of having the six-year limit is if everyone is going to get 10 years.

If whistleblowers have more time to bring claims, that could drive up the cost of damages, said John Bueker, a partner at Ropes & Gray in Boston.

“Claims made in health-care cases can grow astronomically in the course of year... adding three years to that can result in huge dollars,” he said.

The government’s largest recoveries involving the health-care industry in 2018 came from the drug and medical device industry, the DOJ said in December.

The agency noted that AmerisourceBergen Corp. and some of its subsidiaries paid $625 million last year to resolve allegations that they tried to circumvent important safeguards intended to preserve the integrity of the nation’s drug supply and they sought to profit from the repackaging of certain drugs for cancer patients.

‘Parade of Horribles’

A former DOJ attorney pushed back on assertions that the court’s forthcoming ruling could create incentives for whistleblowers to sit on claims or create burdensome discovery for the government.

“It’s part of the parade of horribles that they conjure up in their mind, but in reality there is no basis for it,” said Joel Hesch, a professor of law at Liberty University School of Law, who worked on False Claims Act cases for 16 years under Granston at the DOJ.

Because the False Claims Act only awards the first whistleblower who brings a claim forward, Hesch asked why anyone would wait.

He also said it would be easy to figure out when the government learned of the alleged fraud because the Justice Department or the attorney general would open a case.

“It would take them three minutes,” he said.

The case is Cochise Consultancy Inc. v. U.S. ex rel. Hunt, U.S., No. 18-315, 6/19/18.

To contact the reporter on this story: Lydia Wheeler in Washington at lwheeler@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Brent Bierman at bbierman@bloomberglaw.com

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