For The Defense, October 2010 - DRI Today

G O V E R N M E N T E N F O R C E M E N T A N D C O R P O R AT E C O M P L I A N C Evariety of sanctions on nursing homes forfailing to meet the quality of care guidelines,”including exercising its discretion“not to impose sanctions in a particularcase,” payment was not “expressly conditioned”on compliance with the quality ofcare guidelines. Id. The court found thatallowing “FCA suits to proceed where governmentpayment of Medicare claims is notDefendants may beable to use a previousresolution of a criminal orcivil enforcement actionsto aggressively defendsubsequent qui tam cases.conditioned on perfect regulatory compliance”would “improperly permit qui tamplaintiffs to supplant” an agency’s regulatorydiscretion. Id.Further, the Second Circuit has goneeven further and found that the impliedcertification doctrine does not evenextend to general conditions of participation.Mikes, 275 F.3d at 701–02. In Mikes,the Second Circuit found that a defendantdid not submit false claims for medicaltests that were conducted with negligentlymaintained equipment. Id. The court foundthat even if the defendant’s testing proceduresdid not meet the required standardof care, payment was not expressly conditionedon compliance with the quality ofcare provisions. Id. Rather, the court foundthe quality of care provisions were “conditionsof participation” and not conditionsof payment. Id. Under the quality of carerequirements, providers may only be sanctionedif their violations are gross, flagrant,or occur “in a substantial number of cases”and the government had substantial discretionwhether to impose a variety of sanctions,including restitution. Thus, the courtfound the quality of care requirementswere designed as requirements for “continuingeligibility” and not “any individualincident of noncompliance.” Id.72 n For The Defense n October 2010Government KnowledgeAs a predicate matter, the government’sknowledge that claims are false is not anabsolute defense to FCA liability. UnitedStates v. Southland Mgmt. Corp., 288 F.3d665, 680–81 (5th Cir. 2002); but see Boisjolyv. Morton Thiokol, Inc., 706 F. Supp.795, 809–10 (D. Utah 1988) (holding that“no claim has been stated” if the “governmentknew of those very facts or characteristicswhich allegedly made the claimfalse”). However, courts have recognizedseveral ways the government’s knowledgecan serve as at least partial defenses toFCA actions.There is no FCA liability if the governmentinstructed the defendant to submitthe allegedly false elements of a claim. SeeUnited States ex rel. Durcholz v. FWK Inc.,189 F.3d 542, 545 (7th Cir. 1999). Whileseemingly obvious, qui tam relators havechallenged allegedly false claims submittedaccording the government’s expressinstructions. In Durcholz, the Seventh Circuitfound there was no FCA liability forfalse line-items in a contract when thegovernment directed the defendant to usethe particular line-items to avoid havingto re-bid the contract. Id. The court foundthat since the “government knew what itwanted, and got what it paid for,” the “government’sknowledge [was] an effectivebar” to liability. Id. Though the case lawis not well developed, a defendant may beable to argue that this exception equallyapplies in situations where the governmentrequests good or services when it has actualknowledge of a defendant’s alleged statutoryor regulatory violations.Next, a defendant will generally notbe liable if the government was not onlyaware of the alleged violation at the timethe claims were paid, but also cooperatedwith the defendant to fix the problem. SeeLamers, 168 F.3d at 1019–20 (finding defendantdid not violate FCA as governmentaudit revealed violations, but agencydecided to demand compliance rather thanpenalizing it). Indeed, in one Fifth Circuitcase, the government brought FCA claimsagainst a subsidized housing provider forfalsely certifying its housing was “decent,safe, and sanitary.” Southland Mgmt., 288F.3d at 668–70. The defendant moved forsummary judgment, claiming that the governmentwas aware of the alleged violation.Id. The court denied the motion, findingthat the government did not have to electbetween immediately ceasing payments,which would likely put the defendant’s residentson the street, and waiving its rightsunder the FCA. Id. at 683–84. However,the court emphasized that the governmentonly sought penalties for claims submittedafter the defendants’ refused to cooperate;the government did not attempt to hold thedefendant liable for false claims while they“were participating in good faith in thecooperative remedial process.” Id.Further, a defendant cannot form therequisite scienter to defraud the governmentif it has voluntarily provided thegovernment with truthful informationregarding its alleged violations. See, e.g.,United States ex rel. Burlbaw v. Orenduff,548 F.3d 931 (10th Cir. 2008); United Statesex rel. Butler v. Hughes Helicophers, Inc.,71 F.3d 321, 327 (9th Cir. 1995). As defendantsmust act knowingly to incur FCA liability,a defendant cannot be said to haveknowingly submitted a false claim if it hasvoluntarily given the government the factssufficient to evaluate the alleged false statementor omission. For instance, in Butler,the Ninth Circuit found that the government“had so completely cooperated andshared all information during the testingthat [the defendant] did not ‘knowingly’submit false claims.” 71 F.3d at 327. Stateddifferently, while the government’s knowledgeof the alleged falsity is not sufficientto defeat FCA liability, a defendant cannotform the requisite scienter to defraud thegovernment if it voluntarily provides thegovernment with evidence of its allegedviolations.These considerations are particularlyapplicable to the implied certification doctrine.Under the implied certification doctrine,claims are deemed legally false ifa defendant impliedly certifies “compliancewith a particular statute, regulationor contractual term” when “compliance isa prerequisite to payment.” Mikes, 274 F.3dat 698. Further, many jurisdictions haveinterpreted implied certification strictlyand found that compliance is not a prerequisiteto payment if the government hadany discretion to accept or reject a claim.See Salina Reg’l Med. Ctr., 459 F. Supp. 2dat 1086–88. Accordingly, relators, or theFalse Claims Act, continued on page 82