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. <strong>The</strong> 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. <strong>The</strong> 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 <strong>For</strong> <strong>The</strong> <strong>Defense</strong> n <strong>October</strong> <strong>2010</strong>Government 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.<strong>The</strong>re 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. <strong>The</strong> 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. <strong>The</strong> defendant moved forsummary judgment, claiming that the governmentwas aware of the alleged violation.Id. <strong>The</strong> 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. <strong>For</strong> 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.<strong>The</strong>se 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
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 EFraud Enforcement andRecovery Act of 2009By Robin Beardsley MarkBankingInstitutionsAre Victims TooCriminal mortgagefraud cases presentunique challenges fordefense counsel.If you have picked up a paper, surfed the web or listened toa morning news program in the past year, you’ve no doubtencountered the headlines “Mortgage Banking Fraud.”While there has clearly been a significant amount of talkabout mortgage banking institutions, includingblame for the economic downturn,we know as lawyers that there isalways another side to the story. Whilemost attention seems to be focused on thealleged fraudulent acts of mortgage bankinginstitutions, there is a trend of recentfederal indictments pursuant to the FraudEnforcement and Recovery Act where themortgage banking institution is the not thedefendant, but the victim.Recently, criminal mortgage fraud investigationsand indictments have includedthe likes of borrowers, lenders, investors,real estate professionals, appraisers, realestate brokers, home builders and attorneys.<strong>The</strong> rise in mortgage fraud investigationsand prosecutions increases thechance that lawyers practicing in the fieldsof mortgage banking, commercial or financiallitigation who are less familiar withwhite collar criminal defense may be calledupon to represent clients who find themselvesas the subject of a criminal mortgagefraud investigation.Initially, you may believe that your clientis a not a target of the investigation,but rather may be a mere witness or possiblythe victim of a mortgage fraud scheme.However, a defense lawyer should not beso quick to assume that his or her client isnot involved in the mortgage fraud scheme.Criminal mortgage fraud cases typicallyinvolve multiple parties engaged in a conspiracyto commit mortgage fraud that hasnumerous moving parts. If you suspect orhave any reason to believe that your clientmay be involved in or the subject of criminalmortgage fraud, it is important to evaluatethe case and move quickly to protectyour client’s interests. <strong>The</strong> rules of civil procedureare not in play when facing a criminalinvestigation and possible indictment.<strong>The</strong>refore, an understanding of the criminaldefense basics is increasingly importantto the civil defense litigation counsel.■ Robin Beardsley Mark is a partner with the law firm of Sirote & Permutt, P.C., in Birmingham, Alabama, where she practicesin the areas of mortgage banking litigation, commercial litigation, bankruptcy, and white collar criminal defense. Ms. BeardsleyMark is an adjunct professor of law, teaching the basic skills of trial advocacy at Cumberland School of Law. She is a memberof the <strong>DRI</strong> Government Enforcement and Corporate Compliance Committee, and serves on the steering committees for both the<strong>DRI</strong> Young Lawyers and Alternative Dispute Resolution Committees.<strong>For</strong> <strong>The</strong> <strong>Defense</strong> n <strong>October</strong> <strong>2010</strong> n 73
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