White Collar Defense Update

This is the second installment of our four part series about notable recent decisions under the False Claims Act. This week's featured decision is United States ex rel. Glenda Martin v. Life Care Centers of America, Inc., 2012 WL 6084626 (E.D. Tenn., Nov. 15, 2012).

This case deals with the extent to which matters under the FCA should remain under seal, both during the pendency of the Government's pre-intervention investigation and thereafter. The specific issues presented were: whether the court should grant the Government's request to maintain several documents under seal after the Government intervened in an action; and whether a local newspaper should be entitled to intervene to oppose the requested seal. The District Court allowed the newspaper to intervene and denied the Government's request to maintain certain documents under seal. While the case involves narrow issues, the District Court's excoriation of the Government for what it believed to be its abuse of the sealing provisions of the FCA is priceless.

This case was filed in October 2008. The Government sought several extensions of the seal. On January 13, 2011, the Court granted the Government's request for an indefinite extension of time in which the Government could make its intervention determination, and it ordered that the case be administratively closed. In support of that request, the Government had filed a status report indicating that it was involved in a "nationwide investigation" of the defendant, that it "continues to devote significant time and resources to this investigation," that its investigation had already involved over 150 witnesses nationwide, that it intended to serve additional subpoenas, that it had made a "lengthy and detailed presentation" to the defendant, and that the defendant had requested time to consider the information presented.

In March 2012, the Government transferred a second qui tam case raising the same issues to the Eastern District of Tennessee and sought to consolidate the two cases. At a status conference held on consolidation request, the Government objected to a reporter's presence and asked that the courtroom be sealed. The Court then asked the parties to brief whether all pleadings in the case should remain sealed and whether the Court should close the courtroom for all future proceedings in the case.

Continue reading "Notable Recent Decisions Under the False Claims Act--Part 2" »

Each week for the next four weeks, we will provide a summary of a notable recent decision under the False Claims Act. The first in this series is United States v. Kernan Hospital, 2012 WL 5879133 (D.Md., Nov. 20, 2012). Read the decision here: United States v. Kernan Hospital Memorandum Opinion.pdf

This case involves a motion to set aside a civil investigative demand ("CID") issued by the United States Attorney's Office for the District of Maryland, seeking documents from Kernan Hospital. The Government had already filed a False Claims Act suit against Kernan Hospital but the District Court dismissed it without prejudice pursuant to F.R.C.P. 9(b). After dismissal, the Government issued its CID. The District Court set aside the CID, holding that the False Claims Act expressly limits the Government's use of CID's to the period "before commencing a civil proceeding."

The Government alleged that Kernan devised a scheme to increase its Medicare, Medicaid, and Tri-Care reimbursement by systematically "upcoding" secondary diagnoses concerning malnutrition. Before filing its complaint against Kernan, the Government investigated the matter for three years. Specifically, pre-complaint proceedings included the issuance of an Office of Inspector General subpoena, the production by Kernan of 100 specifically identified medical records (15,686 pages of materials), the production by Kernan of the coding summary sheets corresponding to the 100 medical records, Kernan's production of an additional 3,000 pages of documents, the issuance of a September 7, 2011 CID seeking deposition testimony from Kernan's Director of Health Information Management, followed by her testimony two weeks later. The Government filed its FCA complaint in October 2011. The District Court dismissed the complaint under Rule 9(b) and, on August 23, 2012, the Government issued yet another CID on Kernan seeking many of the same documents that it had already sought and obtained.

Continue reading "Notable Recent Decisions Under the False Claims Act" »

Following the SEC's payment of its first Whistleblower award in the amount of $50,000, the SEC reports that its Whistleblower Program generated a total of 3001 tips through fiscal year 2012. Read the report here: SEC Annual Report on the Dodd-Frank Whistleblower Program 2012.pdf. Big payouts and many more cases are expected. The SEC also reported that whistleblower tips identified over half of all fraud schemes uncovered in public companies, while outsiders, including the SEC, only identified about 5% of such schemes.

As preciously discussed on this blog, the SEC's Whistleblower Program provides regulatory authority for the SEC to pay 10-30% bounties to whistleblowers whose tips lead to a SEC enforcement action with cummulative penalties of over $1,000,000. Fines, disgorgement and interest paid all count toward the $1,000,000 threshold. The determination of the actual percentage and amount of the award is within the discretion of the SEC which is to consider the significance of the tip, the degree of assistance provided and the "programmatic interest " of the SEC in the particular action.

Skeptics continue to voice concerns that some employees will "blow the whistle" only to get the substantial reward rather than pursue internal company procedures to avoid or limit improper conduct. Despite these reasonable concerns, the SEC Whistleblower Program and similar measures are unquestionably the trend in compliance legislation and hold great public appeal. Companies subject to SEC jurisdiction should govern themselves accordingly.

Wednesday, October 10, 2012

The CLE Conference Center
Wanamaker Building, 10th Floor, Suite 1010, Philadelphia

Hosted by the Pennsylvania Bar Institute, this full day program addresses the latest hot topics in health law. David M. Lagaie, Dilworth Paxson Partner and Chair of the firm's White Collar practice will join a panel discussion of the most notable False Claims Act cases from the past year.

For additional information and to register, click here www.pbi.org. Simulcast available throughout the state. CLE Credits will be offered!

The Dodd-Frank Act authorized the SEC to make awards to whistleblowers who provide information that leads to an enforcement action resulting in $1 million or more in sanctions. The SEC whistleblower program began operating in August 2011. The SEC, through its Chairwoman Mary L. Schapiro, was a staunch advocate for the creation of the program.

The SEC has recently announced its first whistleblower award. And by awarding a maximum 30% share of its recovery, the SEC has certainly "put its money where its mouth is." According to the SEC's press release, the whistleblower (whose identity is protected by law) "provided documents and other significant information that allowed the SEC's investigation to move at an accelerated pace and prevented the fraud from ensnaring additional victims." In the enforcement action resulting form the whistleblower's information (which is not identified) a court has ordered more than $1 million in sanctions and may enter future awards against additional parties. The whistleblower will receive 30% of the sanctions paid to the SEC. To date, the SEC has been paid $150,000 and the whistleblower will therefore initially receive $50,000. The SEC denied recovery to a second whistleblower in the enforcement action because the information that person provided "did not lead to or significantly contribute to the SEC's enforcement action."

The relatively small $50,000 award to this first whistleblower should not obscure the fact that the whistleblower program will lead to many future enforcement actions. The SEC is currently receiving eight whistleblower tips a day. That the first whistleblower award was made within a year of the program's start suggests that the SEC is aggressively following up on these whistleblower tips. We should expect to see many more whistleblower awards in the near future.