Morrison Foerster’s Government Contracts Insights provides our in-depth analysis of developments and trends impacting government contracting. Through Insights, our attorneys offer a real-time assessment of the statutory, regulatory, legal, and business-related developments and trends that are shaping the industry. We also examine a full array of non-U.S. public procurement issues, mindful that our clients compete in a global marketplace.Morrison Foerster’s nationally recognized Government Contracts and Public Procurement practice represents the world’s leading companies in the aerospace and defense, intelligence, cybersecurity, information technology, financial and professional services, education, healthcare, infrastructure, and logistics support sectors. We are enlisted to address our clients’ most complex and important legal issues. Our work includes contract and subcontract negotiation and other transactional matters, business and regulatory compliance counseling, internal investigations, bid protests, and a wide array of enforcement and litigation matters. Our clients range from Fortune 50 companies to small and medium-sized companies just entering the public sector. We advise both U.S. and non-U.S. companies involved in municipal, state, federal, and non-U.S. procurement matters.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

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Tina is Co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. She represents a wide variety of government contractors including information technology, defense, biotechnology, and pharmaceutical companies, with a focus on general contract counseling and compliance, particularly concerning intellectual property, and cybersecurity matters and federal grant funding.Tina counsels contractors on compliance with federal, state and local acquisition and ethics regulations and with the evolving myriad of requirements pertaining to data security and cybersecurity. She has been involved with numerous internal investigations and compliance reviews, and with mandatory and voluntary disclosures to agencies, and litigation of False Claims Act matters.Tina routinely advises clients concerning:<ul><li>Prime-subcontractor relationships</li><li>Sources of supply and country of origin requirements</li><li>Price reductions and price reporting issues</li><li>Organizational conflicts of interest</li><li>Safeguarding of intellectual property and other proprietary interests</li><li>Licensing and data rights issues</li><li>Handling of classified materials and controlled unclassified information</li><li>Agency suspension and debarment proceedings</li></ul>She also assists clients with due diligence and other activities related to the acquisition of government contracting concerns, and with the drafting and negotiation of teaming agreements, subcontracts, licensing agreements, and cooperative research and development agreements. She also assists clients applying for federal grants (including SBIR and STTR agreements), and those who seek to obtain other transactional authority agreements, as well as those competing for state and local government work.Tina’s litigation experience includes government contracts claims litigation in federal courts and before boards of contract appeals, bid protests before the Government Accountability Office and the Court of Federal Claims, and complex disputes in federal courts, including civil fraud and False Claims Act litigation and reverse Freedom of Information Act litigation.Prior to joining Morrison Foerster, Tina worked at another large national firm and as a trial attorney in the Office of the General Counsel of the Navy, Navy Litigation Office.<h4>Representative Experience</h4><ul><li>Negotiation of largest CHIPS Act federal funding agreement between multinational semiconductor corporation and U.S. Department of Commerce.</li><li>Negotiated prime contract and major subcontracts related to the Department of Energy’s next generation supercomputer program, including extensive IP rights negotiations and negotiation of associated patent rights waivers.</li><li>Negotiated series of other transaction authority agreements with DARPA and associated subcontracts with more than a dozen research universities on behalf of a firm biotech client, including complex IP rights allocations and material transfer agreements.</li><li>Assist clients with FedRAMP authorization process and with development of license agreements for software products sold to federal, state and local government agencies.</li><li>Cyber incident response counseling to some of the largest companies and organizations impacted by security incidents.</li><li>Advises clients on Bayh-Dole reporting of inventions and IP strategies for contracts and grants.</li><li>Conducts due diligence for major government contract mergers and acquisitions.</li></ul>

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Our government contracts and procurement attorneys counsel businesses on legal and compliance issues encountered when doing business with government entities.

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Tina is co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. She counsels a wide variety of government contractors on compliance with federal acquisition and ethics regulations. She drafts and negotiates contracts on their behalf and has been involved with numerous internal investigations and compliance reviews, and with bid protest, contract claims, and False Claims Act litigation. She also advises on M&A transactions involving government contractors.

Tina D. Reynolds

Jim Tucker is of counsel in Morrison Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office.Jim’s practice runs the gamut of litigation and counseling in federal procurement matters, with an emphasis on bid protests, Cost Accounting Standards disputes, and small business matters. He has represented both protesters and awardees in scores of protests before the Government Accountability Office, the Court of Federal Claims, and procuring agencies, in acquisitions ranging from small business procurements to multibillion-dollar contracts of global significance. His representative protest matters span the aerospace sector, the Intelligence Community, base operations and logistics, healthcare, nuclear and environmental work, and information technology and software acquisitions. His protests have included both classified and unclassified programs. In addition to prevailing in published decisions, Jim has also secured favorable corrective action on behalf of clients in a wide variety of protests that were resolved without a published decision.Jim’s work also focuses on disputes over cost allowability and compliance with the Cost Accounting Standards, and he has appeared before the Armed Services and Civilian Boards of Contract Appeals, in size and status protests before Small Business Administration (SBA) area offices, and appeals before the SBA Office of Hearings and Appeals. Jim regularly counsels clients on contract interpretation, organizational conflicts of interest, and small business compliance.Jim graduated with high honors from the George Washington University Law School, where he focused his studies on federal procurement law, was a member of the Law Review, and interned with the General Services Administration’s suspension and debarment office. Jim also holds a degree in theology magna cum laude from the Pontifical Gregorian University in Rome and a bachelor’s degree in classical languages and literature summa cum laude from the University of Kentucky, where he graduated Phi Beta Kappa.

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Jim maintains an active practice in bid protests before the Government Accountability Office and contracting agencies and counsels clients in contract disputes and compliance obligations.

Jim Tucker is of counsel in Morrison Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office. Jim’s practice runs the gamut of litigation and counseling in federal procurement matters, with an emphasis on bid protests, Cost Accounting Standards disputes, and small business matters.

James Tucker

<div style="margin-bottom: 15px;" class="videoWrapper"><iframe class="sticky-video" title="Meet Alex Ward, Government Contracts Practice Co-Chair" src="https://www.youtube-nocookie.com/embed/TkliwdSlTaQ?rel=0" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen="1" title="iframe"></iframe></div>J. Alex Ward is co-chair of Morrison Foerster’s Government Contracts and Public Procurement group. His practice covers a full range of government contracts matters, including investigations, bid protests, claims, general litigation, corporate transactions, and counseling. Alex strives in all matters is to provide his clients the highest level of efficient and effective representation.Alex represents contractors in internal and external investigations, disclosures to the government, and qui tam litigation, with great success in reducing or eliminating his clients’ exposure through active engagement with the government. His work in this area includes obtaining numerous declinations and dismissals of False Claims Act cases in their earliest stages, sparing his clients the cost, risk, and exposure of litigation.He has also served as lead counsel in dozens of bid protests involving military and civilian agency procurements of a wide range of products and services, including all manner of pre- and post-award protests in the GAO, the U.S. Court of Federal Claims, and state tribunals, as well as appeals to the U.S. Court of Appeals for the Federal Circuit and size protest appeals before the SBA’s Office of Hearings and Appeals.Alex handles all aspects of the claims process, from the initial assessment and drafting of requests for equitable adjustment through litigation in the Boards of Contract Appeals and the Court of Federal Claims. Alex’s practice also covers the full gamut of other controversies confronting government contractors, including prime-sub, teaming partner, employer-employee, competitor, and indemnification disputes. His litigation work also includes a wide variety of pro bono engagements, in which he has represented both individual and institutional clients in matters ranging from immigration and criminal defense to sustainable procurement and protection of the environment.Prior to joining the firm, Alex served in the U.S. Army as a commissioned officer and an Assistant to the General Counsel of the Army responsible for civil works and international matters, and as a clerk for judges on the U.S. Courts of Appeals for the Armed Forces and the D.C. Circuit. He is a member of the Boards of the Morrison & Foerster Foundation and the Chesapeake Bay Foundation and of Law360’s Government Contracts Editorial Board.

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Alex is co-chair of Morrison Foerster’s Government Contracts and Public Procurement practice. His practice covers a full range of government contracts matters, including bid protests, claims, investigations, corporate transactions, and counseling.

J. Alex Ward

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Morrison Foerster’s Government Contracts Insights blog provides an in-depth analysis of news, developments, and trends impacting government contracting and procurement. Through Insights, attorneys from our nationally recognized Government Contracts and Public Procurement practice will offer a real-time assessment of the statutory, regulatory, legal, and business-related developments that are shaping the industry. This blog will also examine a full array of U.S. and non-U.S. public procurement issues, mindful that our clients compete in a global marketplace.Read about our <a href="http://govcon.mofo.com/editors/">Authors</a>.Never miss a post. Subscribe to get real-time updates.

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James A. Tucker

Telesto: Another Call For Clarity In Other Transactions Protest Jurisdiction

Strengthening the American Drone Industrial Base

Bid Protest Spotlight: Jurisdiction, Price Range, Late-Is-Late

Trump Issues Executive Order on Cybersecurity Rolling Back Some Prior Policies and Introducing New Ones

GAO Reaffirms Agencies’ Discretion to Award Sole-Source SBIR Phase III Contracts (Even to a Successor-in-Interest)

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Morrison & Foerster Government Contracts associate Sandeep Nandivada, with assistance from law clerk David Allman*, discuss FCA liability for prime contractors in this issue of the American Bar Association’s The Procurement Lawyer publication. See below for an excerpt:<blockquote>The specter of the civil False Claims Act (FCA) is, by now, well known to companies doing business with the federal government. The FCA creates liability for any entity that “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval,” or that “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” In Fiscal Year 2018, the U.S. Department of Justice recovered over $2.8 billion in FCA matters, including over $107 million from the defense industry.Less understood are the myriad ways in which a company can find itself on the wrong side of an FCA action. Government contractors frequently focus their attention inwardly, thinking they can improve their own internal ethics and compliance systems to ward off potential FCA suits. But FCA threats are not so limited in nature. A company can find itself in hot water based not just on its own conduct, but also on the conduct of its employees, agents, or subcontractors.This article discusses how subcontractor misconduct can give rise to FCA liability for prime contractors who have not committed any wrongdoing directly. The Supreme Court of the United States has explicitly held that, although a subcontractor does not have privity of contract with the government, it still may be subject to FCA liability by causing a prime contractor to submit a false claim to the government on the subcontractor’s behalf. But what of the prime contractor’s liability when one of its subcontractors has committed an FCA violation? Under what circumstances can a prime be held liable for its subcontractors’ misconduct?</blockquote>*David Allman is an associate in the Washington, D.C. office and is not admitted to the bar.<div class="col-lg-3 col-md-10 offset-md-1"><div class="row"><div class="col-12 col-lg-12 col-md-6"><div class="article-block-small article-block-contact"></div></div></div></div>

The Procurement Lawyer: Imputation of False Claims Act Liability to Prime Contractors

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Sandeep Nandivada is a partner in the Litigation Department of Morrison Foerster’s Washington, D.C. office.

Sandeep N. Nandivada

Sandeep Nandivada

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The Procurement Lawyer: Imputation of False Claims Act Liability to Prime Contractors

MoForecast Podcast: Predictions on the False Claims Act (FCA)

Morrison & Foerster Government Contracts associate Sandeep Nandivada, with assistance from law clerk David Allman*, discuss FCA liability for prime contractors 

The Procurement Lawyer: Imputation of False Claims Act Liability to Prime Contractors

False Claims Act

Since the Department of Defense (DoD) and other federal agencies began implementing formal cybersecurity requirements for government contractors within the last few years, one lingering question on the minds of federal contractors and subcontractors has been:  “What happens if I do not comply?”  Firms, including ours, have counseled that breach of contract claims are possible, and cautioned against misrepresentations of compliance.  Now a federal district court has confirmed what has long been suspected, that failure to abide by contractual and regulatory cybersecurity requirements may lead to liability under the False Claims Act.In United States of America ex rel. Brian Markus v. Aerojet Rocketdyne, Inc.,<a href="#_ftn1" name="_ftnref1">[1]</a> the relator, a former senior director of cybersecurity for the defendant, alleged that the company had entered into contracts with NASA and the DoD despite knowing it was not in full compliance with the contracts’ cybersecurity requirements.  The plaintiff’s False Claims Act allegations were based on two related legal theories – implied false certification and promissory fraud, also known as fraud in the inducement.  Citing the Supreme Court’s opinion in Universal Health Servs., Inc. v. United States ex rel. Escobar,<a href="#_ftn2" name="_ftnref2">[2]</a> the court characterized the first ground as an allegation that the company’s “failure to disclose noncompliance with material statutory, regulatory or contractual requirements makes those representations misleading half truths.”  As for the promissory fraud count, the court described liability as attaching “to each claim submitted to the government under a contract, when the contract . . . was originally obtained through false statements or fraudulent conduct.”Consistent with the general trend of post-Escobar case law, the company moved to dismiss the suit on the basis that the government’s actions and inactions demonstrated that the relator’s claims did not satisfy the False Claims Act’s materiality standard.  Prior to award of the contracts, the company had disclosed it did not comply with all parts of the applicable cybersecurity regulations, yet NASA and the DoD awarded the contracts to the company anyway.  For this reason, the company argued, any noncompliance was not material under the Escobar standard.  While the court acknowledged that the company may have disclosed some of its noncompliance, it held that the relator had met his burden of alleging with sufficient particularity that the company had made only partial disclosures.  The court opined that the government agencies might not have awarded the contracts at issue if they had been aware of the full extent of the company’s noncompliance.The court went on to reject the company’s second argument that the government’s decision to continue the contracts in question following the filing of relator’s complaint indicated acquiescence.  Instead, the court stated that the appropriate inquiry is whether the “alleged misrepresentations were material at the time the government entered into or made payments on the relevant contracts.”  The court also rejected the notion that the government’s failure to intervene in the False Claims Act case amounted to an assessment of the merits of the case in the company’s favor.  In addition, the court overruled the company’s claim that, because cybersecurity was not the central purpose of the NASA and DoD contracts (which pertained to missile defense and rocket engine technology), any noncompliance was immaterial.  Rather, the court held, the cybersecurity requirements were mandated via DoD and NASA acquisition regulations.  Noncompliance could have made the company ineligible to handle sensitive technical information and thus influenced the extent to which the company could perform the required work.The company’s final argument for dismissal described the frequent amendments to DoD cybersecurity regulations in the 2013-2015 timeframe, particularly the relaxation of requirements to ease burdens on industry.  Those changes, the company contended, meant that the government never actually expected full technical compliance with cybersecurity requirements.  The court disagreed, holding that “[e]ven if the government never expected full technical compliance, relator properly pleads that the extent to which a company was technically compliant still mattered to the government’s decision to enter into a contract.”In addition to embodying a narrow application of the Escobar materiality standard, the case drives home the reality that contractors and subcontractors that are subject to the government’s myriad cybersecurity requirements cannot take their compliance obligations lightly.  The Government Accountability Office has already affirmed that cybersecurity compliance can be a relevant factor in contract award.  See, e.g., Avosys Tech., Inc., B-415716.6 (July 30, 2018); Jardon and Howard Technologies, Inc., B-415330.3; B-415330.4 (May 24, 2018).  DoD and other agencies have also made it clear that they expect compliance with the safeguarding and network penetration requirements of their cybersecurity regulations.  For example, late last year, DoD issued guidance to clarify how it will communicate its cybersecurity expectations to contractors and assess their compliance with those expectations.  The White House’s recent National Cybersecurity Strategy document discusses the need to strengthen federal contractor cybersecurity.In short, cybersecurity is an issue that is not going away.  Government contractors and subcontractors that do not take immediate steps to assess and secure their IT systems may soon find themselves excluded from competitions, or at the wrong end of a False Claims Act lawsuit.  Given that penalties under the False Claims Act can include treble damages, which might apply to the full proceeds of a contract under a fraud in the inducement theory, the cost of not implementing cybersecurity protocols could far exceed the cost of compliance.<a href="#_ftnref1" name="_ftn1">[1]</a> No. 2:15-CV-2245 WBS AC, 2019 WL 2024595 (E.D. Cal. May 8, 2019).<a href="#_ftnref2" name="_ftn2">[2]</a> 136 S. Ct. 1989 (2016).*David Allman is a Law Clerk in the Washington, D.C. office and is not admitted to the bar.

IAP Worldwide Servs., Inc.

Flight Support, Inc.

DynCorp Int’l LLC

Raytheon Co.

DynCorp International, LLC v. United States

URS Federal Servs., Inc.

DynCorp International, LLC

Planned Sys. Int’l, Inc.

Threat Mgmt. Group, LLC

Vencore Servs. & Solutions, Inc.

Jacobs Tech., Inc.

Cubic, Inc.

American Institutes for Research v. State of New Mexico

CACI-WGI, Inc.

Fluor Intercontinental, Inc. v. IAP Worldwide Servs., Inc.

IAP World Servs., Inc.

Size Appeal of IAP World Servs., Inc.

Al-Ghanim v. IAP Worldwide Servs., Inc.

O’Gara Training & Servs., LLC

IAP Worldwide Servs., Inc. v. Johnson Controls, Inc.

AAR Mobility Sys.

Matt Martin Real Estate Mgm’t, LLC v. United States

Pyramid Real Estate Servs., LLC v. United States

Harrington, Moran, Barksdale, Inc.

Homesource Real Estate Asset Servs., Inc. v. United States

Ocean Ships, Inc.

Keystone Sealift Servs., Inc.

ITT Corp., Sys. Div.

IAP Worldwide Servs., Inc. v. Fluor Intercontinental, Inc.

FedSys, Inc.

Academy Facilities Mgm’t v. United States

Academy Facilities Management -- Advisory Opinion

Evans Security Solutions, Inc.

Contingency Mgm’t Group, LLC and IAP Worldwide Servs., Inc.

Kellogg Brown & Root Services, Inc.

Liberty Power Corp.

J. Alex Ward is co-chair of Morrison Foerster’s Government Contracts and Public Procurement group. 

J. Ward

Tina is a partner in Morrison & Foerster’s Government Contracts practice. She represents a wide variety of government contractors including information technology, defense, biotechnology, and pharmace

Tina Reynolds

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Federal Court Confirms that Cybersecurity Gaps Can Form the Basis of False Claims Act Violations

The Data Rights Black Hole:  DOD Lobbies Congress to Eliminate Proprietary Rights in Your Most Valuable Trade Secrets — Your Detailed Manufacturing and Process Data

Since the Department of Defense (DoD) and other federal agencies began implementing formal cybersecurity requirements for government contractors within the last

Federal Court Confirms that Cybersecurity Gaps Can Form the Basis of False Claims Act Violations

Defense

Cybersecurity & Data Privacy

Earlier this week, the Department of Justice released <a href="https://www.justice.gov/jm/jm-4-4000-commercial-litigation#4-4.112" target="_blank" rel="noopener noreferrer">guidance</a> identifying the circumstances in which the Department would award credit to companies that voluntarily disclose or otherwise cooperate during False Claims Act (“FCA”) investigations.  While the new guidance leaves some unanswered questions, it is a step in the right direction because it provides greater transparency by identifying the types of cooperation that may result in leniency.Cooperation credit is not an entitlement.  The new guidance leaves the DOJ significant discretion to reduce or withhold cooperation credit based on considerations such as the “nature and seriousness of the violation,” “the extent of any damages,” and the “litigation risks presented if the matter proceeds to trial.”  When companies are eligible for cooperation credit, the DOJ may reduce the penalties or damages multiplier sought by the government.The guidance is a major step toward transparency, and it manages expectations by setting a ceiling for how much credit or leniency can be given.  The guidance explains that “[t]he maximum credit that a defendant may earn may not exceed an amount that would result in the government receiving less than full compensation for the losses caused by the defendant’s misconduct (including the government’s damages, lost interest, costs of investigation, and relator share).”  The guidance confirms that the government may only seek single damages (plus interest, costs of investigation, and relator share) in appropriate instances, such as when a company has made a timely self-disclosure that identifies “all individuals substantially involved in or responsible for the misconduct, provide[s] full cooperation with the government’s investigation, and takes remedial steps designed to prevent and detect similar wrongdoing in the future.”The guidance does not provide a formula for calculating cooperation credit, and while the new guidance still leaves some unanswered questions (such as how much of a benefit companies can expect for their cooperation), that may be an unavoidable consequence of the government’s need to retain some discretion in how to handle particular cases.When assessing the value of any self-disclosure or cooperation, government counsel may consider factors such as the timeliness of a company’s disclosures, “the truthfulness, completeness, and reliability of any information or testimony provided,” “the nature and extent of the assistance,” and the “usefulness of the cooperation to the government.”  Furthermore, the DOJ will also consider whether the company has taken appropriate remedial actions in response to the FCA violation, including conducting a thorough analysis of the causes of the underlying conduct, implementing or modifying an effective compliance program, and disciplining or replacing individuals responsible for the misconduct.  Similarly, the guidance recognizes that companies may uncover additional misconduct during an internal investigation into the government’s concerns; therefore, the new guidance provides that “voluntary self-disclosure of such additional misconduct will qualify the entity for credit.”The guidance identified ten types of cooperation or voluntary self-disclosure eligible for credit:<ul><li>Identifying individuals substantially involved in or responsible for the misconduct;</li><li>Disclosing relevant facts and identifying opportunities for the government to obtain evidence relevant to the government’s investigation that is not in the possession of the entity or individual or not otherwise known to the government;</li><li>Preserving, collecting, and disclosing relevant documents and information relating to their provenance beyond existing business practices or legal requirements;</li><li>Identifying individuals who are aware of relevant information or conduct, including an entity’s operations, policies, and procedures;</li><li>Making available for meetings, interviews, examinations, or depositions an entity’s officers and employees who possess relevant information;</li><li>Disclosing facts relevant to the government’s investigation gathered during the entity’s independent investigation (not to include information subject to attorney-client privilege or work product protection), including attribution of facts to specific sources rather than a general narrative of facts, and providing timely updates on the organization’s internal investigation into the government’s concerns, including rolling disclosures of relevant information;</li><li>Providing facts relevant to potential misconduct by third-party entities and third-party individuals;</li><li>Providing information in native format and facilitating review and evaluation of that information if it requires special or proprietary technologies so that the information can be evaluated;</li><li>Admitting liability or accepting responsibility for the wrongdoing or relevant conduct; and</li><li>Assisting in the determination or recovery of the losses caused by the organization’s misconduct.</li></ul>The list is not exhaustive, and companies do not have to satisfy all of them to qualify for partial cooperation credit.  As the list indicates, eligibility for credit does not depend on waiver of the attorney-client privilege or work product protection.

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Associate

Tori Dalcourt Angle is an associate in the Government Contracts practice in Morrison Foerster’s Washington, D.C. office.
Tori advises clients on various government contract matters, including both pre

Victoria Dalcourt Angle

Victoria Angle

New DOJ Guidance on Cooperation in FCA Investigations Clarifies How Companies Can Receive Leniency in Exchange for Voluntary Disclosures, but Leaves Unanswered Questions

Earlier this week, the Department of Justice released guidance identifying the circumstances in which the Department would award credit to companies that volunt

New DOJ Guidance on Cooperation in FCA Investigations Clarifies How Companies Can Receive Leniency in Exchange for Voluntary Disclosures, but Leaves Unanswered Questions

In the ever-evolving False Claims Act (FCA) arena, the Government told the court that it intends to move to dismiss a whistleblower suit against United Health Group’s Executive Health Resources, Inc. (EHR) for allegedly assisting hospitals in overcharging for outpatient care.  The Granston Memo, issued by Department of Justice (DOJ) in January 2018, directs government lawyers to consider seven factors when contemplating possible dismissal:  (1) Curbing Meritless Qui Tams; (2) Preventing Parasitic or Opportunistic Qui Tam Actions; (3) Preventing Interference with Agency Policies and Programs; (4) Controlling Litigation Brought on Behalf of the United States; (5) Safeguarding Classified Information and National Security Interests; (6) Preserving Government Resources; and (7) Addressing Egregious Procedural Errors.  DOJ gave no specific reason for dismissing the suit against EHR beyond a general reference to “the interests of the United States,” but the history of contentious discovery battles in the case suggests that Granston factor 6, Preserving Government Resources, might have been an important consideration.Following the Escobar decision, contractors have pursued discovery from government agencies on materiality issues, including information about whether payments were made with knowledge of the alleged violation.  Despite the Granston memo and the decision to dismiss the case against EHR, DOJ has warned contractors that pursuing discovery to make litigation seem onerous will not lead to dismissal, absent other considerations.  Contractors nevertheless should take heart that DOJ is engaging in a meaningful cost-benefit analysis under the Granston memo and is actively dismissing qui tam cases in appropriate circumstances.

DOJ Plans to Dismiss Another Whistleblower FCA Case

In the ever-evolving False Claims Act (FCA) arena, the Government told the court that it intends to move to dismiss a whistleblower suit against United Health G

DOJ Plans to Dismiss Another Whistleblower FCA Case

On January 29, 2019, Morrison & Foerster Government Contracts Co-Chair Alex Ward will be speaking at ACI’s 6th Annual Advanced Forum on False Claims and Qui Tam Enforcement at the Park Lane Hotel in New York, NY.His panel, “Effectively Negotiating False Claims Act Settlements: Developing Strategies to Reach a Favorable Agreement with the Government,” will cover strategies employed by defense and relator’s counsel to achieve favorable settlements in both intervened and non-intervened FCA cases. Along with his co-panelist, Alex will discuss:<ul><li>Evaluating key provisions in FCA settlement agreements to fit your company’s circumstances</li><li>Reviewing the implications of the recent tax reform law (Tax Cuts and Jobs Act of 2017) deductibility provisions on FCA settlements</li><li>Understanding discounts provided when negotiating settlements and what the DOJ considers “cooperation”</li></ul>

MoFo Partner Alex Ward Speaking at ACI Forum on False Claims and Qui Tam Enforcement

MoFo Partner Alex Ward Speaking at ACI Forum on False Claims and Qui Tam Enforcement

A recently leaked internal <a href="https://s3.documentcloud.org/documents/4358602/Memo-for-Evaluating-Dismissal-Pursuant-to-31-U-S.pdf" target="_blank">memorandum </a>(“Memorandum”) suggests the end is near for the Department of Justice (DOJ) practice of sitting idly by while relators use meritless qui tam actions to shake down companies unwilling to risk their reputations to fight False Claims Act (FCA) allegations.  While the FCA has long explicitly authorized DOJ to seek dismissal of any qui tam action – notwithstanding the objections of the relator who initiates the suit – so long as the relator is notified of the dismissal request and afforded a hearing, DOJ now appears ready to actually exercise its rights.  31 U.S.C. § 3730(c)(2)(A) (“The Government may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.”).  The Memorandum provides rare insights into the current administration’s view of FCA enforcement, the factors DOJ is to consider when contemplating dismissal, and DOJ’s litigation strategy.Factors for DismissalThe Memorandum states that meritless qui tam complaints drain government resources (even where DOJ declines intervention) and lead to potential adverse decisions that affect DOJ’s ability to enforce the FCA down the line.  The Memorandum outlines seven non-exhaustive factors that DOJ attorneys should assess when declining intervention in a particular case to determine whether also requesting dismissal is in the best interests of the United States.  These factors are intended to introduce consistency in how DOJ evaluates qui tam complaints and to encourage seeking dismissal when warranted to preserve government resources.1. Curbing Meritless Qui Tam Actions. DOJ should consider dismissal where a qui tam complaint is “facially lacking in merit—either because relator’s legal theory is inherently defective, or the relator’s factual allegations are frivolous.”  See, e.g., United States ex rel. Hoyte v. American National Red Cross, 518 F.3d 61 (D.C. Cir. 2008) (holding relator failed to allege defendant had obligation to pay or transmit money or property to government to support reverse false claim violation).2. Preventing Parasitic or Opportunistic Qui Tam Actions. DOJ should consider dismissal where a qui tam action “duplicates a pre-existing government investigation and adds no useful information to the investigation.”  See, e.g., United States ex rel. Piacentile v. Amgen Inc., No. 04-cv-3983-SJ-RML, 2013 WL 5460640, at *4 (E.D.N.Y. Sept. 30, 2013) (granting government’s motion to dismiss qui tam complaint filed by repeat relator who filed multiple suits alleging similar wrongdoing by same defendant).3. Preventing Interference with Agency Policies and Programs. DOJ should consider dismissal where “an agency has determined that a qui tam action threatens to interfere with an agency’s policies or the administration of its programs and has recommended dismissal to avoid these effects.”  See, e.g., United States ex rel. Ridenour v. Kaiser-Hill Co., LLC, 397 F.3d 925 (10th Cir. 2005) (granting government’s motion to dismiss where litigation would delay clean-up and closure of radiologically contaminated facility).4. Controlling Litigation Brought on Behalf of the United States. DOJ should consider dismissal where necessary to protect DOJ’s “litigation prerogatives.”  See, e.g., United States ex rel. Piacentile v. Amgen Inc., No. 04-cv-3983-SJ-RML, 2013 WL 5460640, at *4 (E.D.N.Y. Sept. 30, 2013) (granting government’s motion to dismiss where case presented obstacle to government’s settlement of actions in which it intervened).5. Safeguarding Classified Information and National Security Interests. DOJ should consider dismissal to safeguard classified information.  See, e.g., United States ex rel. Matseki v. Raytheon Co., 634 F. App’x 192, 193 (9th Cir. 2015) (per curiam) (holding government interest in “preventing the disclosure of classified information” was sufficient basis for dismissal).6. Preserving Government Resources. DOJ should consider dismissal when the expected costs of litigation are likely to exceed any expected gain from the litigation.  See, e.g., Swift v. United States, 318 F.3d 250, 251 (D.C. Cir. 2003) (granting government’s motion to dismiss where amount in controversy did not justify expense of litigation).  Potential costs that may be incurred by the government and considered under this factor include the need to monitor or participate in ongoing litigation and the need to respond to discovery requests.7. Addressing Egregious Procedural Errors. DOJ should consider dismissal where the relator’s suit may frustrate DOJ’s efforts to conduct a proper investigation.  See, e.g., United States ex rel. Surdovel v. Digirad Imaging Solutions, No. 07-cv-0458, 2013 WL 6178987, *4 (E.D. Pa. Nov. 25, 2013) (granting government’s motion to dismiss because “relator’s counsel’s egregious procedural errors completely frustrated the government’s ability to investigate the relator’s claims”).DOJ’s Litigation StrategyThe Memorandum also offers insights into how DOJ intends to litigate requests for dismissal.1. DOJ Will Argue in Favor of “Unfettered” Dismissal Authority. DOJ will argue that the appropriate standard for dismissal under 31 U.S.C. § 3730(c)(2)(A) is the “unfettered” discretion standard adopted by the D.C. Circuit, rather than the “rational basis” standard adopted by the Ninth and Tenth Circuits.  Moreover, to the extent the “rational basis” standard applies in a particular jurisdiction, DOJ will argue that the standard was intended to be highly deferential to DOJ.  Where a jurisdiction has not yet decided on the appropriate standard of review, DOJ will argue that its bases for dismissal satisfy any potential standard for dismissal under the statute.2. DOJ Will Pursue Multiple Grounds of Dismissal: When possible, DOJ will argue that multiple grounds for dismissal exist.  DOJ also will think creatively about other bases for dismissal not outlined in the memorandum.3. DOJ Will Pursue § 3730(c)(2)(A) Dismissal Separately. In cases where DOJ has grounds to seek dismissal of a claim under the first-to-file bar, the public disclosure bar, the tax bar, the bar on pro se relators, or Federal Rule of Civil Procedure 9(b), DOJ will assert such grounds of dismissal separately from any dismissal request under 31 U.S.C. § 3730(c)(2)(A).4. DOJ Will Pursue Partial Dismissal Where Necessary. Although DOJ may favor full dismissal of a complaint, DOJ will pursue partial dismissal where the facts require.5. DOJ Will Consult with the Affected Agency. Before a request for dismissal is filed, DOJ will consult with officials from the affected agency regarding whether dismissal is warranted under the factors set forth in the Memorandum.6. DOJ Will Favor Early Filing of Dismissal Requests. DOJ typically will file requests for dismissal at or near the time of declination, but DOJ also will be willing to file such requests at a later stage, such as when there is a significant intervening change in the law or evidentiary record.  However, DOJ will avoid waiting until the close of discovery or trial to seek dismissal, as a court may be less receptive to such delayed requests given the resources already committed to the action.7. DOJ Will Encourage Voluntary Dismissal. To the extent possible, DOJ will advise relators about the deficiencies in their cases prior to requesting dismissal, thereby affording relators the opportunity to voluntarily dismiss the actions.Key TakeawaysThe Memorandum appears to represent a substantial shift away from allowing relators to pursue FCA claims following DOJ’s declination.  Although DOJ occasionally sought dismissal in the past, the Memorandum is a signal that DOJ is ready and willing to take more decisive action to seek dismissal of qui tam actions that are facially deficient, notwithstanding the slim chance that the relator may ultimately discover wrongdoing or win a recovery.While it remains to be seen how DOJ will implement it, the Memorandum’s very existence should come as welcome news to companies doing business with the government.  Although this policy shift is intended to preserve government resources, companies also will benefit from more decisive action by DOJ.  Early requests for dismissal from DOJ will lead to earlier resolution of FCA litigation, sparing companies from the pressure to settle even frivolous cases and the substantial cost of protracted discovery and litigation.  DOJ’s requests for dismissal also could serve to discourage the filing of frivolous complaints in the first place, as relators seek to avoid the expense of filing a suit that ultimately may be dismissed.  The impact of the Memorandum will be a key issue to track in 2018.

DOJ Takes On Meritless Qui Tam Actions

A recently leaked internal memorandum (“Memorandum”) suggests the end is near for the Department of Justice (DOJ) practice of sitting idly by while relators use