Articles Posted in Government Contracts

In 2013, a False Claims Act (“FCA”) complaint against Vanderbilt Medical Center (“VUMC’) was unsealed in Federal Court in Nashville, Tennessee. The complaint, originally filed by doctors-turned-whistleblowers, accused the hospital of deceptive billing practices dating back to the 1990s.

One of the plaintiff-doctors was appointed to the hospital’s compensation committee, which is how he learned of the deception. Another alleges that he was summoned to an operating room to discover an unsupervised student nurse anesthetist treating a sedated patient undergoing open-brain surgery.

Earlier this month, federal prosecutors announced the University agreed to pay $6.5 million to settle allegations of wrongdoing without incurring further criminal or civil liability.

Blowing-the-Whistle-2-3-300x199A U.S. hospital chain, TeamHealth, agreed to settle allegations that a recently acquired subsidiary, IPC, violated the False Claims Act by “up-coding” Medicare and Medicaid for services that were not performed, or were exaggerated. The lawsuit settled by TeamHealth was initiated by Dr. Bijan Oughatiyan, a physician formerly employed by a subsidiary acquired by the company.

False Claims Act (“FCA”) cases often hinge around information gathered from corporate whistleblowers who file lawsuits against their employers who allegedly commit fraud against the government. The Act was passed in response to rampant fraud on President Abraham Lincoln’s Union army. The army, Lincoln’s government, and taxpayers alike were outraged by businesses and “pork-barrel” businessmen that profited greatly from selling American civil war soldiers rotten food, boots with holes in the soles, and guns that could not fire.

The statute is unique amongst civil fraud remedies, as it empowers individuals with “inside” information about fraud on the government to share in any recovery the government may make. These individuals, referred to as “relators” in legalese, and who are often referred to as corporate “whistleblowers” frequently obtain 15-30% of recoveries made because of their FCA lawsuits.

This month, the Department of Justice (“DOJ”) announced that Shire Pharmaceuticals will pay $350 million to settle False Claims Act (“FCA”) allegations that Shire and the company it acquired in 2011, Advanced BioHealing (“ABH”), used kickbacks and other prohibited sales methods to compel hospitals, Doctors, and their firms to overuse its product “Dermagraft.”

Shire is a pharmaceutical company headquartered in Ireland. Its United States headquarters are located in Lexington, Massachusetts.

The allegations resolved by the settlement were brought in six lawsuits filed under the qui tam whistleblower provisions of the FCA. Those provisions permit private parties to sue on behalf of U.S. and state governments for false claims.

Shipping-ContainersTwo whistleblowers brought fraud allegations against shippers of military freight and helped the U.S. Government recover $13 million in a False Claims Act settlement announced this month. The case involved a nationwide contract described by Transport Topics Newspaper as “the largest logistics outsourcing in history.”

Richard Ricks, 58, and Marcelo Cuellar, 30, filed a complaint under the federal False Claims Act, alleging that contractors under the Defense Transportation Coordination Initiative (“DTCI”) knowingly inflated charges to the Government for shipping military freight throughout the United States.

The Defense Transportation Coordination Initiative was a massive initiative by the U.S. Department of Defense (“DoD”) to manage distribution of military freight in the continental United States. The purpose of the DTCI was to “increase the operational effectiveness of the U.S. Military and at the same time, obtain efficiencies. The premise is that DoD will increase operational effectiveness… [and] also obtain efficiencies through best business practices such as increased consolidations and mode conversions.” In effect, the DTCI was an attempt to outsource and reduce transportation costs—a fact lost on the fraudulent contractors. In 2015, the program was abandoned because of rampant fraud.

Hedge-Fund-Office-Building-150x150The Second Circuit Court of Appeals recently limited the enforceability of employment separation agreements that seek to ban would-be whistleblowers from filing claims against their former employers. In U.S. ex rel. Ladas v. Exelis, Inc, et al., the Court held that broad lawsuit release provisions in employment separation agreements, which are increasingly common in the corporate sphere, cut against public policy by discouraging the filing of qui tam suits to uncover fraud against the government.

False Claims Act (“FCA”) Whistleblower Michael Ladas was the Director of Quality at Power Solutions. In 2005, Power Solutions entered into a contract with the U.S. Government to provide power supply devices. During this time, as Director of Quality, Ladas was responsible for ensuring production compliance with government contracts, product testing, and documenting and reporting manufacturing defects in Power Solutions’ products.

During Ladas’ employment as Director of Quality, Power Solutions entered into a subcontract with Innovative Mold Solutions (“IMS”), where IMS manufactured casing components for Power Solutions’ products. In November 2007, without alerting Power Solutions or the government, IMS made substantial changes in the manufacturing of its power supply case components, using a significantly less expensive adhesive material and considerably changing the process it used to apply that material. An engineering professor employed by Power Solutions alerted Ladas that a change in application method would require significant additional testing to ensure the casing’s reliability and durability; but neither IMS nor Power Solutions put the casing through additional testing, and the changes were not submitted to the government for approval.

Loan-Application 2B&H Education, the operator of a chain of beauty and massage schools known as the “Marinello School of Beauty,” which are located in the state of California, paid over $8 million dollars to settle a False Claims Act (“FCA”) lawsuit brought by employees-turned-whistleblowers.

The False Claims Act, originally enacted in 1863 during height of the civil war to combat rampant fraud in government contracting, was amended by Congress in 1986 to enhance the federal government’s ability to recover losses from fraud against the United States.

Violations of the FCA are subject to civil penalties (approximately $20,000) for each false claim plus three times the amount of the loss that the government incurred as a result of the defendant’s actions.

Supreme-Court-Pillars-Exterior-150x150The government has elected to intervene in a False Claims Act (“FCA”) suit filed by West Virginia internet provider, Citynet, against competitor Frontier Communications.  The suit alleges that Frontier misused $40.5 million dollars in federal stimulus funds to build a high-speed internet network designed solely to rig the West Virginia market in its favor.

In an unusual twist, the suit names West Virginia state officials – Homeland Security Chief Jimmy Gianato, Chief Technology Officer Gale Given, and former Commerce Secretary Kelly Goes – as defendants, alleging they were complicit with Frontier’s scheme to defraud the federal government and suppress competition within the state.

The False Claims Act allows individuals (“whistleblowers”) to file lawsuits with allegations that fraud has been committed against the federal government.  Whistleblowers can be people, or businesses, like Citynet, and are entitled to share in any recovery received by the government.

Bank-ManagerA West Palm Beach, Florida-based mortgage company has agreed to a $30 million settlement to rid itself of False Claims Act violation allegations. Ocwen Financial Corp will pay $15 million to the federal government and $15 million to cover the attorneys’ fees and costs incurred by whistleblowers who brought the False Claims Act case.

Ocwen Financial, formed in 1988, has been servicing residential mortgage loans since that year, and has serviced “subprime” mortgages since 1994. The company holds 671,623 residential loans worth more than $102.2 billion. The company also owns commercial assets totaling $290.9 million.

The False Claims Act (“FCA”) is a federal statute that allows whistleblowers, or “relators,” to bring qui tam lawsuits on behalf of the United States government and against their employers who are committing frauds against the government.

Stethoscope1-150x150Travis Thams, the whistleblower who filed a False Claims Act (“FCA”) lawsuit on behalf of the United States and 28 states, stands to receive a substantial portion of the $8 million settlement reached with his employer, Cardiovascular Systems, Inc. (“CSI”).

Thams was recruited to CSI to act as a District Sales Manager. He was responsible for selling the entire portfolio of CSI products.

CSI manufactures devices to treat peripheral artery disease (“PAD”). The devices in question are electrically driven and use a diamond-coated “crown” to sand away hard plaque within the arteries. As the crown “spins” at between 60,000 to 120,000 revolutions per minute within the artery, the plaque is effectively “sanded” away, and it restores blood flow.

Model-House-on-Money-200x300Last week, M&T Bank (“M&T”), headquartered in Buffalo, New York, agreed to pay $64 million dollars to settle allegations that the company violated the False Claims Act. Whistleblower Keisha Kelschenbach initiated the suit by alleging M&T knowingly originated and underwrote mortgage loans insured by the U.S. Department of Housing and Urban Development (HUD) that did not meet applicable requirements.

During the time period covered by the settlement, M&T Bank participated as a “direct endorsement lender” in the HUD insurance program. Under the program, M&T had the authority to originate, underwrite, and endorse mortgages for insurance.  If M&T approved a mortgage loan for insurance and the loan later defaulted, the holder of the loan could submit an insurance claim to HUD for the losses resulting from the defaulted loan.

Under the program, HUD did not review M&T’s loans for compliance before it is endorsed them for insurance. M&T, as a government fiduciary, was therefore required to (1) follow program regulations intended to ensure the company is properly underwriting and certifying mortgages for insurance; (2) maintaining a quality control program that can prevent and correct deficiencies in underwriting practices, and (3) self-report any deficient loans identified by the bank’s quality control compliance program.

Contact Information