Articles Posted in State False Claims Acts

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A long awaited Supreme Court decision that held major implications for False Claims Act litigants was handed

New-York-City2down this week. On Tuesday, the United States Supreme Court upheld a jury verdict that found State Farm Insurance Company (“State Farm”) defrauded a federal flood insurance program to avoid paying a homeowner’s insurance claim in the wake of Hurricane Katrina.

The False Claims Act (“FCA”) is a law Congress adopted to expose rampant fraud among contractors supplying the Union Army during the American Civil War. Frauds included businesses that sold guns that did not shoot and boots that fell apart after a day’s use. The statute encourages private parties, (“whistleblowers”) or (“relators”), with knowledge of fraud to file suit and collect a share of the government’s recovery.

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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.

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A teenager who died after receiving mental healthcare services from unlicensed and underqualified professionals is the impetus behind a False Claims Act lawsuit handled by Greene, LLP on behalf of the late Yarushka Rivera. The case is now before the U.S. Supreme Court. The United States Office of the Solicitor General and the Department of Justice argued before the Supreme Court on April 19, 2016 with assistance from Greene, LLP.

Yarushka Rivera was a teenage enrollee of MassHealth benefits (Massachusetts’s state equivalent of Medicare) and began seeing Arbour counselor Maria Pereyra in 2007 after experiencing various behavioral problems at school. Pereyra, an Arbour staff member, lacked a professional license to provide mental-health therapy. Rivera’s parents met with Pereyra’s supervisor, clinical director Edward Keohan, after Yarushka complained that she was not benefiting from counseling. During the meeting, they became worried that Keohan was not properly supervising Pereyra and was unfamiliar with Yarushka’s treatment.

Yarushka was eventually transferred to another staff member, Diana Casado, who was also supervised by Keohan. Casado too, was unlicensed. Yarushka’s parents quickly became dissatisfied with her treatment and believed that Casado too, was not properly supervised.

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Hedge-Fund-Office-BuildingOn Tuesday, the Court of Appeals of California revived Los Angeles County’s California False Claims Act case against Accent Builders, Inc. (“ABI”) and Superior Gunite Inc. (“SGI”), saying that the lower court should have ruled that the company’s requests for time extensions and change estimates constituted claims for $5 million in payments. The lower court had dismissed the complaint for failing to state a claim, maintaining that under the state’s statute, the requests did not qualify as claims for payment but instead were merely intermediate steps that had to be approved before the builders could actually bill Los Angeles County. In reaching its decision, the Court of Appeals relied on guidance from authority under the federal False Claims Act and concluded that the scope of the term “claim” encompassed the time extensions and change estimates requests as “requests or demands” for payment within the meaning of the California False Claims Act. Continue reading

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Govt-Health-Insurance-Policy-300x200 3Yesterday the Court of Appeals for the First Circuit revived the False Claims Act case against Universal Health Services Inc. (“Universal Health”) filed by two relators that alleges that the company improperly billed the government for mental health services provided by unsupervised and unqualified staff. Universal Health owns and operates Arbour Counseling Services (“Arbour clinic”), a provider of mental-health services in Lawrence, Massachusetts. The Arbour clinic participates in MassHealth, the Medicaid program of the state of Massachusetts, and bills MassHealth for services rendered to individuals insured by the program. United States ex rel. Escobar et al. v. Universal Health Services Inc. was filed in 2011 by the parents of Yarushka Rivera who died in 2009 after suffering seizures allegedly caused by a reaction to the medication she received from unlicensed counselors and nurses at the Arbour clinic. The decision almost entirely reverses the district court’s dismissal of the suit, the Court of Appeals finding that the cost of staff supervision is automatically built into MassHealth reimbursement rates. Continue reading

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Marketing-StrategyOffice Depot, Inc. has agreed to pay $68.5 million to settle a relator’s allegations that the Florida-based office supply and services retailer had defrauded all political subdivisions within the state of California that had purchased goods and services from Office Depot. More specifically, in violation of the California False Claims Act, Office Depot allegedly charged the government entities more than it should have by failing to comply with a “Most Favored Public Entity” contractual provision, failing to comply with a “Pricing Commitment,” misrepresenting or omitting material information regarding pricing plans and switching customers from one plan to another without consent, using incorrect costs in calculating cost-based pricing; impermissibly changing list prices, and discontinuing or manipulating items on the “core lists” of products. Ultimately, more than 1,000 cities, counties, school districts and other government entities were impacted by the alleged fraud. Continue reading

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MassachusettsThe Attorney General of Massachusetts announced today that Canton-based environmental services company National Water Main Cleaning Co. (“NWMC”) has agreed to pay more than $650,000 to settle allegations that it submitted fraudulent bills and records on multiple public contracts for sewer, storage tank, and catch basin cleaning, maintenance, and repair in violation of the Massachusetts False Claims Act. The company also allegedly illegally discharged sewage and wastewater in violation of the Massachusetts Clean Waters Act. Under the terms of the settlement, NWMC will pay $405,000 to resolve the allegations it violated the state’s False Claims Act and $250,000 in civil penalties to resolve allegations that it violated the Massachusetts Clean Waters Act, of which $75,000 will be paid to the Massachusetts Natural Resource Damages Trust. NWMC will also be required to impose revised protocols regarding proper waste disposal and to provide comprehensive environmental compliance training for its employees. Continue reading

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Natural-GasThe state of California has decided to intervene in a relator’s complaint filed under the state’s False Claims Act alleging that London-based BP plc (“BP”) and its subsidiaries defrauded taxpayers by inflating natural gas prices under their contractual arrangements as the exclusive supplier to the state of California and its subdivisions. The complaint was unsealed on Wednesday. BP is one of the world’s largest energy companies and it is the largest supplier of natural gas in North America. It had contracts with California’s Department of General Services (“DGS”) under the Natural Gas Services (“NGS”) program. Between 2004 and 2012, BP and its subsidiaries allegedly charged California many times more than what its non-governmental customers were charged. The fraudulent overcharges are claimed to have amounted to between $150 million and $300 million of the $2 billion in natural gas supplied to the program during the period in question. Continue reading

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Marketing White BoardOn June 27, a judge denied Sprint-Nextel Corporation’s (“Sprint”) motion to dismiss claims brought against it under the New York state False Claims Act and concluded that the complaint sufficiently alleged that Sprint had failed to both collect and pay more than $100 million in state sales tax since July of 2005 in a bid to gain an advantage over competitors such as AT&T and Verizon Wireless by making its services less expensive.

Originally filed by whistleblower Empire State Ventures LLC in March 2011 under the qui tam provision of the statute, New York Attorney General Eric Schneiderman intervened in the case in April 2012 following an investigation. According to the superseding complaint, Sprint allegedly knowingly failed to collect and pay the state sales tax on approximately 25% of its revenue from flat-rate plans and then concealed its failure to do so despite the fact that New York imposes a sales tax on the full amount of any flat-rate charge for wireless service. In addition to misleading the government, the complaint alleges that Sprint’s conduct misled millions of New York consumers who purchased the flat-rate plans by indicating in its contracts and on its website that it would collect and pay all requisite sales tax. As a result, the complaint alleges that these customers entered into their contracts with Sprint under false pretenses. In accordance with the statutory provisions, the lawsuit seeks three times the amount of underpaid taxes plus penalties and the release of effected Sprint customers from their contracts with the company without early termination fees.

Most states with False Claims Acts have modeled their statutes after the federal False Claims Act, incorporating qui tam provisions allowing the participation of whistleblowers.  Under the statutes, those with knowledge of fraud who step forward may recover a percentage of any final judgment or settlement. While the federal False Claims Act does not extend to evasion of tax liabilities, § 189.4(a) of the New York False Claims Act does allow whistleblower actions involving tax fraud provided that certain conditions are met. People ex rel. Empire State Ventures, LLC v. Sprint Nextel Corp. is significant as it is the first case prosecuted under the provision allowing qui tam tax fraud claims. If liable, Sprint could face over $300 million in damages.

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FDA approvedFaced with allegations brought by the South Carolina Attorney General claiming that its drug Seroquel causes harmful side-effects and was promoted for off-label uses, AstraZeneca has abandoned a lawsuit against the South Carolina AG, agreeing instead to pay $26 million to resolve all of the state’s claims related to Seroquel.

In late December of 2012, a state court judge in South Carolina denied the state AG’s motion to dismiss a suit claiming that AstraZeneca’s Fourteenth Amendment due process rights were violated by the contingency fee arrangements between the AG’s Office and three private law firms. The lawsuit invoked a legal strategy pursued by other major pharmaceutical companies, including Merck, that face claims of off-label promotion and other fraudulent practices. According to AstraZeneca, because the AG’s Office would retain 10% of any recovery under the contingency agreement, the AG essentially had a financial stake in the outcome of the litigation and had compromised his independence. The state court judge’s denial of the motion to dismiss signaled that the protracted litigation would be allowed to continue, and cast doubt upon the ability of the South Carolina Attorney General to pursue the state law claims against the pharmaceutical company. Despite the judge’s ruling, AstraZeneca has assented to a $26 million settlement to resolve the legal claims against it. The company’s decision may reflect the inefficiency of a legal strategy predicated upon litigating two lawsuits simultaneously. The South Carolina attorney general sought to recover funds spent to treat side-effects for Seroquel, an antipsychotic medication, and for reimbursements for alleged off-label uses. Since South Carolina’s Medicaid program generally does not reimburse for off-label prescriptions (that is, prescriptions for uses of a drug that have not been approved by the FDA), the state may seek to recover funds spent to reimburse for such prescriptions.

South Carolina is one of twenty U.S. states that does not have its own version of the federal False Claims Act (“FCA”), a statute containing qui tam (whistleblower) provisions that allow private citizens with knowledge of fraud to sue on behalf of the government. The FCA allows for recovery of treble damages and a penalty of up to $11,000 per violation, creating a strong incentive for whistleblowers (known as relators) to come forward; if successful, relators stand to recover between 15% and 30% of any final judgment or settlement on behalf of the government. The Act imposes liability for false claims for payment, and also for failure to return over-payments from the government. Recent changes to the FCA have expanded the scope of liability and increased the statute’s protections against employer retaliation. Unfortunately for potential whistleblowers, there is no South Carolina False Claims Act.  The AstraZeneca litigation highlights the potential benefits that would accrue to a state like South Carolina if it were to adopt its own False Claims Act, empowering private individuals to come forward with information concerning fraud and abuse of the state’s funds.