FCA Retaliation Claim Filed Five Days Too Late When Decision Was Made Prior to Written Notice

On Monday, the Sixth Circuit Court of Appeals affirmed the judgment on a False Claim Act retaliation claim on the grounds that the lawsuit had been filed five days too late.  El-Khalil v. Oakwood Healthcare, Inc., No. 21-2669 (6^th Cir. 1/10/22).   The physician alleged that his employment agreement with the defendant hospital was not renewed because he had reported to the federal government false Medicare claims being filed by the hospital’s staff.  He had appealed the denial of his staff privileges under the medical bylaws.  The final step was made to a joint conference committee, which heard oral argument and, after he had left for the evening, voted to affirm the denial on September 22 and notified him in writing on September 27.  He filed suit against the hospital three years later on September 27.  The Hospital moved to dismiss on the grounds that his lawsuit was untimely.  The courts agreed, finding that the decision had been made and verbally announced on September 22 – more than three years before he filed suit.  According to the statute, 31 U.S.C. § 3730(h)(3): “Such an action ‘may not be brought more than 3 years after the date when the retaliation occurred.”  Unlike other employment statutes, Congress did not create a discovery rule under the FCA retaliation provision based on when notice is provided.  “The statute simply adopts “the standard rule” that the limitations period begins when the plaintiff “can file suit and obtain relief.”

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Reduces “Fairyland” Damages for Underpaid Davis-Bacon Wages from $763K to $15K

Yesterday, in an entertaining decision, the Sixth Circuit reversed an award to the government for $763,000 in a False Claims Act claim based on underpaid Davis-Bacon wages involving two electricians.  Wall v. Circle C Construction LLC, No. 14, 6150 (6^th Cir. 2-4-16).  In that case, the general contractor built 42 warehouses for the Army at Fort Campbell in Kentucky and those warehouses are still being used today.  The electrical subcontractor underpaid two electricians (by paying them $16/hour instead of $19/hour, for a total of $9,916) on that project.  That underpayment rendered false the contractor’s weekly compliance statements that all employees had been paid the mandatory prevailing wages.  The government had claimed that these false statements "tainted” the entire project and rendered them worthless.  Under the False Claims Act, the government is entitled to treble the amount of actual damages, which the government claimed was the amount paid for the electrical work on all 42 warehouses, or $777,895.  After the defendant received credit for the $15K paid by the subcontractor to settle the underlying wage claim, that amounted to $762,895.  However, the Sixth Court concluded that the “actual damage” was the amount of the unpaid wages (i.e, $9,916).  Even under an abuse of discretion standard, the Court referred to the damage award as “fairyland.”

Actual damages are the difference in value between what the government bargained for and what the government received. U.S. ex rel. Roby v. Boeing Co., 302 F.3d 637, 646 (6th Cir. 2002). Here, the government bargained for two things: the buildings, and payment of Davis- Bacon wages. It got the buildings but not quite all of the wages. The shortfall was $9,916. That amount is the government’s actual damages.

Distinguishing this case from those where the contractor’s work was defective or unsafe or morally suspect (i.e., child labor making uniforms), which would render the government’s product worthless, the breach in this case could be easily remedied by writing a check for damages.

In those cases no award of money damages could remedy the contractor’s breach. But here they can: the contract required Circle C to pay electricians $19 per hour, Phase Tec paid them only $16—and simply writing a check can make up the difference. Money damages provide a remedy for this sort of breach every day.

The government also argues that it should pay nothing for Phase Tec’s work because the government would have suspended its payments had it known that Phase Tec was underpaying its workers (or at least two of them, which is all the record shows here). In determining actual damages, however, the relevant question is not whether in some hypothetical scenario the government would have withheld payment, but rather, more prosaically, whether the government in fact got less value than it bargained for. And here the government has received almost of all of the value (all but $9,916, to be exact) that it bargained for with respect to the electrical work at its Kentucky warehouses.

The argument also fails on its own terms. The regulations for the Davis-Bacon Act themselves provide that, if a contractor pays its workers less than required by the Act, the government “must withhold from payments due the contractor an amount equal to the estimated wage underpayment and estimated liquidated damages due the United States[.]” 48 C.F.R. § 22.406-9(a) (emphasis added). Here that amount equals about $9,900, not $259,000. See also 48 C.F.R. § 22.406-9(b) (directing government to “suspend” contract payments “until the agency has withheld sufficient funds to compensate employees for back wages”). Even the relevant regulations thus refute the government’s argument.

Actual damages by definition are damages grounded in reality. And in the real world the government could not forever withhold all payments to a contractor for work on several dozen warehouses, and yet have the work continue to completion and the government continue to use the warehouses to this day. The damages the government seeks to recover here are fairyland rather than actual.

In concurring only with the result, one of the judges noted that the damage award was an abuse of discretion not because the government was still using the warehouses but because the damages could be easily ascertained under the Act.  

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Rejects Retaliation Claim of Hospital Compliance Officer Where Her AKS/FCA Investigation Was Based on Unconfirmed Assumptions and, thus, Objectively Unreasonable

Last week, a divided Sixth Circuit affirmed a summary judgment for a hospital employer on retaliation claims brought under the False Claims Act by a plaintiff compliance officer who was terminated four months after being hired and after she had notified the president, CEO and HR of possible violations of the Anti-Kickback Statute.   Jones-McNamara v. Holzer Health  Systems, No. 15-3070 (6^th Cir. 11-2-15). The majority found that the plaintiff did not have an objectively reasonable belief – as necessary to show that she engaged in a protected activity and to pursue a statutory retaliation claim – that physicians had made illegal referrals to an ambulance company that received 90% of the hospital’s referrals because the plaintiff lacked any information that the physicians received anything of value from the ambulance company or that the token items they may have received could have motivated them to make patient referrals.  The value provided by the ambulance company – hotdogs and a cheap jacket – were legal token gifts.  More importantly, the plaintiff had failed to confirm that anyone who received gifts from the ambulance company actually made any patient referrals.  Although the plaintiff genuinely believed that illegal patient referrals were being made, her subjective belief was objectively unreasonable and could not sustain a prima facie case of illegal retaliation.

According to the Court’s opinion, shortly after the plaintiff had been hired, she was told by an ER Nurse that certain physicians had received embroidered jackets from the ambulance company (which received 90% of the Hospital’s ambulance requests even though it was located farther away than a competitor). She notified the hospital president of a potential AKS issue.   She ultimately concluded that only one physician had received a jacket, valued at less than $25.  The plaintiff also learned that the ambulance company supplied hotdogs and hamburgers at the hospital’s employee wellness fairs. She then notified the CEO and HR that there was an AKS violation.  She was instructed to not put any other conclusions in writing before completing her investigation.  Nonetheless, she continued to send emails about an AKS violation and need to reimburse the federal government (although she did not specify what needed to be reimbursed).  There was some testimony that she wanted the hospital to reimburse the government for the food and jacket it received from the ambulance company.  She suspected that the cost of the ambulance service might also need to be reimbursed, but those services were never billed by the hospital.   She was terminated following the conclusion of her investigation.

The district court granted summary judgment on the lack of direct evidence and lack of pretext for the hospital’s explanation about her unprofessionalism, lack of interpersonal skills and insubordination.  The Sixth Circuit refused to reach the issues of causation or pretext because it found that she could not prove a prima facie case in that she engaged in a protected activity because lacked an objectively reasonable belief of an AKS violation.

The FCA has existed since the Civil War and “prohibits any person from ‘knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment or approval.’ 31 U.S.C. § 3729(a)(1)(A). “AKS violations can constitute FCA violations where a claim submitted to the government for reimbursement includes items or services resulting from a violation of the AKS, 42 U.S.C. § 1320a-7b(g), or where cost reports submitted to the government for reimbursement include an express certification that the underlying claims comply with the AKS.”  To protect employees who expose fraud against the federal government, the FCA’s anti-retaliation provision” at the time of the plaintiff’s discharge shielded “employees from retaliation for “lawful acts done . . . in furtherance of other efforts to stop one or more violations of this subchapter.” 31 U.S.C. § 3730(h).” Congress subsequently amended the statute to preclude terminating employees “because of lawful acts done . . . in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter.” 31 U.S.C. § 3730(h).  The burden of proof for FCA retaliation is the same for other employment retaliation statutes.  

The plaintiff contended that she engaged in protected activity by investigating and reporting on the potential AKS violations.  Internal reports of statutory violations of the AKS and/or FCA and fraud on the government can constitute protected activities.  Furthermore, there is a lenient standard in evaluating whether investigating and reporting fraud constitutes protected activity.  The plaintiff need “not complete an investigation into potential fraud or uncover an actual FCA violation to undertake protected activity” because employees are still protected “while they are collecting information about a possible fraud, before they have put all the pieces of the fraud together.” Indeed, “a plaintiff claiming retaliation under the FCA may engage in protected activity ‘even if the target of an investigation or action to be filed was innocent.’” Thus, the plaintiff did not automatically lose her case because she failed to “pinpoint” any ambulance referrals induced by the hotdogs or jacket or any invoices submitted to the government as a result of the alleged kickbacks. Nonetheless, even though a plaintiff need not establish an actual violation of the FCA, “she must show that her allegations of fraud grew out of a reasonable belief in such fraud.”  The majority found that even if she genuinely believed it, the plaintiff did not have an objectively reasonable belief of fraud because she could not identify anyone who was making referrals who also received any anything beyond nominal value that could reasonably  induce the person to make referrals.  

The AKS prohibits “knowingly and willfully solicit[ing] or receiv[ing] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or kind . . . in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program.” 42 U.S.C. § 1320a-7b(b)(1)(A). The statute defines “remuneration” as “transfers of items or services for free or for other than fair market value.” 42 U.S.C. § 1320a-7a(i)(6). The statute does not, however, define the phrase “in return for.” Yet courts widely agree that the “‘gravamen of Medicare fraud is inducement.’”  . . . .

While not binding, the Office of the Inspector General (“OIG”) for the Department of Health and Human Services (“HHS”) has offered further guidance on the meaning of “remuneration” and “induce.” The OIG indicated in its Program Guidance for Ambulance Suppliers that the term “remuneration” means “virtually anything of value” including goods, meals, and gifts. OIG Compliance Program Guidance for Ambulance Suppliers, 68 Fed. Reg. 14245, 14252 (Mar. 24, 2003). Several courts have affirmed this expansive understanding of remuneration as “‘anything of value in any form whatsoever.’” . . . Based on the broad meaning of remuneration, the OIG recommends that ambulance suppliers not offer gifts “of greater than nominal value to referral sources,” but indicates that “token gifts used on an occasional basis to demonstrate good will or appreciation (e.g., logo key chains, mugs, or pens) will be considered nominal in value.” OIG Compliance Program Guidance for Ambulance Suppliers, 68 Fed. Reg. at 14252. The OIG explained the term “induce” as the necessary intent  “to lead or move by influence or persuasion.” OIG Anti-Kickback Provisions, 56 Fed. Reg. 35952, 35938 (July 29, 1991). Although the term “induce” applies to the party offering or paying remuneration, it sheds light on the meaning of the phrase “in return for,” which applies to the recipient of remuneration, implying that the recipient must be duly induced or “move[d].” See 42 U.S.C. § 1320a-7b(1), (2).

An important aspect of inducement is that the remuneration be directed towards an individual or entity “in a position to generate Federal health care program business.” See OIG Supplemental Compliance Program Guidance for Hospitals, 70 Fed. Reg. 4858, 4864 (Jan. 31, 2005). In U.S. ex rel. Perales v. St. Margaret’s Hospital, 243 F. Supp. 2d 843, 852-54 (C.D. Ill. 2003), referrals to a hospital by a nurse working for a physician who entered into an illegal referral agreement with the hospital did not violate the FCA because the referring nurse received no remuneration for her referrals. Thus, any claims submitted to the government as a result of the nurse’s referrals were not tainted by an illegal inducement under the AKS. Id. at 854. As the court explained, the AKS “contemplate[s] that the person receiving the inducement is the one prohibited from making the referral to the entity that offered the remuneration.” Id.

In short, a kickback violation entails 1) remuneration to a person or entity in a position to refer Federal health care program patients 2) that could reasonably induce the person or entity to refer such patients.

The Court rejected the argument that the plaintiff’s subjective belief - that 90% of the hospital’s ambulance referrals were being induced by a $25 jacket and hotdogs -- was reasonable even though she was able to identify an OIG settlement with physicians who illegally referred patients in return for football tickets and a free meal. “Indeed, some cases have ruled that free food and drinks can operate as an inducement for referrals, but in those cases the amount and quality of food provided far exceeded Life’s annual provision of hotdogs and hamburgers to a miscellaneous set of Holzer employees at a health fair.”  It found the comparison between this case and those cases to be implausible and ludicrous:

 

It cannot plausibly be suggested that [those items] could induce a reasonable person to prefer one provider over another. In fact, these items represent such a low monetary value they can only be characterized as “token” gestures of good will under OIG guidance.  . . . .

Indeed, it is ludicrous to believe that a person would be tempted to make illegal referrals in exchange for a couple hotdogs once a year.

The Court was even more influenced by the plaintiff’s failure to connect any of the gifts (of hotdogs or a jacket) to any of the ambulance referrals.  A gift cannot induce an illegal patient referral unless the gift “is directed towards a person with the power to make referrals.”  However, the plaintiff’s final report and interim reports did not identify a single employee with authority to make patient referrals who actually attended the wellness fairs and consumed a hot dog.  The only person who received a jacket denied that he ever made any ambulance referrals and contended that ambulances were generally called by a nurse or secretary.  Nonetheless, the plaintiff had assumed that physicians made the illegal referrals without ever confirming that fact during her investigation or reports.  Her failure to confirm this important assumption made her belief unreasonable. 

Further, her assumption that the statistic of 90% of referrals was a reasonable basis to assume inducement is belied by a number of factors, including the preferred provider agreement between the hospital and the ambulance company to make “best efforts” to be available when called, “distance, availability, weather, and willingness to come,” as well as “reliability, quality of service, cost to the patient, proximity to Holzer’s other hospitals and care centers, and whether the ambulance was needed for an emergency or non-emergency transport.”

Finally, the majority dismissed the argument that the jury should be permitted to evaluate whether the plaintiff’s belief of fraud was objectively reasonable.   

An objectively reasonable belief requires facts that exist independently of the plaintiff’s personal, interior mentality. [The plaintiff]  produces very few such independent facts to support her belief of anti-kickback violations, and those she does produce do not make her belief reasonable. A jury could not find [she] engaged in protected activity when she based her allegations of illegal kickbacks solely on a high referral rate to a contractually (and legally) preferred supplier who gave a token jacket and hotdogs to unidentified [hospital] employees that may or may not have had referral power.

Without being able to sustain her prima facie case that she engaged in a protected activity, the majority did not address any arguments about causation or pretext.

The dissent would have let the jury decide whether the plaintiff’s belief was reasonable instead of merely incorrect because even incorrect conclusions are protected if they are reasonable.

 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit: Terms of Arbitration Clause Did Not Govern Statutory Retaliation Claims

On Thursday, the Sixth Circuit reversed the dismissal of whistleblower/retaliation claims brought under the federal False Claims Act on the grounds that the applicable arbitration clause only governed disputes which arose under the terms of the employment agreement and not independent statutory claims.  U.S. v. BAE Systems Technology Solutions & Services, Inc., No. 13-2237 (6^th Cir. 5-22-14). The plaintiffs brought a qui tam action alleging that their former employer defrauded the government and retaliated against them for complaining and reporting the misconduct.   The district court dismissed the FCA claim and referred the retaliation claim to arbitration.  However, the Sixth Circuit reversed the referral to arbitration on the grounds that the arbitration clause did not govern the dispute.  The arbitration clause applied only to “dispute[s] arising from this Agreement” and, unlike other arbitration clauses, did not explicitly incorporate any dispute related to the employee’s employment or termination.  Accordingly, because the plaintiffs’ claims arose from an alleged statutory violation and were not dependent on the terms of their employment agreement, the arbitration clause did not apply.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.