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Company allegedly gave government inflated cost and pricing data when negotiating no-bid contracts for drone-related military projects
Insitu drone.

Insitu drone. The company settled False Claims Act allegations that it inflated the prices of parts sold to the U.S. Navy and the Special Operations Command (SOCOM).

Insitu, Inc., a subsidiary of aerospace and defense contractor Boeing, has agreed to pay $25 million to settle a False Claims Act lawsuit alleging it defrauded the government by passing off recycled and reconditioned drone parts and components as new under defense contracts with the U.S. Navy and the Special Operations Command (SOCOM). The former Insitu employee who filed the qui tam lawsuit and thereby exposed the fraud received a whistleblower reward of $4.6 million.

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Service member wearing Army uniform (ACU) filling real estate related paperwork.Court takes “holistic approach” to materiality, rejecting strict focus on the ultimate “payment decision” in significant win for qui tam whistleblowers and the government

A few weeks ago, I blogged about United States v. Strock. There, the Second Circuit Court of Appeals determined that the Supreme Court’s decision in Universal Health Services v. Escobar—which held that misrepresentations regarding compliance with a statutory, regulatory, or contractual requirements “must be material to the Government’s payment decision” to be actionable under the False Claims Act—did not invalidate the “fraudulent inducement” theory of False Claims Act liability. Under that theory, which predates Escobar, a violation of the False Claims Act can be established by showing that the defendant submitted claims for payment under a contract obtained by fraud—even if the subsequent claims for payment under the contract were themselves entirely truthful. The focus in a such a case, the Second Circuit confirmed, still includes the fraudulent statements’ impact on the government’s initial decision to award the contract. Any subsequent payments are “tainted” by that original fraud.

Now—in another key victory for whistleblowers and the government—the Eleventh Circuit has taken a similarly broad view of Escobar’s materiality requirement. In United States ex rel. Bibby v. Mortg. Inv’rs Corp., the court adopted a “holistic approach” to the assessment of materiality under the False Claims Act, rejecting a “strict focus” on the ultimate “payment decision.”

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Second Circuit rules that relevant government “payment decision” under Escobar included Veterans Administration’s initial decision to award contracts based on claim that contractor qualified as a “service-disabled, veteran-owned small business”—not just the VA’s subsequent decisions to make payments under those contracts

In a key victory for the federal government and qui tam whistleblowers, the Second Circwhistlebloweruit Court of Appeals has affirmed that false statements regarding eligibility to take part in government programs—and not just subsequent false claims for payment after being allowed to participate—are actionable under the False Claims Act notwithstanding the U.S. Supreme Court’s 2016 landmark decision in Universal Health Services v. Escobar. The court in United States v. Strock rejected the idea that the only relevant “payment decision” under Escobar was the decision to pay a contractors’ invoices without regard to the initial decision to award the contract.

Impact on False Claims Act cases involving eligibility
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Insurance fraud (arson)Court holds that whistleblower standing under the Insurance Claims Fraud Prevention Act—like the federal False Claims Act—does not require that the qui tam relator suffered injury

The Supreme Court of Illinois has upheld the qui tam whistleblower provisions of the Illinois Insurance Claims Fraud Prevention Act, affirming the reversal of a trial court decision that would have essentially gutted them. The court agreed that a whistleblower need not have suffered harm to be an “interested person” with standing—and therefore able to sue—under the Act. Instead, the phrase “interested person” in the statute simply refers to a party with material information about insurance fraud who brings a qui tam lawsuit and may be eligible for a whistleblower award, the court held in State ex rel. Leibowitz v. Family Vision Care, LLC.

Rooting out insurance fraud
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Fourth Circuit reasons that proving the fraudulent state of mind required for False Claims Act liability would defeat any claim of qualified immunity

State or local government officials alleged to have violated the False Claims Act by defrauding the federal goveriStock-535378977-1024x796nment cannot raise “qualified immunity” as a defense, the Fourth Circuit Court of Appeals has held.  The state of mind required to establish False Claims Act liability forecloses it, the court reasoned in U.S. ex rel. Citynet v. Gianato.

Alleged grant fraud
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Linde AG used incorrect Harmonized Tariff Schedule (HTS) codes and failed to declare “assists” on steel products imported from China

The German firm Linde AG has agreed to pay $22.2 million to resolve allegations it knowingly dodged U.S. customs duties on iLogistics and transportation of Container Cargo ship and Cargo plane with working crane bridge in shipyard at sunrise, logistic import export and transport industry backgroundmports of steel components from China. The qui tam whistleblower who exposed the fraud—the company’s former logistics coordinator—will receive a whistleblower award (or “relator’s share”) of $3.7 million under the False Claims Act.

Evasion of antidumping and countervailing duties (AD/CVD)
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Fraud in connection with receipt of federal bailout funds held to be actionable under the False Claims Act

The Second Circuit Court of Appeals has ruled in favor of two financial sector shutterstock_401325058-2-300x134qui tam whistleblowers, reviving their claims under the False Claims Act that Wells Fargo lied about its financial condition in order to get billions of dollars in low-interest emergency bailout funds from regional Federal Reserve Banks during the Financial Crisis.

The whistleblowers–who were former employees of Wells Fargo–alleged that the financial institution falsely certified that it was adequately capitalized and in compliance with applicable banking and mortgage lending laws when it requested billions of dollars in emergency loans from the Fed’s Discount Window and Term Auction Facility. As a result, it could get interest rates on the borrowed funds that were much lower than those for which it would otherwise have qualified.

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Centric Parts of California evaded 2.5% tariff by misclassifying “mounted” brake pads as “unmounted.”

In yet another False Claims Act settlement involving customs fraud and tariff enforcement, California aftermarket auto partshutterstock_493303243-300x200s supplier CWD Holdings, LLC – which does business as Centric Parts – has agreed to pay $8 million to revolve claims it knowingly evaded import duties owed on imported brake pads.  Two former employees of Centric who blew the whistle on the customs fraud scheme by filing qui tam lawsuits under the False Claims Act will share a $1.48 million reward.

If you have information about customs fraud and would like to discuss your rights, reach out to whistleblower attorney Mark A. Strauss, who has represented whistleblowers in successful cases based on customs fraud in the past.

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Firm allegedly provided government with inaccurate cost data during contract negotiations, failed to disclose that estimates had been reduced by automation of manual tasks.

Federal prosecutors have announced that CDM Smith, an environmental engineering and construction firm located in Fairfax, Virginia, has agreshutterstock_752242222-300x200ed to pay $5.6 million to resolve claims that it violated the False Claims Act by overcharging the U.S. Navy in connection with two waste water system contracts.  The company employee who blew the whistle on the misconduct by filing a qui tam lawsuit under the False Claims Act stands to receive a significant whistleblower reward.

Inaccurate cost and labor figures used

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Management pressured staff to inflate Medicare reimbursements by “upcoding” and “ramping.”

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The Seventh Circuit Court of Appeals has held that arrangements with a third-party litigation funder did not deprive a whistleblower of legal “standing” to pursue her claims under the False Claims Act.  It also upheld a $255 million jury verdict for Medicare fraud against the two Florida skilled nursing facilities where the whistleblower worked and the management firms that ran them.

The court’s decision in Ruckh v. Salus Rehabilitation counts as a significant victory for whistleblowers.  Healthcare industry defense lawyers are fretting about its potential consequences.

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