Under the False Claims Act (“FCA”), a whistleblower brings a qui tam complaint alleging fraud against the government. The FCA incentivizes these individuals, also known as relators, by promising them a percentage of any amount recovered in a false claims case. In alleging fraud or mistake under Rule 9(b), “a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). The plaintiffs and/or whistleblowers must plead the “who, what, when, where, and how” of the alleged misconduct. See United States ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1171 (10th Cir. 2010). The purpose of Rule 9(b) is “to afford defendants fair notice of plaintiff’s claims and the factual ground upon which they are based.” Id. at 1172 (quotations omitted); Burch ex rel. United States v. Piqua Engineering, Inc., 145 F.R.D. 452, 455 (S.D. Ohio 1992).
In the Fifth Circuit, relators are not required to allege details of a specific, actually submitted false claim. See Ebeid ex rel. United States. v. Lungwitz, 616 F.3d 993, 999 (9th Cir. 2010); United States ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 854–55 (7th Cir. 2009); United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009). Instead, to satisfy rule 9(b)’s heightened pleading requirement for claims of fraud, Fifth Circuit courts allow realtors to allege just enough details of the allegedly fraudulent actions to “lead to a strong inference,” or a “plausible inference” that false claims were actually submitted. Ebeid, 616 F.3d at 998–99 (quoting Grubbs, 565 F.3d at 190) (choosing to follow the Fifth Circuit’s reasoning and holding on requirements to satisfy 9(b)); Grubbs, 565 F.3d at 190 (requiring FCA claimants to at least allege “particular details of a scheme to submit false claims” with “reliable indicia that lead to a strong inference that claims were actually submitted”).
Some FCA cases involve fraudulent invoices by medical providers or medical equipment companies to Medicare or Medicaid. In U.S. ex rel. Swoben v. Secure Horizons, et al, U.S. District Court, Central District of California, No. 09-5013, a medical care unit of DaVita Inc., has agreed to pay $270 million to settle a whistleblower allegation that it helped Medicare Advantage insurance plans cheat the government. The whistleblowers alleged that DaVita Inc. exaggerated how sick their patients actually were to over-inflate the government payments. The settlement specified allegations related to incorrect coding guidance, incorrect diagnosis mapping and acute condition codes. The exaggeration ultimately cost DaVita a fortune.
On a similar note, in United States ex rel. Polukoff v. St. Mark’s Hosp., No. 17-4014 (10th Cir. 2018), a whistleblower brought a qui tam claim against another doctor who performed unnecessary heart surgeries. The invoices for these surgeries were fraudulently submitted based on the doctors false statement saying that the procedures were necessary based on his “medical judgment.” Id. The court said that a procedure can only be “reasonable and necessary” if it meets the government’s definition of reasonable and necessary found in the Medicare Program Integrity Manual. Id. Essentially, a doctor’s medical judgment that the procedures were “reasonable and necessary” is no longer sufficient to escape FCA liability.
Some whistleblower cases also relate to companies sued for overbilling the federal government for goods or services. In United States ex rel. Rudolph v. Inchcape Shipping Services Holdings Limited, et al., No. 1:10-cv-01109 (D.D.C.), Inchape agreed to settle their case, paying $20 million to resolve allegations that they violated the FCA by knowingly over-billing the U.S. Navy under contracts for ship services. Inchape is a marine services contractor that provided goods and services to Navy ships at different ports around the world. Id. The whistleblowers alleged that Inchape knowingly over-billed the Navy for these services by submitted invoices that overinflated the quantity of goods and services provided. Id. The DOJ said that these actions of knowingly submitting inflated claims to the armed forces wrongfully diverts taxpayer dollars and will not stand. Id.
Additionally, whistleblower cases arise from government contractors fraudulently billing the government for defective equipment. A federal judge in San Francisco ordered Lockheed Martin Corporation to pay $4.4 million to settle a whistleblower lawsuit alleging that Lockheed sold to the U.S. Coast Guard a defective communications system for the Coast Guard’s National Security Cutters. The whistleblowers alleged that Lockheed failed to meet the contractual requirements for a requirement of the communication system that would allow radio signals to be sent and received on more than one channel simultaneously. The whistleblower was a member of the engineering staff who had noticed problems with the transmitter signal and reported the problems to his supervisors. As a result, the whistleblower was fired.
Furthermore, in United States ex rel. Ferro v. TRW Inc., case no. 02-9934-PA (C.D. Calif.), Northrop Grumman Corp., who acquired TRW, paid $325 million to settle a whistleblower lawsuit that alleged that TRW sold to the government “heterojunction bipolar transistors” that TRW knew were likely to fail in government satellites. The whistleblower was a scientific researcher who discovered that the TRW parts were likely to fail. After notifying TRW of this issue, TRW had insisted on a nondisclosure agreement where the whistleblower could not disclose the negative results to anyone. A federal district court in LA said that TRW cannot shield itself from a whistleblower lawsuit brought under the FLSA by hiding behind its nondisclosure agreement.
Some FCA cases involve the underpayment of royalties in the oil and gas industry. In United States ex rel. Johnson v. Shell Oil Company, 33 F. Supp. 2d 528 (E.D. Tex. 1999), the qui tam whistleblowers alleged that eighteen major oil companies underpaid royalties owed to the U.S. for production of oil. The whistleblowers claimed that the oil companies filed reports to the government citing false prices and royalty amounts. Both sides attempted settlement negotiations multiple times ultimately reaching a nearly $440 million settlement.
While these cases are merely provided as examples of those that have been filed in the past, and are not necessarily representative of what may occur in a particular case, it is clear that being able to demonstrate fraudulent activity against the federal government can be lucrative for a whistleblower. Do you have information that a company has fraudulently billed or underpaid the U.S. government? Are you unsure of what step to take next? If so, consider speaking with an experienced attorney. Josh Borsellino is a licensed Texas attorney who handles FCA cases for whistleblowers. Josh handles his cases on a contingency basis meaning that he does not get paid unless you get paid. Josh provides free consultations and can be reached at 817.908.9861 or 432.242.7118.