A frequent
allegation asserted in False Claims Act
(31 U.S.C. §§ 3729 et seq. ("FCA"))
complaints, whether filed by relators or
the government, is that claims for
payment were submitted even though the
defendant had failed to comply with a
statute or agency regulation in
connection with the service that is
being billed. Defense counsel should
vigorously assert in motions to dismiss
that such allegations, in and of
themselves, do not assert a viable claim
under the FCA .
It is
well established that the mere failure
to comply with administrative
regulations or statutes does not
constitute a violation of the FCA.
United States ex rel. Hopper v. Anton,
91 F.3d 1261, 1265-67 (9th Cir. 1996),
cert. denied, 519 U.S. 1115 (1997)
("Violations of laws, rules, or
regulations alone do not create a cause
of action under the FCA"). Otherwise,
every breach of a federal contract would
be transformed into a FCA violation.
In
Hopper, the Ninth Circuit held it was
"the false certification of compliance
which creates liability when
certification is a prerequisite to
obtaining a government benefit." 91 F.3d
at 1266 (emphasis in original). The
district court granted summary judgment
to the defendant upon finding that it
had made no certification of compliance
with regulations to the government and
no such compliance was a prerequisite to
receiving payment from the government.
Id. at 1267. See also United States ex
rel. Oliver v. Parsons Co., 195 F.3d
457, 463 (9th Cir. 1999), cert. denied,
530 U.S. 1228 (2000) (reasonableness of
interpretation of "technical and
complex" federal regulations may be
relevant to determining "knowing"
submission of false claim).
In United
States ex rel. Swafford v. Borgess
Medical Center, 98 F. Supp. 2d 822 (W.D.
Mich. 2000), aff'd, No. 00-1288, 2001
U.S. App. LEXIS 26669 (6th Cir. Dec. 12,
2001), the relator alleged the defendant
had failed to comply with certain Health
Care Financing Administration
regulations pertaining to reimbursement
of venous ultrasound procedures and this
failure constituted the submission of a
false claim.
The
district court rejected this argument,
holding that the FCA "is not an
appropriate vehicle for policing
technical compliance with administrative
regulations … [and] mere violations of
administrative regulations are not
actionable under the FCA 'unless the
violator knowingly lies to the
government about them.'" 98 F. Supp. 2d
at 828.
As
another district court has noted,
"Indeed, the FCA is not a regulatory
vehicle, and its scope should not be
broadened to include every instance
where a claimant fails to comply with
all applicable regulations." United
States ex rel. Riley v. St. Luke's
Episcopal Hospital, No. H-94-3996, 2002
U.S. Dist. LEXIS 6289 at *13 (S.D. Tex.
April 1, 2002). Only if a defendant has
represented to the government their
compliance with the pertinent
regulations or statutes as a
prerequisite to obtaining payment could
breaching those regulations or statutes
serve as the predicate for a FCA action.
United States ex rel. Thompson v.
Columbia/HCA, 125 F.3d 899, 902 (5th
Cir. 1997). See also United States ex
rel. Joslin v. Community Home Health of
Maryland, Inc., 984 F. Supp. 374, 384
(D. Md. 1997).
To
survive a motion to dismiss under Rule
12(b)(6), the complaint must allege the
so-called "false certification theory"
of liability which is "predicated upon a
false representation of compliance with
a federal statute or regulation or a
prescribed contractual term." United
States ex rel. Mikes v. Straus, 274 F.3d
687, 696 (2d Cir. 2001). Without such
allegations, purported violations of the
FCA based on non-compliance with
regulations or statutes are rendered
legal nullities. Luckey v. Baxter Health
Healthcare Corp., 183 F.3d 730 (7th Cir.
1999), cert. denied, 528 U.S. 1038
(1999). It is clear that if an express
written certification has been made,
falsely attesting to compliance with
particular regulations, statutes, or
rules, and such certification is
necessary for payment, this is
sufficient to establish potential
liability under the FCA. Mikes, 274 F.3d
at 696-99.
Unfortunately, relators and the
government have tried to expand this
limited theory by conjuring up the
socalled "implied false certification"
theory. "An implied false certification
claim is based on the notion that the
act of submitting a claim for
reimbursement itself implied compliance
with governing federal rules that are a
precondition to payment." Mikes, 274
F.3d at 699. Joining the Seventh (Luckey)
and Ninth (Hopper) Circuits, the Second
Circuit has rejected the blanket
application of the implied false
certification theory and held that
"implied false certification is
appropriately applied only when the
underlying statute or regulation upon
which the plaintiff relies expressly
states the provider must comply in order
to be paid." Mikes at 700.
In Mikes,
the qui tam relator argued that the
defendant violated the FCA by submitting
claims for reimbursement which certified
that he had complied with all applicable
statutes and regulations when in fact he
had not adhered to the guidelines of the
American Thoracic Society regarding the
standards for administering and
conducting certain tests. The court
rejected this argument finding that
payment to the defendant was not
expressly conditioned on complying with
such standards of care. Id. at 702.
In
reaching this conclusion, the court
concluded that "not all instances of
regulatory noncompliance will cause a
claim to become false." Id. at 697.
While the debate continues to rage over
the propriety of the "implied
certification" approach to FCA
liability, it is evident that most
federal courts are reluctant to endorse
such a theory. See, e.g., United States
ex rel. Siewick v. Jamieson Science and
Engineering, Inc., 214 F.3d 1372, 1376
(D.C. Cir. 2000); Harrison v.
Westinghouse Savannah River Co., 176
F.3d 776, 793 (4th Cir. 1999); United
States ex rel. Franklin v. Parke-Davis,
147 F. Supp. 2d 39, 55 (D. Mass. 2001).
A recent
Tenth Circuit decision, United States ex
rel. Shaw v. AAA Engineering & Drafting,
Inc., 213 F.3d 519, 531-33 (10th Cir.
2000), has engendered a substantial
element of confusion in this area. Shaw
dealt with the issue of whether the
submission of monthly invoices by a
government contractor, pursuant to a
contract for passport photographic
services, implied certified compliance
with contractual provisions mandating
that specified "silver recovery"
procedures were to be followed.
The Tenth
Circuit affirmed the lower court's
decision recognizing an implied
certification was contained in each
monthly invoice submitted for payment.
The Shaw holding merely recognizes the
long-recognized principle that in
submission of requests for reimbursement
pursuant to a government contract
constitutes an implied certification
that all contractual provisions have
been satisfied.
However,
some courts have even imposed
limitations on this doctrine. See United
States ex rel. Drake v. Norden Systems,
Inc., No. 3:94-cv-963, 2000 U.S. Dist.
LEXIS 13371, *29-*30 (D. Conn. Aug. 24,
2000) (holding "the FCA does not provide
a remedy for contractual noncompliance
where payment is not conditioned upon
compliance with the terms of the
contract"). Nonetheless, the government
and the relators' bar, seeking any
purported justification supporting
implied certification, have fixated on
this decision as having much broader
significance.
Not
surprisingly, relators and the
Department of Justice have neglected to
recognize that Shaw is applicable only
in the government contracts situation
and have strained to apply it in such
diverse areas as health care fraud
prosecutions, where there is no
contractual relationship such as in
Shaw. See, e.g., United States ex rel.
Wright v. Cleo Wallace Centers, 132 F.
Supp. 2d 913, 925-26 (D. Colo. 2000).
Such misuse of Shaw should be opposed
energetically by defense counsel in FCA
actions.
Shaw only
recognizes an implied certification
theory where submission of certain
categories of documents to the
government (e.g., progress reports,
daily reports, payment invoices) can be
construed as devices for falsely
representing compliance with contractual
provisions. United States ex rel. Bryant
v. Williams Building Corp., 158 F. Supp.
2d 1001, 1009-1011 (D.N.D. 2001). If
there is no contractual relationship
with the government, then Shaw is
inapposite.
False
certification requires either (a) an
express certification of compliance, or
(b) a statute or regulation that states
explicitly that certification is a
precondition for payment. With the
exception of these two categories,
defense counsel should not hesitate to
contest "implied certification" theories
whenever they are invoked.
An
unresolved question is whether an
express false certification of
compliance submitted to the government
triggers FCA liability even if the
statute under which payment is made does
not require certification as a condition
for payment. See Siewick, 214 F.3d at
1376, discussing the holding in
Thompson, 125 F.3d at 902.
