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False Claims Act Statistics, News & Analysis

Just What the Doctor Ordered: First Circuit Curtails Fraudulent-Inducement Theory Where Government Took No Action After Learning of FCA Allegations

In a pro-Defense bar, post-Escobar decision handed down shortly before the holidays, the First Circuit held that a relator could not proceed with an FCA claim based on alleged fraud in the inducement on the Food and Drug Administration because the FDA had not withdrawn or suspended its approval of the defendants’ medical device in response to relator’s allegations. D’Agostino v. ev3, Inc., No. 16-1126, 2016 WL 7422943 (1st Cir. Dec. 23, 2016). The opinion also doubles down on the First Circuit’s Cyberonics decision that we wrote about here, again rejecting as insufficiently particular under Rule 9(b), allegations that identify a fraudulent scheme but fail to show that false claims actually were submitted to the government as a result.

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Keep Your Friends Close and Your Subcontractors Even Closer: Prime and Sub Mostly Win Motion to Dismiss Against Second-Tier Sub

The D.C. District Court recently dove headfirst into the complexities of government contracting (and subcontracting) and dismissed most of a hydra-headed 77-page FCA complaint against a prime contractor and first-tier subcontractor brought by executives of a second-tier subcontractor. United State ex rel. Keaveney v. SRA Int’l, Inc., No. 13-855, 2016 WL 6988787 (D.D.C. Nov. 29, 2016). That a subcontractor’s executives brought an FCA action against the contractors that hired them is by itself worth noting. But the opinion, too, offers a mixed bag of assuaging certain worries for government contractors while highlighting new ones.

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Broad New DoD Cybersecurity Rule Could Put Defense Contractors at Risk for FCA Allegations

In late October, the Department of Defense (DoD) published the Network Penetration Reporting and Contracting for Cloud Services Final Rule (the Rule). The Rule amended Defense Federal Acquisition Regulation Supplement (DFARS) 252.204-7012, a clause that must be incorporated in all solicitations and contracts, except commercial-items contracts. See 81 FR 72986 (October 21, 2016). While ostensibly designed to require cybersecurity protections for unclassified defense-related information and to establish reporting requirements for cyber incidents, the Rule also imposes considerable compliance hurdles for contractors and could create FCA pitfalls.

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War Dogs Brings the False Claims Act to the Silver Screen, Offers Lessons to Government Contractors

While we here at LLB toiled away at our FCA mapFCA statistics, and FCA case law analysis in preparation for our August launch, we did poke our heads out of our cave long enough to notice that the FCA had just hit the big screen! No, we are not talking about the highly acclaimed FCA video that now appears on LLB. In August, mere weeks before we launched, the movie War Dogs hit theatres across the U.S., recounting the (highly-)dramatized but true tale of two twenty-somethings who cashed in on enormous profits by contracting to support military operations in Afghanistan and Iraq. Operating as AEY, Inc., the unlikely duo, working from their Miami apartment, won a $300 million ammunitions contract for the U.S. Army, and—allegedly—violated the FCA along the way.

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Home Sweet Home: FHA Mortgage Insurance Carries Heavy False Claims Act Risks for Mortgage Originators

Banks are no strangers to complex regulatory schemes and close government scrutiny. That is especially true for banks originating and underwriting mortgages insured by the Federal Housing Administration (FHA), a sub-agency of the Department of Housing and Urban Development (HUD). FHA issues mortgage default insurance to lenders for more than a third of mortgages issued each year, but imposes very specific underwriting and quality control measures upon loan originators seeking FHA insurance. The scrutiny is even greater for mortgage originators authorized to issue the insurance without FHA approval. What might surprise these mortgage lenders, however, is that even seemingly small deviations from those FHA insurance underwriting rules can lead to substantial FCA liability—liability potentially larger than the value of the mortgage defaults the lender seeks to cover through FHA insurance.

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Once More, Unto the Breach of Contract…

The government and relators alike have long attempted to erode the distinction between breach of contract and fraud by bringing fraud cases based on conduct that, at most, gives rise to a claim for breach of contract. A recent case from the Second Circuit provides an illustrative peek into how one circuit is drawing a hard line in the sand this year when it comes to distinguishing between breach and fraud.

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