Companies in Florida Face Difficult Road in Recovering Restitution from Criminal Employees

A company whose employee embezzles money has limited options for recovering its losses. Often, a company must rely on law enforcement to seize the employee’s assets before the employee can dissipate all available funds.  A new law in Florida, however, will make law enforcement’s seizure of assets much more difficult and will likely result in a decrease of available resources for recovery.

On April 1, 2016, Florida Governor Rick Scott signed a bill into law that dramatically reforms the state’s asset forfeiture laws, making it more difficult for law enforcement to seize and forfeit assets of a person suspected of having committed a crime. The new law requires a suspect to be arrested before law enforcement may seize most assets.  Moreover, the law enforcement agency initiating a seizure will have to pay a $1,000 filing fee and post a $1,500 bond.  Lastly, prosecutors will have to prove beyond a reasonable doubt that that property was linked to a crime in order to make forfeiture permanent.

Florida is not the only state to have passed sweeping forfeiture reform. Last year, New Mexico passed a bill that gives the state some of the strongest protections in the country against wrongful seizures.  Furthermore, Florida and New Mexico are not likely the last states to pass asset forfeiture reform laws.  Lawmakers in California, Alaska, Hawaii, Ohio, Nebraska, and Maryland are already considering similar bills that will dramatically change how companies may recover assets taken by their employees.

Jackson Lewis attorneys are experienced in white collar criminal matters, including issues pertaining to asset forfeiture, and are available to advise companies on government forfeiture, seizure of assets, and the Mandatory Victims Restitution Act.

Department of Justice Controversial Asset Forfeiture Program Resumed

On March 28, 2016, the Department of Justice announced it was resuming its contentious “equitable sharing” program that it had suspended only months earlier. The “equitable sharing” program allows liquidated assets seized in asset forfeiture cases to be shared between state and federal law enforcement authorities with local agencies receiving up to 80 percent of the asset value of assets seized under federal law.

On December 21, 2015, the Department of Justice had announced it was suspending a program because of budget cuts included in last year’s spending bill. Department of Justice Spokesman Peter J. Carr explained, “[i]n the months since we made the difficult decision to defer equitable sharing payments because of the $1.2 billion rescinded from the Asset Forfeiture Fund, the financial solvency of the fund has improved to the point where it is no longer necessary to continue deferring equitable sharing payments.” Mr. Carr further clarified “[t]he Asset Forfeiture Fund acts in many ways like a revolving fund. Forfeited proceeds are being deposited throughout the year to replenish the funds that are simultaneously flowing out of the Asset Forfeiture Fund to pay for approved agency expenses.”

A wide-ranging Washington Post investigation in 2014 found that police had seized $2.5 billion in cash alone without warrants or indictments since 2001. In response, former Attorney General Eric Holder announced new restrictions on some federal asset forfeiture practices. These restrictions were meant to limit the ability of state and local law enforcement officials to choose more lenient federal forfeiture guidelines over state law. However, critics maintain that the reforms still leave discretion for local authorities to choose to rely on more permissive federal laws by acting as part of a joint task force with federal authorities.

The resumption of the program will greatly hinder companies who seek restitution from employees who have committed crimes. Rather than allow forfeited assets to be used to make a victimized company whole, law enforcement will likely attempt to keep the assets for itself.

Jackson Lewis attorneys are experienced in white collar criminal matters, including issues pertaining to asset forfeiture, and are available to advise companies on government forfeiture, seizure of assets, and the Mandatory Victims Restitution Act.

Law Enforcement Cannot Freeze Assets Not Tied to Crimes, Supreme Court Rules

The U.S. Supreme Court, in a 5–to-3 decision, has ruled that federal law enforcement may not freeze an accused’s assets needed to pay criminal defense lawyers if the assets are not linked to a crime. Luis v. United States, No. 14-419 (Mar. 30, 2016).

A federal statute provides that a court may freeze before trial certain assets belonging to a defendant accused of violations of specified federal laws, including statutes covering federal health care or banking. Those assets may include (1) property “obtained as a result of” the crime, (2) property “traceable” to the crime, and (3) as relevant in Luis, other “property of equivalent value.” 18 U.S.C. § 1345(a)(2).

The Luis case arose from the prosecution of Sila Luis on charges of Medicare fraud  involving $45 million in charges for unneeded or nonexistent services. The Government alleged that Ms. Luis’s profits from the fraud had been spent by the time the charges were filed. Relying on § 1345(a)(2), law enforcement asked the judge to freeze $2 million of her funds that were not connected to the alleged fraud, saying the money would be used to pay fines and provide restitution if she were convicted. Ms. Luis challenged law enforcement’s request, asserting that she needed the money to pay her attorneys. The trial judge ultimately issued the order and froze Ms. Luis’s assets. An appellate court affirmed.

The U.S. Supreme Court ruled that the judge’s order violated Ms. Luis’s Sixth Amendment right to the assistance of counsel. Justice Stephen G. Breyer, in a plurality opinion also signed by Chief Justice John G. Roberts, Justice Ruth Bader Ginsburg, and Justice Sonia Sotomayor, wrote that the government can seize “a robber’s loot, a drug seller’s cocaine, a burglar’s tools, or other property associated with the planning, implementing, or concealing a crime,” but cannot freeze money or other assets unconnected to the crime. Justice Breyer pointed out that, although the government’s interest in recovering money is important, the right to counsel is a fundamental constitutional guarantee.

Justice Breyer was careful, however, to hold that the Luis ruling did not change the general framework established by United States v. Monsanto, a 1989 decision that said freezing assets was permissible, even if it frustrated the defendant’s ability to hire a lawyer, as long as there was probable cause that a crime had been committed and the assets were linked to the offenses described in the indictment.

Justice Clarence Thomas, providing the fifth vote needed to reverse the lower courts, concurred in the judgment but did not adopt what he called the plurality’s balancing approach. While agreeing with the ultimate result, he wrote that if the right to counsel is a fundamental constitutional guarantee, it cannot be weighed against other interests.

In dissent, Justice Anthony M. Kennedy, joined by Justice Samuel A. Alito, Jr., wrote that the decision by the Court “rewards criminals who hurry, conceal, or launder stolen property.” Justice Kennedy stated that “[t]he true winners today are sophisticated criminals who know how to make criminal proceeds look untainted.”

In a separate dissent, Justice Elena Kagan maintained that she found the Court’s 1989 Monsanto decision troubling, but maintained that it required ruling against Ms. Luis, rather than drawing baseless divisions. Justice Kagan wrote, “The thief who immediately dissipates his ill-gotten gains and thereby preserves his other assets is no more deserving of chosen counsel than the one who spends those two pots of money in reverse order. Yet the plurality would enable only the first defendant, and not the second, to hire the lawyer he wants.” Justice Kagan continued, “I cannot believe the Sixth Amendment draws that irrational line, much as I sympathize with the plurality’s effort to cabin Monsanto.”

Jackson Lewis attorneys specialize in white collar and government enforcement matters and are available to advise companies on the scope of law enforcement seizure rights, asset forfeiture, and the Mandatory Victims Restitution Act.

False Claims Act Particularity Standard Still Unclear But New York & New Jersey Cases Provide Additional Guidance

By Susan M. Corcoran and Peter S. Seltzer

We are seeing a growing number of False Claims Act (“FCA”), 31 U.S.C. §§ 3729 – 3733 cases where defendants test the sufficiency of relators’ pleadings, which is the heightened pleading standard under Rule 9(b). Rule 9(b) acts as a gatekeeping function by requiring that “in alleging fraud” a “party must state with particularity the circumstances constituting fraud.”  In general terms, under Rule 9(b), courts require Relators to plead with particularity the “who, what, when, where and how” of the supposed fraudulent activity. See Kanter v. Barella, 489 F.3d 170, 175 (3d Cir. 2007).  However, the question of what constitutes such “particularity” remains an open question, as courts continue to grapple over whether “particularity” requires a relator to identify specific false claims that were submitted for payment by a federal health care program.

To state a claim under most sections of § 3729(a)(1), a relator must allege that: (1) there was a false or fraudulent claim; (2) defendants knew it was false or fraudulent; and (3) defendants made, presented, or caused to made or presented false claims to the Government for payment or approval. There is currently a deep circuit split as to what constitutes “particularity” under Rule 9(b) in the context of the FCA.

The First, Fourth, Sixth, Eighth, and Eleventh Circuits require that “a plaintiff must plead both the particular details of a fraudulent scheme and details that identify particular false claims for payment that were submitted to the government.” United States ex rel. Noah Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451, 455-56 (4th Cir. 2013), cert. denied, 134 S. Ct. 1759, 188 L. Ed. 2d 592 (2014) (emphasis added); United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 510 (6th Cir. 2007); United States ex rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d 552, 557 (8th Cir. 2006); United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1308, 1312 (11th Cir. 2002).  Comparatively, the Third, Fifth, and Ninth Circuits apply a more relaxed standard that allows a relator to plead “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted,” without pointing to a specific false claim. Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153, 156 (3d Cir. 2014); see also Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 998-99 (9th Cir. 2010); United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009).

In June 2014, the Supreme Court declined the opportunity to resolve this issue, in United States ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 134 S. Ct. 1759, 188 L. Ed. 2d 592 (2014), further solidifying the circuit split. This left relators and defendants subject to the patchwork of decisions in each circuit and without clarity as to what sort of pleadings constitute “particularity.”

Consider two recent decisions within the healthcare context which demonstrate particularity within the Second and Third Circuits.

In United States ex rel. Ortiz v. Mount Sinai Hosp., 2015 U.S. Dist. LEXIS 153903 (S.D.N.Y. Nov. 9, 2015), Xiomary Ortiz and Joseph Gaston (the “Ortiz Relators”), who held various billing positions within their organization, alleged violations of the FCA NYS False Claims Act against their employers, Mount Sinai Hospital and related entities (collectively “Mount Sinai”).  The Ortiz Relators alleged a variety of fraudulent acts, including “doctor swapping” “upcoding,” “phantom billing,” and “double billing.”  In their pleadings, the Ortiz Relators identified numerous specific illustrative examples of alleged false claims Mount Sinai submitted to the Government for reimbursement, including details concerning, inter alia, the date of the procedure/treatment, the nature of the procedure/treatment, that the claim was submitted for reimbursement/payment, and why the claim was fraudulent.  These alleged false claims included redacted references to identified patients as part of the details of billing practices.  Moreover, the Ortiz Relators alleged specific facts to support that Mount Sinai had knowledge of the submission of false claims, including an alleged internal acknowledgment that fraud existed.

Mount Sinai sought to dismiss the Complaint on a number of bases, including that “[r]elators do not plead fraud with particularity,” under Rule 9(b), and that the Ortiz Relators failed to “plead sufficient details showing specific false claims.”  Judge Richard Berman of the Southern District of New York denied the motion.  First, Judge Berman opined that the Relators satisfied the FCA pleading requirement that: “A complaint must ‘(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.’” United States ex rel. Ortiz v. Mount Sinai Hosp., 2015 U.S. Dist. LEXIS 153903, at *12-13 (S.D.N.Y. Nov. 9, 2015), quoting United States ex rel. Kester v. Novartis Pharms. Corp., 23 F. Supp. 3d 242, 251-252 (S.D.N.Y. 2014). Judge Berman explained that while “there is no mandatory ‘checklist’ of identifying information that a plaintiff must provide, the complaint must include sufficient details about the false claims such that the defendant can reasonably ‘identify [the] particular false claims for payment’ that are issue.” Id. at *13, quoting Kester, 23 F. Supp. 3d at 256  and U.S. ex rel. Karvelas v. Melrose-Wakefield Hospital, 360 F.3d 220, 232 (1st Cir. 2004). As the Second Circuit has yet to place itself on one side of the Circuit split concerning “particularity” under Rule 9(b), Judge Berman advocated for a case-by-case approach:

“[t]he level of particularity required depends upon the nature of the case, the complexity or simplicity of the transaction or occurrence, the relationship of the parties and the determination of how much circumstantial detail is necessary to give notice to the adverse party and enable him to prepare a responsive pleading.”

Ortiz, 2015 U.S. Dist. LEXIS 153903, at *25-26 (internal citations omitted).

Ortiz does not definitively enumerate the Second Circuit’s standard of particularity moving forward. However, it is instructive because it provides a snapshot of a pleading that definitively clears the Rule 9(b) hurdle by providing: (1) the date of the procedure/treatment; (2) the nature of the procedure/treatment; (3) that the claim was submitted for reimbursement/payment; and (4) why the claim was fraudulent of specific false claims, while also pleading specific facts to support the scienter element of an FCA claim. The Ortiz Relators’ identification of these illustrative examples of alleged false claims was likely sufficient under any reading of Rule 9(b), as relators “may satisfy Rule 9(b) by providing sufficient identifying information about those false claims, or by providing examples of false claims that enable the defendant to identify similar claims.” Id. at *14.

Comparatively, consider Flanagan v. Bahal, 2015 U.S. Dist. LEXIS 171292 (D.N.J. Dec. 22, 2015), in which a former medical assistant and receptionist in Defendants’ medical office alleged that the Defendants engaged in eight different illegal schemes to submit false Medicare claims for reimbursement, including (1) changing the dates of service on claims in order to increase reimbursements; (2) providing medically unnecessary services; and (3) billing for various services requiring physician review or supervision that the physician never examined or did not attend.  In support, Flanagan identified: examples of ultrasounds that did not contain physician interpretation, despite being billed as such; an allegation that she performed tests in the physician’s absence that required the physician’s supervision for reimbursement; patients using monitoring devices that were billed to the Government whose data the physician failed to review; a single instance of a medically unnecessary catheterization; an allegation that the physician prescribed unnecessary medications; and an allegation that the physician ordered medically unnecessary and atypical scans for eleven patients.  Flanagan, 2015 U.S. Dist. LEXIS 171292, at *12-25.

The District Court’s analysis highlights the circuit split on particularity, noting that in the Third Circuit under Rule 9(b), a relator must state the “circumstances constituting fraud or mistake” with particularity, but “[m]alice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Flanagan, 2015 U.S. Dist. LEXIS 171292, at *6 (citations omitted).  Similarly, the District Court also explicitly stated that within the Third Circuit, under 9(b) a relator does not need to “identify a specific claim for payment to state a claim for payment to state a claim for relief,” but can survive a motion to dismiss by providing “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Id. at *7-8 (citing Foglia v. Renal Ventures Management, LLC, 754 F.3d 153, 155-56 (3d Cir. 2014)).

The Court determined that under the Third Circuit’s less restrictive 9(b) standard, some of Flanagan’s allegations survived motion to dismiss. For example, although she could not cite a specific example of a false claim concerning improper supervision of testing, the District Court allowed Flanagan’s claim on this issue to proceed because her allegation that she personally administered the tests without physician supervision were “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Where Flanagan identified specific patients whose monitoring data the physician had not reviewed, she easily met the Third Circuit’s pleading standards under Rule 9(b), and likely would have met the standards applied in Ortiz.

By comparison, Flanagan’s allegations concerning medically unnecessary procedures, testing, and prescriptions all failed because she pled their lack of medical necessity in a conclusory manor, and failed to allege sufficient detail about the particular patients to demonstrate that the physician’s cause of action were in fact improper for reimbursement.

Lessons To Be Learned

Based on these decisions, defendants facing an FCA claim should evaluate where their jurisdiction lies on the Rule 9(b) issue. Should the complaint fail to point to a specific false claim submitted for payment, including potentially the date of the procedure/treatment, the nature of the procedure/treatment, that the claim was submitted for reimbursement/payment, and why the claim was fraudulent, attorneys may consider the value of a motion to dismiss for failure to plead with particularity, as Rule 9(b) functions as a gatekeeper against such claims. In the patchwork of standards on Rule 9(b) as well as the continued lack of clarity on the definition of “particularity,” Ortiz and Flanagan are useful guideposts for defense attorneys to understand when a motion to dismiss may be appropriate. In particular, Ortiz stands as a firm marker of how a relator may plead examples of a specific false claim submitted for payment, to withstand a motion pursuant to Rule 9(b). Based on the above, an identification of particular patients, if not specific submitted claims, will meet most Rule 9(b) pleading standard, so long as a relator actually explains why the treatment or claims meet the scienter requirement of the FCA and were “knowingly” false claims submitted for payment.

“Put Up or Shut Up:” The Third Circuit Denies Former Tyco Employee’s SOX Whistleblower Claim

There have been a series of legal battles since 2009 between Tyco Electronics Corp. and its former accounts payable manager, Jeffrey Wiest, fired for sexually harassing and engaging in inappropriate sexual relations with several female subordinates. In the latest skirmish, a Third Circuit panel unanimously backed Tyco, holding that Wiest was, in fact, discharged for sexual harassment and not for whistleblowing activity protected under the Sarbanes-Oxley Act.

Releasing its findings on February 2, 2016, on Wiest’s appeal of summary judgment entered by the District Court in favor of Tyco, the panel held that Wiest failed to offer facts sufficient to provide the necessary nexus between his protected activity and his firing. Instead, the Court emphasized that Tyco’s thorough and fully documented investigation surrounding the allegations of Wiest’s sexual behavior demonstrated that it would have taken the same steps toward termination despite Wiest’s voicing concerns over improper corporate expenses.

In its analysis, the Third Circuit set precedent when it looked to sister circuits to clarify the meaning of a “contributing factor” to a retaliatory firing under the Sarbanes-Oxley Act, which it found must be “any factor, which alone or in combination with other factors, tends to affect in any way the outcome of the decision.” Armed with this standard, the panel had no problem finding that Wiest did not meet his burden. In fact, the court cited to Tyco’s evidence that Wiest’s involvement with the corporate expense issues was limited and was not temporally related to the termination decision; and that Wiest received favorable treatment in the form of positive accolades for his loyal 30-year tenure with Tyco following his protected activities.

The court also distinguished between a motion to dismiss, in which the court accepts the allegations in a plaintiff’s complaint as true, and a motion for summary judgment under Rule 56, which the court said is “essentially ‘put up or shut up’ time for the non-moving party, who must rebut the motion with facts in the record.” The panel affirmed the lower court’s holding that Wiest failed to “put up” the necessary facts for a reasonable jury to find the allegations in his complaint to be true. Thus, the Third Circuit found that Tyco did not violate the Sarbanes-Oxley Act when it took the adverse action against him by discharging him without warning or probation.

Wiest also raised a constructive discharge claim, stating that his colleagues were “less communicative” with him after his protected actions. The Circuit Court, however, rejected this claim as well on the basis that the conduct of co-workers being less communicative “is insufficient to constitute a constructive discharge.”

Reportedly, Jeffrey Wiest may petition for an en banc hearing before the Third Circuit, so the battle may continue.

The case is Jeffrey Wiest et al. v. Tyco Electronics Corp., case number 15-2034, in the U.S. Court of Appeals for the Third Circuit

Department of Justice’s Asset Forfeiture Program Takes Huge Hit as Congress Eliminates Funding

The Department of Justice is suspending a program allowing local police departments to keep a large portion of assets seized under federal law, the Department announced December 21.

This “equitable sharing” program has allowed liquidated assets seized in asset forfeiture cases to be shared between state and federal law enforcement authorities with local agencies receiving up to 80 percent of the asset value of items forfeited. In 2010, more than $500 million was distributed to state law enforcement; over $5 billion was distributed since the program was enacted in 1984.

Recently, public scrutiny and criticism of the program has increased. Critics of the program allege that because of this program, local police departments focused on crimes that generated money for the departments themselves, rather than those directly related to danger to the community. Critics maintain, for example, that local police departments were more likely to pursue a bank fraud case against a company where money can be seized in a bank account, rather than pursue cases where no assets can be seized. Critics point out that in 2008, there were less than $1.5 billion in the combined asset forfeiture funds of the Department of Justice and the United States Treasury, but by 2014, that number had tripled to approximately $4.5 billion.   Lastly, critics correctly point out that many of these seizures occur in the absence of a conviction through administrative forfeiture where the agency forfeits the property outside the judicial process.

The Bipartisan Budget Act of 2015 (PL 114-74) enacted in November included a $756 million permanent reduction, or “rescission,” of Asset Forfeiture Program Funds. As a result of that reduction, the Department of Justice continued to make equitable sharing payments, but at a reduced amount. However, the Consolidated Appropriations Act of 2016, which was signed into law on December 18, 2015, includes an additional $458 million rescission in the Fiscal Year 2016 budget. In order to absorb the combined $1.2 billion rescission, the Department of Justice announced it will immediately defer all equitable sharing payments to state, local, and tribal law enforcement and transfers of any items for official use.

This immediate suspension will greatly benefit companies who seek restitution from employees who have committed crimes. Rather than seek to forfeit assets, the Department of Justice may allow those assets to be used to make a victimized company whole.   Jackson Lewis attorneys are experienced in white collar criminal matters, including issues pertaining to asset forfeiture, and are available to advise companies on government forfeiture, seizure of assets, and the Mandatory Victims Restitution Act.


Greater Emphasis On Corporate Compliance Programs

Early in 2015, the FBI launched a new program aimed at routing out foreign bribery in which it established three dedicated international corruption squads, based in New York City, Los Angeles, and Washington, D.C. The FBI reported that members of these three squads—agents, analysts, and other professional staff—have a great deal of experience investigating white-collar crimes and, in particular, following the money trail in these crimes. Now, the Department of Justice is taking aim at corporations and investing resources into the evaluation of the effectiveness of corporate compliance programs.

On November 3, 2015, the DOJ Fraud Section announced that it hired Hui Chen, a lawyer with previous experience as a federal prosecutor and international corporate compliance, as a full-time Foreign Corrupt Practices Act compliance expert. In that position, she will be responsible for the following:

  • Providing expert guidance to Fraud Section prosecutors as they consider whether to prosecute business entities, including the existence and effectiveness of any anti-corruption compliance program that a company had in place at the time when the criminal conduct occurred, and whether the corporation has taken meaningful remedial action, such as the implementation of new compliance measures to detect and prevent future wrongdoing;
  • Helping prosecutors develop appropriate benchmarks for evaluating corporate compliance and remediation measures; and
  • Providing expert guidance after a corporate resolution is reached to help prosecutors evaluate whether implementation of the company’s compliance and remediation measures has been effective and in keeping with the terms and purposes of Fraud Section resolutions.

There has been a lot of speculation about the potential ramifications of this DOJ development since the possibility of hiring such an expert was first announced in July 2015. What is clear is that compliance should be high on corporate agendas for 2016. The DOJ’s move will likely lead to even greater and closer scrutiny of compliance programs. The first step employers should take in responding to this change is to conduct a prompt and thorough review of their compliance programs, starting with their Code of Conduct, their internal controls, monitoring, hotline, management of investigations and reporting protocols to law enforcement.

The hallmarks of a good compliance program including the following key elements:

  • Commitment from senior management and a clearly articulated policy against corruption.
  • Code of conduct and compliance policies and procedures.
  • Oversight, autonomy, and resources.
  • Risk assessment.
  • Yearly FCPA and Code of Conduct/Compliance training.
  • Incentives and disciplinary measures.
  • Third-party due diligence and payments.
  • Confidential reporting and internal investigations.
  • Continuous improvement: Periodic testing and review.
  • Mergers and acquisitions: Pre-acquisition due diligence and post-acquisition integration.

Once the program is in place, employers cannot rest on their laurels. Instead, they must review their compliance programs periodically and assess risk, instill a strong culture of ethics and compliance at the top levels of the company, implement effective anti-corruption policies and training, conduct risk-based “due diligence” investigations on third-parties and joint venture parties, maintain strong internal controls and accurate books and records, encourage internal reporting of allegations of fraud or corruption, and investigate allegations of misconduct promptly, take appropriate remedial action, and strongly consider self-reporting to regulators.

Justice Department Announces Recovery Of Over $3.5 Billion From False Claims Act Cases In Fiscal Year 2015

The Justice Department announced that it secured over $3.5 billion in settlements and judgments from civil cases involving fraud against the government in the fiscal year ending September 30, 2015 (“FY2015”). This is the fourth year in a row that the Justice Department has recovered more than $3.5 billion in cases under the False Claims Act (“FCA”) and brings the total recoveries under the FCA to $26.4 billion since January 2009.

The FCA is a federal law prohibiting individuals and institutions from knowingly submitting or causing to be submitted, false or fraudulent claims to the federal government. Most FCA cases are filed under the FCA’s whistleblower, or qui tam, provisions, which allow private citizens to file lawsuits on behalf of the federal government. If they prevail, they can receive up to 30% of the recovery. Qui tam actions often are filed by current or former employees of the companies they accuse of making false claims. Of the more than $3.5 billion recovered by the Justice Department in FY2015, $2.8 billion was related to qui tam lawsuits. During that period, $597 million was paid to individuals who brought qui tam claims.

Health care fraud accounts for the largest percentage of the FCA recoveries, totaling $1.9 million of the FY2015 FCA recoveries. The Justice Department reported it has recovered nearly $16.5 billion in health care fraud from January 2009 through the end of FY2015. The Justice Department attributes this high rate of recovery in the health care industry in part to the Health Care Fraud Prevention and Enforcement Action Team (“HEAT”), which is an interagency task force coordinating the efforts of the Justice Department and the Department of Health and Human Services.

The FCA recoveries in the health care industry stem from a variety of circumstances, including unnecessary or inadequate care, kickbacks paid to health care providers to induce the use of certain goods and services, and overcharging for goods and services paid for by Medicare, Medicaid and other federal health care programs. Hospitals were involved in nearly $330 million in FCA settlements and judgments in FY2015. The Justice Department also noted that the pharmaceutical industry accounted for $96 million in settlements and judgments in FY2015.

Outside the health care industry, the Justice Department reported that in FY2015, government contracts and federal procurement accounted for $1.1 billion in fraud settlements and judgments in FY2015. The Justice Department also noted that it recovered $365 million in housing and mortgage fraud during that period.

In addition to placing an emphasis on FCA cases, in 2015 the DOJ also announced it hired a corporate compliance program expert for a new role in assisting federal prosecutors evaluating whether or not to prosecute companies engaged in fraudulent activity. The compliance expert will help prosecutors evaluate the effectiveness of the company’s existing compliance program and any remedial action taken in response to reports of fraudulent or criminal activity.

It is clear that FCA claims remain a high priority for the Justice Department. In addition, for those companies involved in the health care industry, it is expected that HEAT will continue to aggressively pursue claims of health care fraud. In this environment of multi-million dollar recoveries by both the federal government and individuals filing qui tam actions, one of the most important steps a company can take is to work with counsel to develop and implement a robust compliance program, and to continually monitor the effectiveness of the program and any remedial actions taken in response to complaints.

Supreme Court to Decide Whether Government can Freeze a Defendant’s Lawful Assets Pre-Conviction

Whether the government can freeze all of a defendant’s assets before trial, even where those assets are not tainted by any connection to alleged federal offenses, thereby preventing a defendant from paying for his own defense, will be decided by the U.S. Supreme Court in Luis v. United States, No. 14-419.

The federal Mandatory Victims Restitution Act of 1996 (“MVRA”) requires that defendants convicted of crimes committed by “fraud or deceit” compensate victims for the full amount of the victims’ losses. Often, however, by the time there is a conviction, criminal defendants do not have any assets to satisfy those judgments. Seeking to address this problem, the United States has invoked the Fraud Injunction Act to freeze legitimate assets pre-conviction to pay a later judgment.

The Fraud Injunction Act statute authorizes a “restraining order” against assets when a person is “alienating or disposing of property, or intends to alienate or dispose of property” that is “obtained from” or “traceable to” certain federal offenses. In such cases, the statute permits a court to prohibit the use of tainted property “or property of equivalent value” before trial to ensure that sufficient assets are available to satisfy any judgment.

In 2012, the federal government charged Sila Luis with conspiracy to commit Medicare fraud – a scheme allegedly amounting to over $45 million, stemming from claims for home health services that were neither medically necessary nor actually performed. Using the Fraud Injunction Act, the federal government asked the district court to freeze all of Luis’s assets, including those that were not even allegedly obtained through fraud, totaling approximately $15 million. The district court agreed to impose the freeze. .

Luis then requested that the district court release her untainted assets so she may retain her lawyer. The district court denied the request, explaining that, because the government could locate “only a fraction of the assets” Medicare had paid Luis’s companies, her “untainted” assets also could be frozen. The district court likened Luis’s situation to that of a bank robber indicted for stealing $100,000; That is, if the robber has already spent the allegedly stolen money which he could not use to hire his preferred lawyer in any case, he also should not be able to spend a different $100,000 he “just happens” to have to hire the lawyer he wants.

Luis appealed the district court’s decision, arguing she was being deprived of her Fifth Amendment right to due process of law and her Sixth Amendment right to counsel of her choosing. The Court of Appeals for the Eleventh Circuit, in Atlanta, upheld the district court’s denial of her request to release her legitimate assets, stating that Luis’s arguments were foreclosed by the U.S. Supreme Court’s decision in Kaley v. United States (2014) and other decisions.

In Kaley, the Supreme Court held that when the government, following a grand jury indictment, restrains tainted assets needed to retain a lawyer, the Fifth and Sixth Amendments do not require a pretrial hearing at which the defendant can challenge a grand jury’s finding of probable cause.

Luis asked the Supreme Court to review the case. The Court agreed to do so and recently heard argument. A decision is expected by next June.

Jackson Lewis attorneys specialize in white collar criminal matters and are available to advise companies on the Mandatory Victims Restitution Act, government forfeiture, and government seizure of assets.

Court to Rehear Whether Government May Compel Disclosure of Cell Phone Location Information Without a Warrant

During a cellphone call, the cellphone interacts with its mobile carrier, allowing the carrier to track that phone’s approximate location, also known as cell-site location information or “CSLI.” CSLI is saved on the carrier’s computer system. Prosecutors can obtain this CSLI, often without a warrant, to place defendants at crime scenes by tracing movements of the cell phone and its user through both public and private places.

In August 2015, a divided three-judge panel of the United States Court of Appeals for the Fourth Circuit, in Richmond (covering Maryland, North and South Carolina, Virginia, and West Virginia), ruled the government’s procurement of cellphone location data from mobile carriers was an unreasonable search under the Fourth Amendment because “[e]xamination of a person’s historical CSLI can enable the government to trace the movements of the cell phone … and thereby discover the private activities and personal habits of the user” and “cell phone users have an objectively reasonable expectation of privacy in this information. Its inspection by the government, therefore, requires a warrant, unless an established exception to the warrant requirement applies.” United States v. Graham, No. 12-4659 (4th Cir. Aug. 5, 2015).

The Fourth Circuit’s panel holding created a split among the Circuit Courts. The Eleventh Circuit (covering Alabama, Florida, and Georgia) and the Fifth Circuit (covering Texas, Mississippi, and Louisiana) have held that historical CSLI is not protected by the Fourth Amendment.

However, on October 28, 2015, the Fourth Circuit granted the government’s petition for rehearing en banc, before all judges of the court, in Graham, vacating the panel decision and eliminating for now the apparent circuit split and any immediate need for Supreme Court resolution . The increasing interest among the Circuit Courts in possible Fourth Amendment protection of electronic information reflects an increasing realization that computer search issues are important, difficult and in need of careful attention.

The U.S. Supreme Court likely will need to address the increasingly important issue of Fourth Amendment protection for private individual and business information stored electronically with a third party carrier. Jackson Lewis attorneys are available to advise companies on the scope of the Fourth Amendment and their rights in maintaining their confidential information on business-related electronic devices.