Government Enforcement & Corporate Investigations

The U.S. Department of Justice’s (the “Department”) Civil Division recently announced a new anti-fraud initiative dubbed the Fraud Oversight through Careful Use of Statistics (FOCUS) initiative. FOCUS is designed to formalize the Department’s engagement with so-called “data miner” relators who file qui tam complaints under the False Claims Act (FCA). The announcement signals the Department’s intent to both leverage a fast-growing source of FCA litigation and discourage data-miner relators from filing actions that cannot overcome a motion to dismiss. It carries significant implications for government contractors, grant recipients, healthcare providers, lenders, importers, and other recipients of federal funds whose dealings with the United States leave a public data trail. The FOCUS Initiative FOCUS is a response to the explosion of FCA qui tam lawsuits in recent years, culminating in a record 1,297 qui tam complaints in FY 2025. In FY 2026, there have already been 780 qui tam lawsuits filed—putting us on pace for another record-setting year. Much of the surge has been driven not by traditional insider whistleblowers (e.g., current and former employees), but by companies and individuals analyzing publicly available government data for potential signals of fraud. Through FOCUS, the Civil Division seeks to provide guidance to would-be data-miner relators to ensure that their qui tam complaints are worthy of civil prosecutors’ time and have the potential of withstanding a motion to dismiss. Civil Fraud Section prosecutors will meet with data miners to assess their analytical capabilities, validation methods, and the reasons their data signals reliably correlate to actionable fraud. These pre-filing meetings are voluntary, not a precondition to filing. But the Department has signaled that it will preferentially work with data miners that demonstrate an investment in pre-filing diligence, analytical rigor, familiarity with program rules, and legally sufficient allegations. This may be another part of the Department’s broader interest in weeding out unmeritorious qui tam actions quickly, and potentially even seeking their dismissal. Background: The Rise of the Data-Miner Relator The traditional FCA relator is an industry insider: a former employee, contractor, vendor, or consultant with firsthand knowledge of alleged misconduct. The 1986 amendments to the FCA were structured around that paradigm, with bounty incentives of 15% to 30% of any recovery designed to encourage insiders to come forward. Over the last decade, however, a different model has emerged: “whistleblowers” who identify potential fraud solely through pattern analysis of publicly disclosed government data. Data-miner relators typically rely on large federal data sets, including Medicare and Medicaid claims data published by the Centers for Medicare & Medicaid Services, Paycheck Protection Program (PPP) loan disclosures by the Small Business Administration, customs and trade data, and federal grant and contract award databases. The data miners apply statistical analyses, or, increasingly, machine-learning and AI tools, to flag anomalies or connections in the data that suggest fraud. PPP loans have been a particularly active driver of recent filings, with data miners cross-referencing SBA loan data against company filings, state corporate registries, news media, company websites, and other public sources to identify potential affiliation, headcount, or eligibility issues. Mixed Results in the Courts Data-miner relators have faced two structural defenses. First, the FCA’s public disclosure bar, 31 U.S.C. § 3730(e)(4), precludes qui tam suits substantially based on certain public disclosures unless the relator is an original source. Second, Federal Rule of Civil Procedure 9(b)’s requirement that fraud be pleaded with particularity, which applies to FCA claims, has proven difficult to satisfy for data miners, where statistical inference is their primary tool. The leading appellate decisions reflect judicial skepticism of “stats without facts” pleadings. For example, the Ninth Circuit reversed the denial of a motion to dismiss where the relator, a self-described data analytics company with no insider knowledge, relied on statistical analyses of CMS claims data to allege a Medicare upcoding scheme.1 The court held the data-miner relator had offered only a possible explanation for billing patterns that were equally consistent with a plausible, lawful alternative explanation, and therefore failed to cross the line from possibility to plausibility under Iqbal and Twombly. The Fifth Circuit reached a similar conclusion holding that statistical data cannot satisfy Rule 9(b) where it is equally consistent with a legal and obvious alternative explanation.2 The government has pushed back against opportunistic professional relators. In United States ex rel. CIMZNHCA, LLC v. UCB, Inc., the Department moved to dismiss a qui tam filed by an entity organized specifically for that qui tam action and by an organization that had established nearly a dozen other entities to pursue parallel Anti-Kickback Statute–based FCA cases against pharmaceutical manufacturers.3 The Department argued the cases lacked sufficient merit to justify the cost of investigation and were contrary to the public interest. The Seventh Circuit ultimately reversed the district court’s denial of the motion, observing that the FCA was not designed to operate as an investment vehicle for financial speculators. But the caselaw cuts both ways. Where data miners have invested in genuine pre-filing investigation, supplemented public data with non-public information, or tied their analyses tightly to documented program requirements, courts have allowed suits to proceed past the pleading stage, and the Department has occasionally even intervened. PPP-related qui tam actions brought by data miner entities have produced significant recoveries and are principal drivers of the FY 2024 and FY 2025 surge in qui tam filings. What the FOCUS Initiative Signals Read against this backdrop, FOCUS reflects a few policy choices. First, the Department is embracing the data-miner relator model. The Civil Division could have responded to the qui tam surge by pressing for more restrictive judicial constructions of the public disclosure bar or by expanding its use of dismissal authority under 31 U.S.C. § 3730(c)(2)(A). Instead, the Department is opening a formal channel for engagement, on the premise that the most sophisticated analytics partners may surface from the ocean of data frauds the Department or other whistleblowers might otherwise miss. Second, the Department intends to triage and filter. By prioritizing data miners that can articulate validation methods, demonstrate pre-filing diligence, and show familiarity with program rules, the Department is implicitly distinguishing rigorous data miners from less sophisticated and more opportunistic ones. Cases built on raw statistical outliers without supporting facts, like the model the Fifth and Ninth Circuits have rejected, may be less likely to merit DOJ attention (or intervention). The Department has recently expressed increased interest in discouraging unmeritorious qui tam actions. FOCUS may be a significant component of that effort given the number of data-miner relator qui tam actions. Through FOCUS, DOJ cautions data-miner relators that they must: “provide valuable leads through high-quality, reliable, and predictive data analyses and signals and a thorough understanding of the relevant legal obligations”; “state with particularity the circumstances constituting fraud” under Rule 9(b); “assess potential alternative explanations for the observed conduct” and “articulate . . . both scienter and falsity”; and demonstrate “program eligibility requirements and relevant regulatory frameworks.” Third, FOCUS complements the Department’s broader fraud-enforcement trends. With FCA recoveries setting a record at $6.8 billion in FY 2025, the cross-agency Trade Fraud Task Force ramping up tariff- and customs-related FCA enforcement, the Civil Cyber-Fraud Initiative continuing to mature, and DEI-related civil rights FCA initiatives recently announced, FOCUS adds yet one more effort toward the Department’s FCA enforcement push. Considerations for FCA-Exposed Organizations For organizations that directly or indirectly receive federal funds, news of the FOCUS Initiative reinforces the need to monitor developments in FCA enforcement and continue to invest in robust compliance programs. A few practical implications are worth highlighting: Public data is potential enforcement data. Data an organization submits to or generates for the federal government, such as claims data, loan applications, customs entries, payroll certifications, grant certifications, and many others, may be or may soon be accessible to data-miner relators. That is a key risk vector, but also an opportunity, as organizations can pressure-test internal data against the same kinds of analyses third parties run externally, including outlier and anomaly detection on billing, pricing, and reporting data. Documentation of legitimate variation could be a difference maker. The Fifth and Ninth Circuits’ rejections of data-miner relator FCA theories rested largely on the Courts’ willingness to credit lawful alternative explanations for statistical outliers. Organizations that can document why their billing, coding, payroll, or pricing patterns may differ from peers, such as because of case mix, geography, business model, regulatory interpretation, or other lawful drivers, may be substantially better positioned if a data miner’s complaint is unsealed or DOJ opens an investigation. The value of pre-CID self-assessment and self-disclosure may be increasing. Once the Department engages with a data-miner relator through FOCUS, the path from analytic insight to civil investigative demand may be shorter than under the traditional insider-driven model. When an organization’s internal review surfaces genuine compliance issues, particularly in current Department priority areas, such as Medicare Advantage risk-adjustment coding, PPP eligibility and forgiveness, customs valuation and country-of-origin, and cybersecurity certifications, early voluntary disclosure and remediation could meaningfully affect resolution outcomes.  Dorsey’s Government Solutions and Investigations Practice Group counsels and represents organizations that received federal funds, including government contractors, government grantees, healthcare providers, financial institutions, and other recipients, on FCA risk, response to HHS-OIG subpoenas, FCA civil investigative demands, defense of qui tam litigations, and compliance programs. Please contact the authors or your Dorsey relationship attorney with questions about how the FOCUS initiative may affect your organization. 1 United States ex rel. Integra Med Analytics, LLC v. Providence Health & Servs., 854 F. App’x 840 (9th Cir. 2021). 2 United States ex rel. Integra Med Analytics, LLC v. Baylor Scott & White Health, 816 F. App’x 892 (5th Cir. 2020). 3 United States ex rel. CIMZNHCA, LLC v. UCB, Inc., 970 F.3d 835 (7th Cir. 2020).

Drug manufacturers participating in the Section 340B Drug Pricing Program now face a significant new litigation risk under the False Claims Act (“FCA”).  In a recent decision, Adventist Health System v. AbbVie, the Ninth Circuit reversed a district court to hold that a covered entity can pursue an FCA qui tam action premised on 340B overcharging even though Section 340B itself provides no private right of action. For hospitals, health systems, and other 340B-participating entities, the ruling deserves careful attention. Background: The 340B Program and Astra USA v. Santa Clara County The 340B Program, created in 1992, requires drug manufacturers that participate in Medicaid to sell drugs to qualifying covered entities, such as safety-net hospitals, federally qualified health centers, and similar facilities, at ceiling prices set by a statutory formula.  Covered entities use the discounted acquisition costs to stretch limited resources for low-income and uninsured patients. For years, the principal legal obstacle to covered entities pursuing overcharge claims has been Astra USA, Inc. v. Santa Clara County, 563 U.S. 113 (2011). The Supreme Court held that Section 340B suits by covered entities to enforce manufacturers’ Pharmaceutical Pricing Agreements are “in essence” suits to enforce the statute itself, which are barred because the statute does not create a private right of action.  If a covered entity believed it was overcharged, the exclusive remedy was Section 340B’s Administrative Dispute Resolution process, administered by the Health Resources and Services Administration (“HRSA”). Covered entities have complained for years that the ADR process is slow, resource-intensive, and provides only direct remedies like overcharge reimbursement or PPA termination.  Notably, the ADR process does not provide anywhere near the scope of damages and penalties available under the FCA, which allows treble damages and per-claim penalties. Adventist’s Allegations Adventist, a nonprofit operator of clinics and hospitals, alleged that AbbVie, AstraZeneca, Novartis, and Sanofi knowingly charged prices that violated 340B’s ceiling price formula for many years.  According to the qui tam complaint, all four manufacturers dropped the prices for several categories of drugs to $0.01, the default price when 340B’s ceiling price formula results in a ceiling price of $0 under HRSA’s penny pricing rule.  Adventist contends that market forces could not explain the sudden uniformity of the decrease, but instead that the drop is explained by years of inappropriate price increases followed by belated correction. Adventist brought suit as a qui tam relator on behalf of the federal and state governments, alleging that the inflated manufacturer prices caused Medicaid and Medicare to reimburse covered entities at fraudulently inflated rates, that critical access hospitals overbilled Medicare at 101% of costs, and that government-funded prisons and clinics paid unlawfully inflated prices. The Ninth Circuit’s Holding The Court reversed the district court’s dismissal on two independent grounds.  First, the Court reasoned that the absence of a private right of action under Section 340B does not bar an FCA qui tam action.  The Court ruled that the FCA provides its own independent right of action and creates a cause of action on behalf of the government.  As a result, Adventist was not suing to vindicate its own interests as a covered entity.  Rather, it was suing on behalf of the government.  The Court analogized to an earlier decision holding that the absence of a private right of action under the Service Contract Act did not bar a relator from bringing FCA claims premised on violations of that Act.  To the Court, what mattered was whether false claims were presented to the government, not whether the relator could independently enforce the underlying regulatory requirement. Second, the Court explained that Adventist’s claims are not “in essence” an attempt to enforce Section 340B in an end run on Astra USA.  There, the plaintiff sought compensatory damages for breach of contract, relief that mirrored what the 340B ADR process provides.  Here, Adventist seeks treble damages and civil penalties under the FCA for false claims submitted to government healthcare programs.  The Court concluded this difference placed Adventist’s claims in a different category, noting that Adventist’s claims of an FCA violation required more because “the violation of a statute does not itself create a violation of the FCA.” The Court also rejected the defendants’ arguments regarding a failure to allege falsity, holding that the plain text of the statutory ceiling price formula independently required penny pricing regardless of any regulation, and that HRSA’s 2011 written guidance had formally adopted that interpretation years earlier. What This Means Going Forward For covered entities, the decision potentially opens a previously unavailable avenue to pursue fraud losses the government sustained from 340B overcharging, which is beyond the losses recoverable through the ADR process.  Covered entities sitting on pricing anomaly data, or on evidence of precipitous price decreases like those alleged here, may have a viable FCA theory to evaluate alongside the ADR route. For drug manufacturers, the exposure calculus has changed materially, particularly in the Ninth Circuit.  FCA liability means treble damages plus per-claim civil penalties, consequences that would be far steeper than ADR reimbursement.  The FCA’s statute of limitations and statue of repose, however, may limit the scope of potential liability based on Adventist’s theory. The decision highlights the importance of documentation around 340B ceiling price calculations and compliance histories.  The Court permitted Adventist’s pre-2019 claims to survive at the pleading stage based on the theory that the statutory formula was self-executing.  What discovery reveals about how the defendant manufacturers calculated and what the defendants knew about ceiling prices in earlier years will likely be key to ultimate exposure. The Ninth Circuit’s ruling has no immediate effect outside the circuit, and it may well be contested further.  But given the scale of the 340B program, which facilitated more than $80 billion in drug purchases in 2024 alone, and the relative novelty of FCA theory, the Adventist decision is a development that organizations and practitioners across the spectrum will monitor closely.

This is the sixth post in the Dorsey FCANow Blog’s FCA Basics Series covering the fundamentals of the False Claims Act (“FCA”), outlining FCA procedure and highlighting key facets of FCA practice.  Today’s post discusses pre-litigation matters: government investigations and voluntary self-disclosure of violations. FCA Investigations There are a few different ways the government finds out about fraudulent activity. When a relator files a qui tam action, the government concurrently receives a disclosure of material evidence from the relator, assesses the allegations, makes a delegation determination, and typically opens an investigation.  Early in the assessment process, DOJ often determines how the investigation will be staffed: (1) delegated investigations are fully delegated to the local U.S. Attorney’s Office (“USAO”); (2) monitored investigations are include some degree of reporting from the USAO to Civil Frauds, but the local USAO typically maintains primary responsibility for the investigation; or (3) joint investigations which are handled by both Civil Frauds and the USAO.  The government may also initiate an investigation based on whistleblowers who report fraudulent activity directly to the Department of Justice without filing a qui tam, public reporting or litigation, data mining, self-disclosures, or through other agency oversight activities. CIDs and Subpoenas The Department of Justice wields potent pre-trial investigative tools that are not available in other forms of litigation. One such tool is the civil investigative demand (“CID”). CIDs give the government authority to compel witnesses to produce documents, sworn testimony, and answers to interrogatories—all before a complaint is filed (or before a qui tam is unsealed).  The scope of discovery with CIDs is broad, and DOJ may serve CIDs on any organization or person the government believes has information relevant to an FCA investigation. CIDs are, however, subject to certain limitations. CIDs can only be issued before the government files a lawsuit or intervenes in qui tam suit, at which point the government’s investigative tools are largely the traditional civil discovery methods.  Additionally, the government cannot demand information protected by a grand jury subpoena or other recognized protections from disclosure of documents or information.  This includes attorney-client privileged communications, attorney work product, or Fifth Amendment-protected communications.  Courts often defer to Department of Justice authority and enforce CIDs so long as they are reasonably relevant to the investigation and follow procedural requirements. CIDs are enforced through direct action in federal district court. Additionally, many agencies, including the Department of Health and Human Services Office of Inspector General, can issue administrative subpoenas compelling production of documents or testimony relevant to FCA claims or other potential violations of regulations or statutes. Self-Disclosure “Self-disclosure” refers to a voluntary disclosure to the government of a potential FCA violation.  Some agencies, like the Department of Health and Human Services, have formal mechanisms to self-disclose potential FCA violations, whereas other agencies do not. Self-disclosure can be a valuable tool to mitigate the potential consequences of an FCA violation for a couple reasons, both legal and strategic. The FCA contains provisions that allow for a reduction in damages for voluntary disclosures of a violation of the FCA, and the Justice Manual contains similar language.  DOJ considers voluntary disclosure when evaluating the appropriate resolution of FCA violations.  While the Justice Manual does not provide clear guidance on how cooperation credit is calculated, it does require some form of credit for “proactive, timely, and voluntary” self-disclosure.  Voluntary self-disclosure may also reduce the likelihood the government demands other serious disciplinary action, such as corporate integrity agreements or administrative penalties. Voluntary self-disclosure also carries possible risks. The government will frequently conduct its own investigation in response to significant self-disclosures to verify the scope of the disclosure and potential violations.  As a result, it often behooves the self-disclosing party to undertake its own assessment of the full scope of any potential violations to ensure that the self-disclosure is as thorough and accurate as possible.

Deputy Assistant Attorney General Brenna Jenny reaffirmed DOJ’s commitment to targeting employment practices at organizations that receive federal funding with the False Claims Act during the Federal Bar Association’s annual Qui Tam Conference in Washington, D.C. In her prepared remarks, Jenny also identified fact patterns that represent the types of “antidiscrimination” FCA claims DOJ is pursuing. What was the state of play before Jenny’s remarks? In the early months of 2025 and the second Trump administration, the White House and DOJ issued numerous executive orders1 and memoranda threatening federal enforcement actions against entities engaging in ambiguously defined “illegal DEI.” According to public reporting by the Wall Street Journal (and confirmed by Jenny), DOJ has opened FCA investigations into claims of discrimination by corporate federal contractors. DOJ’s theories, however, have yet to be tested in court or result in publicly acknowledged settlement agreements. What did Jenny say? Jenny distanced DOJ’s efforts from the administration’s previous emphasis on “DEI,” stating that the targets of DOJ’s investigations were not being investigated for having DEI programs. Jenny specifically observed that federal contractors can operate DEI programs without discriminating, and that DOJ’s enforcement efforts were instead focused on noncompliance with federal antidiscrimination laws. Jenny suggested this approach was consistent with both statute and the judiciary’s interpretation of the law, saying those authorities have rejected discriminating today to fix discrimination in the past. Jenny also referred to preexisting antidiscrimination standards in the Federal Acquisition Regulation (“FAR”), such as the FAR’s prohibition on discrimination against employees or applicants based on race, sex, or other protected characteristics (see FAR 52.222-26(c)(1)), as an example of the basic commitment to opportunity, advancement, and compensation based on merit rather than protected characteristics. Jenny did not address the tension between DOJ’s position and the FAR’s longstanding affirmative action requirements. Notably, Jenny also disclosed that nearly 500 qui tam lawsuits have been filed in the first six weeks of this year, a figure that far outpaces even 2025’s record-breaking number of filings. This is explosive growth in qui tams—for additional context, prior to the 1986 Amendments to the False Claims Act, the number of qui tams filed nationally often was less than 20 per year. What types of conduct is DOJ investigating? Jenny reported that DOJ’s antidiscrimination FCA investigations have centered around companies with programs or practices that pressured supervisors to make hiring or promotion decisions based on race or sex. She also noted that the “particularly strong” cases were those in which the pressure had the intended effect and resulted in employment decisions based on race or sex. DOJ’s pending investigations generally fall within three categories of fact patterns: Creating and tracking demographic goals for particular roles. According to Jenny, these are frequently tracked via color-coded charts where green indicates the goal has been met. Jenny characterized this tracking as treating race or sex as a performance metric. Tying employee compensation to the development of diversity goals. While Jenny noted that promoting diversity is not “necessarily” unlawful, tying compensation or performance evaluations to the development or achievement of diversity goals is problematic under DOJ’s interpretation of the law. Tying employee compensation to achieving demographic goals. Jenny stated this most often occurs with senior executives or recruiting professionals, either on a business-wide or unit-specific basis. Jenny also warned against executive training and mentoring programs for employees with specific protected characteristics that are internally marketed as providing exclusive opportunities. Jenny also indicated that requiring a certain number of applicants with specific protected characteristics to apply, or lowering standards for interviews for candidates with specific protected characteristics, “raises serious questions” under federal antidiscrimination law. What did Jenny say about DOJ’s legal theories? Jenny provided some insight into DOJ’s view of how the FCA supports its antidiscrimination claims. Addressing the element of materiality, Jenny stated federal contracting is not solely about the good or service being contracted for: it is about carrying out public works consistent with the law and federal policy objectives. When a company discriminates, Jenny said, they step outside the conditions for federal financial support. Jenny also rejected the notion that the “headcount” of previous claims based on similar violations indicates a lack of materiality. Jenny also argued that scienter is not hard to prove in these cases, even when there is no direct evidence of a directive to hire a certain number of individuals of a particular race or sex, for example. Training materials, emails, meeting notes, and other records showing a directive or intent to make employment decisions based on protected characteristics can all support a finding of scienter, according to Jenny. Finally, Jenny noted the government holds a lot of flexibility in determining damages for antidiscrimination FCA claims against government contractors, up to and including the full value of the contract(s) with the government. In considering any multipliers, Jenny said DOJ will consider cooperation, the duration and scope of the conduct, the involvement of senior leadership, and remediation. Finally, Jenny warned that DOJ will seek per-claim penalties in addition to damages. *** While DOJ’s theories behind their antidiscrimination FCA investigations have not yet been tested in court, DOJ continues to project a commitment to using the FCA to punish recipients of federal funding for engaging in what the administration views as discriminatory practices. Recipients of federal funds should ensure that they have a full understanding of their own diversity, DEI, and employment practices and conduct a candid assessment of DOJ’s likely view of those practices. And given the long duration of FCA investigations and litigations, organizations should think strategically and carefully about risk mitigation and act with purpose when they receive a civil investigative demand. 1 See Executive Order 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity (Jan. 21, 2025).

This is the fifth post in the Dorsey FCANow Blog’s FCA Basics Series covering the fundamentals of the False Claims Act (“FCA”), outlining FCA procedure, and highlighting key facets of FCA practice. Today’s post covers the categories and scope of FCA liability. Theories of Liability There are three principal ways an FCA defendant can be found liable: factual falsity, legal falsity, and/or “reverse” false claims.  In addition, the criminal Anti-Kickback Statute often provides an independent basis for FCA liability in the healthcare sector.   Factual Falsity. A claim to the federal government is factually false where some fact about the deliverable is false. A classic (and perhaps apocryphal) example traces back to the American Civil War where the Union Army was said to have received sawdust instead of gunpowder. As a more contemporary example, a claim for medical services that were not actually rendered—or that are different from those actually rendered—would be a factually false claim. Legal Falsity. A claim is legally false if it violates a legal condition of payment for the product or service being billed. For example, if a non-licensed individual provides healthcare services for a federal healthcare program beneficiary, those claims would be considered legally false for violating the condition of payment that the provider be qualified to provide the billed-for services. Reverse False Claims. The reverse false claims provisions of the FCA give the government a means to recover from someone who makes a material misrepresentation to avoid paying an obligation owed to the government. Unlike traditional false claims, reverse false claims involve preventing the government from collecting money it is owed, rather than making a false claim to receive money from the government. One classic example of a reverse false claim is if a provider knowingly retains an overpayment. Liability for retention of an overpayment arises where a party received from the government more money than it was due and knowingly fails to return the overpayment.  Another increasingly common example is when importers misrepresent the product being imported into the country or the product’s country of origin to avoid paying tariffs or other duties.  Notably, however, the FCA specifically excludes tax-related obligations. Anti-Kickback Statute. The Anti-Kickback Statute (“AKS”) is a criminal liability statute that prohibits rewarding or paying for referrals for services covered by federal health care programs (i.e., kickbacks). It was enacted to prevent kickbacks from influencing healthcare decisions and is designed to protect federal healthcare programs from overutilization, increased costs, and potential fraud. The AKS has numerous “safe harbor” provisions exempted certain conduct from liability, but claims submitted to the government that are “tainted” by an AKS violation are false claims under the FCA. Scope of Liability FCA damages and penalties are crucial components of FCA litigation as damages often drive the government’s or relator’s decision to litigate. The FCA imposes a rough form of justice upon those found liable for defrauding the government: the FCA applies treble (triple) damages in most circumstances, plus per-claim penalties. Public policy concerns, primarily deterrence, justify these steep penalties. However, recovery is not meant to be a windfall for the government, and FCA damages generally exclude consequential damages, pre-judgment interest, punitive damages, and investigation costs. In some FCA contexts, the government’s damages are the amount of money it paid minus the amount it would have paid had the claim not been false—multiplied by three. For example, if the government paid for $5 per widget for 100 widgets ($500) but only twenty widgets were delivered ($100), then the government’s actual damages are $400 and its trebled damages are $1,200.  In other FCA contexts, the damage to the government could be the entire amount paid without claims for offsets.   In reverse false claims, damages are the difference between the amount paid to the government and the amount the government should have been paid. If the government collects a duty of $2 on each microwave imported into the United States, and Acme imports 1,000 microwaves but only discloses and pays the duties on the first shipment of 100, then the actual damages are $1,800 and the trebled damages are $5,400. Trebled damages are accompanied by per-claim penalties, which are adjusted annually for inflation. Currently, the adjusted per-claim penalties range from $14,308 per claim to $28,618 per claim. As a result, what is considered a “claim” under the FCA can have significant impacts on potential exposure. The Eighth Amendment’s Excessive Fines Clause In an FCA action, civil penalties may dwarf the government’s actual damages. These situations may implicate the Excessive Fines Clause of the Eighth Amendment which prohibits punitive fines that are excessively disproportionate to an offense. Several courts have applied the Excessive Fines Clause to FCA cases as well as qui tam actions where the government has chosen not to intervene.

This is the fourth post in the Dorsey FCANow Blog’s FCA Basics Series covering the fundamentals of the False Claims Act (“FCA”), outlining FCA procedure, and highlighting key facets of FCA practice.  Today’s post focuses on procedural requirements, including the FCA’s statute of limitations rules, statute of repose, first-to-file rule, and public disclosure bar. FCA Statute of Limitations The statute of limitations on an FCA claim is generous—either six years after a violation “is committed”, or within three years of the date when the government learned or should have learned the facts material to the false claim.  Accordingly, disputes related to the statute of limitations tend to center on two issues: (1) when a violation is “committed” under the FCA, and (2) how to determine the date of government knowledge. Courts have taken divergent approaches to identifying when an FCA violation is “committed,” but two general approaches have emerged.  First, courts hold that the limitations period begins on the date the false claim is “submitted” to the government.  Second, other courts have extended the limitations period by determining the violation is “committed” on the date the government pays the claim. In certain circumstances, the FCA’s statute of limitations may be extended beyond the ordinary six years.  The FCA allows for a separate three-year statute of limitations when the United States first becomes aware of facts material to a FCA claim.  The three-year extended FCA limitations period does not run until material facts are known (or should be known) by a government official with authority to act in the circumstances.  Courts generally engage in a two-pronged analysis  in assessing when and whether this extended limitations period applies, asking (1) whether the facts are material to an actionable FCA claim, and (2) if the facts where known—or should have been known—to a relevant government official.  Therefore, the three-year period has the possibility of exceeding the six-year period if the violation is concealed from the government. While the FCA provides for a generous statute of limitations, it also caps the term of liability with a ten-year statute of repose barring any lawsuit more than ten years after the alleged fraud occurred. Statute of Limitations in Qui Tam Lawsuits Until fairly recently, it remained an open question whether relators could rely on the extended limitations period based on the government’s knowledge (or lack thereof) in pursuing qui tam litigation.  The United States Supreme Court addressed this question in Cochise Consultancy, Inc. v. United States ex rel. Hunt, 587 U.S. 262 (2019). In Cochise, a relator initiated a qui tam action alleging two government contractors committed fraud on the government.  The relator filed their claim more than six years after the alleged fraud was “committed,” but within the ten-year statute of repose.  While the government declined to intervene, the government first became aware of the material facts of the alleged fraud through the relator’s suit and disclosure.  The Supreme Court held that the extended limitation period applied to the relator in the same way it would to the government.  The Court found that relators are afforded the extension based on the government’s knowledge, not their own, even when the government declines to intervene.  Somewhat counterintuitively, the result is that relators could have up to ten years to pursue claims under the False Claims Act when the government is unaware of the potential fraud.  This risk, of course, is that relators are not always privy to what information the government does or does not have related to a potential claim of fraud. Qui Tam Procedural Considerations Two other possible defenses to an FCA claim emerge in the context of timing for qui tam actions: the public disclosure bar and the first-to-file bar. The public disclosure bar prohibits relators from bringing a qui tam action based on fraud that is already publicly disclosed through judicial or administrative proceedings, government audits or investigations, or news media reporting.  The purpose of the bar is to discourage opportunistic relators bringing lawsuits that are misaligned with FCA’s whistleblower system.  Notably, there is an exception to the public disclosure bar when the person bringing the action is the original source of the information.  Under the FCA, an original source is an individual who either: (1) prior to a public disclosure, voluntarily disclosed to the government the information on which the allegations in a claim are based, or (2) has knowledge that is independent and materially adds to the publicly disclosed allegations and voluntarily provided that information to the government before filing an FCA action. The first-to-file bar prevents multiple relators from obtaining recoveries based on the same underlying facts. In effect, the result of the first-to-file bar is that the first relator in time to file a qui tam action tends to have priority when obtaining a relator’s share of the government’s recovery.  In multiple-relator disputes, relators will often seek to distinguish their claims from prior lawsuits or emphasize the unique value they contributed to the government’s recovery.  The mandate for qui tams to be filed under seal (and are frequently maintained under seal for months or years at a time) often makes it difficult for relator’s counsel to determine if they are in fact the first to file a suit.  In sum, the first-to-file bar provides an avenue for FCA defendants to avoid defending against multiple qui tam suits over the same conduct.

The Department of Justice (DOJ) announced that False Claims Act (FCA) settlements and judgments surpassed $6.8 billion in FY 2025—the highest single-year total in FCA history.1 DOJ reported a record 1,297 qui tam filings and 401 new government investigations opened for the year. Healthcare fraud enforcement once again dominated the recoveries, accounting for more than $5.7 billion of the total. By the Numbers2 Total FCA recoveries: $6.888 billion (record high and a 136% increase over FY 2024) Qui tams filed: 1,297 (record high; prior record set in 2024 with 980) Government investigations opened: 401 (down from 425 in 2024) Recoveries by case type: $5.34 billion from qui tam matters (includes both intervened and declined cases) vs. $1.55 billion from non-qui tam cases Sector breakdown: Health and Human Services (HHS): $5.722 billion (83% of total recoveries, and up from last year’s total of $1.8 billion) Department of Defense (DoD): $633.9 million (up from last year’s total of $98.3 million) Other (non-HHS/non-DoD): $532.6 million (down from last year’s total of $1.23 billion) DOJ's Key Enforcement Areas DOJ emphasized that “[s]topping rampant fraud is a top priority, and this record-breaking year proves the False Claims Act remains one of the government’s most powerful weapons against fraud.” DOJ highlighted three areas where it directed its resources and enforcement efforts: healthcare fraud, fraud involving government procurement, loan, and grant programs, and fraud that evades tariffs and customs duties. Healthcare Fraud With more than $5.7 billion in recoveries, 83% of the total, healthcare fraud enforcement continues to predominate FCA recoveries. DOJ highlighted three focal points for FY 2025: managed care (especially Medicare Advantage), prescription drugs, and medically unnecessary services and substandard care. DOJ continues to pursue allegedly unsupported risk-adjustment coding in Medicare Advantage, including a matter in which a health plan and its affiliate agreed to pay up to $98 million.3 DOJ also intervened in a qui tam case alleging illegal kickbacks to steer beneficiaries into certain Medicare Advantage plans, and it continues to litigate cases accusing insurers of using improper diagnoses to boost reimbursements. These actions reflect the scale and importance of Medicare Advantage, now the largest component of Medicare by both spending and enrollment, and signal ongoing scrutiny of coding, marketing, and broker relationships. Prescription drug enforcement remained vigorous, spanning pricing, dispensing, and kickbacks, and intersecting with the opioid crisis. A unanimous jury returned a $948.8 million judgment against the nation’s largest long-term care pharmacy for dispensing drugs without valid prescriptions. In a first-of-its-kind resolution, a consulting firm paid $323 million based on allegations that its advice to a drug manufacturer caused the submission of false opioid-related claims. DOJ also secured a $450 million settlement involving copay assistance and price-fixing, and relators won nearly $1.9 billion in verdicts tied to off-label promotion and dispensing without valid prescriptions. DOJ likewise pursued providers for medically unnecessary services and substandard care, including a $45 million settlement with a wound care company and $3.6 million settlement against a health system over grossly substandard nursing home services. Procurement and Defense Fraud In military procurement, DOJ resolved the second-largest procurement fraud case in history, with a defense contractor paying $428 million over allegations of false cost and pricing data and double billing on a weapons maintenance contract. Additional defense-related resolutions included $62 million and $29.74 million for defective pricing, $21 million for inflated subcontractor charges, $15.875 million involving a consulting firm, and $15.7 million for nonconforming parts—illustrating the breadth of alleged misconduct. Cybersecurity Compliance DOJ recovered more than $52 million across nine settlements, continuing a multi-year trend attributable to DOJ’s Civil Cyber-Fraud Initiative, representing another year of increasing focus on the Initiative. Recoveries include $11.2 million against a health benefits administrator and its parent company for falsely certifying compliance with cybersecurity requirements; $9.8 million from a medical device maker tied to vulnerabilities in genomic sequencing systems; and settlements with two universities over noncompliance with cybersecurity clauses in federal contracts. Pandemic Related Fraud Pandemic-related fraud also remained active. DOJ obtained more than 200 settlements and judgments totaling over $230 million, bringing total civil recoveries in pandemic relief programs to more than $820 million. This includes a $20 million consent judgment against a borrower tied to false PPP loan applications, an $8.1 million recovery from a major airline for exceeding Payroll Support Program limits, and claims against three former financial technology executives over allegedly false PPP claims. Tariffs and Customs Fraud DOJ expanded FCA enforcement on tariff and customs avoidance, launching a cross-agency Trade Fraud Task Force. Cases have targeted misrepresentations about product type, country of origin, and other tactics used to evade duties. Notable resolutions include a record-setting $54.4 million settlement with an industrial tools manufacturer over unpaid duties on tungsten carbide products imported from China, along with additional settlements involving a stone importer ($12.4 million), flooring company ($8.1 million), plastics company ($6.8 million), and furniture maker ($4.9 million). The initiative signals a durable focus on trade compliance as an FCA risk area. What to Watch for In FY 2026 The record recoveries, surge in qui tam filings, and sharpened enforcement priorities, FCA risk is and will likely remain elevated. DOJ’s stated priorities point to sustained, aggressive, and perhaps intensifying FCA enforcement across healthcare, procurement, and customs-related matters in the year ahead. And given the anti-fraud messaging from the Administration and host of new certifications (e.g., DEI, civil rights, FOCI) the Administration is foisting on government contractors and grantees, FY 2026 is shaping up to be a robust year for FCA enforcement. Companies should pressure-test compliance programs—especially in health care, government procurement, cybersecurity, and trade—and involve counsel early to assess exposure, structure remediation, and mitigate risks. 1 False Claims Act Settlements and Judgments Exceed $6.8B in Fiscal Year 2025, Dept. of Justice, Press Release, https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-68b-fiscal-year-2025. 2 Fraud Statistics Overview: October 1, 1986-September 30, 2025, Dept. of Justice, https://www.justice.gov/opa/media/1424121/dl. 3 Fact Sheet: False Claims Act Settlements and Judgments FY 2025, Dept. of Justice, https://www.justice.gov/opa/media/1424126/dl.

This is the third post in the Dorsey FCANow Blog’s FCA Basics Series covering the fundamentals of the False Claims Act (“FCA”), outlining FCA procedure, and highlighting key facets of FCA practice. Today’s post introduces the qui tam provisions of the FCA. The FCA’s Qui Tam Device Under the qui tam provisions of the FCA, private citizens—called relators—bring FCA lawsuits on behalf of the United States.  Relators are incentivized to expose and prosecute fraudulent activity because the FCA allows relators to collect a portion of the government’s recovery, whether it was obtained via settlement or through final judgment.  The number of FCA lawsuits filed by relators has increased in recent years, and qui tam cases composes a majority of all filed FCA cases. Qui tam lawsuits are a major driver of FCA settlement and judgment recoveries. In fiscal year 2024, the Department of Justice obtained over $2.9 billion in FCA recoveries. Of that $2.9 billion, approximately $2.4 billion came from qui tam lawsuits. The Qui Tam Procedure To initiate a qui tam lawsuit, a relator files a lawsuit on behalf of the United States against an organization or person allegedly defrauding the government. The lawsuit is first filed under seal and served to the U.S. Attorney in the district, meaning initially only the relator and the government know about the lawsuit and the allegations. The complaint remains under seal for at least 60 days while the Department of Justice has an opportunity to evaluate and investigate the claim. But those investigations often take a year or more. After the government completes its investigation, it generally does one of three things: (1) intervenes and takes over the case from the relator; (2) declines to intervene, leaving the relator to prosecute the claim; or (3) move to dismiss the action. When the government intervenes, it directly controls and prosecutes the action. After intervening, government may file an amended complaint adding or removing defendants and pleading new claims, particularly any unavailable to the relator due to lack of standing. The FCA also allows the government to settle the case notwithstanding the objections of the relator, so long as the court determines the settlement is “fair, adequate, and reasonable under the circumstances.” The relator remains a party to the litigation. The government may partner with the relator and their counsel in the prosecution of the case or limit the relator’s role. Decline to intervene. The government may decide after its investigation that pursuit of the litigation is not worth the investment of resources, which may or may not reflect the strength of the relator’s case. If the government declines to intervene, relators continue to prosecute the action under the FCA’s qui tam provisions and may receive a larger share of any recovery. The government remains the real party in interest and can still later seek to enter the case. The relator(s) and defendant(s) still must seek government approval of agreements to resolve the litigation, and the relator’s share of any settlement is determined by the government within the statutory range. Move for dismissal. The government may seek dismissal of a qui tam action, at the end of its investigation or at later junctures in the litigation. Relators receive notice and an opportunity to be heard. Where the government declines to intervene because it believes the case to be meritless, there is no affirmative duty under the FCA to seek dismissal. Justice Department guidance, however, instructs government attorneys to exercise the dismissal power to curb meritless or duplicative actions. As recently as 2023, the Supreme Court affirmed in United States ex rel. Polansky v. Executive Health Res., Inc., 599 U.S. 419 (2023) that broad judicial deference should generally be given to the government’s decision to dismiss qui tam A Unique Form of Litigation The FCA’s qui tam device is unique and a bit unusual. There is peculiar co-plaintiff posture created by empowering relators to sue on behalf of the United States. The requirement that a qui tam action initially be filed under seal without notice to the defendant. The statutory mandate that the government investigate the allegations. The incentive structure created by the statutory relator’s share. The FCA’s qui tam device gives rise to numerous novel legal questions. Several constitutional principles are implicated by qui tam lawsuits. The case or controversy requirement of standing doctrine exists in some tension with the relator’s lack of a particularized injury in fact. See Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000). Separation of powers questions arise, too. Article II’s Vesting and Take Care Clauses empower and burden the President with execution of the laws of the United States. Through the qui tam device, Congress imbues relators with prosecutorial authority, but based on the powers vested in Article I.  Similarly, Article II’s Appointments Clause applies to “inferior” officers of the United States. See Lucia v. SEC, 585 U.S. 237 (2018).  In 2023, in dissenting and concurring opinions in Polansky v. Executive Health Res., Justices Thomas, Kavanaugh, and Barrett opined “there are substantial arguments that the qui tam device is inconsistent with Article II and that private relators may not represent the interest of the United States in litigation.” Since Polansky, one federal district court has held that the Appointments Clause required that an FCA qui tam relator be appointed by the President. This case, United States ex rel. Zafirov v. Florida Medical Associates, is now before a three-judge panel in the Eleventh Circuit Court of Appeals. The Eleventh Circuit heard arguments in Zafirov on December 12, 2025, and is now poised to possibly become the first court of appeal to strike down the FCA’s qui tam provisions on constitutional grounds. Qui tam lawsuits raise other unique questions. Issues arise when multiple relators file similar qui tam claims on behalf of the government. Legal and ethical questions emerge when a relator brings a qui tam suit over fraudulent conduct the relator initiated or contributed to. Additionally, the settlement process can be complicated by potentially conflicting interests between the government and relator. Special concerns animate all stages of qui tam litigation.  Dorsey’s FCA Basics Series will cover these and more features of FCA litigation in upcoming posts.

On December 12, 2025, the Eleventh Circuit heard oral arguments in United States ex rel. Zafirov v. Florida Medical Associates, an appeal challenging relators’ authority to bring claims under the qui tam provisions of the False Claims Act and the Vesting, Take Care, and Appointments Clauses (see here for a summary of the arguments made at briefing).  While drawing conclusions from oral argument is fraught with uncertainty, one thing was unmistakably clear: the panel (comprised of Judges Branch, Luck, and Moreno) is taking the constitutional challenge to the False Claims Act’s qui tam provisions very seriously. SCOTUS’s Questioning of Historical Precedent and the So-Called “Long Pedigree” First, the panel reflected on the recent opinions from Justice Thomas and Justice Kavanaugh raising the constitutional challenges anew.  The panel repeatedly asked: What do Justice Thomas’ and Justice Kavanaugh’s recent opinions questioning relators’ authority mean?  How should the lower courts interpret these comments in the context of the qui tam’s “long pedigree”?  And why has the Supreme Court raised fresh separation‑of‑powers concerns after decades of lower‑court stability? The government conceded that it had been a while since a court addressed this issue, but leaned on the qui tam’s history in rebuttal, emphasizing that the Supreme Court in Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000) recognized the country’s long tradition of qui tams, that multiple circuits (Fifth, Sixth, Ninth, Tenth) upheld the FCA’s architecture while repeatedly describing relators as “private persons,” and the existence of similar provisions dating back to America’s founding. Appellees called for a different interpretation of the same history.  They argued that the question is not whether informer statutes existed at the founding—conceding they did—but whether the Framers contemplated this precise arrangement of private initiation, executive supervision, and the power to expose defendants to punitive civil penalties.  According to Appellees, early records lack clear deliberation on this precise question. The Article II Officer Test: Significant Authority and Continuing Position The panel then turned to the Supreme Court’s two‑part test established by Lucia v. SEC, 585 U.S. 237, 245 (2018), to determine if an individual is an “officer of the United States” for purposes of the Appointments Clause: whether an individual has (i) “significant authority” pursuant to federal law and (ii) a “continuing position.”  The panel questioned whether the Supreme Court or any circuit applied the Appointments Clause to someone who was not paid or employed by the government.  Both parties conceded that they were unaware of such a case.  The judges appeared to nevertheless press both sides, noting that there is a difference between someone who has a connection to the government and someone who has no connection at all. Addressing the substance of the Lucia test, the government argued that under the False Claims Act’s qui tam mechanism, the only unilateral power relators have is to file the complaint.  Filing, it argued, is insufficient to be “significant authority,” especially when the government may “take the wheel” at any moment.   Conversely, Appellees pressed the panel to see initiation not as a clerical act but an Executive one, arguing that filing in the government’s name compels an investigation and forces resource allocation by the Executive.  Even if the government remains “in the passenger seat,” the accelerator is pressed by a private party, which is precisely what the Appointments Clause is designed to regulate. The “continuing position” prong also received pointed treatment – the panel asked why Justice Thomas left out discussion of continuity and whether that omission matters.  To demonstrate that qui tam relators continue their positions, Appellees pointed to several examples: substitution of a personal representative when the relator dies; assignment of portions of recovery; and alienability in bankruptcy.  They argued that because the same duties continue even when the relator changes, the qui tam scheme operates like the impersonal, statutorily defined office that Article II regulates.  In response, the government argued that continuity here is illusory: there is no independent power once DOJ intervenes; intervention can happen “at any point;” and any constitutional concern terminates when the Executive exercises its prerogatives. The Vesting and Take Care Clauses: Do They Change the Analysis—or Simply Restate It? When discussing the Vesting and Take Care Clauses, the panel’s questions suggested a view that the issues raised by these clauses overlap with the Lucia inquiry. Appellees framed the problem as a structural mismatch: relators authorize their own appointment, define their own jurisdiction, and cannot be removed by the Executive.  In other words, the qui tam scheme is privately driven and not publicly accountable.  According to Appellees, the Vesting Clause is the safeguard that prevents Congress from exporting core enforcement decisions to outsiders, the Take Care Clause is the mechanism that keeps those decisions answerable to the President, and the qui tam provisions of the FCA violate both. Both Zafirov’s and the government’s responses tracked back to supervision.  They argued that DOJ’s front‑end control (filing under seal; exclusive initial investigation; decision to intervene) and back‑end control (dismissal; settlement; discovery stays; veto on voluntary dismissal) preserve Executive authority.  To the panel’s question about “significant power” in the context of pardon and criminal prosecution—and whether those extra pardon controls were constitutional—both the Appellant-relator’s (Zafirov) and Appellant-intervenor’s (the government) theme remained consistent: the FCA is civil, and its built‑in supervisory tools keep the Executive in charge. Which Way Could the Eleventh Circuit Go? The panel repeatedly pressed whether the only unilateral power—filing—counts as “significant authority,” and whether government’s power to intervene or dismiss neutralizes officer and vesting concerns.  The overall tone and lines of questioning suggested the judges are seriously grappling with whether the qui tam mechanism violates the Appointments Clause. Ultimately, the outcome will turn on how the Eleventh Circuit defines power and control in the context of the False Claims Act’s qui tam scheme.  But regardless of whether the panel hinges its decision on the officer test or gives weight to history and DOJ oversight, the question over the constitutionality of qui tam is likely destined for Supreme Court review.

Under the False Claims Act (FCA), private individuals—i.e. qui tam relators—file suit on behalf of the government against individuals or organizations, seeking to redress alleged frauds on the government.  See 31 U.S.C. § 3730(b).  The FCA’s qui tam provisions have faced constitutional challenges in the past.  But until recently, courts have almost uniformly turned those challenges away, often emphasizing the statute’s “long pedigree” and the role relators have played in enforcing federal law.[1]  This Friday, December 12, a three-judge panel of the Eleventh Circuit will hear argument on whether the qui tam relator, particularly one lacking an appointment to the position by the President (which is to say, all of them), is consistent with the dictates of Article II in United States ex rel. Zafirov v. Florida Medical Associates. Recent Supreme Court jurisprudence has put the FCA qui tam provisions back in the constitutional crosshairs.  In a recent dissent, Justice Thomas reignited debate over the constitutionality of the FCA’s qui tam provisions, questioning whether qui tam relators were consistent with Article II’s prescriptions of executive power.  See United States, ex rel. Polansky 599 U.S. 419, 449 (Thomas, J. dissenting) (2023) (“The FCA’s qui tam provisions have long inhabited something of a constitutional twilight zone.  There are substantial arguments that the qui tam device is inconsistent with Article II and that private relators may not represent the interests of the United States in litigation.”).  In a short and single-purpose concurrence earlier this year, Justice Kavanaugh echoed Just Thomas’ concerns around the FCA’s qui tam provisions, noting the FCA’s “qui tam provisions raise substantial constitutional questions under Article II.”  See Wisconsin Bell, Inc. v. United States ex rel. Heath, 604 U.S. __, __ (2025) (Kavanaugh, J. concurring) (recognizing the constitutional questions were not before the Court, Justice Kavanaugh wrote that “in an appropriate case, the Court should consider the competing arguments on the Article II issue”). Federal district courts across the country have been asked to revisit the constitutionality of the FCA’s qui tam provisions in the wake of these recent opinions from Justice Thomas and Justice Kavanaugh.  The first successful challenge has now made its way to the United States Court of Appeals for the Eleventh Circuit.  Ahead of oral argument, this blog post summarizes the background of Zafirov and the arguments the defendants, relator, and government assert, and highlights how other recent decisions may (or may not) influence the Eleventh Circuit’s decision. United States ex rel. Zafirov v. Florida Medical Associates In May 2019, in the United States District Court of the Middle District of Florida, Dr. Clarissa Zafirov filed a sealed FCA complaint alleging the defendant organizations inflated risk-adjusted payments by submitting diagnosis codes portraying patients as sicker than they were.  After its investigation of the allegations, the government declined to intervene, but the relator pursued its claim, and the case proceeded through discovery for multiple years.  In 2024, five years into the litigation and after Justice Thomas’s dissent in Polansky, the defendants moved for judgment on the pleadings, raising Article II constitutional challenges to the FCA’s qui tam provisions, including that the provisions violate the Vesting, Take Care, and Appointment Clauses. District Judge Kathryn Mizelle, a former clerk for Justice Thomas, concluded that Zafirov could not prosecute the case because a qui tam relator was an “officer of the United States” who required an appointment by the President, which Zafirov did not have.  In determining Zafirov was acting as an “officer of the United States,” the court looked to the Supreme Court’s test in Lucia v. SEC, which asks whether the person (1) exercises significant authority pursuant to the laws of the United States and (2) occupies a continuing position established by law.  See 585 U.S. 237, 245 (2018).  Judge Mizelle reasoned that Zafirov, as an FCA qui tam relator, exercised significant executive power by, among other things, deciding whether to initiate litigation in the name of the United States and controlling that litigation.  Further, the court held relators are in a “continuing position” because the relator is potentially in that position for years and is not removable.  As a result, Judge Mizelle dismissed the suit.  Zafirov and the government appealed. The Arguments The parties have extensively briefed the various aspects of Article II executive power, the functional and legal status of a qui tam relator, whether Congress’s exercise of its power in Article I to enact the FCA’s qui tam provision is inconsistent with Article II, and whether the historical practice of qui tam relators ameliorates any potential constitutional infirmity. The government focuses on the legal status of a relator for its argument for constitutionality.  The government contends relators are not “officers of the United States” and therefore do not require appointment.  In the government’s view, relators do not exercise executive power or enforce federal law in a manner inconsistent with the Vesting and Take Care Clauses.  They do not hold government jobs, nor do they exercise sovereign authority.  The government remains in control during the entire duration of the lawsuit—even when it does not intervene, the government has the authority to monitor filings, pause discovery, veto settlements, and even dismiss the case under the FCA.  Rather, to the government, relators’ role in a qui tam action more similarly mirrors that of a private plaintiff in a civil rights suit than a presidentially appointed officer.  Among other authorities, the government relies on Vermont Agency of Natural Resources v. United States ex. Rel. Stevens, 529 U.S. 765 (2000), which considered whether the FCA’s qui tam provisions were consistent with Article III standing jurisprudence and held that qui tam relators had standing to bring suit despite that the injury to be redressed was to the government, not qui tam relators.  The government argues Stevens reinforces that relators act as partial assignees of the government’s claim as distinct from “officers of the United States.”  Therefore, the government contends, qui tam relators do not require appointments under Article II’s Appointments Clause. Zafirov relies on precedent and history to argue the FCA’s qui tam provisions comply with Article II.  Zafirov emphasizes that federal appellate courts that have considered the question—including the Fifth, Sixth, Ninth, and Tenth Circuits—have all upheld the FCA against Article II challenges.  Further, the Supreme Court has repeatedly described relators as “private persons,” not “officers of the United States,” and has adjudicated qui tam cases for over a century without raising constitutional doubts.  Zafirov contends that, from a historical perspective, qui tam provisions like the FCA’s were ubiquitous in the United States’ earliest days.  If qui tam actions violated Article II, Zafirov argues, such a defect would have surfaced during early legal debates in the history of the United States.  The lack of historical debate over the propriety of the qui tam mechanism, Zafirov argues, demonstrates its acceptance and consistency with the constitutional framework. Zafirov also echoes the government’s arguments on the Appointments Clause, asserting that relators are not “officers of the United States” because they do not hold continuing positions or exercise significant authority. The Appellees reiterate their arguments to the district court: the FCA’s qui tam provisions violate three provisions of Article II: the Appointments Clause, Vesting Clause, and Take Care Clause. First, Appellees contend the FCA’s qui tam provisions violate the Appointments Clause because relators exercise core executive power without constitutional appointment.  The Appellees counter the government and Zafirov’s dismissive characterizations of the power of a qui tam relator, nothing relators initiate and conduct litigation in the name of the United States and seek treble damages and civil penalties for injuries.  This authority—deciding whether to sue, what claims to pursue, and how to litigate—is a quintessentially executive power, according to the Appellees.  Because qui tam relators wield this significant authority without appointment under the Appointment Clause, Appellees argue that the entire qui tam scheme is unconstitutional. Second, Appellees assert that because the qui tam provision undermines presidential control, it violates the Vesting and Take Care Clauses.  Article II vests all executive power in the President, such that executive power can be exercised only through the President directly or through appropriate delegation.  The President may supervise and remove those exercising that power.  Appellees argue the FCA’s qui tam provisions strip that control away, infringing on the constitutional division of power.  For example, Appellees contend that relators authorize their own appointment, define their own jurisdiction, and cannot be removed by the President.  According to the Appellees, this lack of oversight prevents the President from ensuring faithful execution of the laws and creates an enforcement regime driven by private profit rather than public accountability, violating Article II of the Constitution. Other Recent Decisions Courts elsewhere are grappling with the constitutional challenges, too, which may offer potential insight about how the Eleventh Circuit may approach the questions before it: United States ex. rel. Montcrief v. Peripheral Vascular Associates, 133 F.4th 395 (5th Cir. 2025). Writing in a concurrence, Judge Duncan noted that, despite the obstacle of a precedential en banc opinion upholding the FCA’s constitutionality stands in the way, see Riley v. St. Luke’s Episcopal Hospital, 252 F.3d 749, 751 (5th Cir. 2001) (en banc), there is cause to question the constitutionality of the FCA’s qui tam  Judge Duncan explained that qui tam relators exercise “core executive power” because they “appoint themselves” and litigate on behalf of the United States without presidential oversight, which is inconsistent with Article II’s structure.  Judge Duncan’s concurrence is another example of growing judicial willingness to revisit long-standing FCA precedent.   United States ex. rel. Gentry v. Encompass Health Rehab, No. 25-20093, 2025 U.S. App. LEXIS 28755 (5th Cir. 2025). Also in the Fifth Circuit, Judge Ho called for the court to reconsider Riley in a recent concurrence.  Judge Ho likened relators to “unaccountable federal employees” who wield executive power without democratic accountability and “enjoy[ing] a de facto form of life tenure, akin to that of Article III judges.”  Judge Ho believes qui tam relators present constitutional concerns by presuming to represent the United States government in federal court and to defend the interests of the United States Treasury against fraud without appointment by or accountability to the President.   United States ex. rel. Gose v. Native American Services Corp., No. 8:16-cv-03411-KKM-AEP, 2025 U.S. Dist. LEXIS 101549 (M.D. Fla. May 29, 2025). Consistent with her order in Zafirov, Judge Mizelle granted the defendants’ motion for judgment on the pleadings on the ground that the relator lacked a presidential appointment and therefore could not prosecute the case consistent with the Appointments Clause.  Judge Mizelle noted that this case presented stronger facts than Zafirov because the relator who initiated the case had passed away and the executor of the estate substituted, which was more evidence that the position of qui tam relator was a continuing position.   United States ex. rel. Health v. Wisconsin Bell, No. 08-CV-724, 2025 U.S. Dist. LEXIS 217468 (E.D. Wis. Oct. 29, 2025). On remand from the Supreme Court’s recent decision, the defendant sought summary judgment on the basis that the FCA’s qui tam provisions are unconstitutional.  The court denied summary judgment, concluding that qui tam relators were not “officers of the United States” requiring appointment and noting that the historical practice of qui tam litigation was persuasive, if not dispositive, evidence that the FCA’s qui tam provisions are consistent with the original understanding of Article II. Conclusion The Eleventh Circuit panel faces a spectrum of constitutional questions.  And, unlike other circuits, there is no binding precedent on these Article II questions that cabins this panel to a particular outcome.  See Yates v. Pinellas Hematology & Oncology, P.A., 21 F.4th 1288, 1312 (11th Cir. 2021) (“Those [Article II] issues are not before us, so we take no position on our sister circuits' ultimate conclusions.”).  Against the backdrop of Supreme Court Justices telegraphing “substantial” constitutional concerns over the qui tam mechanism and multiple appellate and district court judges inveighing against it, the Eleventh Circuit could become the first appellate court to strike down the FCA’s qui tam provisions. Dorsey’s FCA Now Blog will be following the oral arguments closely and will publish post-argument analysis next week. [1] See, e.g., United States ex rel. Stone v. Rockwell Int’l Corp., 282 F.3d 787 (10th Cir. 2002); Riley v. St. Luke’s Episcopal Hosp., 252 F.3d 749 (5th Cir. 2001) (en banc); United States ex rel. Taxpayers Against Fraud v. General Elec. Co., 41 F.3d 1032 (6th Cir. 1994); United States ex rel. Kelly v. Boeing Co., 9 F.3d 743 (9th Cir. 1993).

This is the second post in the Dorsey FCANow Blog’s FCA Basics Series covering the fundamentals of the False Claims Act (“FCA”), outlining FCA procedure, and highlighting key facets of FCA practice. Today’s post introduces the elements of an FCA Claim. The Basic Elements of an FCA Claim There are several theories of liability under the FCA and the elements of each can vary based on the conduct targeted.  But five elements are generally applicable. First—presentment.  Generally, there must be a claim for payment submitted to the federal government or its agents. A claim can include invoices, requests for reimbursement, or any demand for government funds. An obligation could be royalties due on leases or an overpayment by the government which the contractor has retained. Second—falsity, a claim, a record, or a statement must be false or fraudulent, which can include claims for services not provided or even misrepresentations about compliance with applicable statutes, regulations, or contractual provisions. Third—scienter, the person or entity must have acted “knowingly.” Under the FCA, “knowingly” means actual knowledge, deliberate ignorance, or reckless disregard of the truth or falsity of the information. Fourth—materiality, the falsity must be “material,” meaning it has a natural tendency to influence, or is capable of influencing, the payment or approval of the claim.  Fifth, the government must have been damaged. Falsity, scienter, and materiality all deserve a closer look. Falsity—there are two basic kinds of falsity, factual and legal. A claim is factually false when it asserts incorrect information. For example, a claim for payment for five hundred sheets of metal when only five sheets were delivered is factually false. A claim is legally false where a required condition of payment under a statute, a regulation, or contract is not met. For example, a healthcare provider submits a claim for services that must be provided by a licensed professional, but the service was done by a non-licensed professional. Scienter—an individual must knowingly submit, or cause to be submitted, a claim that is false or misleading. The text of the FCA defines knowing and knowingly as “actual knowledge,” “deliberate ignorance,” or “reckless disregard,” and no specific intent to defraud is required. 31 U.S.C. § 3729. Actual knowledge is direct or explicit awareness of a particular fact or situation. Deliberate ignorance is purposeful avoidance of learning the truth despite a risk of falsity. And reckless disregard is acting despite knowing there is a substantial risk of falsity. In United States ex rel. Schutte v. SuperValu Inc., 598 U.S. 739 (2023), the United States Supreme Court recently explained that scienter under the FCA refers to an individual’s subjective beliefs—i.e. whether the defendant actually knew the claim was false—not what an objectively reasonable person should have known or believed. Materiality—a crucial component of liability, a false statement or claim must be “material” to the government’s decision to pay or approve a claim. The falsehood must have a natural tendency to influence, or be capable of influencing, the government’s payment decision.  In Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016), the United States Supreme Court explained that materiality is a “rigorous” and “demanding” standard. Materiality cannot be found where noncompliance with federal requirements is minor or insubstantial. Moreover, the government cannot simply create materiality by making compliance with a requirement a condition of payment, especially if the government routinely pays a claim despite knowledge of violations. For example, if the government contracts for health services and adds a requirement that contractors buy American-made staplers, but routinely pays claims on the same contracts fulfilled by contractors using foreign staplers, in all likelihood noncompliance with the stapler provision is not material under the FCA. Elements of an FCA Conspiracy Claim A conspiracy to commit a violation of the FCA can also give rise to liability. Conspiracy requires an agreement between two or more persons to commit a violation of the FCA, such as agreeing to submit or cause the submission of false or fraudulent claims to the government. Moreover, the conspirators must have the intent to achieve the objective of the conspiracy, meaning they knowingly agreed to engage in conduct that would defraud the government. Courts diverge on whether damages are required to demonstrate an FCA conspiracy. Elements of an FCA Retaliation Claim The FCA creates a private right of action for whistleblowers who experience retaliation. Unlike other FCA claims, these retaliation claims attach directly to the whistleblower and are not brought on behalf of the United States. To qualify, the whistleblower must first engage in protected activity, such as investigating, reporting, or taking action in furtherance of a potential or actual FCA violation. Second, the whistleblower’s employer must know the whistleblower engaged in protected activity. Third, the whistleblower must suffer an adverse employment action, such as termination, demotion, harassment, or some other form of discrimination. Fourth, there must be a causal connection between the protected activity and the adverse action, meaning the adverse employment decision is taken because of the individual’s involvement in protected FCA-related conduct.

A recent decision by the U.S. District Court for the Northern District of California to reject a proposed $57 million settlement in a False Claims Act (FCA) litigation highlights the unique challenges and complexities that surround the resolution of FCA cases—challenges that set them apart from ordinary civil litigation. Background: The Tetra Tech Case The settlement arises from a case about the Hunters Point Naval Shipyard in southeast San Francisco, which is a Superfund cleanup site due to radiological contamination. In the 1990s, the U.S. Navy agreed to convey the shipyard piecemeal as it was remediated to San Francisco to develop for residential or commercial purposes. From about 2005 to 2018, the defendant in the litigation, Tetra Tech EC, did remediation work on contracts worth approximately $262 million. Whistleblowers (qui tam relators) filed a sealed complaint under the FCA in 2013.  In 2019, the government filed a complaint-in-intervention alleging that the defendant, among other things, violated the False Claims Act by submitting soil samples for testing that were known to be clean, manipulating other testing data, and reporting these false results to the Navy. Earlier this year, the government and Tetra Tech separately agreed to a $40 million settlement a claim under Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) for remediation costs at the former Navy site.  That included an agreed consent decree, which the court had already approved. That was just one of five counts against the defendant, however. The government and Tetra Tech recently reached an agreement to settle the remaining four claims, including two counts under the FCA, a common law fraud count, and a breach of contract count, for $57 million. The settlement allocated $51.87 million to “soil fraud allegations” and $5.13 million to “building scan fraud allegations.” Court Scrutiny: More Than a Rubber Stamp Like ordinary civil litigations, the FCA allows resolution of claims under the statute and for the parties to seek dismissal of the claims. But the FCA also uniquely conditions voluntary dismissal of FCA claims on “written consent” from the court and the Department of Justice “and their reasons for consenting.” See 31 U.S.C. § 3730(b)(1).  In addition, where a qui tam relator objects to a settlement reached between the government and the defendant, the FCA requires the court approve only settlements that are “fair, adequate, and reasonable under all the circumstances.” See 31 U.S.C. § 3730(c)(2)(B). In this case, the government and the qui tam relators disagreed on the share of the proceeds due to the relators. But the government sought approval of the settlement despite the continuing dispute over the share. The court declined to approve the settlement on the current record, noting that the government’s justifications were vague and generic, and did not address the specific concerns raised by the case, such as the adequacy of the settlement considering the serious radiation remediation issues. The court emphasized that it cannot simply “rubber stamp” the government’s decision and must conduct a meaningful review. Another layer of complexity in FCA cases is the determination of a qui tam relator’s share of the settlement. In this case, the qui tam relators sought a 23% share as a group, while the government proposed different allocations based on the nature of the allegations and invoked a statutory bar, the “first-to-file” rule, as to three the qui tam relators. The court found both sides’ proposals lacking in specificity and evidentiary support, directing the parties to provide detailed, claim-by-claim analyses addressing whether and what award should be made jointly or individually to each qui tam relator. The Court directed the parties to file supplemental briefing to address these issues. Takeaways: Why FCA Settlements Are Different The Tetra Tech case is a vivid illustration of why FCA settlements are often not routine. Settling FCA cases can be complex for several reasons. Courts are called to provide a rationale for even a basic dismissal and, where a relator objects, may review settlements for reasonableness and fairness.  Alleged frauds against the government run the gamut of potential public policy interests, from environmental safety (like in this case) to public health and welfare to national defense and security. The government’s interests in resolution of an FCA action may diverge from those of whistleblowers, inviting careful judicial balancing of those interests.    

Last week, after fourteen years of litigation, United States ex rel. Schutte v. SuperValu, Inc. arrived at its likely end after the U.S. District Court for the Central District of Illinois rejected relators’ bid for a new trial after a jury returned a defense verdict earlier this year.  Filed in 2011 and unsealed in 2015, SuperValu led to a landmark Supreme Court decision on the FCA scienter requirement in 2023, with SCOTUS holding that scienter turned on a defendant's subjective belief not what an objectively reasonable person may have thought.  After remand, the district court held a three-week jury trial in February 2025.  The jury found in favor of the relators on scienter but concluded there was insufficient evidence of damages, rendering what was ultimately a favorable verdict for the defense. The relators alleged SuperValu violated the FCA by reporting prices to Medicare and Medicaid that were higher than those “usually and customarily” charged to the public.  In particular, the relators alleged that the reported retail prices did not account for discounts that SuperValu regularly applied to the majority of drug sales to the general public.  Relators contended this violated Federal regulations requiring reimbursements paid to pharmacies by Medicare and Medicaid be limited to the “usual and customary” price of the drug as it is offered to the general public. To prove a violation of the FCA, the relators had to prove SuperValu had scienter—that SuperValu knew the claim was false.  SuperValu argued it did not knowingly submit any false claims because it adopted applied objectively reasonable interpretation of “usual and customary” by not including discounts in its reimbursement requests.  The district court and Seventh Circuit had agreed with SuperValu that this defeated the relators’ claims.  SCOTUS, in a unanimous decision, reversed, however, holding that a defendant’s subjective belief of a claim’s falsity was the relevant focus in determining scienter.  SCOTUS explained that a later-developed,  objectively reasonable interpretation could not, on its own, defeat scienter if the defendant did not subjectively believe that interpretation to be true. After remand, relators moved for summary judgment, arguing that SuperValu knew it submitted false claims because it was previously informed its discount prices were the “usual and customary” prices, SuperValu subjectively believed its discounted prices were its “usual and customary” prices, and SuperValu tried to hide its discounted prices from regulators.  The district court granted summary judgment on falsity and materiality, narrowing the jury’s factfinding to scienter and damages.  During trial, the jury was presented with two questions: (1) whether SuperValu knowingly submitted false claims, and (2) whether SuperValu’s false claims resulted in government damages.  On the first question, the jury found SuperValu did knowingly submit false claims to the government.  However, on the second, the jury found the relators failed to prove the false claims damaged the government, and the court entered judgment in favor of the defense. In post-trial motions, relators argued that causation was not a required element of liability under their theory of the FCA violation.  Because the FCA provides for two forms of damages, actual damages and civil penalties assessed on a per-claim basis, the relators argued SuperValu could still be liable for per-claim civil penalties based on the submission of knowingly false claims even absent actual damages.  The district court rejected relators’ arguments, noting that some circuits have adopted a distinction between these two types of liability, but that the Seventh Circuit has not, instead having chosen to “leave [the question] for another day.” United States ex rel. Calderon v. Carrington Morg. Servs., LLC¸ 70 F.4th 968, 978 (7th Cir. 2023).

Dorsey’s FCANow Blog is kicking off a new series—FCA Basics. Over the coming months, the FCANow Blog will feature posts covering the fundamentals of the False Claims Act (“FCA”), outlining FCA procedure, and highlighting key facets of FCA practice. This inaugural post introduces the FCA, its history, and its purpose. A Brief History of the FCA Often referred to as the Lincoln Law, the FCA is one of the United States’ oldest and most significant civil anti-fraud statutes. Its origins date back to the Civil War era, a time when the federal government faced rampant fraud by contractors supplying the Union Army. Unscrupulous actors sold the government the same horses twice, shipped crates of sawdust labeled as muskets, and fulfilled gunpowder shipments with sand. In 1863, in response to these abused, Congress passed “An Act to prevent and punish Frauds upon the Government of the United States,” the historical antecedent of today’s FCA. The 1863 Act included a “qui tam” (pronounced kwee-tom or key-tam) provision, allowing private citizens, known as “relators” or whistleblowers, to file lawsuits on behalf of the government against those suspected of defrauding federal programs. If successful, relators could receive a portion of the recovered damages as a bounty, which was intended to incentivize exposing and prosecuting fraud. Over the last century and a half, the FCA has undergone significant amendments. In 1943, Congress limited the scope of qui tam actions, largely in response to concerns about opportunistic whistleblowers filing qui tam actions based on information already known to the government. Many believed the 1943 amendments weakened the FCA’s effectiveness against the backdrop of persistent and increased fraud stemming from government spending during and after World War II. Alarmed by perceived ongoing and rampant fraud, Congress revitalized the FCA in 1986, creating the so-called modern FCA.  The amendments expanded the scope of liability, increased penalties, and enhanced protections and incentives for whistleblowers. These changes led to a dramatic increase in FCA lawsuits and recoveries, making the FCA the government’s primary tool for combating fraud in federal programs, particularly in healthcare, defense, and procurement. In 2009, Congress again amended the FCA, broadening the definition of claim to expressly include claims submitted to government contractors, grantees, or agents, and expanding liability for retaining overpayments. Today, the FCA remains a cornerstone of federal anti-fraud enforcement. It has been credited with recovering billions of dollars for taxpayers and deterring fraudulent conduct. The law continues to evolve through legislative amendments and judicial interpretation, but its core mission—protecting public funds and empowering whistleblowers—remains unchanged. What Conduct Does the FCA Target? The FCA recognizes several theories of liability under which individuals or entities can be held responsible for defrauding the federal government. The most direct theory of liability under the FCA is knowingly presenting a false claim for payment. For example, submitting an invoice for goods or services that were never provided or inflating the cost of services rendered. Another common theory of liability is making or using a false record or statement in support of a fraudulent claim, such as falsified time sheets or altered contracts. The false record or statement must be material, meaning it has a natural tendency to influence the payment or approval of the claim. The FCA also covers “reverse false claims,” where individuals or organization knowingly rely on a false record or statement material to avoid an obligation to pay or transmit money or property to the government or otherwise knowingly conceal or decrease such an obligation. This theory typically applies when someone improperly retains government funds, such as failing to return an overpayment. In addition, the FCA imposes liability for conspiring to commit any of the substantive violations described above. This means that if two or more parties agree to submit false claims or use false statements to obtain government funds, and at least one of them takes an overt act in furtherance of the conspiracy, parties to the conspiracy may be held liable. Although not a theory of liability for fraud itself, the FCA also includes an anti-retaliation provision. This provision protects employees, contractors, or agents from being discharged, demoted, harassed, or otherwise discriminated against for lawfully acting in furtherance of an FCA action, including investigating or reporting potential violations. Employers who retaliate against whistleblowers can be held liable for direct damages, reinstatement, double back pay, and compensation for special damages. Why Does the FCA Matter to You? The FCA covers a wide range of industries that interact with the federal government. Traditional government contractors working in healthcare, defense, and procurement are plainly implicated. But the FCA covers all manner of industries that interact with federal funds: Medicare providers, real estate developers, insurance companies, importers, financial institutions, telecom companies, bank loan guarantors, and even universities (Department of Justice Launches “Civil Rights Fraud Initiative” to Target DEI Through False Claims Act | FCA NOW). If you or your organization receive Federal funds, the FCA must be on your radar. Violations of the FCA can lead to substantial and possibly existential penalties. The FCA allows for the recovery of treble (triple) damages, meaning violators can be held liable for three times the amount of damages the government sustains because of a false claim. In addition, each false claim can result in substantial civil penalties, which are assessed on a per-claim basis. This means that even a series of relatively small false claims can quickly add up, making the financial risks of FCA violations extremely high. Beyond financial penalties, FCA violations can also lead to serious consequences, including exclusion from participation in federal programs such as Medicare and Medicaid, reputational harm, diminished market value, criminal liability, consumer and shareholder litigation, administrative sanctions, and increased scrutiny from regulators. For these reasons, organizations or individuals who receive Federal funds need to understand the FCA.

On Monday, May 19, 2025, Department of Justice (“DOJ”) Deputy Attorney General Todd Blanche issued a memorandum establishing the “Civil Rights Fraud Initiative” (the “Memorandum”), in the latest signal that DOJ intends to aggressively enforce the False Claims Act in pursuit of the administration’s goals. According to the Memorandum, DOJ has launched a joint enforcement effort between the Civil Division’s Fraud Section (“Civil Frauds”) and the Civil Rights Division (“Civil Rights”), which “will utilize the False Claims Act to investigate and, as appropriate, pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws.” The Memorandum signals that DOJ intends to adopt a dramatically different interpretation of federal contractors’ and federal funds recipients’ civil rights obligations from prior administrations. For instance, the Memorandum specifically identifies universities that receive federal funding as potential targets of the Civil Rights Fraud Initiative, and outlines four examples of conduct that “could violate the False Claims Act:” “Encourag[ing] antisemitism,” though neither term is defined; “Refus[ing] to protect Jewish students;” “Allow[ing] men to intrude into women’s bathrooms;” or “Requir[ing] women to compete against men in athletic competitions.” The Memorandum also re-emphasizes that Diversity, Equity, and Inclusion (“DEI”) initiatives are an enforcement priority for DOJ. Citing to Executive Order 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, the Memorandum reiterates that certifying compliance with civil rights laws while “knowingly engaging in racist preferences, mandates, policies, programs, and activities, including through [DEI] programs that assign benefits or burdens on race, ethnicity, or national origin,” also implicates the False Claims Act. The Civil Rights Fraud Initiative may extend beyond mere civil liability. The Memorandum provides that both Civil Frauds and Civil Rights will “engage with” DOJ’s Criminal Division. The Memorandum also encourages qui tam litigation as a means to achieve DOJ’s goals. What Happens Next? It is highly likely that in the coming weeks and months, DOJ will issue Civil Investigative Demands (“CIDs”) to an increasing number of universities, public school districts, contractors, grant recipients, and other entities that receive federal funds. CIDs essentially act as subpoenas to facilitate investigation of potential False Claims Act violations, and based upon the priorities outlined in the Memorandum, such CIDs will likely demand information, documents, or interviews related to DEI, antisemitism, and trans-inclusivity policies, practices, programs, and activities. It is similarly likely that such investigative and/or litigation activity will result in courts being asked to decide whether the administration’s interpretations of federal civil rights obligations are consistent with the law. There is reason to suspect that courts may be skeptical of the administration’s application of the law, as even the examples articulated in the Memorandum could be read to contradict Supreme Court precedent on the scope of “sex discrimination” under Bostock v. Clayton County, 590 U.S. 644 (2020), which held that Title VII of the Civil Rights Act of 1964 protects employees against discrimination based on sexual orientation or gender identity. In the meantime, however, many recipients of federal funds will likely be subject to extensive investigative efforts and potential litigation based upon DOJ’s new Civil Rights Fraud Initiative. What Federal Fund Recipients Should Do Now The Memorandum marks the latest and most concrete signal that DOJ intends to leverage the False Claims Act to target institutions of higher education, contractors, and others that do business with the federal government that the administration alleges violate civil rights laws. Although the False Claims Act’s statute of limitations extends between six and ten years, federal fund recipients can and should take immediate steps to (i) reduce the likelihood that they become the target of a federal investigation; and (ii) assess and limit the scope of liability if such an investigation does occur. For instance, organizations should: Conduct a thorough review of all DEI-related policies and practices to ensure that practices and programs do not differentiate based on protected characteristics. This can include hiring, employee resource groups, contracting, grant funding, university admissions, and much more. Assess current practices as they relate to religion-based harassment and speech. Now is the time to determine if your policies and practices make clear that religion-based harassment or discrimination are appropriately prohibited and responded to. For institutions of higher education, policies should strike a careful balance between permitting the free expression of students, faculty, and staff, and ensuring that others are free from discriminatory harassment. Analyze bathroom, athletics, and other trans-inclusive policies to determine the scope of potential risk, and if there are changes that could be made to reduce risk consistent with your organization’s goals. If your organization receives a Civil Investigative Demand, closely review it and ensure that you understand the scope of it—including understanding that receipt of a CID likely indicates an active civil fraud investigation against the organization. In addition, depending on past practices and the scope of federal funds received, some recipients of federal funds may benefit from a preemptive review of past and current policies and practices to determine exposure, if any, to potential False Claims Act liability. The False Claims Act provides for treble damages plus penalties to the federal government, but DOJ has given credit for self-disclosure and cooperation when entities proactively disclose potential violations. Federal fund recipients should consider whether such a review and potential disclosure could be in their best interests.

As the business community adjusts to the reality of the Trump Administration’s sweeping new tariff regime, importers and other organizations that rely on imports should be mindful that with the expansion and sharp increases to import tariffs come increased risks under the False Claims Act (FCA).  Given the administration’s public commitment to “aggressive” FCA enforcement, organizations should assess their risks now to get ahead of potential liability or threats of FCA claims down the road. The False Claims Act The familiar application of the FCA is where a party is liable for knowingly submitting false claims for payment to the federal government, often pursuant to a contract with an agency or for medical services under Medicare or Medicaid. The FCA also establishes liability for what is called a “reverse” false claim, 31 USC § 3729(a)(1)(G), which occurs where a person or entity makes some false statement for purposes of avoiding or decreasing an obligation to pay (non-tax) money lawfully owed to the federal government.  Therefore, if a company misrepresented a material fact about an imported product to decrease import tariff obligations, that misrepresentation could subject the company to an FCA investigation or litigation. Just as with other FCA litigations, “reverse” false claims can be brought by relators, often a whistleblower employee, but also potentially a competitor.  Under the FCA’s qui tam provisions, relators bring FCA claims in federal court, under seal, and out of the public eye until the U.S. Department of Justice (DOJ) completes an investigation and decides if it will intervene in the case.  DOJ also directly initiates FCA actions on behalf of the government. FCA liability may be three times the amount of loss to the United States (i.e., three times the amount of obligations avoided) plus an additional $14,308 to $28,618 in penalties for each FCA violation (i.e., each imported good for which the full tariff amount was not paid), and in some case the defendant may be liable for a relator’s attorneys’ fees. Examples of False Claims and Imported Goods As importers know well, whenever any good is imported into the United States, there are a wide range of representations that importers must submit to the United States for customs release of those goods.  FCA risk exists among the importers and other organizations who provide information necessary to import merchandise. (Separate enforcement actions and penalty demands by U.S. Customs and Border Protection (“CBP”) are possible under customs law, and potential criminal liability as well for any knowing or intentional violations.) A few common representations may create exposure: Country of Origin of Imports.  Given the United States imposition of tariffs on goods from all countries, with varying tariff rates applicable depending on the country of origin, it is more critical to accurately report the country of origin for their imports. Example: In March 2025, the U.S. Department of Justice, Civil Division, Commercial Litigation Branch, Fraud Section and the U.S. Attorney’s Office for the Central District of California announced a $8.1 million settlement with an importer of multilayered wood flooring. The United States alleged the importer misrepresented, among other things, the country of origin for multilayered wood flooring manufactured in the People’s Republic of China.  This settlement stemmed from a whistleblower lawsuit brought by one of the importer’s competitors. Valuation of Imports.  Importers should carefully and accurately report the value of the goods they import into the United States. The dutiable value of imports is governed by customs law and CBP regulations.  Overrepresenting the value leads to the obvious downside of increased tariffs, but undervaluation leads to tariff underpayment and FCA exposure. Example: In January 2023, the U.S. Attorney’s Office for the Southern District of New York announced a $1.3 million settlement against an apparel design and import company for undervaluing 67 different apparel shipments. The apparel company had recently accepted responsibility for U.S. customs clearance, which required the company to submit accurate customs value information to CBP. Tariff Classification of Imports.  The Harmonized Tariff Schedule of the United States (“HTSUS”) classifies imported goods for purposes of determining applicable duty rates. CBP takes the position that the HTSUS provides only one correct tariff classification number for each imported good.  However, tariff classification is not always straightforward, because the HTSUS contains numerous notes, and there could be CBP rulings and judicial cases that should be consulted to determine the correct classification. Importers should be careful in verifying the applicable tariff classification to avoid overpayment or underpayment of duties, including by consulting with knowledgeable trade attorneys. Example: In March 2022, the U.S. Attorney’s Office for the Northern District of Iowa announced a $525,000 settlement with an importer of chain saw chains and blades. The United States alleged the importer misclassified the imported chain saw chains and blades, resulting in underpayment of applicable duties.  This settlement stemmed from a whistleblower lawsuit brought by one of the importer’s competitors. What Importers Can Do to Limit Exposure The best time for importers to mitigate FCA liability is before the DOJ issues a subpoena or a relator files an FCA action.  If your organization is an importer of goods or deals with imported goods, here are some potential key steps: Review your import practices. Organizations should review the lines of responsibility for ensuring the accuracy of customs declarations for imported goods, and the process for confirming the accuracy of key information, such as country of origin, value, and tariff classification. This should include written internal procedures for purchases, invoicing, and logistics to avoid errors. Monitor Changes. Although the most recent tariff hikes have been broad, in many cases the Administration has imposed different tariff rates by country, has expanded certain product-specific tariffs, and issued novel interpretations of U.S. customs law. The ground shifts nearly daily. Importers should take care to make sure that they are declaring their goods in alignment with publicly available interpretive guidance. Evaluate oversight of partners. Many importers work with partners, like customs brokers, to help navigate the difficulties of customs clearance.  Delegating duty payment and declaration responsibilities to a third party may not insulate importers and other organizations from liability under the FCA, so it is important for organizations to evaluate relationships with third-party partners. Consult with an attorney. If you have questions about how federal authorities will likely see certain import practices or if you just want to make sure that you are engaging in best practices, speaking with attorneys knowledgeable in trade and the FCA can help you get ahead of problems before they grow into an investigation or lawsuit.

Deputy Assistant Attorney General Michael Granston laid out the Department of Justice’s (“DOJ”) priorities over the next four years at the Federal Bar Association’s annual qui tam conference in Washington, D.C. last week.  In his keynote address, Granston dispelled any notions that False Claims Act (“FCA”) enforcement would be curtailed, saying that DOJ “plans to continue to aggressively enforce the False Claims Act” consistent with the new administration’s focus on achieving government efficiency and rooting out waste, fraud and abuse. What are DOJ’s priorities? Granston went on to identify several key priorities for FCA enforcement in the coming years, including: Tariff Evasion/Customs Fraud. Granston stated that the FCA is a “powerful tool” for fighting against efforts to avoid paying customs duties on imported goods.  Given the Administration’s focus on trade issues, “reverse false claims” actions challenging goods classifications under the Harmonized Tariff Schedule, country of origin, or product value, and similar FCA claims may increase significantly in the coming months and years. Pharmaceutical Price Inflation and Drug Rebate Retention. Artificial inflation of pharmaceutical prices for government healthcare programs (including Medicare, Medicaid, FEHB, and TRICARE) resulting in increased costs to the federal government, such as through manipulating the reported “Average Wholesale Price” (AWP), may create FCA liability.  Similarly, Part D Plan Sponsors, or pharmacy benefit managers, are obliged to pass on certain savings, including discounts and rebates, to the federal government.  These savings are also reported, creating the risk for FCA liability in the obligation to pass savings through and the reporting requirements. Procurement Fraud. DOJ has made it clear this will be another area of focus.  Government contract awards based on false premises or promises in a proposal or bid, false certifications, bid rigging, collusive behavior, and other similar alleged conduct are expected to be a focus over the next year.  In a similar vein, the U.S. Attorney’s Office for the Northern District of Ohio last month announced it would be “spearheading a new, interagency Supply Chain Oversight and Procurement Enforcement (SCOPE) Task Force . . . to ensure supply chain integrity and prevent procurement fraud.” Medicare Part C/Medicare Advantage. Medicare Part C, also known as Medicare Advantage, constitutes about half of all expenditures for the Medicare program and affects millions of beneficiaries.  Granston indicated that DOJ intends to ramp up enforcement of Part C fraud, which may include claims of provision of substandard or unnecessary care, “upcoding” schemes, and false certifications. Pandemic Relief. Over recent years, DOJ has dramatically increased its enforcement related to pandemic relief, including Paycheck Protection Program (PPP) based fraud.  According to Granston, this is likely to continue for the foreseeable future. The Administration has offered broader signals of its own, particularly given the high-profile activities of the Department of Government Efficiency, and multiple broad-reaching Executive Orders focused on institutions of higher education and research institutions.  Federal grants compliance, particularly as to DEI/DEIA initiatives (see related discussion here and here) and the interaction between certifications of compliance and the FCA may be a major focus for DOJ and private relators. How should organizations prepare? If you or your organization are receiving federal funds or could be obligated to make non-tax payments to the federal government (such as tariffs), mitigation of the risk of FCA liability and related investigations are prudent. Review current practices with an eye to the FCA. With DOJ signaling that “aggressive” enforcement of the FCA is ahead, organizations making payments to or receiving payments from the federal government for anything from paying import duties to submitting claims for medical services, should review current practices and policies to identify areas of risk and bolster their culture of compliance. Analyze your federal-facing data. From import records to healthcare claims payments, many organizations knowingly or unknowingly provide the federal government with treasure troves of information.  Knowing what your own data says about your organization can help you get ahead of any potential federal investigation. Consult with counsel. The best time to get ahead on FCA issues is before they arise.  Proactive assessments, mitigation, and even self-disclosure with the help of experienced counsel can significantly reduce FCA exposure.  Certainly, if a Civil Investigative Demand drops on your desk, pick up the phone and get some expert help.

The U.S. Department of Justice (DOJ) recently released the fiscal year (FY) 2024 (October 1, 2023 – September 30, 2024) statistics on qui tam and non-qui tam actions under the False Claims Act, 31 U.S.C. § 3729, et seq. (FCA).  Relator whistleblowers filed the highest number of FCA actions ever, totaling 979 new qui tam actions.  Settlements and judgments exceeded $2.9 billion, of which $2.4 billion arose from qui tam actions.  And Relator shares of settlements and judgments exceeded $400 million for the third year running. Health care fraud settlements and judgements alone surpassed $1.67 billion and represented approximately 58% of the total settlement and judgment recoveries—DOJ noted that total does not include recoveries for state Medicaid programs.  Two settlements that arose from alleged wrongdoing contributing to the opioid epidemic accounted for approximately $875 million of that total.  But with respect to health care, DOJ pointed to several other settlements arising from allegations of substandard care or provision of unnecessary services, and affirmed its continued efforts related to Medicare Advantage fraud and unlawful kickbacks. Although health care fraud remains the largest source of FCA recoveries, DOJ’s report details several high-value settlements and judgements in military procurement fraud, PPP loans, and failures to meet cybersecurity requirements in government contracts, emphasizing the wide breadth of the FCA.  In addition, pandemic relief fraud is still a significant area of enforcement for DOJ, accounting for 250 of the settlements and judgments and more than $250 million in recoveries.  DOJ reaffirmed its commitment to “fighting fraud and abuse in federal programs,” and its focus on “health care fraud, the opioid epidemic, fraud in pandemic relief programs, and violations of cyber security requirements in government contracts and grants.” DOJ, as it does in other contexts, continues to promote cooperation of defendants in FCA investigations and litigations.  According to DOJ, self-disclosure, “demonstrabl[e]” cooperation, and remedial measures, inure to defendants’ benefit through acknowledgement in settlement agreements, and reduced penalties or damage multiples.  Organizations that discover internal fraud concerns, facing FCA Civil Investigative Demands, or defending against FCA actions must weigh and consider carefully how to approach self-disclosure and cooperation, from day one through the end of the action. Deputy Assistant Attorney General for the Commercial Litigation Branch Michael Granston is expected to speak next month at the Federal Bar Association’s Qui Tam Conference.  DOJ may provide more detail on its enforcement priorities then, which may shift given the change of Administration. FCA-enforcement actions do not appear likely to decline, though, given President Trump’s nominee for Attorney General, Pam Bondi, said during her Senate confirmation hearing that DOJ would defend the constitutionality of the FCA in court and recognized the significance of the FCA as a means of “protection” from fraud and for “the money it brings back to our country.”

The U.S. Department of Justice (DOJ) announced recently that settlements and judgments under the False Claims Act, 31 U.S.C. § 3729, et seq. (FCA) totaled approximately $2.7 billion in FY 2023 (October 1, 2022 – September 30, 2023).  DOJ and whistleblowers were party to 543 settlements and judgments, a record high, and a fifty-percent increase from the 351 settlements and judgments obtained in FY 2022.  Healthcare fraud schemes continue to make up the lion’s share of settlement and judgment totals.  In FY 2023, nearly $1.9 billion of total recoveries related to healthcare fraud. The FCA fraud recovery statistics reveal important trends—and insight into what the future holds for industries subject to the FCA.  There is a rise in FCA litigation across the board, with DOJ-initiated cases increasing.  DOJ brought 500 FCA cases in FY 2023, more than any year ever.  DOJ-initiated cases are on a years-long ramp up from 305 cases brought in FY 2022 and 212 brought in FY 2021.  The surge relates at least in part to DOJ’s pursuit of pandemic-relief program fraud, including improper payments under the Paycheck Protection Program (PPP).  In FY 2023 alone, DOJ resolved 270 FCA cases involving PPP loans.  By comparison, Relator’s filed 712 qui tam actions in FY 2023, still a significant margin over DOJ (and representing the third highest in history), but representing a modest increase over the 658 FCA cases Relators brought in FY 2022. Relatedly, DOJ is pursuing more investigations of potential frauds.  Speaking at the 2024 Federal Bar Associations Qui Tam Conference, Principal Deputy Assistant Attorney General Brian M. Boynton said that, in FY 2023, DOJ issued a record 1,504 Civil Investigative Demands, an investigative tool to obtain documents, interrogatory responses, and testimony. DOJ indicated its commitment to increased investigation and enforcement actions in the coming year, highlighting the following priorities: Cybersecurity. In 2021, the DOJ announced a Civil Cyber-Fraud Initiative, which is focused on using the FCA to bring enforcement actions when government contractors fail to follow federal cybersecurity requirements. Pandemic-relief fraud. DOJ and its COVID-19 Fraud Enforcement Task Force have pursued a variety of pandemic related fraud schemes, including fraud related to PPP loans and the Economic Injury Disaster Loan Program. Healthcare fraud. DOJ continues its focus on healthcare fraud, including financial inducements for referrals—“kickbacks”—nursing-home related fraud schemes, and Medicare Advantage Program fraud. Third-Party Liability. DOJ is focused on third parties that cause the submission of false claims.  These third parties can include private equity firms, consultants, or even electronic medical record software providers.  The central focus is whether conduct by the third party played a significant and foreseeable role in advancing the scheme. Whether the focus on these priorities in the upcoming year will lead to new records in FCA statistics for FY 2024 is of course yet to be seen, but based on the recent trends and the extended statute of limitations period afforded to DOJ to investigate pandemic relief fraud, it seems likely that this year will be a continuation of the record-setting FY 2023.      

On June 1, 2023, a unanimous Supreme Court decision sought to clarify the meaning of “scienter” in the FCA context, which deals with the defendant’s knowledge (or lack thereof) that a claim for payment was false and intent to submit the false claim.  See United States ex rel. Schutte v. SuperValu Inc., 143 S. Ct. 1391 (2023) (“SuperValu”).  There, the Court ruled that “[f]or scienter, it is enough if respondents believed that their claims were not accurate.”  Id. at 1404.  According to the SuperValu decision, only that subjective belief as to the claim’s falsity matters, and whether there is an “objectively reasonable” explanation for the false claim is irrelevant.  Id. at 1399 (“The FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed.”). While explaining the basis for the decision, Justice Thomas wrote that “the FCA’s standards focus primarily on what respondents thought and believed,” discussing how the three different FCA knowledge standards—actual knowledge, deliberate ignorance, and reckless disregard—each rely on the defendant’s subjective knowledge.  Id. at 1400-01.  Describing “reckless disregard” in the FCA context, Justice Thomas explained that the term “captures defendants who are conscious of a substantial and unjustifiable risk that their claims are false, but submit the claims anyway.”  Id. That sentence is already being used to argue that SuperValu heightened the government’s burden when it is attempting to prove reckless disregard—that to establish reckless disregard the government must show that the defendant was, as Justice Thomas described, “conscious of a substantial and unjustifiable risk that their claims are false.”  If courts rely on this as the standard for establishing reckless disregard in the future, it could heighten the government's burden as compared to tests currently used by courts.  For example, in July 2022 the Middle District of Georgia described the reckless disregard standard in the FCA context as when the defendant “knows or has reason to know of facts that would lead a reasonable person to realize that harm like a false claim is the likely result of the relevant act.” United States ex rel. Hockaday v. Athens Orthopedic Clinic, P.A., 616 F. Supp. 3d 1339, 1354 (M.D. Ga. 2022) (quoting Urquilla-Diaz v. Kaplan Univ., 780 F.3d 1039, 1058 (11th Cir. 2015)) (cleaned up). As one example of how defendants are already using the Court’s language, in a June 23 brief to the Western District of Virginia District Court discussing the impact of the SuperValu decision, the defendants in the Miller case contended that “[t]he Supreme Court clarified that the FCA’s ‘reckless disregard’ standard ‘captures defendants who are [1] conscious of a [2] substantial and [3] unjustifiable risk that their claims are false, but submit them anyway.’”  See, e.g., United States ex rel. Miller v. Reckitt Benckiser Group PLC, 1:15-cv-00017, Dkt. No. 149 at 10-11 (W.D. Va. July 7, 2023).  DOJ responded that there is no three-part test to establish reckless disregard, and instead the effect of the SuperValu decision is simply rejecting any argument that the FCA’s scienter element incorporates an objective test.  Id., Dkt. No. 150 at 3.  According to DOJ, the Court was not “establishing new and restrictive criteria” to show reckless disregard, but was merely “summarizing” existing case law.  Id. The Western District of Virginia has not yet made a ruling relevant to these arguments, but the eventual ruling will be one of the first to test a potential new argument available to FCA defendants resulting from the SuperValu decision, and may provide an additional hurdle for the government to prove reckless disregard.

On November 30, 2022, the Third Circuit Court of Appeals vacated dismissal of a retaliation action brought by Don Ascolese (“Ascolese”) under the False Claims Act (“FCA”).  See United States ex rel. Don Ascolese v. Shoemaker Constr. Co., No. 21-2899, ECF No. 30 (3d Cir. 2022) (“3d Cir. Opinion”). In the complaint before the lower court, Ascolese alleged that Shoemaker Construction Co., McDonough Bolyard Peck (“MBP”), and Shoemaker Synterra JV falsely certified construction work in a public housing project for the Philadelphia Housing Authority (“PHA”) such that the project was not in compliance with build specifications or in accordance with established building and safety codes. See United States ex rel. Don Ascolese v. Shoemaker Constr. Co., No 2:18-cv-01864-MSG, ECF No. 26 (E.D. Penn. May 3, 2018).  Ascolese also claimed he was fired for raising the issue internally, which allegedly violated the FCA’s anti-retaliation provisions because whistleblowing is a protected activity.  Id. In response to the allegations, all three Defendants moved to dismiss all claims on the basis that Ascolese’s complaint failed to meet threshold-pleading requirements.  On April 19, 2021, the District Court dismissed the vast majority of Ascolese’s claims against the Defendants, including dismissing all retaliation claims.  Id. at ECF No. 42.  In finding Ascolese’s retaliation claims were not plausibly plead, the District Court explained that Ascolese had not demonstrated that MBP had knowledge that Ascolese was engaging in protected conduct and that because Ascolese was not an employee of Shoemaker Construction or Shoemaker Synterra JV, as a matter of law Ascolese could not pursue a claim for retaliation against them.  Id. at 22-24. Following dismissal of his claims for retaliation, Ascolese moved for leave to file a Second Amended Complaint, which MBP opposed.  The District Court denied the motion, finding that Ascolese had failed to plead “reliable indicia” for the court to infer false claims were submitted to MBP, and that Ascolese had merely “re-package[d]” his previously deficient claims of retaliation.  Id. at ECF No. 48.  Ascolese appealed. In an opinion dated November 30, 2022, the Third Circuit Court of Appeals vacated the District Court’s decision to deny Ascolese the opportunity to file a Second Amended Complaint, explaining that the District Court did not take into consideration statutory changes to the FCA retaliation standard introduced by Congress in 2009 and 2010.  3d Cir. Opinion at 3-4. The Third Circuit explained that Congress had previously “expanded the universe of protected conduct to whistleblowers who lawfully try to stop one or more violations of the Act, without regard to whether their conduct advances a qui tam suit under the Act.”  Id. at 4.  In effect, Congress had taken steps not only to protect “potential or actual” qui tam actions, but also to remedy misconduct “whether or not such steps are clearly in furtherance of a potential or actual qui tam action.”  Id. at 5.  Therefore, the Third Circuit explained, the 2009 and 2010 FCA amendments expanded the anti-retaliation standard to protect “lawful acts in furtherance of either an action under the FCA or other efforts to stop 1 or more violations of the Act.”  Id. at 12 (emphasis in the original). Under the new standard, the Third Circuit found that Ascolese had sufficiently plead that he engaged in “protected conduct” when he “went outside of his chain of command to report his concerns of fraudulent work to the PHA,” raised project “issues and safety concerns” with superiors at MBP and to PHA, and sufficiently plead that MBP was on notice of his protected conduct and retaliated against him because of it.  Id. at 14-16. Accordingly, the Third Circuit vacated the District Court’s denial of Ascolese’s motion for leave to file a Second Amended Complaint and remanded to the District Court. Companies and practitioners should familiarize themselves with the ever-changing standards implemented by Congress and the courts, especially in jurisdictions that have not yet explicitly adopted the post-amendment standards for retaliation under the FCA. Understanding the scope of the amendments, and what is required to allege retaliation, will be vital for companies to ensure they are not running afoul of the expanded standards under the FCA.

The Supreme Court recently denied three petitions for writs of certiorari, opting not to clarify the heightened pleading requirements for allegations of fraud under the False Claims Act ("FCA"). The cases for which certiorari was denied are Molina Healthcare of Illinois v. Prose, No. 21-1145; United States ex rel. Owsley v. Fazzi Associates, Inc., No. 21-936; and Johnson v. Bethany Hospice LLC, No. 21-462. For allegations of fraud, which includes allegations under the FCA, the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) require that a party state “with particularity the circumstances constituting fraud or mistake.” The party alleging “false claims” must allege that the defendant submitted false claims or caused false claims to be submitted to the government. To gain clarity as to the requirements of Rule 9(b), three petitioners sought certiorari, asking the Supreme Court to weigh in and clarify the detail required to meet the heighted Rule 9(b) standard at the outset of an FCA dispute: more specifically, the petitioners asked the courts to clarify whether relators must allege specific details of false claims allegedly submitted to the government for payment. In applying Rule 9(b) to FCA claims at the pleading stage, federal courts have adopted a variety of standards interpreting the level of detail necessary to adequately plead such claims. This disparity is exemplified by the circuit split between the Ninth and Sixth Circuits. The Ninth Circuit takes a relatively broad view of Rule 9(b), allowing relators to plead particular details of a scheme to submit false claims paired with reliable indicia that false claims were in fact submitted as a result of the scheme. In contrast, the Sixth Circuit enforces a more stringent standard, placing a greater emphasis on the specificity required to plead FCA claims, requiring pleading either specific false claims or specific facts that lead to a strong inference that a false claim was submitted, based on a relator’s personal billing-related knowledge. But instead of addressing the merits of the three petitions, the United States Supreme Court denied certiorari across the board, adopting the Solicitor General’s recommendation that the Court refrain from weighing in. According to the Solicitor General, the various circuit courts’ approaches have “largely converged on an approach that allows relators either to identify specific false claims or to plead other sufficiently reliable indicia supporting a strong reference that false claims were submitted to the government.” (Emphasis in original). The Solicitor General rebutted the contention that the courts are inconsistently applying Rule 9(b), noting that any difference “simply reflect[s] courts’ application of a fact-intensive standard to a range of different types of allegations.” The Solicitor General’s recommendation, and the Court’s adoption thereof, does not provide the clarity petitioners sought and arguably encourages “forum shopping” in which relators seek out jurisdictions in which Rule 9(b) is interpreted less rigorously – but the denial may also have operated to avoid the possibility that Court, should it have granted certiorari, would have propounded a relatively strict pleading standard for all federal courts. Whether the Supreme Court will ultimately address Rule 9(b)’s requirements for FCA claims remains an open question. For now, the pleading standard will continue to fluctuate based on the court before which such a claim is made.

On September 29, 2022, Massachusetts Attorney General Maura Healey announced that Medicaid managed care and pharmacy benefits giant Centene Corporation agreed to pay $14 million to resolve claims that it overcharged MassHealth, the Massachusetts Medicaid program.  This latest settlement comes shortly after Centene struck similar deals in other states, including a $33 million deal to end a False Claims Act (“FCA”) suit in Washington. Centene first came under the Massachusetts Attorney General’s scrutiny as a result of a series of investigations and settlements between Centene and several state officials across the country. For example, the Massachusetts Attorney General’s allegations mirrored those made in the Washington, which sued Centene in July for violations of the Washington Medicaid False Claims Act. In that suit, a whistleblower alleged that a Centene subsidiary was hiding the real cost of pharmacy benefits and services, was not passing on discounts it received, and generally inflated fees. These similar settlements led the Massachusetts Attorney General’s office to review Centene’s operations in Massachusetts, including its pharmacy benefits manager affiliate, Envolve Pharmacy Solutions Inc. The review discovered alleged irregularities with the Centene subsidiary’s pricing and reporting of benefits and services to MassHealth. The Massachusetts Attorney General’s office alleged that, similar to the Washington case, “Envolve and Centene failed to disclose or pass on some retail discount fees to MassHealth, which inflated fees and drug costs reported to the Commonwealth.” Massachusetts, like many other states, has its own state False Claims Act, which mimics the Federal False Claims Act in establishing investigation and enforcement mechanisms to recover funds in response to alleged fraud committed against the state.[1] Under both the Massachusetts False Claims Act, Mass. Ann. Laws ch. 12, § 5B, and the Federal FCA, 31 U.S.C. §§ 3729-3733, parties may seek treble damages in the event their claims make it to trial and are successful, which often drives settlement in similar cases. This case highlights how repeated FCA concerns can increase a company’s risk exposure given that Centene first agreed to pay Ohio Medicaid $88.3 million, Mississippi $55 million, then Washington $33 million, among others. While the interplay between medical billing and administering Medicaid can be complex, a company’s risk exposure is particularly high if repeated issues arise. [1] See generally Cal.Gov.Code § 12650; C.R.S. § 25.5-4-300.4; C.G.S. § 4-274; 6 Del.C. § 1201; Ga. Code, § 23-3-120; HRS § 661-21; 740 ILCS 175/1; IC 5-11-5.5-1; I.C. § 685.1; M.G.L. 12 § 5; Minn. Stat. § 15C.01; Mont. Code 17-8-401; N.R.S. 357.010; N.Y. State Finance Law § 187; N.C.G.S. § 1-605; 63 Ok. Stat. § 5053; R.I. Gen. Laws § 9-1.1-1; Tn. Code § 4-18-101; Tex. Hum. Res. Code § 36.001; 32 Vt. Stat. § 630; VA Code § 8.01-216.1; Wash. Code 74.66.005.

The United States Court of Appeals for the D.C. Circuit recently considered the extent to which settlements in related False Claims Act cases must be offset against damages owed by non-settling parties – and the appropriate measure for allocating previous settlements in later related cases. In United States v. Honeywell Int'l Inc., the Department of Justice sued Honeywell for providing allegedly defective material in bulletproof vests sold to the government. Honeywell, No. 21-5179, 2022 U.S. App. LEXIS 24369 (D.C. Cir. Aug. 30, 2022). Honeywell was one company in a complex network of bulletproof vest suppliers, and Honeywell sold Z Shield, a zylon fiber product, to the manufacturers of the bulletproof vests. United States v. Honeywell Int'l Inc., 502 F. Supp. 3d 427, 435 (D.D.C. 2020). The manufacturers in turn sold the vests to the federal government through two separate programs, the General Services Administration Multiple Award Schedule Program and the Bulletproof Vest Partnership Program. Id. at 435-36. In a series of related lawsuits, DOJ alleged that Honeywell and the vest manufacturers learned during the performance period of the procurement contracts that the Z Shield material degraded under hot and humid conditions, but did not adequately disclose this alleged defect to the government.  Id. at 461.  DOJ further alleged the degradation caused the bulletproof vests to no longer meet performance standards, and that Honeywell falsely certified the vests had met those standards. Id. at 449. Over the course of DOJ’s lengthy litigation with both Honeywell and the manufacturers, DOJ recovered millions from settlements with bulletproof vest manufacturers and suppliers but continued to litigate its claims against Honeywell. Id. at 478.  At summary judgment, Honeywell and DOJ agreed that those settlement payments involved “common damages,” i.e. “damages which arise from a single, indivisible harm.” Id. at 477. As a result, they agreed Honeywell was entitled to some credit for the settlement payments made by the vest manufacturers. Honeywell believed it should get full credit under the “pro tanto approach,” in which “a non-settling defendant receives a dollar for dollar credit for all amounts paid by others in settlement of common damages.” Id. at 281.  DOJ, on the other hand, argued for the “proportionate share approach,” in which “a nonsettling defendant receives, a credit for each settling defendant's proportionate share of responsibility for the total obligation, which is based on each defendant's degree of fault.” Id. The District Court sided with DOJ but granted Honeywell’s request for interlocutory appeal. On August 30, 2022, the D.C. Circuit reversed and adopted the pro tanto rule for apportioning common damages in FCA cases involving multiple defendants. The Court noted the Supreme Court’s guidance that “three paramount considerations” should be considered when “choosing between the pro tanto and proportionate share rules… (1) consistency with relevant precedent; (2) promotion of settlement; and (3) judicial economy.” Honeywell, 2022 U.S. App. LEXIS 24369, *19. In analyzing these considerations, the Court determined the first and third factor strongly favor the pro tanto approach, and explained that the pro tanto rule is “a better fit with the [FCA] statute and the liability rules that have been partnered with it [because] the FCA has been consistently interpreted to impose joint and several liability without a right to contribution.”  Id. at *20. This rule means that “a person who violates the FCA in a joint scheme may have to pay for all the government's trebled damages, and, even if that defendant is the least responsible party, it cannot force the other violators to pay their fair share.”  As a result of the Court’s decision, Honeywell has been relieved of any potential obligation to pay damages because the government has already recovered the full alleged amount from other parties. Id. This D.C. Circuit’s decision should inform settlement strategies for clients defending FCA lawsuits when there are multiple defendants (whether in a single case or in related actions).  In cases where defendants have varying degrees of culpability, the decision may cause DOJ to focus its settlement efforts on the defendants that it views as most responsible.

The government has been actively investigating and prosecuting Paycheck Protection Program (“PPP” or the “Program”) fraud ever since the Small Business Administration (“SBA”) rolled out the Program in the Spring of 2020 to provide SBA-backed loans to help eligible businesses maintain their workforces during the COVID-19 pandemic. At first the government’s efforts focused on cases of obvious fraud, resulting in criminal charges. The criminal prosecutions continue to this day, with a Florida man recently convicted of unlawfully using PPP loans for a 4.02 carat engagement ring, a Louisiana woman charged with fraudulently preparing over 100 PPP applications, and eight conspirators charged with obtaining over $7mm in PPP loans for alleged defunct companies.  But as highlighted on Dorsey & Whitney’s False Claims Act Case Tracker for PPP Fraud, the communications between borrowers, lenders, and the government to secure government loans necessarily created civil liability, too, under the False Claims Act (“FCA”). Civil cases alleging PPP fraud under the FCA, in fact, are now just as ubiquitous as the criminal cases that grabbed headlines early on in the pandemic. Until recently, however, the FCA cases only targeted borrowers allegedly engaged in PPP fraud. But not anymore. Last week, the DOJ announced the “first-ever” FCA settlement with a PPP lender. Under the settlement, Prosperity Bank, a regional bank with branches throughout Texas and Oklahoma, agreed to pay $18,673.50 to “resolve allegations it improperly processed a PPP loan on behalf of an ineligible customer.” Key to the DOJ’s allegations was the bank’s employees’ knowledge of a PPP loan applicant’s ineligibility for PPP loans. In May 2020, the bank approved and processed a $213,400 PPP loan application for Woodlands Pain Institute PLLC (“Woodlands Pain”). At the time of the application, Dr. Emad Bishai, the sole owner of Woodlands Pain, was facing criminal charges related to his prescribing of opioid medications. On the PPP loan application, Dr. Bishai responded “no” to the question asking whether he was subject to an “indictment, criminal information, arraignment or other means by which formal criminal charges are brought.” Despite the employees’ knowledge that Dr. Bishai was facing criminal charges and was ineligible to apply for the PPP loan, the bank processed the application and received a processing fee of $10,670. The settlement amount of $18,673.50 reflects Prosperity Bank’s cooperation with the government’s investigation, by providing the government with relevant facts and implementing additional compliance measures. This type of settlement aligns with the DOJ’s recently announced efforts and reforms to hold corporations more accountable for criminal activity. The government shows no sign of slowing down its efforts to pursue its prosecution of PPP fraud, with Congress passing federal legislation extending the statute of limitations on COVID small business fraud cases, the Department of Justice (“DOJ”) recently establishing three new DOJ strike force teams designed to combat and prevent COVID-19 related fraud, and many more measures tailored toward delivering on President Biden’s announced goal of tackling PPP fraud. DOJ’s latest settlement with a PPP lender demonstrates that the scope of the government’s enforcement activity is expanding. For financial institutions with concerns about its PPP loan approval and forgiveness procedures, and particularly when the government is investigating a borrower of the lender, it is important to be proactive in identifying any potential compliance shortcomings and to work with counsel experienced with the Program to assess any potential risks. As AG Monaco noted in her speech last week, corporations that show a willingness to cooperate with prosecutors can secure more favorable outcomes than those that intentionally mislead or withhold information.  

On July 26, 2022, the Eighth Circuit Court of Appeals issued an opinion interpreting the standard for the causal link the government must show to establish that a “false or fraudulent” claim under the False Claims Act (“FCA”) included “items or services resulting from a violation” of 42 U.S.C. § 1320a-7b(g), the federal anti-kickback statute.  United States ex rel. Cairns v. D.S. Med. LLC, 2022 U.S. App. LEXIS 20584 (8th Cir. Jul. 26, 2022) (emphasis added). In Cairns, the Eighth Circuit reviewed a jury verdict from the Eastern District of Missouri where a neurosurgeon named Sonjay Fonn and a medical implant company owned by his fiancée were found liable for violations of the FCA.  According to the Court’s opinion, Dr. Fonn used spinal implants in his medical practice to treat degenerative-disc disease and other spinal disorders.  Id. at *3-4.  Because of the large commissions associated with each implant sold, Fonn was “in a powerful position” to impact the economic fortunes of prospective implant distributors.  Id. at *4.  Dr. Fonn chose to use implants distributed by defendant DS Medical, which was owned by his fiancée.  Id.  The arrangement resulted in commissions of more than $1 million in a single year from one manufacturer for DS Medical, and Fonn was offered the opportunity to purchase company stock.  Id. Several area physicians filed a qui tam complaint based on Fonn’s high implant use and his financial relationship with DS Medical.  Id. at *4-5.  The Government intervened and the case proceeded to trial.  Id. at *5.  The Government’s theory of liability was that the couple and their businesses submitted false or fraudulent Medicare and Medicaid claims after having violated the anti-kickback statute.  Id.  The district court instructed the jury that the Government could establish falsity or fraud if it proved, by a preponderance of the evidence, that the defendants submitted Medicare or Medicaid claims which failed to disclose the violations of the anti-kickback statute.  Id.  The jury returned a verdict for the Government on several of the claims.  Id. On appeal, the defendants argued that the district court committed two reversible errors.  Id. at *8.  First, the defendants argued that the district court erred by applying a “preponderance of the evidence” standard of proof for the anti-kickback violations and should have instead applied a “proof beyond a reasonable doubt” standard.  Id. at *9–10.  While the plain text of the FCA provides that the government need only prove each “essential element” of a claim by a “preponderance of the evidence,” the defendants argued that because a violation of the anti-kickback statute – a criminal offense – normally has to be proven with proof “beyond a reasonable doubt” that the higher standard should apply to the FCA claim.  Id.  Second, the defendants argued that the district court erred in failing to provide a jury instruction on but-for causation.  Id. at *8. Rejecting the first argument, the Eight Circuit affirmed the district court’s use of the “preponderance of the evidence” standard of proof.  Id. at *9–10.  The Court explained that “[t]he fact that the False Claims Act expressly provides a preponderance-of-the-evidence standard for all ‘essential elements’ leaves no doubt” that FCA violations, due to their status as civil sanctions, can be proven under the lower standard.  Id.  As such, the government may “establish an illegal kickback by a preponderance of the evidence as part of a larger False Claims Act case.”  Id. at *10. The Eighth Circuit then turned to the Defendants’ argument that they were entitled to a jury instruction on but-for causation.  On this issue, the Court agreed with the Defendants, reversing the verdict and remanding the case for a new trial.  Id.  Explaining its reasoning, the Court found that the statutory language at issue (the 2010 amendment to the anti-kickback statute) was unambiguous, and that the issue turned on the plain meaning of the phrase “resulting from.”  Id. at *10-11.  After briefly reviewing case law acknowledging and considering the plain meaning of “resulting,” the Court determined that the statute required a showing of but-for causation.  Id. at *11.  In concrete terms, this means that a plaintiff who seeks to establish falsity or fraud based on claims “resulting from” a violation of the anti-kickback statute must show that “a defendant would not have included particular ‘items or services’ but for the illegal kickbacks.”  Id. at *17.  The court rejected the alternative constructions suggested by the Government, such as that liability could be shown by proving claims were “tainted by” or “provided in violation of” the anti-kickback statute.  Id. at *14. The Court concluded by explaining that its ruling was narrow and it did not imply that every case arising under the FCA requires a showing of but-for causation.  Id. at *17.

On July 20, 2022, Biogen Inc. (“Biogen”) disclosed in a quarterly earnings report that it had agreed to pay $900 million to resolve a qui tam claim by a former employee that the company had violated the False Claims Act (“FCA”) and the Federal Anti-Kickback Statute (“AKS”). See Biogen Reports Second Quarter 2022 Results; see also United States ex rel. Bawduniak v. Biogen Idec, Inc., No. 12-cv-10601-IT, ECF No. 132 (Third Amended Complaint), ECF 615 (Notice of Settlement) (D. Mass. Apr. 27, 2018). In the original qui tam suit, former employee Michael Bawduniak accused Biogen of FCA and AKS violations through its payment of “millions of dollars in kickbacks to influence health care providers” to prescribe Biogen’s multiple sclerosis (“MS”) products in order to preserve Biogen’s market share of one of its MS drugs, to increase the market share of another, and to ensure that a third MS drug would be prescribed at a high rate once approved. ECF No. 132 at 1. The former sales representative alleged that Biogen’s “massive scheme” had “defraud[ed] Medicare, Medicaid, and other federal programs by providing financial rewards to physicians” to induce them to prescribe Biogen MS treatments. ECF No. 20 (Second Amended Complaint). In particular, he alleged that Biogen had classified and targeted physicians “based upon criteria that measured their ability to influence the prescription of MS treatments” such that Biogen paid lucrative consultation and speaking fees, travel expenses, and stipends to induce physicians to prescribe Biogen drugs. Id. ECF No. 132. On July 1, 2015, the United States declined to intervene in the suit a full investigation of FCA and AKS claims, as authorized by 31 U.S.C. § 3730(a). ECF No. 68. Following the United States’ decision, the District Court merged and unsealed all the claims related to Biogen’s alleged scheme. On July 22, 2016, Biogen filed a motion to dismiss, arguing that there was no proof of any quid pro quo to induce physicians to make prescriptions, and that the mere engagement of a prescriber as a consultant or speaker did not imply that the claims filed by the prescriber were “tainted.” Biogen focused on the nature of the pharmaceutical industry in justifying that its contractual arrangements with prescribers were both ordinary and appropriate based on safe harbor provisions in the AKS statute. Biogen argued that the complaint’s failure to identify a specific quid pro quo payment with particularity was fatal to the FCA and AKS claims. On April 27, 2018, the District Court denied Biogen’s motion to dismiss, holding that the complaint sufficiently alleged that Biogen had paid consulting and speaking fees exceeding those “reasonably necessary” for the services provided by the providers. ECF No. 179 at 6. For the AKS claim, the District Court further concluded that quid pro quo need not have been pled with particularity for specific payments; instead, it was sufficient to allege that Biogen paid kickbacks “for the purpose of inducing the physician to prescribe specific drugs, and that the physician then prescribed those drugs” in violation of the AKS. Id. at 7. Biogen’s agreement to settle the claims for $900 million on the eve of trial is one of the largest recoveries in the history of the FCA without the intervention or participation of the United States. Biogen’s settlement highlights the risks for pharmaceutical manufacturers involved in designing and implementing consultant and speakers programs. While the recent decision in United States ex rel. Cairns v. D.S. Med. LLC arguably provides more robust protections for parties accused of AKS violations in the Eighth Circuit, Biogen’s settlement emphasizes the more recent focus and scrutiny on speaker programs targeted at physicians given the potential fraud and abuse risks, even in instances where the United States is not involved. Accordingly, pharmaceutical companies and medical device manufacturers should ensure that their internal policies and procedures are carefully designed to document the legitimate underlying business rationales for each speaking and consultant engagement to ensure compliance with the FCA and AKS.