Federal Third Circuit Recognizes Implied Certification Qui Tam Theory

The federal False Claims Act (FCA) provides the legal basis for whistleblowers (known legally as “relators”) to receive a portion of the damages recovered due to acts of fraud against the government. Common types of actions under the False Claims Act include military contract fraud, fraud involving housing subsidized by HUD or misrepresentations involving a purchase by any federal agency.

A recent opinion from the United States Court of Appeals, Third Circuit, clarified the circumstances under which relators can file a lawsuit under the False Claims Act. At the heart of the appeal is a legally complex distinction between “express” and “implied” false certification theories of liability.

In the case, U.S. ex rel. Willis v. United Health Group, Inc., two whistleblowers represented by Ross Begelman and Marc Orlow of Begelman & Orlow, P. C., Attorneys at Law, appealed from the United States District Court for the District of New Jersey’s dismissal of their lawsuit for failure to state a claim. The relators alleged that the healthcare services company and its subsidiaries violated provisions of the Medicare Act.

The whistleblowers, who had worked in sales at United Health, were terminated after complaining to supervisors about illegal kickbacks to doctors and improper marketing practices at clinics, doctors’ offices and sales presentations. The legal issue at the heart of the case was whether such activities amounted to a false certification of the company’s eligibility when the company ultimately submitted claims for payment from the Centers for Medicare and Medicaid Services.

False Claims: Factual vs. Legal Claims, Express vs. Implied Certifications

One easily understood type of False Claims Action involves a company that contracts to provide a certain type of good or service then supplies an inferior, defective or otherwise inadequate product. An example of such a factually false claim would be a part for a fighter jet supplied for military use that fails to meet the specifications agreed to in the contract.

The present case involves a legally false claim, which means that the company falsely certifies its compliance with regulations or statutes that govern payment by the public agency. Express false certifications under the False Claims Act are misrepresentations that the company has complied with a regulation that is a prerequisite to government payout, such as being licensed to provide services.

The relators’ qui tam attorneys successfully argued to the Third Circuit that their clients have a right to pursue recovery of damages for implied false certifications. This theory of liability is based on the idea that the very act of seeking reimbursement for goods and services provided to a government entity implies the company’s compliance with agency rules and regulations. In other words, an expressed misrepresentation or statement containing a false claim about compliance is not necessary.

The court indicated several reasons for adopting this theory of liability, which has been recognized by U.S. Courts of Appeals in six other circuits:

  • It honors the False Claims Act’s stated purpose of exposing all fraud against the federal government
  • Congress intended the FCA to consider not only violations of contract terms, but also a company’s legal eligibility for payment
  • A key relevant provision of the FCA requires only a “false or fraudulent claim for payment or approval” without requiring the existence of an actual “false record or statement”

However, the court distinguished between the two types of actionable behavior alleged by the whistleblowers, and held that only Medicare’s anti-kickback provisions, and not its marketing regulations, were subject to implied false certification liability.

The bottom line: employees who face retaliation for exposing the wrongdoing of an employer who deals with the government should seek representation from a law firm that has extensive experience with qui tam litigation. By articulating creative theories of fraud couched in a solid legal strategy, whistleblower lawyers can help clients enforce justice at trial and push for better legal understanding on appeal.

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