October 8, 2019
False Implied Certifications in Making Payment Requests: What We Can Learn from Lance Armstrong
By: Brian S. Wood and Alex Gorelik
Smith, Currie & Hancock, LLP
In April 2018, the Department of Justice announced a $5M settlement reached in its lawsuit against former professional cyclist, Lance Armstrong. While the fallout from Armstrong’s latently-admitted use of performance-enhancing drugs (“PEDs”) was well-publicized, including lost sponsorship deals, stripped Tour de France titles, and damage to his reputation, few were aware of Armstrong’s exposure to liability and criminal culpability for false claims against the government. The DOJ’s announcement reminded Armstrong and the rest of us of the golden rule of dealing with the government: honesty is the best policy. The corollary to that rule is that dishonesty is costly.
Armstrong’s liability stemmed from false statements (denying the use of PEDs) he made, directly and through team members and other representatives, to U.S. Postal Service (“USPS”) representatives and to the public. USPS was the primary sponsor of the grand tour cycling team led by Armstrong. The government alleged in the lawsuit that Armstrong’s false statements were made to induce USPS to renew and increase its sponsorship fees, in violation of the False Claims Act.
Enacted in 1863, the False Claims Act (“FCA”) was originally aimed at stopping and deterring frauds perpetrated by contractors against the government during the Civil War. Congress amended the FCA in the years since its enactment, but its primary focus and target have remained those who present or directly induce the submission of false or fraudulent claims. The current FCA imposes penalties on anyone who knowingly presents “a false or fraudulent claim for payment or approval” to the federal Government. A “claim” now includes direct requests to the Government for payment, as well as reimbursement requests made to the recipients of federal funds under federal benefits programs (such as Medicare). Thirty-one states, the District of Columbia, and Puerto Rico have also enacted laws imposing penalties for false claims against state agencies and their subdivisions, with most of these laws modelled after the federal FCA.
Civil penalties under the FCA include fines of up to three times the amount the government paid for each false claim, plus an additional penalty of up to $11,000 per false claim. The criminal penalties include significant fines and jail time. The FCA prohibits the following conduct:
- presenting or causing someone to present a false or fraudulent payment or approval claim while knowing it is false;
- making, using, or causing someone to make or use a false record or statement that is material to a false or fraudulent claim while knowing it is false;
- possessing or being in control of property or money meant for the government and delivering or causing someone to deliver less than what is owed to the government;
- making or delivering to the government a receipt of property meant for the government without a complete knowledge of its accuracy with the intention to defraud;
- buying or receiving debt or property from a government officer or employee who does not have the authority to sell or provide it, with knowledge of the lack of authority;
- making, using, or causing someone to make or use a false record or statement that is material to the government’s obligation to pay money or provide property with knowledge that the statement is false, or knowingly concealing and improperly avoiding or decreasing the amount of money or property owed to the government; and
- agreeing to do any of the above with someone else.
Former Teammate Blows the Whistle
A unique feature of the FCA is the “qui tam” provision, allowing a whistleblower—who becomes aware of and exposes fraud against the government—to bring a lawsuit on behalf of the government and share in the penalties collected from the violator. In the case of Lance Armstrong, it was his former teammate and Tour de France chief domestique, Floyd Landis, that filed the original FCA lawsuit, which was later joined by the government. As a result of his qui tam lawsuit, Landis will ultimately receive a $1.1 million share from the overall settlement and an additional $1.65 million for his legal costs.
Implied False Certifications
The Armstrong case reminds us that liability under the FCA is not limited to payment requests demanding incorrect amounts or containing clear defects in the request itself. A claimant is also liable for false certifications, whether express or implied. Under the “implied false certification” theory of liability, a payment request carries with it the claimant’s implied certification that the claimant has complied with relevant statutes, regulations, and/or contract requirements that are material conditions of payment. A failure to disclose a violation, breach, or non-compliance is a treated as a misrepresentation, rendering the payment request “false” or “fraudulent.”
The Supreme Court reinforced and clarified liability for false implied certifications in its 2016 decision in Universal Health Services, Inc. v. U.S. ex rel Escobar. In Universal, a health care provider submitted Medicaid reimbursement claims to the government for counseling and other mental health services provided to a teenage Medicaid beneficiary. After the teenager’s fatal reaction to bipolar medication prescribed by the provider, the parents discovered that few of the provider’s employees were licensed to provide mental health counseling or authorized to prescribe medications or offer counseling services without supervision. The government alleged that the provider defrauded the Medicaid program by submitting reimbursement claims that made representations about the specific services provided by specific types of professionals, but failing to disclose serious violations of regulations pertaining to staff qualifications and licensing requirements for these services. The Supreme Court expressly recognized the implied certification theory, holding that it can be a basis for false claims liability, where two conditions are satisfied: (1) the claim does not merely request payment, but also makes specific representations about the goods or services provided; and (2) the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths. The Court determined that the provider’s claims “do more than merely demand payment. They fall squarely within the rule that half-truths—representations that state the truth only so far as it goes, while omitting critical qualifying information—can be actionable misrepresentations.” The Court also held that FCA liability—for failing to disclose a violation or noncompliance—does not turn on whether a requirement is expressly designated as a condition of payment. Instead, the question is “whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.” The Supreme Court remanded the case to the trial court to determine whether the Medicaid program would have refused to pay the claims had it known of the violations of qualification and licensing regulations.
In the Lance Armstrong case, the USPS contract contained an express prohibition against the use of PEDs. As such, requesting payment and inducing endorsement fees with knowledge of violations/breaches of the contract would constitute a false certification if USPS would have refused further endorsement had it known of the PED use. The significant settlement is some indication that the parties believed there was likely false claim liability for false certification.
The takeaway: government contractors and subcontractors should make every effort to avoid any and all forms of misrepresentation in requests and other documents submitted to the government. When preparing and submitting a claim or request that will eventually be considered by the government (federal or state), the contractor or subcontract should ask itself whether the government would pay the requested amounts if it knew all of the facts about the submission, including omissions, inaccuracies, and errors. If the answer is “no,” the claim or request needs to be revised.
An original version of this article (since modified for this publication) was published in the January/February 2019 edition of Deep Foundations, the magazine of The Deep Foundations Institute, www.dfi.org. Reproduced with permission.
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