REPORT PRATT S GOVERNMENT CONTRACTING LAW AN A.S. PRATT PUBLICATION JANUARY 2018 VOL. 4 NO. 1. EDITOR S NOTE: DISASTER RELIEF Victoria Prussen Spears

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1 AN A.S. PRATT PUBLICATION JANUARY 2018 VOL. 4 NO. 1 PRATT S GOVERNMENT CONTRACTING LAW REPORT EDITOR S NOTE: DISASTER RELIEF Victoria Prussen Spears AVOIDING FCA LIABILITY IN THE AFTERMATH OF DISASTER RELIEF P. Randy Seybold GOOD NEWS FOR FCA DEFENDANTS: SEVENTH CIRCUIT ABANDONS LONGSTANDING PRECEDENT IN RESPONSE TO ESCOBAR Courtney Gilligan Saleski and Andrew J. Hoffman McDOWELL v. CGI FEDERAL INC.: A STARK REMINDER TO GOVERNMENT CONTRACTORS OF THEIR CYBERSECURITY OBLIGATIONS Michael F. Mason, Thomas A. Pettit, Michael J. Scheimer, and Stacy Hadeka FALSE CLAIMS ACT WATCH: CALIFORNIA FEDERAL JUDGE DISMISSES DOJ COMPLAINT ALLEGING MEDICARE ADVANTAGE FRAUD Jaimie Nawaday and Alexandra Barbee-Garrett ARMED SERVICES BOARD OF CONTRACT APPEALS BACKLOG SHRINKS, BUT CHALLENGES REMAIN Glenn Sweatt and Michael R. Rizzo IN THE COURTS Steven A. Meyerowitz

2 PRATT S GOVERNMENT CONTRACTING LAW REPORT VOLUME 4 NUMBER 1 JANUARY 2018 Editor s Note: Disaster Relief Victoria Prussen Spears 1 Avoiding FCA Liability in the Aftermath of Disaster Relief P. Randy Seybold 3 Good News for FCA Defendants: Seventh Circuit Abandons Longstanding Precedent in Response to Escobar Courtney Gilligan Saleski and Andrew J. Hoffman 8 McDowell v. CGI Federal Inc.: A Stark Reminder to Government Contractors of Their Cybersecurity Obligations Michael F. Mason, Thomas A. Pettit, Michael J. Scheimer, and Stacy Hadeka 12 False Claims Act Watch: California Federal Judge Dismisses DOJ Complaint Alleging Medicare Advantage Fraud Jaimie Nawaday and Alexandra Barbee-Garrett 15 Armed Services Board of Contract Appeals Backlog Shrinks, But Challenges Remain Glenn Sweatt and Michael R. Rizzo 18 In the Courts Steven A. Meyerowitz 21

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4 Editor-in-Chief, Editor & Board of Editors EDITOR-IN-CHIEF STEVEN A. MEYEROWITZ President, Meyerowitz Communications Inc. EDITOR VICTORIA PRUSSEN SPEARS Senior Vice President, Meyerowitz Communications Inc. BOARD OF EDITORS MARY BETH BOSCO Partner, Holland & Knight LLP DARWIN A. HINDMAN III Shareholder, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC J. ANDREW HOWARD Partner, Alston & Bird LLP KYLE R. JEFCOAT Counsel, Latham & Watkins LLP JOHN E. JENSEN Partner, Pillsbury Winthrop Shaw Pittman LLP DISMAS LOCARIA Partner, Venable LLP MARCIA G. MADSEN Partner, Mayer Brown LLP KEVIN P. MULLEN Partner, Morrison & Foerster LLP VINCENT J. NAPOLEON Partner, Nixon Peabody LLP STUART W. TURNER Counsel, Arnold & Porter LLP WALTER A.I. WILSON Senior Partner, Polsinelli PC iii

5 PRATT S GOVERNMENT CONTRACTING LAW REPORT is published twelve times a year by Matthew Bender & Company, Inc. Copyright 2018 Reed Elsevier Properties SA., used under license by Matthew Bender & Company, Inc. All rights reserved. No part of this journal may be reproduced in any form by microfilm, xerography, or otherwise or incorporated into any information retrieval system without the written permission of the copyright owner. For permission to photocopy or use material electronically from Pratt s Government Contracting Law Report, please access or contact the Copyright Clearance Center, Inc. (CCC), 222 Rosewood Drive, Danvers, MA 01923, CCC is a not-for-profit organization that provides licenses and registration for a variety of users. For subscription information and customer service, call Direct any editorial inquires and send any material for publication to Steven A. Meyerowitz, Editor-in-Chief, Meyerowitz Communications Inc., Grand Central Parkway Suite 18R, Floral Park, New York 11005, smeyerowitz@meyerowitzcommunications.com, Material for publication is welcomed articles, decisions, or other items of interest to government contractors, attorneys and law firms, in-house counsel, government lawyers, and senior business executives. This publication is designed to be accurate and authoritative, but neither the publisher nor the authors are rendering legal, accounting, or other professional services in this publication. If legal or other expert advice is desired, retain the services of an appropriate professional. The articles and columns reflect only the present considerations and views of the authors and do not necessarily reflect those of the firms or organizations with which they are affiliated, any of the former or present clients of the authors or their firms or organizations, or the editors or publisher. POSTMASTER: Send address changes to Pratt s Government Contracting Law Report, LexisNexis Matthew Bender, 630 Central Avenue, New Providence, NJ iv

6 AVOIDING FCA LIABILITY IN THE AFTERMATH OF DISASTER RELIEF Avoiding FCA Liability in the Aftermath of Disaster Relief By P. Randy Seybold * The focus of this article is on the legal issues that inevitably arise after the necessarily large mobilization of federal funds in response to disasters. The 2017 hurricane season wrought havoc on the United States and its Territories. Hurricane Harvey devastated areas in Texas and Louisiana, Hurricane Irma followed shortly thereafter, hammering Florida and the U.S. Virgin Islands, and Hurricane Maria caused widespread damage and an ongoing humanitarian crisis in Puerto Rico. These disasters caused a tragic loss of life, and economic losses in the hundreds of billions of dollars. Appropriately, the focus in the aftermath of these disasters has been on providing immediate aid to those persons and businesses affected. However, the focus of this articleis on the legal issues that unfortunately but inevitably arise after the necessarily large mobilization of federal funds in response to such disasters. RELIEF FOR BUSINESSES AND THE FALSE CLAIMS ACT In response to Hurricanes Harvey, Irma, and Maria, huge sums of federal money have been awarded to businesses to assist in the relief effort. According to the Federal Procurement Data System, as of October 26, 2017, the United States government has awarded a total of over $2.17 billion in contracts to address the damage caused by these three storms: $857.7 million for Harvey, $465.6 million for Irma, and $852.5 million for Maria. 1 No doubt there are more awards to come. But in the rush to win awards for such contracts, both experienced government contractors and those less sophisticated in federal procurement should be aware of their exposure to potential liability under the False Claims Act ( FCA ). Government contracts come with a set of specific requirements, including certification obligations with respect to how taxpayer money is spent. When improper claims for payment under such contracts are made, the FCA provides for both criminal and civil liability, and allows for treble damages and other penalties. The FCA is a powerful tool by which the * P. Randy Seybold is a member in Cozen O Connor s Commercial Litigation group representing clients in False Claims Act litigation. He can be reached at rseybold@cozen.com. 1 Hurricane-specific reports regarding federal contracts awarded in response to each hurricane are available at the Federal Procurement Data System website, cms/index.php/en/reports.html. 3

7 GOVERNMENT CONTRACTING LAW REPORT federal government recovers money improperly paid to its contractors. In 2016 alone, the United States recovered over $4.6 billion in FCA claims. 2 The qui tam provision in the FCA furthers the potential exposure for companies contracting with the United States government to provide assistance in response to disasters. The FCA allows for individuals to pursue qui tam FCA litigation on the government s behalf. The qui tam provision purposefully expands the potential for lawsuits by giving whistleblowers (or those who purport to be whistleblowers) a stake (up to 30 percent) in any recovery. Thus the FCA qui tam provision provides the United States with a further powerful means by which the federal government recovers for improper claims. Indeed, most false claims actions are filed under the FCA qui tam provisions. In 2016 alone, the United States recovered $2.9 billion in qui tam action, and whistleblowers were awarded $519 million during the same period. 3 The U.S. government is well aware of the potential for fraudulent or otherwise improper claims to arise in connection with the large sums of money expended in disaster relief efforts. Indeed in connection with the recovery effort after Hurricane Katrina hit in August of 2005, in September of 2005, the U.S. Department of Justice established the Hurricane Katrina Fraud Task Force, in coordination with the Federal Bureau of Investigation ( FBI ), the Federal Trade Commission, the Postal Inspector s Office, and the Executive Office of the United States Attorneys. 4 The FCA provisions were among the tools to be used by this task force to address any misuse of Hurricane Katrina relief funds. On October 19, 2017, the Acting United States Attorney for the Eastern District of Texas announced the creation of a similar Disaster Fraud Task Force, comprised of local, state, and federal agencies, to combat hurricane Harvey related disaster fraud activity. 5 The establishment of these task forces reflects the U.S. government s acknowledgement that its substantial expenditures on disaster relief may invite fraudulent or improper behavior. As such, those contracting with the government in connection with disaster relief should expect heightened scrutiny. 2 December 14, 2016 Department of Justice press release, available at opa/pr/justice-department-recovers-over-47-billion-false-claims-act-cases-fiscal-year Id. 4 September 8, 2005 Department of Justice press release, available at gov/archive/opa/pr/2005/september/05_ag_462.html. 5 October 19, 2017 United States Attorney s Office for the Eastern District of Texas press release, available at 4

8 AVOIDING FCA LIABILITY IN THE AFTERMATH OF DISASTER RELIEF U.S. V. LIGHTHOUSE DISASTER RELIEF ET AL. FCA cases arising out of prior relief efforts also make clear that the United States will doggedly pursue actions against contractors providing disaster relief, even if such efforts take years. For example, on February 27, 2006, the United States filed an action, U.S. v. Lighthouse Disaster Relief et al., 6 against Lighthouse Disaster Relief and its partners ( Lighthouse ), alleging that Lighthouse breached its contract to build and operate a base camp to house and feed Hurricane Katrina first responders. The complaint alleged that Lighthouse made false statements to Federal Emergency Management Agency ( FEMA ) employees in order to be paid prematurely, and then failed to build for and house the number of first responders required by their contract. After more than three years of litigation, in April 2009, the government finally settled its claims against Lighthouse for $5.3 million, which included a judgment of $4 million on top of another $1.3 million already garnished by the government. UNITED STATES EX REL. JACQUET CONSTR. SERVS., LLC United States ex rel. Jacquet Constr. Servs., LLC, 7 is an example of a qui tam action for funds expended in disaster recovery, and further demonstrates the United States commitment to pursue recovery even if it takes years and substantial resources to do so. In Jacquet, a whistleblower filed a qui tam action against Jacquet Construction Services ( JCS ) alleging FCA violations for claims made during the first two months of JCS s multi-year federal contract for maintenance and deactivation of facilities used by FEMA in response to Hurricane Katrina. On April 26, 2006, at the outset of JCS s contract with FEMA, JCS entered into a subcontract with JWK International Corporation ( JWK ) to perform maintenance work on the trailers that were the subject of the contract. Allegedly, JWK failed to perform these functions properly, and as a result JCS terminated its contract with JWK after just four months. The following year, in June 2007, a former JCS employee filed an FCA qui tam action against JCS in the Eastern District of Louisiana alleging that JCS submitted claims for payment for work that JCS knew JWK had not performed. This qui tam action led to a subsequent FBI criminal investigation regarding the whistleblower s allegations. Although the Department of Justice ultimately declined to pursue criminal charges against JCS, the United States nevertheless intervened in the qui tam plaintiff s civil FCA suit in June 2011, four years after the initial suit was filed. A trial date was set for March 2013, but the parties settled the case (for an undisclosed amount) in December 2012, 6 M.D. La., Case No E.D. La., Case No

9 GOVERNMENT CONTRACTING LAW REPORT six-and-a-half years after the alleged violations occurred and five-and-a-half years after the initial FCA suit was filed. STEPS TO TAKE TO AVOID LIABILITY The Lighthouse and Jacquet cases are just two examples reflecting the seriousness of the government s efforts, over many years if necessary, to recover for improper claims submitted in connection with disaster relief. It is thus imperative for those contracting with the government to take steps to ensure that their claims for federal funds are proper and appropriate. Contractors should strongly consider taking all of the following steps to avoid such liability: First, contractors should carefully review any government solicitations before entering into contracts with the government. Contractors must be aware from the outset of the particular requirements of any contract. Contractors must also have a clear understanding from the outset regarding what work is covered by the contract (and therefore appropriate for submission of claims for payment) and what potentially related work may not be covered by the contract. Second, contractors should establish at the outset a detailed plan for compliance with the specific performance requirements in the contract. Contractors should assign specific personnel to be expressly responsible for reviewing each claim for payment for compliance with the contract terms and other federal requirements before it is sent to the government. Contractors without prior experience performing government contracts should consider hiring personnel with federal contracting experience to perform their compliance monitoring function. Third, contractors should maintain detailed written records of: (1) the work performed for which the government is being billed; (2) any communications with government personnel regarding performance under the contract; and (3) the contractor s plan for and implementation of efforts to ensure compliance with the contract terms and any other federal requirements. Fourth, to the extent contractors elect to hire subcontractors to perform any of the contracted services, they must thoroughly vet such subcontractors to ensure that the subcontractors have the appropriate personnel and requisite experience to meet the terms of the contract and any other federal requirements. Contractors must also monitor work performed by subcontractors to ensure compliance. Fifth, to the extent any questions or concerns arise during the course of contract performance, contractors should immediately consult with 6

10 AVOIDING FCA LIABILITY IN THE AFTERMATH OF DISASTER RELIEF government contract professionals and, where necessary, legal professionals. Many issues that ultimately result in FCA exposure could have been corrected in the course of performance if they had been addressed promptly. CONCLUSION Providing assistance in response to disasters is both professionally and personally rewarding. And with billions of federal dollars mobilized in disaster relief efforts, it can be financially rewarding as well. But to protect themselves from substantial future legal exposure, contractors must take the time and employ the resources at the outset of entering into federal contracts and throughout the course of performance to ensure compliance with the contract requirements. Undertaking this effort can be a challenge, particularly in the haste to provide assistance in the immediate aftermath of a disaster. But failure to do so can and often will result in a legal disaster for a non-diligent contractor, sometimes many years after their relief work is completed. 7