Two Penalties for the Price of One: Direct and Reverse FCA Liability for the Same Bill

A Japanese proverb states that "the reverse side also has a reverse side," which appears to hold true of the FCA—at least as interpreted in United States ex rel Patzer v. Sikorsky Aircraft Corp. At issue in that case were both direct false claims (i.e., false billing for government funds) and reverse false claims (i.e., knowingly retaining a government overpayment), with the government curiously attempting to impose both theories of liability for the very same acts. In this intervened qui tam case, the government alleged that a contractor had "hatched a scheme to illegally inflate the prices that the Navy would pay for parts," and the defendants moved to dismiss, in part on the basis that the government sought to impose both direct and reverse false claims liability for the same conduct.

The court rejected that argument, reasoning that none of the counts alleging reverse false claims overlapped completely with the counts alleging direct false claims—for example, because they involved "additional false statements . . . designed to prevent the government from obtaining repayment of the money." But what concerns us—and should concern our readers—is that the court in dicta suggested that a direct false claim for payment could automatically give rise to separate reverse false claims liability, just by virtue of the fact that the claimant kept the money obtained by the alleged false claim in the first place.

The Patzer Court asserted that "[i]t is not unreasonable to think" that Congress intended for a person who receives funds from the government, and then retains those funds, to be held liable for both a direct and reverse false claim. Under those circumstances, the court explained, "the person has committed two wrongful acts: (1) submitting the false claim or making the false statement, and (2) later avoiding an obligation to return money." It further fairly summarily dismissed other courts that have refuted this flawed logic. In United States ex rel. Scharber v. Golden Gate National Senior Care LLC, for example, the district court reasoned that imposing liability under both a direct and reverse false claims theory "would amount to double punishment for the same allegedly wrongful act: submitting fraudulent, false claims to the government." Likewise, in Pencheng Si v. Laogai Research Foundation, the court explained that if concealment of retained funds were sufficient to constitute a reverse false claim, "just about any traditional false statement or presentment action would give rise to a reverse false claim action."

Our readers might ask why this matters, since the government or a relator would be limited to one set of treble damages per fraud. However, two violations for the price of one would significantly up the potential penalty exposure, particularly now that the per-violation penalty exceeds $20,000. Applying the Patzer Court's logic, any significant health care fraud case (which could involve potentially thousands of allegedly false claims to Medicare) could mean more than $40,000 of potential penalty exposure for every medical bill, regardless of damages. Could Congress have intended double penalties for every violation? If so, we would have expected to see as much when it authorized annually indexing FCA penalties for exposure in 2015.

This issue has the all the makings of a circuit split, once the courts of appeals begin to weigh in. We will continue to monitor the situation in the meantime.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.