FCA Jurors Favor the Resolute (and the Fourth Circuit agrees)
Last month the Fourth Circuit affirmed a hard-fought victory for a False Claims Act defendant in a decision that (presumably) marks the end of a decade-long tug-of-war involving multiple appeals and, in late 2017, a high-stakes five-day trial in a Virginia federal court. U.S. ex rel. Oberg v. Pennsylvania Higher Education Assistance Agency, 912 F.3d 731 (4th Cir. 2019). The case provides a welcome reminder for FCA defendants that a complete victory isn't just a pipe-dream if your matter appears destined for trial—provided, of course, you're willing to battle until the very end.
The relator in this declined qui tam action originally filed his complaint in September 2007 against five private and four quasi-public student loan corporations, which relator alleged had defrauded the federal government by manipulating their portfolios to maximize the subsidies they could claim under a Department of Education (DoE) program.
The private entities settled early but the other defendants continued to contest the case. By 2015, after two rounds of appeals to the Fourth Circuit, two further settlements, and a dismissal, a sole defendant remained: the Pennsylvania Higher Education Assistance Agency (PHEAA). With both sides dug in and nearly $350 million in alleged damages on the line, the parties proceeded to trial the week after Thanksgiving 2017. After five days of testimony, the jury deliberated for all of three hours and returned a unanimous defense verdict for PHEAA.
The relator appealed, claiming the trial court erred by excluding as irrelevant an external audit report criticizing an alleged PHEAA culture that favored excessive compensation and other "lavish" and "extravagant" employee benefits. The relator argued that the audit was probative generally of "greed," but the Fourth Circuit sided with the trial court, noting the pertinent question was whether PHEAA knew its submission of subsidy claims to DoE was illegal, not whether its employees were submitting those claims with the desire to make money or any other particular motive.
Of course, the decision whether to settle is primarily a business risk calculation and we are never ones to second-guess that choice. Many cases settle and we tracked only two trial-related FCA recoveries (out of 200) last year. That said, this case is a heartening example for FCA defendants who might be considering putting the government and/or relators to their proof.
© Arnold & Porter Kaye Scholer LLP 2019 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.