Articles Posted in Government Contracts

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Before Hurricane Katrina, State Farm issued federal government-backed flood insurance policies and its own homeowner policies. Relators, former claims adjusters for a State Farm contractor (Renfroe) filed a complaint under seal in April 2006, claiming that State Farm instructed adjusters to misclassify wind damage as flood damage to shift its insurance liability to the government. The district court extended the seal several times at the government’s request, lifting it in part in January 2007 for disclosure to another district court hearing a suit by Renfroe against the relators. In August, the court lifted the seal. The government declined to intervene. State Farm moved to dismiss on grounds that the relators’ attorney had disclosed the complaint’s existence to news outlets, which issued stories about the fraud allegations, but did not mention the False Claims Act (FCA, 31 U.S.C. 3729) complaint and the relators had met with a Congressman who later spoke against the purported fraud. Under the FCA: “The complaint shall be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders.” The court decided against dismissal, balancing actual harm to the government, severity of the violations, and evidence of bad faith. The Fifth Circuit and a unanimous Supreme Court affirmed. A seal violation does not mandate dismissal. The FCA has several provisions expressly requiring the dismissal, indicating that Congress did not intend to require dismissal for a violation of the seal requirement. This result is consistent with the purpose of section 3730(b)(2), which was enacted to “encourage more private enforcement suits,” and to protect the government’s interests when a relator filing a civil complaint could alert defendants to a pending federal criminal investigation. View "State Farm Fire & Casualty Co. v. United States ex rel. Rigsby" on Justia Law

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A Massachusetts’ Medicaid beneficiary received services at Arbour, a mental health facility owned by Universal’s subsidiary. The teenager had an adverse reaction to a medication that a purported doctor prescribed after diagnosing her with bipolar disorder. She died of a seizure. Her parents discovered that few Arbour employees were licensed to provide mental health counseling or to prescribe medications without supervision. They filed a qui tam suit, alleging violations of the False Claims Act (FCA), which imposes penalties on anyone who “knowingly presents . . . a false or fraudulent claim for payment or approval” to the federal government, 31 U.S.C. 3729(a)(1)(A). They alleged an “implied false certification theory of liability,” which treats a payment request as an implied certification of compliance with relevant statutes, regulations, or contract requirements that are material conditions of payment. They cited Universal’s failure to disclose serious violations of Massachusetts Medicaid regulations and claimed that Medicaid would have refused to pay the claims had it known of the violations. The First Circuit reversed dismissal, in part. A unanimous Supreme Court vacated. The FCA does not define a “false” or “fraudulent” claim; the claims at issue may be actionable because they do more than merely demand payment. Representations that state the truth only so far as it goes, while omitting critical qualifying information, can be actionable misrepresentations. By conveying specific information about services without disclosing violations of staff and licensing requirements, Universal’s claims constituted misrepresentations. FCA liability for failing to disclose violations of legal requirements does not depend upon whether those requirements were expressly designated as conditions of payment. While statutory, regulatory, and contractual requirements are not automatically material, even if labeled as conditions of payment, a defendant can have “actual knowledge” that a condition is material even if the government does not expressly call it a condition of payment. View "Universal Health Servs., Inc. v. United States" on Justia Law

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The Veterans Benefits, Health Care, and Information Technology Act requires the Secretary of Veterans Affairs to set annual goals for contracting with service-disabled and other veteran-owned small businesses, 38 U.S.C. 8127(a). The “Rule of Two” provides that a contracting officer “shall award contracts” by restricting competition to veteran-owned small businesses if the officer reasonably expects that at least two such businesses will submit offers and that “the award can be made at a fair and reasonable price.” A contracting officer “may” use noncompetitive and sole-source contracts for contracts below specific dollar amounts. In 2012, the Department used the Federal Supply Schedule (FSS), a streamlined method for acquisition of goods and services under prenegotiated terms, to procure medical center Emergency Notification Services from a non-veteran-owned business. The agreement ended in 2013. A service-disabled-veteran-owned small business filed a Government Accountability Office (GAO) bid protest, alleging that the Department procured multiple contracts through the FSS without employing the Rule of Two. The GAO determined that the Department’s actions were unlawful. The Department declined to follow the GAO’s nonbinding recommendation. The Federal Circuit held that the Department was only required to apply the Rule when necessary to satisfy its annual goals. The Supreme Court reversed, first holding that it had jurisdiction because the controversy is “capable of repetition, yet evading review.” Section 8127(d)’s contracting procedures are mandatory and apply to all of the Department’s contracting determinations. An FSS order is a “contract” within the ordinary meaning of that term and does not fall outside Section 8127(d). The Court rejected an argument that the Rule of Two will hamper mundane Government purchases as misapprehending current FSS practices, which have expanded beyond simple procurement to contracts concerning complex services over a multiyear period. View "Kingdomware Techs., Inc. v. United States" on Justia Law

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The Menominee Tribe of Wisconsin contracted with the Indian Health Service (IHS) to operate what would otherwise have been a federal program, pursuant to the Indian Self-Determination and Education Assistance Act (ISDA), 25 U.S.C. 450f, 450j–1(a). After other tribes successfully litigated complaints against the government for failing to honor its obligation to pay contract support costs, the Menominee Tribe presented its own claims to the IHS under the Contract Disputes Act. The contracting officer denied some claims as not presented within the CDA’s 6-year limitations period. The Tribe argued that the limitations period should be tolled for the two years in which a putative class action, brought by tribes with parallel complaints, was pending. The district court denied the equitable-tolling claim. The Court of Appeals and Supreme Court affirmed, holding that no extraordinary circumstances caused the delay. To be entitled to equitable tolling of a statute of limitations, a litigant must establish both that he has been pursuing his rights diligently and that some extraordinary circumstances prevented timely filing. The Court rejected the Tribe’s argument that diligence and extraordinary circumstances should be considered together as factors in a unitary test. The “extraordinary circumstances” prong is met only where the circumstances that caused the delay are both extraordinary and beyond the litigant’s control. The Tribe had unilateral authority to present its claims in a timely manner. Any significant risk and expense associated with litigating its claims were far from extraordinary. View "Menominee Tribe of Wis. v. United States" on Justia Law

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Private parties may file civil qui tam actions to enforce the False Claims Act (FCA), 31 U.S.C. 3729(a)(1). A qui tam action must be brought within six years of a violation, but the Wartime Suspension of Limitations Act (WSLA) suspends the statute of limitations “applicable to any offense” involving fraud against the government, 18 U.S.C. 3287. The FCA’s “first-to-file bar” precludes a qui tam suit “based on the facts underlying [a] pending action.” In 2005, Carter worked for a defense contractor in Iraq. He filed a qui tam complaint, alleging that defense contractors had fraudulently billed the government for water purification services that were not performed or performed improperly. In 2010, the government informed the parties that an earlier-filed qui tam suit (Thorpe) had similar claims. Carter was dismissed without prejudice. While appeal was pending, Thorpe was dismissed for failure to prosecute. Carter filed a new complaint; the court dismissed it because Carter I’s appeal was pending. After dismissing that appeal, more than six years after the alleged fraud, Carter filed a third complaint, which was dismissed with prejudice under the first-to-file rule because of a pending Maryland suit. The court also stated that the actions were untimely. Reversing, the Fourth Circuit concluded that the WSLA applied to civil claims and that the first-to-file bar ceases to apply once a related action is dismissed. A unanimous Supreme Court held that the WSLA applies only to criminal offenses, not to civil claims, so that the claims were untimely. Dismissal with prejudice under the first-to-file bar was improper however. That bar keeps new claims out of court only while related claims are still alive, not in perpetuity. View "Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter" on Justia Law

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Providers of “habilitation services” under Idaho’s Medicaid plan are reimbursed by the state Department of Health and Welfare. Section 30(A) of the Medicaid Act requires Idaho’s plan to “assure that payments are consistent with efficiency, economy, and quality of care” while “safeguard[ing] against unnecessary utilization of . . . care and services,” 42 U.S.C. 1396a(a)(30)(A). Providers of habilitation services claimed that Idaho reimbursed them at rates lower than section 30(A) permits. The district court entered summary judgment for the providers. The Ninth Circuit affirmed, concluding that the Supremacy Clause gave the providers an implied right of action, under which they could seek an injunction requiring compliance. The Supreme Court reversed, concluding that there is no private right of action. The Supremacy Clause instructs courts to give federal law priority when state and federal law clash, but it is not the source of any federal rights and does not create a cause of action. The suit cannot proceed in equity. The power of federal courts of equity to enjoin unlawful executive action is subject to express and implied statutory limitations. The express provision of a single remedy for a state’s failure to comply with Medicaid’s requirements, the withholding of Medicaid funds by the Secretary of Health and Human Services, 42 U.S.C. 1396c, and the complexity associated with enforcing section 30(A) combine to establish Congress’s “intent to foreclose” equitable relief. View "Armstrong v. Exceptional Child Ctr., Inc." on Justia Law

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In 1943, Congress approved a Compact between Kansas, Nebraska, and Colorado to apportion the “virgin water originating in” the Republican River Basin. In 1998, Kansas filed an original action in the Supreme Court contending that Nebraska’s increased groundwater pumping was subject to the Compact to the extent that it depleted stream flow in the Basin. The Court agreed. Negotiations resulted in a 2002 Settlement, which identified the Accounting Procedures by which the states would measure stream flow depletion, and thus consumption, due to groundwater pumping. The Settlement reaffirmed that “imported water,” brought into the Basin by human activity, would not count toward consumption. In 2007, Kansas claimed that Nebraska had exceeded its allocation. Nebraska responded that the Accounting Procedures improperly charged it for imported water and requested that the Accounting Procedures be modified. The Court appointed a Special Master, whose report concluded that Nebraska “knowingly failed” to comply, recommended that Nebraska disgorge part of its gains in addition to paying damages, and recommended denying an injunction and reforming the Accounting Procedures. The Supreme Court adopted the recommendations. Nebraska failed to establish adequate compliance mechanisms, given a known substantial risk that it would violate Kansas’s rights; Nebraska was warned each year that it had exceeded its allotment. Because of the higher value of water on Nebraska’s farmland than on Kansas’s, Nebraska could take Kansas’s water, pay damages, and still benefit. The disgorgement award is sufficient to deter future breaches. Kansas failed to demonstrate a “cognizable danger of recurrent violation” necessary to obtain an injunction. Amending the Accounting Procedures is necessary to prevent serious inaccuracies from distorting intended apportionment. View "Kansas v. Nebraska" on Justia Law

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Reimbursement providers for inpatient services rendered to Medicare beneficiaries is adjusted upward for hospitals that serve disproportionate numbers of patients who are eligible for Supplemental Security Income. The Centers for Medicare & Medicaid Services annually submit the SSI fraction for eligible hospitals to a “fiscal intermediary,” a Health and Human Services contractor, which computes the reimbursement amount and sends the hospitals notice. A provider may appeal to the Provider Reimbursement Review Board within 180 days, 42 U. S. C. 1395oo(a)(3). The PRRB may extend the period, for good cause, up to three years, 42 CFR 405.1841(b). A hospital timely appealed its SSI fraction calculations for 1993 through 1996. The PRRB found that errors in CMS’s methodology resulted in a systematic under-calculation. When the decision was made public, hospitals challenged their adjustments for 1987 through 1994. The PRRB held that it lacked jurisdiction, reasoning that it had no equitable powers save those granted by legislation or regulation. The district court dismissed the claims. The D. C. Circuit reversed. The Supreme Court reversed. While the 180-day limitation is not “jurisdictional” and does not preclude regulatory extension, the regulation is a permissible interpretation of 1395oo(a)(3). Applying deferential review, the Court noted the Secretary’s practical experience in superintending the huge program and the PRRB. Rejecting an argument for equitable tolling, the Court noted that for nearly 40 years the Secretary has prohibited extensions, except as provided by regulation, and Congress not amended the 180-day provision or the rule-making authority. The statutory scheme, which applies to sophisticated institutional providers, is not designed to be “unusually protective” of claimants. Giving intermediaries more time to discover over-payments than providers have to discover underpayments may be justified by the “administrative realities” of the system: a few dozen intermediaries issue tens of thousands of NPRs, while each provider can concentrate on its own NPR. View "Sebelius v. Auburn Reg'l Med. Ctr." on Justia Law

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The Indian Self-Determination and Education Assistance Act (ISDA), 25 U.S.C. 450 et seq., directed the Secretary of the Interior to enter into contracts with willing tribes, pursuant to which those tribes would provide services such as education and law enforcement that otherwise would have been provided by the Federal government. ISDA mandated that the Secretary shall pay the full amount of "contract support costs" incurred by tribes in performing their contracts. At issue was whether the Government must pay those costs when Congress appropriated sufficient funds to pay in full any individual contractor's contract support costs, but not enough funds to cover the aggregate amount due every contractor. The Court held that, consistent with longstanding principles of Government contracting law, the Government must pay each tribe's contract support costs in full. View "Salazar v. Ramah Navajo Chapter" on Justia Law

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After petitioners fell behind schedule in developing a stealth aircraft (A-12) for the Navy, the contracting officer terminated their $4.8 billion fixed-price contract for default and ordered petitioners to repay approximately $1.35 billion in progress payments for work the Government never accepted. Petitioners filed suit in the Court of Federal Claims ("CFC"), challenging the termination decision under the Contract Disputes Act of 1978, 41 U.S.C. 609(a)(1). The CFC held that, since invocation of the state-secrets privilege obscured too many of the facts relevant to the superior-knowledge defense, the issue of that defense was nonjusticiable, even though petitioners had brought forward enough unprivileged evidence for a prima facie showing. Accordingly, at issue was what remedy was proper when, to protect state secrets, a court dismissed a Government contractor's prima facie valid affirmative defense to the Government's allegations of contractual breach. The Court concluded that it must exercise its common-law authority in this situation to fashion contractual remedies in Government-contracting disputes and held that the proper remedy was to leave the parties where they were on the day they filed suit.