Tales of two False Claims Act settlement agreements

by Ben Vernia | February 28th, 2013

In Washington, D.C., two different courts in February addressed claims by two very different defendants that government action was barred on the basis of prior settlement agreements – and in both cases, the defendants lost.

In the first case, U.S. v. Bank of America, et al. megabank Wells Fargo sought an order in the D.C. District Court enforcing the terms of a settlement agreement reached last year, which the bank asserted barred a subsequent False Claims Act case the U.S. Attorney’s office in the Southern District of New York brought later in 2012. In the earlier case, five large banks ultimately paid $25 billion to resolve a variety of mortgage-related claims. Judge Rosemary M. Collyer closely examined the language of the settlement agreement, which barred the government and forty-nine plaintiff states from bringing subsequent FCA cases against the banks for false claims “where the sole basis for such claim or claims” was either”

  • The bank’s submission of a false or fraudulent annual certification of conformance to HUD-FHA regulations needed to maintain HUD-FHA approval, or
  • A false individual loan certification for any individual loan “that does not contain a material violation of HUD-FHA requirements.”

On February 12, Judge Collyer rejected Wells Fargo’s argument that this barred the government from bringing the SDNY case, disagreeing with their characterization of that case as one based on company-wide conduct covered by annual certifications, rather than false individual loan certifications. The government’s agreement not to sue, she reasoned, was limited to annual certifications, and not what the agreement defined as “Covered Origination Conduct,” and because it was clear and unambiguous, she declined to grant the order the bank sought.

In a much, much smaller case in the Court of Federal Claims, decided on February 25, Nichole Med. Equip. & Supply, Inc., et al. v. U.S., a small durable medical equipment company sought to enforce a settlement agreement in an FCA case to prevent administrative recoupment arising from another investigation, without success. The company had been investigated by a Medicare Administrative Contractor for overpayments in connection with wheelchairs and hospital beds, and the contractor referred the supplier to the Department of Justice. DOJ declined to pursue the case, and the contractor issued a notice of overpayment, and directed the payment intermediary to impose an offset (which the intermediary immediately stayed).

A year prior to the stay of the offset, the government and Pennsylvania filed a civil case under the FCA against the supplier relating to incontinence supplies, and ultimately entered into a settlement agreement on those allegations. The agreement called for payments over time, but the supplier failed to pay the bulk of the money it owed under the agreement. The U.S. brought a motion under the Pennsylvania case to enforce the agreement, but the court there ruled that the government would have to bring a new action for breach of the agreement.

In the meantime, the company had appealed the offset and won, but the government directed the payment intermediary not to reimburse the company the offset amount, based on the company’s default under the settlement agreement.

The company sued the government for breach of a purported warranty in the settlement agreement to do business with the company, and a breach of an implied warranty of good faith and fair dealing. The court concluded that the warranty to do business did not exist, and that the agreement’s statement that it would be governed by the laws of the United States was merely a standard choice-of-law provision. In any event, the court reasoned, even if the agreement “state[d] the obvious” – i.e., that the government and its contractors are obliged to follow the law – any violation of the law did not relieve the company of its obligations under the agreement. Moreover, the Federal Circuit reasoned, the agreement covered entirely separate conduct from that at issue in the overpayment case, and the court likewise rejected the company’s argument that the offset violated an implied duty of good faith.

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