Enforcement Wrap: SCOTUS Denied Chance to Clarify How FCA Suits Must Describe Improper Billing

Litigation News

SCOTUS Denied Chance to Clarify How FCA Suits Must Describe Improper Billing

Utah-based hospital chain Intermountain Healthcare asked the US Supreme Court to dismiss its pending petition related to a False Claims Act case brought against it by a cardiologist. In 2012, the doctor claimed Intermountain Medical Center and St. Mark’s Hospital in Salt Lake City had knowingly participated in a scheme to perform unnecessary heart surgeries and bill government payers for the procedures.

Although the cardiologist lost in the District Court, the Tenth Circuit reversed on appeal and remanded to the District Court to proceed with discovery. But Intermountain filed a petition for the Supreme Court to review the matter, arguing the doctor’s allegations were insufficient in their particularity and that the FCA’s qui tam provisions violate the Appointments Clause of Article II of the US Constitution. The petition also provided the Supreme Court with an opportunity to clarify existing disagreements over Federal Rule of Civil Procedure 9(b)’s particularity requirement in the context of FCA allegations, which has divided circuit courts.

Past petitions have asked the Supreme Court to address the varied interpretations of Rule 9(b), particularly whether FCA cases should have to identify specific false billing claims or if they may simply allege schemes that merely suggest that fraudulent billing claims were submitted.

The Supreme Court will not have any opportunity to clarify how precisely FCA suits must describe the improper billing under Rule 9(b). Intermountain filed a motion requesting dismissal of the petition challenging the Tenth Circuit’s revival of the FCA suit after signaling in April 2019 that it expected to settle the dispute out of court.

You can read more about the case here. 

Jury Finds in SEC’s Favor, Highlights Potential Individual Liability in Fraud Cases

Last week, a jury ruled in the SEC’s favor in a case against a New York-based lending company and its owners for lying to investors purchasing high-yield securities. In 2016, the SEC charged Portfolio Advisors Alliance Inc.; Howard J. Allen, the indirect owner of PAA; and Kerri L. Wasserman, PAA’s president, with fraud and related charges in connection with allegedly making material misrepresentations and omissions in American Growth Funding II LLC’s  private placement offering.

The SEC alleged that AGF II and its owner, Ralph Johnson, promised investors a twelve percent annual return and also misrepresented that its financial statements were audited each year. The SEC also alleged that PAA, Allen, and Wasserman were aware that the offering documents were inaccurate but continued to use them when selling the AGF II securities. Prior to the jury trial, the SEC obtained a final consent judgment against AGF II and Johnson.

The jury found that PAA, Allen, and Wasserman violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, and found in favor of the SEC on all counts. Allen and Wasserman were also found liable for aiding and abetting PAA’s violations of those antifraud provisions and were found liable as control persons under Section 20(a) of the Exchange Act for PAA’s violations.

The jury’s verdict underscores the importance of truthful and complete disclosure of all material information in securities offerings and highlights the liability individuals can face in SEC actions.

The SEC press release is here.

Legislative Updates

Proposed Legislation Aims to Clarify Insider Trading Prohibition

Earlier this month, Representative James Himes introduced the Insider Trading Prohibition Act. The legislation aims to create a clear definition of illegal insider trading under securities laws and provide a codified, fixed standard for courts — and participants in financial markets — to follow.

Because Congress has not yet adopted an explicit prohibition on insider trading, courts have been forced to interpret and shape the parameters of insider trading prohibitions within the context of existing anti-fraud provisions in securities laws. The result has been a “judicial mess” of court decisions, according to the bill’s sponsor, particularly in cases involving tipper liability.

The proposed legislation seeks to amend the Securities Exchange Act of 1934 to prohibit certain securities trading and related communications by those who possess material, nonpublic information. Specifically, the bill eliminates the need to prove that a personal benefit was provided to a tipper, an area that has been inconsistent in recent court decisions.

The Insider Trading Prohibition Act’s full text is available online. Additional commentary can be found here. 

Analysis

SCOTUS Reportedly Skews Right on the FCA

Following the Supreme Court’s recent decision in Cochise Consultancy Inc. et al. v. U.S. ex rel. Hunt, commentators have observed that the court’s conservative members have written most of the opinions on the False Claim Act. The Cochise decision is the sixth FCA opinion written by Justice Clarence Thomas. Justices Alito and Scalia each penned two opinions, and Justices Kennedy and Stevens each authored one. Like many other FCA opinions at the Supreme Court, the Cochise decision focused on the text of the anti-fraud law and applied the “plaint text” and “plain terms” of the statute, following the conservative justices’ embrace of literal statutory language interpretation.

The report concludes that the Supreme Court’s decisions concerning the FCA lean in favor of corporations and the defense bar. And while the conservative justices have authored most of the FCA opinions since 1986, the beginning of the FCA’s modern history, the court’s left-leaning members have usually joined the majority. Nonetheless, when there are dissents, they usually come from the liberal justices who object to majority opinions that narrow the scope of the FCA.

Randall Brater of Arent Fox commented on the significance of the Cochise decision here.

Additional information about the Supreme Court’s rightward tilt on FCA cases can be found on Law360.