This transcript has been auto generated
00;00;01;11 - 00;00;31;07
Jonathan Porter
Welcome to another episode of Husch Blackwell’s False Claims Act Insights podcast. I’m your host, Jonathan Porter. Most False Claims Act enforcement comes through two big categories, health care and defense contracts. In recent years, health care somewhere between 55 and 75% of FCA recoveries for DOJ and defense contracts are around maybe 10 to 25%, depending on the year. There’s a lot of variance there, but historically those are the two biggest categories of FCA cases.
00;00;31;07 - 00;00;56;25
Jonathan Porter
And so on this podcast we tend to focus on those categories or industries a good bit. But there’s another big category of False Claims Act cases that I suspect may grow in the new Trump administration, and that’s Customs or tariffs fraud cases. President Trump has been clear about how he feels about tariffs. I believe during the most recent campaign, President Trump called tariffs his, quote, favorite word.
00;00;57;06 - 00;01;21;22
Jonathan Porter
So tariffs are likely going up. And so there are likely some people out there right now strategizing about what to do with this new tariffs enforcement regime. And what people may not know is that tariffs avoidance can lead to False Claims Act problems for the importing company and that this area of the False Claims Act is pretty complex and potentially changing due to some brand new case law.
00;01;22;08 - 00;01;54;25
Jonathan Porter
Our firm Hush Blackwell does a lot of tariffs based False Claims Act work. And so today on the podcast, we’re digging into this new potentially growing and potentially shifting area of enforcement. Joining the podcast to talk about tariffs based FCA issues is my law partner, Bob Romashko. Bob is based in D.C. and leads the firm’s Tax group. He’s a go to lawyer for clients finding themselves with tax and tariffs, enforcement issues, working in a variety of civil tax, criminal tax, and other white collar matters.
00;01;55;09 - 00;02;16;11
Jonathan Porter
Bob is a veteran of the IRS Office of Chief Counsel, spending six years there trying a ton of cases before the U.S. Tax Court. And it’s my experience working with Bob, his clients really value the combination of Bob’s tax and tariffs, knowledge with his enforcement and trial skills. And that’s why companies with tariffs based FCA issues seek out Bob.
00;02;16;21 - 00;02;23;11
Jonathan Porter
And so, Bob, thanks for joining the podcast today to tell our listeners about tariffs based False Claims Act enforcement.
00;02;23;26 - 00;02;48;15
Bob Romashko
Thank you, Jonathan. And I’m really thrilled to be here. This is an interesting area of the law and it’s definitely a little different than the run of the mill contractor or Medicaid or Medicare type of claims case. But you’re right, that it’s an area that’s probably going to be growing. I think President Trump also during the campaign referred to tariffs as something like the greatest thing ever invented.
00;02;49;04 - 00;03;15;04
Bob Romashko
In addition, even before the administration changed, the practice area has been growing, we had a client who was interested in filing a plaintiff side suit and we weren’t able to take that. And I connected him with a finance firm and got the opportunity to talk a little bit about the plaintiff’s side attorneys about this case. And they indicated that, yeah, this it’s like a huge area in their practice that’s just growing exponentially.
00;03;15;04 - 00;03;17;27
Bob Romashko
So we expect more of this in the years to come.
00;03;18;01 - 00;03;36;29
Jonathan Porter
Yeah, Bob, I’ve got a bunch of friends on the plaintiff’s side, or relator side as well, and I hear the same from them. I think they’re expecting this to be huge. And as we’ve discussed in past episodes, the whistleblower bar largely drives DOJ’s agenda when it comes to the False Claims Act. So Bob, thanks for getting us up to speed here on this really timely episode.
00;03;36;29 - 00;04;09;17
Jonathan Porter
I’m glad you’re part of our team. So Bob, as I mentioned in the intro, we’ve been mainly focusing on health care, defense contract, those types of false claims that cases and hopefully our listeners, they understand those theories. You know, for example, you know, a doctor says she performed surgery on a patient, but she didn’t actually do anything. And then she makes a claim for surgery and she knows that she’s not entitled to that and that Medicare pays that’s a false claim or that a defense contractor says they’ll give the Army a widget that can do X, but the widget can’t do X and the contractor knows the way you can’t do X but bills the
00;04;09;17 - 00;04;30;19
Jonathan Porter
Army anyway. Those are false claims. And I think our listeners, hopefully by now regular listeners will get that. But Bob, walk us through how this works with the customs process and tariffs. A lot of our listeners may not understand how that process works. And so can you give us a brief overview of how our country’s customs and tariffs process works?
00;04;30;19 - 00;04;34;18
Jonathan Porter
And then after that, I’ll ask you how tariffs can become FCA issues.
00;04;35;02 - 00;04;54;16
Bob Romashko
Absolutely. And let me disclaim a little bit by saying I’m not a trade lawyer. All right. The nice thing about being a litigator is when you come in, something’s already broken, or at least it’s alleged to be broken. If anyone’s looking for compliance advice, we have a wonderful trade team, but I will give the brief overview of how the tariff system works.
00;04;55;02 - 00;05;29;08
Bob Romashko
So a tariff is effectively a tax on imports? Not effectively. It is a tax on imports. It’s basically a tax that is paid by the importer at the time the product goes through customs and is brought into the country. There are a few different types of tariffs and for our purposes I think what people should understand is there are certain blanket tariffs that may apply to all foreign cars, for example, or there would be nothing stopping the government from saying there’s a 10% duty on our duty as a warrant that sometimes busiest interchangeably.
00;05;29;19 - 00;05;57;05
Bob Romashko
And yeah, there's nothing stopping the government from saying that there’s going to be a 10% duty on everything that's brought into the country. Right. Those would be blanket tariffs. There’s also tariffs that may target specific countries. You know, again, President Trump has talked about imposing certain levels of tariffs on other countries, either for trade reasons or basically leverage reasons for other things, you know, that may apply to every good that comes in from that country.
00;05;57;20 - 00;06;26;16
Bob Romashko
And these, by the way, may also be affected by trade agreements and other treaty obligations. We have treaties and trade agreements that say, you know, there won’t be tariffs on certain goods for certain countries. Obviously, those things can change. The other type is tariffs that apply to specific situations where something called dumping is occurring. And that’s where a country takes products that they can make marketplace and basically flood the market.
00;06;26;16 - 00;06;56;07
Bob Romashko
And there’s a risk to domestic industry. And so the government imposes tariffs on those specific goods from those specific countries. Frequently, the rates can actually vary depending on the individual manufacturer. So, you know, there there’s more room for, I guess, people to play games with their filings. If you’re well, let’s talk about those filings briefly. So when someone wants to bring something into the country, there’s paperwork that’s done.
00;06;56;07 - 00;07;19;14
Bob Romashko
When the product reaches our borders and goes through the customs process, the paperwork identifies the product type, its value or the amount of the product that's being brought in its country of origin and the tariffs do. And in fact, if the products are to an anti-dumping order, you have to check a box there. And so that’s the filing with the government that's made at the time the product’s brought in.
00;07;19;24 - 00;07;48;27
Jonathan Porter
Got it. Thanks, Bob. That’s a really that’s a good tight explanation of a very complex topic. Like you said, this is a complex area. Any time you have essentially taxes that change by country of origin, the type of goods this gets really complex. As you said, we’ve got an excellent trade law team here at Husch Blackwell. And I’m I’m glad that we’ve got those people who are really in the weeds on these issues because, like you said, this does get really complex.
00;07;49;07 - 00;08;19;01
Jonathan Porter
But I’m curious, you know, how all this becomes an FCA issue. You know, normally you mentioned checking boxes, usually checking a box does not you know, that’s not how people commit fraud. When I was at DOJ, I prosecuted very few people who committed fraud via box checking. And so I’m curious how this all becomes an FCA issue. We’ve talked before on prior episodes about how the Supreme Court in Escobar said that FCA is for fraud and not just garden variety breaches of contract or regulatory shortcomings.
00;08;19;01 - 00;08;25;27
Jonathan Porter
And so, Bob, how do how does a tariff issue become an FCA investigation? How does that work?
00;08;26;06 - 00;08;45;15
Bob Romashko
Sure. And so, you know, my short answer and this is obviously coming from someone on the defense, but is that I think a lot of times it probably the FCA in this arena is probably being used to in fact address garden variety regulatory shortcomings. The longer answer, though, is there are a few ways that this can become an issue.
00;08;46;08 - 00;09;16;07
Bob Romashko
So again, tariffs are calculated based on the value of the goods being brought in. What they are, the country of origin and the amount. And so when you fill out the entry paperwork, if any of those this wrong, there is at least the potential for a reverse false claim where you are making a representation of the government about amounts owed to the government and you know, if you were to deliberately misstate that, then you would have all the elements of a reverse false claim.
00;09;16;23 - 00;09;46;24
Bob Romashko
So let's take each of those in turn now and discuss just briefly how you could misstate the value of guidance is perhaps the simplest right, because the tariff is calculated based on the value of the goods. If you purchased them for $1,000,000, you ought to be reporting $1,000,000, trying to report 100,000. That would naturally lower your tariffs, but it would be, you know, issue the type of good that can actually it sounds easy, but it's actually not in practice.
00;09;46;24 - 00;10;09;14
Bob Romashko
And now the easiest sort of way to explain fraud there, right, would be like you're literally smuggling something, right? You take a bunch of boxes and you mark widgets and in fact, you put sprockets in that box. Right. That happens. But it's not terribly common. Right. So more common examples are things like misrepresenting specific attributes of our product.
00;10;09;25 - 00;10;49;12
Bob Romashko
And I’ll say here, before I give this example, that tariff lock and anti-dumping in particular can be incredibly complicated and incredibly specific about the products that are subject to it. So there was a case last year, U.S. tax, Ralph Taylor Ltd, GMR, USA Corporation. It was about shoes, subject to tariffs. And the relator alleged that there were misrepresentations about the attributes of their shares across 11 separate criteria describing the shares, including things like whether the majority of the part of the share that touched the ground was rubber versus textile material.
00;10;51;11 - 00;11;14;15
Bob Romashko
There’s probably room for someone to make some honest mistakes there. Right. And I don’t know the specific shoes. It’s entirely possible that there wasn’t a lot of room on that. Right. But when you get that specific and you’re talking about that many categories, it’s possible that even the people selling the product or buying it and bringing it into the country to sell don't know the actual answers to all of those categories.
00;11;14;27 - 00;11;41;10
Bob Romashko
We also can get into confusion, though, about whether your product is covered under the scope of an anti-dumping order or for other reasons. We represented a defendant in a case that was brought by a relator concerning imports of certain refrigerant gases from China. The kind of years to recharge your air conditioner or refrigerator. And they’re the duty of the anti-dumping order didn’t apply to a certain patented gas.
00;11;41;22 - 00;12;14;28
Bob Romashko
The allegation from the relator in that case was that our client imported that same gas as in terms of its chemical composition, but without a license from the patent holder. And so their allegation there was that that violated the anti-dumping order, that there was probably I don’t think there was probably there was a lot of room for disagreement about whether that was within the scope of the dumping order or even if it was, you know, whether there was room for a legitimate confusion about that such that, you know, knowledge wasn't an issue.
00;12;15;21 - 00;12;42;09
Bob Romashko
And then there’s country of origin, which again, sounds simple, but in practice there’s always the textbook case lying about country of origin would be, you you know, you have to attach something called a country of origin certificate to the customs paperwork. And, you know, the simplest example of fraud would be you say the product was manufactured in India when in fact it was manufactured in China.
00;12;42;14 - 00;13;04;28
Bob Romashko
Right. To avoid higher Chinese specific clearance. Again, that happens, but it’s not incredibly common. Right. You start to get into questions of, well, what if the product has been in another country? Right. And there’s a concept called transshipment where literally the product is just shipped into one country and shipped into another. That doesn't change its country of origin.
00;13;04;28 - 00;13;32;08
Bob Romashko
And to be clear, transshipment can happen for perfectly valid reasons. Right? Your ships last port of call before coming into the port of Miami might be Jamaica, right? That's not a crime as long as you're reporting where the products actually come from or foreign. But you run into questions about, well, okay, what if something actually happens to it between the initial country of manufacture and where you ultimately receive that?
00;13;32;08 - 00;14;01;26
Bob Romashko
Right. What if you take it out and repackage that by itself is ordinarily going to be enough. But what constitutes repackaging? It can be right. You know, going back to the refrigerant gases case, this wasn’t the issue there. But one area that comes up when you deal with products like those is, well, okay, what happens if you’re taking them and moving them from massive shipping cylinders into like retail cylinders that someone can buy?
00;14;02;07 - 00;14;31;11
Bob Romashko
And the answer is that that doesn't change the product in a way that results in a change in the country of origin. But you can see how it's a closer question. Right. And then you also get into a question of, you know, what if there's actual process and under the product in the country. Right. And it can get tricky there because if you are taking a cell phone components that are manufactured in China, but the final cell phone is being assembled at and say Japan.
00;14;31;21 - 00;14;55;13
Bob Romashko
Right. Is that a Chinese cell phone or is it a Japanese cell phone? And the answer isn’t always clear. It depends on sort of the level of effort that goes into it and basically how transformative and difficult the processing. That’s right. And so misstating any of the things that I just described can affect the amount of the tariff out of statements will.
00;14;55;13 - 00;15;28;00
Bob Romashko
So that can result in, I say, liability, but even if it's not well, so there can potentially be other customers liability. It’s not all intact based. I will add to that, you know what I said before about punishing regulatory violations and you’ve got a relator’s bar that’s very aggressive on this. This is also an area where frequently competitors can be whistleblowers because you don’t necessarily need a whole lot of inside information to say we know what their product is in the market, we know where it’s made.
00;15;29;06 - 00;15;56;04
Bob Romashko
Even worse, there are commercial customers, databases out there that you can subscribe to, and they don’t always have correct information. And we had a case where there was an allegation and wasn’t the only allegation, but there was an allegation that our country of origin was being mis marked on the products. And at the last port of call on slave ships that were bringing them and you know, we passed the client for the customer.
00;15;56;04 - 00;16;17;18
Bob Romashko
As far as I know, every single customs form was right. The problem is the commercial customs database didn’t have access to those forms and it went off where the ship came in from. Right. So, you know, the relator’s bar here is pretty aggressive and they are because they’re often competitors. There’s really an interest in pushing these cases pretty hard.
00;16;18;03 - 00;16;24;24
Bob Romashko
So this can be any sort of misstatement here. Can frequently result in at least an allegation of FCA liability.
00;16;25;08 - 00;16;44;12
Jonathan Porter
Thanks, Bob. Yeah. So this and this is why I was so excited about this podcast episode is because this stuff is so fascinating to me. This is not at all simple. And that’s why I think FCA enforcement when it comes to you know which of these 11 attributes of shoes are we going to pay attention to in sort of categorizing?
00;16;44;12 - 00;17;05;15
Jonathan Porter
The good is really, really interesting. And I think when you talk high level about what the False Claims Act is for, which is fraud, it’s hard to sort of square that with people having disagreements about what a country of origin is. When things are starting, one country or transform in another, and then they come over and you’ve got, you know, competitors filing it.
00;17;05;17 - 00;17;24;00
Jonathan Porter
This is all really, really interesting. And so, Bob, thank you for that answer and background. That’s really helpful. I want to talk about one simple one just because I think it’s hopefully easy if we start applying these concepts with a simple one. And this one actually, because you mentioned textbook cases and this one might be a textbook case and it’s a competitor that filed that file, the key to them.
00;17;24;00 - 00;17;42;19
Jonathan Porter
So I think it’s interesting there, too. So this is a real life settlement. The DOJ announced pretty recently. So I want to ask you about this FCA settlement the DOJ announced, and then I want to talk to you about a new case that I think might change FCA enforcement for some people. So let’s start with the easy example and this is the King Kong case.
00;17;42;19 - 00;17;47;21
Jonathan Porter
So Bob, can you tell us what happened with King Kong and that big settlement?
00;17;48;18 - 00;18;14;00
Bob Romashko
Yeah, of course. And so this is, of course, not a case about importing giant apes into the country. They make forestry tools, agricultural and construction tools. Now, their tools were manufactured in China. And I’ll put an asterisk on manufactured for reasons that I’ll get into as I work through the facts. But they labeled their tools for customers purposes and I believe marketed them as made in Germany.
00;18;14;15 - 00;18;44;00
Bob Romashko
Now there’s a very good customs related reason to do this because Chinese products and German products have different tariffs. And unsurprisingly, the tariffs on Chinese products, it was 25% for this specific product and they can go much higher. And anti-dumping cases that can be in excess of 200%. But still, no manufacturer wants to pay 25% for in no seller wants to pay 25%, but they don’t have to pass on to their customers if they can avoid it.
00;18;44;15 - 00;19;05;14
Bob Romashko
So by labeling its products as German King Kong was able to use a lower tariff rate, or I forget in this case, German products didn’t have a tariff, but either way, they saved on tariffs. So like I said before, this is a case brought by one of their competitors is the relator. And they see what King Kong is doing there.
00;19;05;14 - 00;19;36;24
Bob Romashko
And they file a case alleging that King Kong knowingly violated the False Claims Act. Now, I’ll put on my defense attorney hat here for 1/2 and note that, you know, per day charges on the press release, there was processing done to some of the tools in Germany. It’s not clear to me what that processing was, but perhaps there was, with respect to some of these tools, you know, an argument that they legitimately thought they did enough processing in Germany to render them as German products.
00;19;36;24 - 00;19;59;01
Bob Romashko
Right. However, the allegation was that for a lot of the others, there was no processing done in Germany. And so in that respect, it would be a pretty clear cut case. The allegation is they just flat out lied about the country of origin for at least some of this tools. So, you know, they could possibly be German tools if there was no processing going on in Germany.
00;20;00;03 - 00;20;13;20
Bob Romashko
And so King Kong ultimately sells with DOJ for 1.9 million. And the relator or their competitor that filed the K-Town town got $300,000 or roughly based on the award percentages out of the deal.
00;20;13;29 - 00;20;38;06
Jonathan Porter
Thanks, Bob. Yeah. So $3,000 and a win against your competitor. That seems like a good day for the relator here. And yeah, Bob, as you mentioned, this was not a case about picking the, you know, the genus or species of primate like in the movie. So glad you cleared that up for us. So that case, it seems of the cases in this area that seems about the most straightforward, as pointed out, not even a straightforward case.
00;20;38;06 - 00;21;02;13
Jonathan Porter
It’s a complicated case that I'm sure defense counsel argued vigorously for King Kong, but as complex or gray area as that one was, these cases get even more complex, especially when you’re dealing with judgments on the value of imported goods and classifying the goods for anti-dumping duty purposes. I know that when I was at DOJ, one of my colleagues settled the case against an importer of bedroom furniture.
00;21;02;25 - 00;21;26;01
Jonathan Porter
I guess badgered furniture has higher duties. The non bedroom furniture, I don’t know. So the importer reported this stuff as non bedroom furniture and ended up with a big false claims act problem. So Bob, how do these misrepresentations and MIS valuation scenarios happen for importers and for SCA purposes when we're arguing about what classifications of product ought to be in?
00;21;26;11 - 00;21;35;26
Jonathan Porter
It seems like we’re getting close to the line that we're talking about with Escobar that FCA are not be used for regulatory disagreement. So how do these more complex cases play out under FCA?
00;21;36;18 - 00;21;55;24
Bob Romashko
Well, and agreed that we are getting closer to the ask of our line when we talk about this. I mean, in the bedroom furniture situation, you can imagine a few ways that this could happen, right? One is that they're just mislabeling it because they’re actively looking to skirt the duties. But you can also try and avoid duties in a legal way, right.
00;21;55;25 - 00;22;15;07
Bob Romashko
You can say, oh, the government's imposing this tax on this product that I want to bring into the country. I need to alter the product in some way so that I'm not subject to the tax anymore. Right. In the context of bedroom furniture, maybe you're trying to repurpose it so that it can be used in other areas of the house.
00;22;15;07 - 00;22;46;07
Bob Romashko
Right. In order to give another example, there was a case out there involving, I believe, typewriters and the anti-dumping order, I guess specified its definition of a typewriter and it didn’t include mathematical functions. And so, you know, one typewriter company basically grafted a calculator onto their typewriter that was ultimately held, I believe, not to be or at least allege not to be, you know, a sufficient deviation from the explanation.
00;22;46;07 - 00;23;02;09
Bob Romashko
But you can see how they might have thought that it would be right. Oh, it doesn’t do math. Let’s just add something that does math. Right. So, you know, if the change is just superficial, maybe it doesn’t do it. But you can see how people would just say, oh, the government doesn’t want us to do this, let's change our business practice.
00;23;02;09 - 00;23;24;00
Bob Romashko
That’s a reasonable response. Right. And yet this come out this false claims act cases, you know, and there can also be mistakes. And, you know, they’re an example. I said the valuation was sort of the easiest example, but you can have mistakes in valuation. Sometimes when people are, you know, buying a product from overseas, the price isn't entirely agreed or set in stone at the time.
00;23;24;00 - 00;23;47;02
Bob Romashko
It’s the product to Senate, right? There can be profit shares, there can be adjustments down the line or contingent payments. Right. And how you value those, you know, is more of a trade lawyer’s question than mine. But I can say that it's not always as simple as, oh, here’s an invoice and here's the price I’m in. So, you know, you get these complex cases and they play out in a different way.
00;23;47;02 - 00;24;09;17
Bob Romashko
That’s right. But at the you have a relator who is pretty much always arguing that, of course, this was done with the worst possible intent and everyone knew because these are often not insiders. Sometimes the argument that they master now really boils down to, you know, they of course, it's obvious that this is a violation of the law.
00;24;09;17 - 00;24;40;18
Bob Romashko
Right. Any fool would know that. Sometimes they have more like they can point to submissions during the process of defining the scope of an antidumping order and say see based on the fact that they made a submission, they knew their product was potentially a subject, but that’s always in their right. And of course, inevitably as a defendant, unless it’s just obviously a case where our client did something wrong and we need to think about what to do about that.
00;24;40;29 - 00;25;03;12
Bob Romashko
But of course, we’re always arguing, no, it’s not nearly as cut and dried as it comes out to be. Sometimes there’s an Escobar issue, but these are generally not implied false certification cases and so it’s hard to really apply Escobar directly. So, you know, frequently, unfortunately, they’re just so fact intensive that you end up in discovery and it can get expensive.
00;25;03;12 - 00;25;36;02
Bob Romashko
And I have this suspicion that a lot of those settlements you see out there are probably driven by cost of litigation concerns as much as anything else. Now, to make matters worse, I mean, these issues are incredibly complicated. And federal judges, district court judges, by their nature, this is not for any judge listening to this, an indictment of the district court judiciary, but are not trade experts because cases for actual customs penalties don't show up in federal district courts.
00;25;36;15 - 00;25;57;18
Bob Romashko
The Court of International Trade has exclusive jurisdiction, so absent, you know, maybe a contract dispute over who's paying duties or something like that, the only time that a judge is ever going to see these issues in district court is going to be in the context of the False Claims Act case. I will point out that there’s a case pending before the ninth circuit.
00;25;57;18 - 00;26;27;18
Bob Romashko
Right now I industry is this court where the court has actually asked for a briefing and received a briefing on the issue of whether the court of International Trade has exclusive jurisdiction over tariff related claims that cases. I think the general sense of the bar is that the Court of International Trade probably does not. But the case is out there and it’s certainly you know, the court reached out and ask the parties to brace their share.
00;26;27;18 - 00;26;37;25
Bob Romashko
So it’s obviously taking that seriously. I mean, as a policy matter, it would not be the worst thing in the world to have these issues before a court with expertise. But right now, that’s not how it works.
00;26;38;21 - 00;27;05;00
Jonathan Porter
Thanks, Bob. Yeah, really interesting on that Ninth Circuit case. These are incredibly complex areas. You’re right that district court judges don't get these cases before them all the time. And so they’ve got brilliant law clerks who help them and everything. But these are still really hard cases. One thing you said about it Drew my antenna. You know, anytime you’re dealing with the False Claims Act and you've got some sort of dispute as to, you know, should it be X or should it be Y?
00;27;05;14 - 00;27;32;10
Jonathan Porter
The statutory definition of knowingly in the FCA introduces a lot of complexity there because reckless disregard is a way of showing knowledge. I think this is something that people don't realize a whole lot and we should do a whole episode on what reckless disregard means. But it essentially says, Look, if you thought it was X, then we can show that you should have had some appreciation that Y was in fact the correct one, and you were reckless in the way that you disregarded the opportunity that it could have been
00;27;32;10 - 00;27;53;13
Jonathan Porter
Y. In some courts that’s enough to show knowledge, which to me is really interesting. And once you get there, there’s really no longer a legal issue, it’s a factual issue. And once you get a factual issue, good luck on summary judgment. Now you’re going to trial and there’s a whole other episode that will do one day. On why there are no FCA trials because the trial penalties are astronomical.
00;27;53;15 - 00;28;14;14
Jonathan Porter
We’ll do another episode on that. So Bob, you’re setting up all sorts of great future content and I appreciate you picking all these interesting topics. But so you’ve covered the Ninth Circuit case and what that could mean is another big federal court decision from this year that to me is really interesting. It could signal to me that tariffs based FCA cases may not be ripe for broad enforcement.
00;28;14;23 - 00;28;42;22
Jonathan Porter
It's a novel case against Amazon, our friends at Amazon that DOJ declined to take, but then the whistleblower tried to push forward. A federal judge dismissed the key term on January 3rd. So we’re already covering 2025 content here, Bob. So the the federal judge dismissed the key term January 3rd. Essentially, some foreign companies sold some firms through Amazon's platform, but those companies didn't accurately report certain things resulting in tariffs being under collected.
00;28;42;22 - 00;28;57;02
Jonathan Porter
From what I can gather, the whistleblower tried to make that Amazon’s problem, but a federal judge said no. So, Bob, tell us why this federal judge dismissed the case against Amazon and what companies working with importers can learn about FCA enforcement from this case.
00;28;57;12 - 00;29;21;11
Bob Romashko
Yeah, and so I think it’s important to understand here that, you know, in this case, right, Amazon, it warehouses the product and it's sold through Amazon’s platform. But Amazon doesn’t get the product until after it goes through customs, right? Amazon doesn’t import the product. That’s the seller who’s importing it. Amazon is literally, basically a big platform in the warehouse.
00;29;21;15 - 00;29;46;20
Bob Romashko
Right. And the shipper, I suppose. And that’s important because the elements of that reverse false claim include knowingly and as you mentioned, knowingly conmen and reckless disregard of the truth. But, you know, making a representation on a claim. Right. And a claim for purpose is the reverse false claims act is something affecting an obligation to pay the price.
00;29;47;10 - 00;30;15;13
Bob Romashko
So we’ve got the knowledge issue, we’ve got the claim issue. And we also have a conversation I share because you can submit a claim or you can cause a claim to be submitted, right? You don’t have to be the one that submitted the claim. If you give false information that is going to result in a false claim. And so here the court kind of said, well, really the allegations aren't sufficient to make any solvents, you know, on knowledge, Amazon wasn't the importer of record.
00;30;15;13 - 00;30;38;20
Bob Romashko
And the allegations about why Amazon should have known basically boiled down to Amazon had a duty to investigate sellers. And the court said, Well, no, there's no established legal duty like that. And I mean, think about why, right? You could use that same argument to say when you buy something from Amazon, you have a duty to investigate where Amazon got it.
00;30;39;07 - 00;31;02;19
Bob Romashko
There’s just no established duty like that. The relator also pointed to some circumstantial evidence. They said that Amazon shut it down. Something was wrong, like lack of customers, farms with the package and the court. It was pretty savage about that. It basically said you're not required to keep those with the packages after. I mean, Amazon argued this, but the court agreed you’re not required to keep those packages after they cleared Customs.
00;31;02;19 - 00;31;30;22
Bob Romashko
In fact, they can be filed online. There may not actually be a farm at all. Right. And, you know, the court kind of said, like, really the whole knowledge issue comes down to whether there’s some sort of duty to monitor. And while there are some FCA cases discussing duties to monitor here, there just wasn’t one right. And that on causation, in our view, to cause that form to be filed, you need to be a substantial factor in filing it or causing it to be false.
00;31;30;22 - 00;31;54;08
Bob Romashko
Right. And here, there’s no indication that Amazon had any duties with respect to the filings whatsoever. And so there really wasn't any issue on those two. And similarly, with regard to the form relating to an obligation here, I think the court may be biased there she is slightly, but the court points out correctly that it’s not Amazon’s customs obligation either.
00;31;54;17 - 00;32;28;23
Bob Romashko
Now, if you cause a filing to be made that affects someone else’s obligation, that should matter. But the court did find that to be a significant factor as well. So that also played into the decision. But at the end of the day, I think what this tells us is that absent some truly unreasonable actions or absent putting yourself into the position of your importers or your suppliers, if you’re retailers like Amazon, you’re not going to be hit with false claims that liability without affirmatively undertaking some obligations in relation to customers.
00;32;29;10 - 00;32;48;22
Jonathan Porter
Thanks, Bob. Yeah, I think that’s the right conclusion from this case. And as this area of enforcement is going to grow, I think it’s really important to sort of show, hey, there are some limits here. As much as this area may grow under the Trump administration, it doesn't mean that everyone who that the Amazon’s of the world are going to find themselves with their own unique problems.
00;32;48;22 - 00;33;05;08
Jonathan Porter
So it’s good to see that while there will be growth, there’s not unlimited growth. There’s an area where the courts have said, no, no, this doesn’t apply to these types of situations. And so that’s really helpful. I’m glad that case clarified that because I’m sure a lot of our clients listening to this are thinking, where does this end?
00;33;05;18 - 00;33;37;10
Jonathan Porter
So, Bob, final question. I notice that the two biggest anti-dumping cases the DOJ pursued last year came not as FCA cases, but as cases in the Court of International Trade. You mentioned the Ninth Circuit asking for briefing about exclusive jurisdiction. And so maybe that's a piece of this, but I don't know. So I know that filing court of international trade cases can involve some penalties, but not nearly what DOJ can get through FCA cases which are staggering, where FCA grants treble damages per client penalties, it adds up a lot.
00;33;37;10 - 00;34;00;03
Jonathan Porter
So Bob, what are we to read into the decision by DOJ to pursue FCA for another enforcement vehicle? Did DOJ get wise to the fact that tariffs based FCA enforcement has a lot of litigation risk? Or is there something else to explain this shift. Close us out on this episode by explaining what you see coming in terms of tariffs, enforcement.
00;34;00;03 - 00;34;23;15
Bob Romashko
Yeah. And on this point, we’ll note as a former government attorney and I’m sure you agree with this, that the government’s job isn’t always to maximize recovery either. It’s not to get every diamond they can. It’s to get to the right answer. Right. One, it doesn’t always mean maximizing recovery at all, but two, it doesn’t always mean that you are proceeding under the statute that maybe has the steepest penalties, for example.
00;34;23;17 - 00;34;48;06
Bob Romashko
Right. And there are a few reasons I think, for this. One is I think there’s probably just a question sometimes of who got there first. Right. I think the odds are pretty good that if a case comes in through the Department of Commerce, a known investigation there, it’s more to end up in a court of international trade. Similarly, if a case is filed by relator in district court, well, then there’s a duty to conduct a false claims investigation.
00;34;48;06 - 00;35;08;09
Bob Romashko
Right. And so the Department of Justice will open up a false claims investigation. And if the government chooses to proceed with the case, they will almost certainly, even though they don’t have to, they could seek out an alternative remedy. But that’s ordinarily not what they’ll do. They’ll just litigate the false claim in that case. There are other reasons, though, that are substantive.
00;35;08;09 - 00;35;38;20
Bob Romashko
And we talked about the court of international trade being a specialty court. You know, again, these cases don’t always lend themselves to easy answers. And I do think that relator’s and the government probably ran a significant risk as the plaintiffs. Now, as you know, I was flying back cases, not go to trial, but on the rare case that they do, you know, it’s going to be kind of difficult to convince a jury sometimes, oh, while taking these steps would be sufficient by transformative, you know, to change the country of origin.
00;35;38;20 - 00;36;00;29
Bob Romashko
But taking this one thing and then taking that information on these like incredibly complicated trade determinations and telling a juror, and you should sit there and find that this person knew or should have known that that was the case. Right. I think it’s a real problem for the plaintiffs side of these cases. Sometimes, again, in the litigation costs often meant that they don't have to worry about that.
00;36;01;14 - 00;36;19;06
Bob Romashko
But it’s not clear to me that in a lot of these cases, you wouldn’t prefer to be in front of a judge who goes, Yeah, no, the law is actually very clear to me. It's not clear to a layperson, because notwithstanding that, it’s not a jury's obligation to determine what the lies when you’re asking if someone asks reasonably.
00;36;19;06 - 00;36;42;10
Bob Romashko
But I kind of have to think about whether they would have understood what the law was, right. So I think there’s probably that, too. And the third reason is, while you can certainly as a participant in the industry, whistle blower Department of Commerce, and I think they may have some sort of whistleblower reward program to, but it’s not as lucrative for the whistleblower as the false claims act case would be.
00;36;42;29 - 00;37;20;02
Bob Romashko
And so, you know, again, a lot of this enforcement is relator driven and a lot of its competitors. Right. And so they want to get in front of a court and they want to maximize their recovery. And like I said, I think a lot of this just comes down to where the cases originate. I think looking forward, this is probably a good place to end, but that dynamic is probably likely to as we enter into an era with what we expect to be increased and more tariffs increased in magnitude in more in terms of covering different countries and different products, we’re likely to see more relator cases coming out of these.
00;37;20;02 - 00;37;26;08
Bob Romashko
And I would expect that a greater proportion of these cases will be false claims versus court of international trade.
00;37;26;15 - 00;37;46;11
Jonathan Porter
Thanks, Bob. Yeah, that’s excellent prognostication. I think that’s what we’re going to see in the year to come, in the years to come, because, like you said, this is going to be continue to be a hot button issue and the relators bar is watching. And so I think we’re going to see more of these. You know, you picked up on something, Bob, that I want to note in closing.
00;37;46;11 - 00;38;06;22
Jonathan Porter
You know, these cases a lot of times depend on jury appeal. And I always think when I had cases at DOJ, I always thought, what am I going to tell a jury? How am I going to explain this fraud to a jury? And which of the 11 attributes of shoes are we going to go with is not what I want to be telling a jury equals fraud.
00;38;06;23 - 00;38;24;18
Jonathan Porter
And so, you know, absent some sort of email saying, hey, we’re going to go commit all the fraud, we’re going to misrepresent these shoes, I think these are hard cases to try before a jury, but the issue is getting to that jury is expensive in terms of your litigation dollars and it carries a lot of risk. So that’s really interesting.
00;38;24;18 - 00;38;49;07
Jonathan Porter
And I think these are cases where you’ve got to go to a firm that has a really good trade team. Bob’s already touted our trade team, but they’re amazing and it’s great to have that resource here as we’re defending FCA cases to know that we got subject matter experts. I think that’s crucial in these types of cases. So I’m tremendously proud of the tariffs based work, that enforcement work that Bob and his team were doing on the False Claims Act side.
00;38;49;07 - 00;39;13;16
Jonathan Porter
So this is this has been an excellent episode. In closing, you know, we talked about numbers at the beginning of the episode. DOJ just came out with their new numbers for 2024, civil frauds, came out with their numbers. And it shows some really interesting things. We’re going to dig into those in coming episodes. There’s a record number of qui tams that were filed in 2024 health care still leads in dollars, but qui tams in health care continue to drop.
00;39;13;29 - 00;39;35;08
Jonathan Porter
Instead, qui tams are being filed in new areas, not defense procurement, not health care, new areas. Some of those could be in tariffs. But I think another area that could be a new hotbed is CARES Act enforcement, PPE, Idol, those things we’re going to release in a few episodes from now that talks about that type of False Claims Act case, because I think that’s what you’re about to see.
00;39;35;08 - 00;40;02;17
Jonathan Porter
You’re going to see some legacy CARES Act cases coming. And so we’re going to continue to bring you these cutting edge issues on the podcast with great Husch Blackwell lawyers that know what they’re doing in this area. And so which I’m tremendously proud to practice with this amazing group of lawyers and so, Bob, thanks for coming on the podcast, telling our listeners about this hot bed of enforcement that’s coming soon to the Justice Department near you.
00;40;02;18 - 00;40;03;18
Bob Romashko
No, thank you. This was a lot of fun.
00;40;03;18 - 00;40;15;13
Jonathan Porter
To our listeners. Thanks for listening. I hope you continue to listen to us as we continue to provide you some interesting content on the False Claims Act. Until then, we’ll see you next time.