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00;00;00;00 - 00;00;32;17
Jonathan Porter
Welcome to another episode of Husch Blackwell’s False Claims Act Insights podcast. I’m your host, Jonathan Porter. The vast majority of FCA investigations involve organizations rather than individuals. Hospitals, pharmaceutical companies, universities, defense contractors. These are organizations that face significant FCA scrutiny. And yet organizations, they don’t have brains. They have people that it’s their people that lead to organizational liability.
00;00;32;20 - 00;01;02;16
Jonathan Porter
But sometimes people go rogue. If an organization has a policy that says, hey, don’t do X, and they train their people to not do X and has compliant systems that keep people from doing X. And yet some employee figures out a way to do X without getting caught. What do you do with that? That’s a fact pattern that plays out a fair amount of time in FCA investigations, and I don’t think it gets enough attention in our world because the FCA hammer is crazy heavy for those accused of fraud.
00;01;02;16 - 00;01;26;17
Jonathan Porter
And so today on the podcast, we’re talking about organizations finding themselves liable for the false claims caused by their employees, the law. And this might be surprising to you, but it’s dated, I think might be a naive rethinking. And so that’s our episode today. Organization liability for acts of employees. Joining me to talk about this is my law partner, Lorinda Holloway.
00;01;26;19 - 00;01;49;17
Jonathan Porter
Lorinda, listeners probably know you from past episodes, but for new listeners, Lorinda is with Husch Blackwell’s Austin, Texas office. She is super sharp on all things health care and false claims. And while some FCA practitioners lack trial chops, one thing I’m proud of with our team here at the firm is that we’ve got serious trial experience, and Lorinda certainly has that.
00;01;49;18 - 00;02;02;23
Jonathan Porter
In fact, Lorinda just wrapped up a trial she won a week or two ago. And so, Lorinda, congrats on yet another trial win. And thanks for coming on the podcast to tell our listeners about organizational liability for false claims.
00;02;02;25 - 00;02;05;09
Lorinda Holloway
Well, thanks for having me, Jonathan. Always a pleasure.
00;02;05;12 - 00;02;18;20
Jonathan Porter
So, Lorinda, what we’re talking about here really is what we lawyers call victory is liability. So let’s start. Lorinda, if you would just give us a quick explanation of what vicarious liability is and why this is a thing in the law.
00;02;18;23 - 00;02;48;22
Lorinda Holloway
Sure. You know, vicarious liability really just means one person or entity is legally responsible for the acts or omissions of another person. So most typically, as you've already pointed out, it's an employer or entity being found liable for their employees acts or potentially omissions. So it's good in the sense that, you know, we want companies to have an incentive to train and manage their employees in order to prevent harm to others or harm to the company.
00;02;48;25 - 00;03;14;25
Jonathan Porter
Thanks, Lorinda. Then when I think about vicarious liability, I think it makes sense for like tort cases where you're trying to compensate victims. Like if a company’s truck injures someone, it makes sense the company would pay for those damages, because we want to make sure that the victims of torts are made whole, but it might make a little bit less sense when you get into the False Claims Act, which only applies when people or a company knowingly commit fraud.
00;03;14;25 - 00;03;20;19
Jonathan Porter
And so how do courts generally think about vicarious liability when it comes to the False Claims Act?
00;03;20;21 - 00;03;58;15
Lorinda Holloway
Yeah, really a couple of different ways. I think the majority of courts will hold a company liable for all of the axon omissions of its employees, so long as whatever the wrongful act or omission is, is within the scope of the employee's employment and in some way actually benefits the company and then a minority of courts, I would say they’ll only impose vicarious liability for the acts of management level of employees, unless the company had actual knowledge of the non-managerial employees actions.
00;03;58;18 - 00;04;17;05
Lorinda Holloway
So kind of going to what you’re talking about, how do you get in the head of an entity. The entity is made up of people. So most courts are going to say look if it’s something your employees are doing, it’s within the course and scope of their job and the company benefits from it. Sorry, your new company are going to be responsible.
00;04;17;11 - 00;04;27;10
Lorinda Holloway
And then the minority of courts are like, no, no, we’re going to look only just to hold companies liable for management level unless the company actually really knew what was going on.
00;04;27;11 - 00;04;47;17
Jonathan Porter
Thanks, Lorinda. Yeah. So I think what a lot of people think about when they think about fraud is, you know, like TV shows where you’ve got like a board of directors who’s executing some fraud scheme. That’s I mean, obviously that would be enforceable under the False Claims Act. But we rarely see that. What we see more often is some lower level employee does something that is against company policy.
00;04;47;20 - 00;05;07;04
Jonathan Porter
And the question is, well, what do we do with that? And so I think fleshing out these two approaches might make sense with a couple of examples. Let’s dig into some cases. And the first one is one in my neck of the woods in the 11th Circuit called Grand Union. So, Lorinda, if you would tell our listeners about this Grand Union case and the approach that the court took there.
00;05;07;06 - 00;05;31;07
Lorinda Holloway
So in Grand Union, it involves a large grocery store chain. They’re cashiers in one of the stores were taking food stamps for ineligible items. They were accepting food stamps. And really, the evidence showed nobody outside of that one grocery store out of this entire chain, even knew that this was happening. But DOJ brought an FCA action against the whole chain.
00;05;31;09 - 00;05;50;03
Lorinda Holloway
And the court ultimately imposed by curious liability against the grocery store chain because the employees accepting the food stamps had the broad authority to decide whether to accept food stamps or not. And because, of course, the grocery store ultimately benefited from the food stamps process.
00;05;50;06 - 00;06;15;02
Jonathan Porter
Thanks, Lorinda. Yeah, I remember when I was at DOJ and trying to talk with defense counsel about vicarious liability situations, I would talk about grand union. It is still good law. It’s an older case, but I think it is leads to a pretty harsh consequence. I mean, think about what’s happening here. You’ve got a one off situation where low level employees are doing something wrong, and no one outside of that one location knows about this.
00;06;15;05 - 00;06;35;00
Jonathan Porter
And so this is a pretty drastic consequence for something that the organization, the big corporate chain itself doesn't know anything about. And I think some courts look at this type of fact pattern and go the other way because they see the FCA as a pretty, pretty harsh consequence. So let’s talk about an example from a case that went the other way.
00;06;35;03 - 00;06;40;05
Jonathan Porter
If you would tell our listeners about the Southern Maryland Home Health Services case there.
00;06;40;08 - 00;07;02;29
Lorinda Holloway
Yeah. And just real quick, before we get to that, I mean, I hear you, I guess the push back on the Grand Union approach or in favor of it really would be the fact that the grocery store chain, in that example, they had the ability to more tightly restrict what their employees could and couldn’t do. So they had a level of decision making that they were owning.
00;07;03;02 - 00;07;20;08
Lorinda Holloway
And yet to say you don’t have to be responsible for it. Ultimately, I think that’s where the law enforcers would, you know, where you would have been making that argument as a DOJ or U.S. attorney. But you’re right. So other courts take a different approach. So in the Southern Maryland Home Health Services case is a good example here.
00;07;20;08 - 00;07;40;29
Lorinda Holloway
A woman actually pretended to be a physical therapist when she wasn’t, so she literally was fooling her employer. She was providing services as though she were a real physical therapist. And the company billed Medicare for her services by this pretend therapist. And the court rejected the Grand Union approach. The one about the grocery store we’re just talking about.
00;07;41;06 - 00;08;07;22
Lorinda Holloway
And this court held that when the recovery sought by the government is substantially higher than its actual losses, an employer is not vicariously liable under the FCA for wrongful acts taken by non-management level employees, unless that employer actually knew what was going on. So this court took really the exact opposite kind of giving the entity, the employer, a bit of a pass.
00;08;07;22 - 00;08;21;19
Lorinda Holloway
Unless these decisions or acts were being done at the management level. And the only exception being, of course, if the entity really knew what was going on, that court would sort of disregard whether the person was management level or not.
00;08;21;21 - 00;08;43;11
Jonathan Porter
Thanks for. And yeah, it’s hard to look at these two and try to make sense of this. I mean really this is just two courts looking at very similar fact patterns and saying in one of these we view the FCA as a tool that is meant for pre high level fraud. And when the government is seeking substantially higher damages than what its actual losses were, we should just look at that with a little bit more scrutiny.
00;08;43;13 - 00;09;01;20
Jonathan Porter
And I think that's different from what the 11th Circuit did in Grand Union, where they look at what was going on and they say, well, we still want to hold this company liable for what is low level people. Did I think this is tough. So one example that we’ve talked about on this podcast before, my friend Troy Clark, he and I were at DOJ together.
00;09;01;23 - 00;09;23;27
Jonathan Porter
He came on the podcast a couple of years ago, and we talked about this case where this defense contractor was bribing an Army colonel in order to get defense contracts. And so in that case, Troy was wearing the criminal hat that was wearing the civil hat. And Troy prosecuted the colonel. And the guy bribing the colonel. And then I had a False Claims Act settlement with the company.
00;09;24;00 - 00;09;43;06
Jonathan Porter
And that makes sense there, because there the company was the one getting the contract. They got this big government contract that came about through bribes. And what the company said there was, look, we didn't have anything to do with the bribes. Are guy did the guy who was running this branch made bribes. But like, our C-suite folks didn’t understand it.
00;09;43;09 - 00;10;06;04
Jonathan Porter
But still, it was something where we imposed vicarious liability because of grand union and because, look, a company's the one that's responsible for their guy going out and bribing a colonel. But I think it's harder when you get down into lower and lower levels. And so I’ve got a lot of clients where they have questions about, well, you know, I submitted this CPT code, but it was a low level biller who chose the code and we trained the bill.
00;10;06;07 - 00;10;25;27
Jonathan Porter
I not to do that. So these are really hard questions. And so I think what a lot of our listeners are probably thinking right now is, well, what are we supposed to do if our low level employees mistakes are going to be held against the company? What should we be doing? So, Lorinda, I'll ask you, what should companies be doing given this vicarious liability thing in the False Claims Act?
00;10;26;01 - 00;10;56;14
Lorinda Holloway
Yeah, I think it really shines a bright spotlight on what I’ll call compliance hygiene. Okay. In other words, given the spy curious liability risk is always there. This is a key reason why companies that are billing under any kind of federal program have got to have strong compliance programs and to conduct training of their employees and focusing on enforcement of compliance policies and procedures.
00;10;56;21 - 00;11;20;06
Lorinda Holloway
And of course, if you do learn of something, just considering, if you have something that's being done by a lower level employee or not really need to take a pause, get good counsel and consider whether you need to make a self-disclosure. But this vicarious liability, it really is. It’s almost like the other side of the coin. If you could be vicariously liable than that other side, that coin needs to be a focus on training.
00;11;20;12 - 00;11;42;22
Jonathan Porter
Yeah, totally agree with everything you just said, Lorinda. You know, the argument for vicarious liability is when you are having a company be liable for the acts of its employees, you're giving the company tremendous incentives to train and put in compliance measures to stop this. And so Grand Union was a long time ago, I think now grocery stores and other stores that accept food stamps.
00;11;42;25 - 00;12;03;27
Jonathan Porter
They’ve got processes in place to make sure that only eligible items can be reimbursed for government payment. Those compliance processes, in part, came about through cases like Grand Union. And so if we’re thinking about this big picture, yeah, it makes a lot of sense that we’re going to impose liability on companies for the acts of their employees. So in that aspect, it makes a whole lot of sense.
00;12;03;28 - 00;12;29;21
Jonathan Porter
But Lorinda, I still think there are good arguments that defense attorneys like us can and should make when we’re talking about sort of isolated incidents that happen outside of the sort of scope of managerial or C-suite employees. And so, Lorinda, let’s close this conversation by me asking you this question, which is what arguments should we defense counsel be making on behalf of our clients when this sort of thing happens?
00;12;29;28 - 00;13;00;12
Lorinda Holloway
Yeah. Yeah, absolutely. I think defense counsel have got to focus on steps that the company took to stop whatever type of wrongdoing may have occurred. I mean, the reality is, believe it or not, the government actually does not expect perfection. They are looking for robust, meaningful, not a book on the shelf, but meaningful compliance programs. And the reality is, even when you have a meaningful, robust compliance program, things are going to slip through the cracks.
00;13;00;13 - 00;13;23;01
Lorinda Holloway
That’s why it’s a constant sweep through your processes and education and training and then go again. That’s what you want to focus on. As defense counsels look, that may not have had perfection here. Something may have slipped through the cracks. But look at our processes that we have in place, and we’re doing the best we can. And it’s a constant effort to improve and to have compliance programs.
00;13;23;07 - 00;13;34;14
Lorinda Holloway
So you want to also focus, of course, on how imposing FCA liability would just be an unfair result in the absence of some really improper act, despite good training.
00;13;34;20 - 00;13;58;27
Jonathan Porter
Thanks, Lorinda. All good arguments. Yeah. I think when you’re talking about the drastic consequence of a False Claims Act settlement, what you want to do is make sure that you’re saying, like there are other people involved in this who could suffer through this, whether it’s shareholders or vendors or contractors, other employees. And so if you’ve got a client where there’s a robust compliance system in place and something just falls through the cracks, that’s going to happen.
00;13;58;27 - 00;14;21;19
Jonathan Porter
And so demonstrating the DOJ look, we put a lot of effort into something like this not happening. It’s an isolated incident. Why this person chose to disregard their training. We will never know. But let’s not hammer the organization just because someone did something they weren’t supposed to do. That’s the sort of arguments that we make. And so, Lorinda, I’m grateful for you coming on the podcast and fleshing this issue out because I think this really is important.
00;14;21;19 - 00;14;23;19
Jonathan Porter
So, Lorinda, thanks for coming on the podcast.
00;14;23;20 - 00;14;36;06
Lorinda Holloway
Absolutely. My pleasure. And, you know, having that exhibit A of this is the training that we do, man, there’s nothing better of lawyers like us love to get those real specific examples from the client. Always a pleasure, Jonathan. Thank you.
00;14;36;08 - 00;14;57;26
Jonathan Porter
Yeah. No thank you Lorinda. So this is the first podcast that we’re doing since DOJ put out their numbers for 2025. We’re going to talk about the numbers more in future episodes. But the high level is record number of qui tams filed in 2025. And so these investigations are coming. The relator’s bar is responding to some of the big FCA settlements in recent years.
00;14;58;04 - 00;15;20;08
Jonathan Porter
And they’re finding clients. And so the number of whistleblowers are going up, the number of qui tams is going up, the number of investigations are going up. And so if you’re in an industry that comes under scrutiny of the False Claims Act, now’s a good time for you to reinvest in your compliance processes to make sure that you’re not going to be the latest person named in a qui tam, and going through all of the big investigative steps that come with that.
00;15;20;08 - 00;15;31;13
Jonathan Porter
And so we’re going to continue to talk about the False Claims Act here on this podcast. We hope that you’ll continue listening to us. But until next time, to our listeners, thanks for joining us, and we’ll see you next time.