This transcript has been auto generated
00;00;02;12 - 00;00;26;27
Speaker 1
Welcome to another episode of Husch Blackwell's False Claims Act Insights podcast. I'm your host, Jonathan Porter. This is part two of my conversation with my law partner, Cormac Connor, about how a new administration, how a new DOJ could impact False Claims Act enforcement. If you missed part one, go back and listen to it or don't. Your call. If you didn't listen to the first part, here's your quick recap.
00;00;26;27 - 00;01;12;15
Speaker 1
So Cormac and I talked about how only a small number of people within DOJ leave from one administration to the next, and that a new administration mainly shifts the big picture policies and priorities in FCA enforcement rather than case by case determinations. Cormac and I gave some examples of those big picture policies and priorities from years past. Specifically talking about the Yates memo during the Obama administration and the brand memo during the first Trump administration, Cormac told us that the Yates memo instructed line attorneys to think about including executives in FCA resolutions, and that the brand memo restricted FCA enforcement to situations in statute or regulation instead of guidance documents.
00;01;12;15 - 00;01;35;09
Speaker 1
To me, those are the biggest FCA policy shifts from the Obama and the first Trump administrations. But there's another policy shift that happened during the first Trump administration. That's the grandstand memo. The grass memo was really important. It said that DOJ should consider dismissing qui tams in certain situations, in other words, siding with the defendant in those situations and against the whistleblower.
00;01;35;24 - 00;01;58;10
Speaker 1
The Grants Memo was and is really important. It's a way for DOJ to end qui tams that they don't like. It's so important that we're going to do a whole episode on it soon. So, Cormac, I may bend your arm, get you to come back on the podcast to talk about the Cranston memo in more detail. But those to me are the biggest developments that impacted FCA enforcement in the Obama and first Trump administrations.
00;01;58;10 - 00;02;19;07
Speaker 1
Now I think they offer a great window into the types of policies that could be implemented soon and that impacts FCA enforcement as a whole. In Part two, we're going to talk about how FCA enforcement shifted in the Biden administration. I'm going to ask Cormac to prognosticate about what FCA enforcement may look like in the second Trump administration.
00;02;19;21 - 00;02;43;26
Speaker 1
And we're going to talk about the potential FCA enforcement bombshell. DOJ embracing the recent decision out of Florida that qui tams are unconstitutional. So big topics coming in this episode part two. But first, Cormac, I understand that you want to turn the tables on me and start by asking a question about what we've covered so far. And I suppose I'll allow that, but only because you were such a great guest on part one.
00;02;43;26 - 00;02;45;21
Speaker 1
So Cormac, what do you have for me?
00;02;46;04 - 00;03;04;04
Speaker 2
So curious. We've been talking you. We both were at different U.S. attorney's offices. The different times, of course. But I was curious, when you were there and you were investigating FCA cases, do you remember the memo or brand memo impacting the way that you handled investigations?
00;03;04;27 - 00;03;31;09
Speaker 1
Yeah, good question. Cormac. I think the answer is that it impacted how I thought about cases a little. But thinking back on FCA settlements that I handled, I don't remember any that really turned on some regulatory guidance. I had a settlement with a large private provider of military housing that involved falsified documents. That's not some regulatory cadence. Another settlement involved providing products to DOD from UN allowed countries.
00;03;31;09 - 00;03;57;02
Speaker 1
Again, not sub regulatory guidance. In other words, it against a healthcare provider. The billing for services they didn't actually do. And then we caught them taking documents to cover their tracks. Definitely not conduct that requires some intricate reading of some regulatory guidance to make out a colorable FCA violation. But I also handled criminal work when I was at DOJ, and so maybe my gauge for what should merit DOJ involvement is just different than others.
00;03;57;12 - 00;04;25;15
Speaker 1
I feel strongly that FCA is not the vehicle for coding disagreements or other gray area situations. So I was quick to close files that didn't strike me as particularly egregious or to settle cases on, you know, like a common law theory with no multiplier. If I thought that was the correct thing to do, and I don't think others necessarily take that approach within DOJ and actually do maybe they do premise FCA theories on what's in some obscure guidance document.
00;04;25;15 - 00;04;42;11
Speaker 1
So that's the answer to the Brand Memo. Granston Memo, when I didn't like a qui tam I'd explain it to relator's counsel why I thought their qui tam had a problem and every time I did that, relator's counsel understood and they dismissed their qui tams on their own. So I never had a situation where I had to step in and dismiss.
00;04;42;23 - 00;05;06;11
Speaker 1
Actually, to me, the biggest memo that impacted me was Yates. I recall earlier in my DOJ career settling with corporate executives who were involved in some sort of wrongdoing along with settling with the company. And I wouldn't have done that without the memo. You know, what was the practical impact of those executive side settlements? I'm not sure. I suspect the companies actually paid the settlement dollars for the executives.
00;05;06;20 - 00;05;29;00
Speaker 1
But I understand the policy. I get the sense, though, that making executives settle has faded away in recent years. But that's the answer to your question. Now I'm back to asking the questions on this podcast. So let's move to the Biden administration. The biggest thing that stands out to me was President Biden's focus on private equity in President Biden's first State of the Union, I think was the first State of the Union.
00;05;29;06 - 00;05;59;04
Speaker 1
He announced that he was prioritizing investigations into private equity that invested in health care. After he made that announcement, DOJ started asking questions in health care investigations about what private equity owners knew about whatever conduct was being investigated, and whistleblowers started, including private equity owners in their qui tams. So Cormac, now that we're about to see the end of the Biden administration, do you think DOJ will stop investigating private equity firms that invest in health care?
00;05;59;04 - 00;06;02;03
Speaker 1
What your listeners in private equity expect now?
00;06;02;16 - 00;06;25;01
Speaker 2
Well, I agree, first of all, that that was a compelling and really interesting development under the Biden administration. And I do think that we'll continue to see investigate issues that look at private equity. But I also kind of think we'll see that it's not going to be the white hot spotlight that it's seen or at least that President Biden was suggesting it would be when he announced that policy shift.
00;06;26;17 - 00;06;54;18
Speaker 2
One of the trickiest questions in any case is determining improving knowledge, right? If you're on the government side, that's such an amorphous concept. It's very hard to prove in many cases. And so on the defense side, that's where we get most of our money. I shouldn't say most, but many of our defenses is is whether or not the government can prove that our clients knew anything about the conduct that's being investigated.
00;06;55;03 - 00;07;26;20
Speaker 2
And so when you look at how does private equity fit into that, you're usually talking about another step away from the action, right? As we've seen private equity firms expand their reach into various sectors of the economy, it wasn't really surprising the DOJ under the Biden administration would have explored or start to explore more what private equity owners of portfolio companies knew about the activities within those portfolio companies.
00;07;26;20 - 00;07;50;00
Speaker 2
Right. But that's where I get into the concept of that layering. Each time you take a step away from the action, the ability to prove knowledge, it's harder, at least in my experience. A lot of private equity firms, when they have portfolio companies, the private equity owners are usually not, as they say in the weeds and making day to day decisions at those portfolio companies.
00;07;50;00 - 00;08;17;20
Speaker 2
They're more focused on bigger picture. And so they're, again, not involved in daily management decisions. And those would include, I would expect, submitted claims for payment to the right. So I would imagine that in a lot of hierarchical situations of the companies or the portfolio companies held by PE firms, every time a claim is being submitted for paying to the government, it's probably not getting run up the chain for approval.
00;08;18;04 - 00;08;43;27
Speaker 2
So proving knowledge is going to be a challenge. Again, the further you get away from the actual decision, the more difficult it is. Then we look at the political side of this is President elect Trump then announcing choices for political appointments. We see that he seems to be including lots of folks, lots of individuals who have varying degrees of ties back to private equity and private equity firms.
00;08;44;14 - 00;09;10;13
Speaker 2
So you have to believe that there's going to be some type of a relaxation of the type of pressure the DOJ may have been bringing to date on private equity owners of companies. Now, having said that, we look back at what's happening with the line investigators in the line attorneys. Any good line investigating attorney or you say or even do look down at the agents that are assisting the attorneys.
00;09;11;04 - 00;09;34;12
Speaker 2
Their job is to follow the evidence where it leads. I mean, giving them the benefit of every doubt that's their job is to gather evidence, evaluate it, follow where it leads. And if the evidence suggests that as part of any investigation, that there's a portfolio company and the key owners of that company somehow knew that false claims were being submitted to the government.
00;09;34;25 - 00;09;45;29
Speaker 2
I have to believe that the DOJ attorneys are going to continue to chase that down. It just may not be as aggressive in the future as it has been in the last few years.
00;09;46;09 - 00;10;08;14
Speaker 1
Yeah, I agree with everything you just said, Cormac. The cases against owners of wrongdoers are hard DOJ. During this last administration, they tried to bring those cases, but they've had walls for the reasons that you just described. Cormac The fact pattern where it works is where P directs the portfolio to do something, and DOJ can somehow show that that private equity knew that it was wrong to direct them to do that.
00;10;08;25 - 00;10;28;10
Speaker 1
But that is really not all that common. And so while I think DOJ has tried very hard to hold private equities, feet of fire, I just don't think the false claims Act is the right vehicle to do that. It's really not what it was designed to do. I'm sure there are other ways to go after private equity, but to me, the false claims, that's probably not the right vehicle for it.
00;10;28;11 - 00;10;47;23
Speaker 1
So it wouldn't surprise me if we saw that go down a little bit, except for the exact example that you just gave where the evidence leads to private equity being directly involved in whatever's going on. So solid analysis there, correct? So call me any guesses as to what we should expect in the new administration when it comes to FCA enforcement in general?
00;10;48;15 - 00;10;49;02
Speaker 1
Well, I mean, I.
00;10;49;02 - 00;11;11;12
Speaker 2
Got to say, I hate to not be controversial here. I just don't think we're going to see a whole lot of change because as we talked about, the cases historically have enjoyed broad bipartisan support. I mean, everyone can agree that it's bad to defraud US taxpayer. So that's the idea is about the FCA. Frankly, it's been since the Civil War.
00;11;11;20 - 00;11;36;28
Speaker 2
DOJ is number one fraud enforcement tool by far right. The volume of cases is just massive. And so looking back, I don't see a lot of reason to think that we're going to see a big change. And so when I say looking back, we've talked about types of policy shifts from what we saw from the first Trump administration that were kind of more defensive, company friendly.
00;11;36;28 - 00;12;13;26
Speaker 2
But then there are statistics. So each year, DOJ publishes an annual report showing its metrics and its statistics for FCA enforcement for the previous year. Curious about this exact question do we do we expect that a Republican Trump administration will do something different than the Democratic administrations, that it was the first Trump administration we're sandwiched between? And looking back at the statistics the DOJ reported, starting with the Obama administration, then first trial and then Biden, you don't see a huge change.
00;12;13;27 - 00;12;44;12
Speaker 2
Be honest. Like the first Trump administration's enforcement numbers were generally on par with what we saw from both Obama and Biden. Now, to be clear, there were some anomalies there. And I noticed that under the Biden administration, DOJ reported a big jump in cases that were initiated by DOJ. So remember, there's cases that these whistleblower tabulators can initiate, but DOJ can do its homework, they can bring their own cases.
00;12;44;25 - 00;13;09;18
Speaker 2
They don't have to wait for a whistleblower. Usually the balance tilts more heavily towards Gaetz and Relator's bringing more cases than DOJ does. But in 2023, we saw the most by far cases initiated by DOJ as compared to whistleblowers. What I see with that it does back to is the enforcement activity that we're coming out of code, right?
00;13;09;18 - 00;13;34;24
Speaker 2
So the peep loves and the investigations into other types of COVID relief where when you inject so much money into the economy, not everybody's going to be a good actor and somebody is going to try and take advantage of it. So there were a lot of investigations that came out of that. I think we'll see those start to taper off and we'll get back to the normal sort of proportion between DOJ initiated cases and qui tam cases.
00;13;35;14 - 00;14;10;15
Speaker 2
Frankly, as we look ahead, what might be the types of investigations we see under the second Trump administration? I expect that there's going to relate back to a lot of Biden's initiatives. You know, the Inflation Reduction Act, the infrastructure spending. We're all pumping billions and billions of dollars into the economy and into, of course, federal contracts. Somewhere along the line, somebody is going to have taken advantage and not behaved as they should or tried to get contracts that they weren't entitled to get, that kind of thing.
00;14;11;12 - 00;14;34;23
Speaker 2
These are all likely targets for us. The enforcement during the second Trump administration. So additionally, I think, you know, area where you've done a lot of work in the health care space, I expect we'll see that cranked up again under the second Trump administration. And I mean, usually that's the vast majority. Something like 80% year over year of 58 cases are in the health care arena.
00;14;34;28 - 00;15;01;01
Speaker 2
That balance shifted significantly in 2023. But again, I think that's because of those PPE and COVID relief investigations. I have a feeling we're going to tilt back towards that sort of 8020 rough balance where health care space is seeing the vast majority of those false claims cases. But again, like I said, there's the Inflation Reduction Act and infrastructure spending that came out during the Biden administration.
00;15;01;19 - 00;15;22;12
Speaker 2
All that money is now working its way through the system, which means if there are follow on investigations, those are trailing behind. And that's where I think we're going to likely see if you got, for example, a company that was bidding on a contract that was set aside for small businesses, but maybe the business wasn't actually small or didn't qualify the contract.
00;15;22;24 - 00;15;38;00
Speaker 2
That's where you could see some of those investigations, wage issues, employing non-U.S. citizens. That citizenship requirement was baked into a contract. Those types of things I could see becoming focal points or the enforcement in the next four years.
00;15;38;09 - 00;15;58;22
Speaker 1
Thanks, Cormack. That's great analysis. I appreciate that. So final question for you. A few months back, we did a podcast episode about the Zafirov opinion in Florida in which a federal judge found that the qui tam provision of the FCA violates the US Constitution. In that case, DOJ argue to the judge that it thought qui tams were not unconstitutional.
00;15;58;22 - 00;16;22;10
Speaker 1
So DOJ got involved, said no court, we want you to keep qui tams exactly where they are. And since Zafirov when defendants have asserted this argument, DOJ has been filing briefs in defense of qui tams. So big question to end this episode, Cormac, is there a chance that the new DOJ leadership could embrace Zafirov and end qui tams? How might that play out?
00;16;22;18 - 00;17;03;14
Speaker 2
Well, it's a really interesting issue, and it's one that's gotten a lot of oxygen. So mentioned the Supreme Court decision in Polansky that confirmed DOJ's broad authority to dismiss FCA cases. The reason this question about constitutionality of qui tams has gotten more oxygen recently is because that Polansky decision included a vigorous dissent from Justice Thomas, who questioned whether qui tam whistleblower structure of the False Claims Act actually violates the Constitution by giving law enforcement powers to non governmental representatives.
00;17;03;22 - 00;17;31;26
Speaker 2
These are you think about the executive branch under Article two as set forth in the Constitution, what Justice Thomas was focusing on and what other legal scholars have looked at when they evaluate this issue is whether that qui tam grants of essentially deputizing these whistleblowers to proceed with cases in the name of the government, whether that is creating an extension of executive authority that the Constitution does not allow.
00;17;32;09 - 00;17;40;14
Speaker 2
So that was part of the dissent for the Polansky decision, and it ends up becoming a basis for Zapiro. Why might Zafirov.
00;17;40;25 - 00;17;42;00
Speaker 1
Get more traction?
00;17;42;01 - 00;18;06;02
Speaker 2
Well, it came out of Florida, the middle district of Florida. The current nominee to be the attorney general at Department of Justice is Pam Bondi, former Florida attorney general. So unclear whether, first of all, whether Pam Bondi will get confirmed, but if she does, and I expect she will. Unclear whether Pam Bondi has any strong views about Tam or whether it's constitutional or not.
00;18;06;03 - 00;18;40;15
Speaker 2
I certainly expect the body during confirmation hearings. Your questions about that. But you know, ending qui tams from the DOJ side would be just a sea change, a monster change that would get lots of attention and draw lots of efforts to prevent it in one way or another. So, I mean, of course, if DOJ were to refuse to take qui tam cases or if DOJ were somehow to say, well, if we decline to intervene, then your case is just done.
00;18;41;03 - 00;19;23;08
Speaker 2
I mean, that's one possible outcome of that decision. You're going to see far fewer investigations come forward. That'll be the immediate impact. I think the more nuanced impact would be if the qui tam concept and provisions under the False Claims Act are determined to be unconstitutional, then what does that mean for statute limitations? Because under False Claims Act, there is a ten year outer limit on bringing these cases, but that generally applies to qui tam relators. The government typically gets only a six year at the outset, the statute of limitations to bring their cases that itself almost cuts cases in half, right?
00;19;23;08 - 00;19;55;24
Speaker 2
If you go from ten years to six, that's four years where cases could expire and be time barred if they're not brought by qui tam relators. So that's one thing that we'd have to watch. If the new incoming Trump administration leadership doesn't do something radical, then something perhaps call it a smaller move, but less impact. Less dramatic would be that they just stop bringing these cases and stop advocating for them and stop trying to defend qui tam cases.
00;19;56;08 - 00;20;31;17
Speaker 2
Or like we were talking about before, just in short line attorneys to withdraw any statements that they hadn't supported. The key to something like that would certainly speed up the usual time you expect these cases to go through and now they get process to the appellate level. But, you know, so that's sort of like smaller tinkering around the edges that we might see looking more broadly and why I think more likely the Safarov will get attention and may draw some amendments or changes to the statute.
00;20;31;29 - 00;21;15;06
Speaker 2
I think more likely we're going to see that it doesn't get to the type of the level of attention we're concerned about. Part of that is because the same types of challenges that were presented to the court after off have actually already been reviewed and rejected in four different federal circuit. So the fifth, the sixth, the ninth and the 10th appellate courts have all review these same types of issues and rejected them, finding that the key provision is constitutional and the read the general basis for those findings in the appellate decisions is that as we've been talking about with the grants, the memo throughout the case, even if the government does it through being, they
00;21;15;06 - 00;21;40;18
Speaker 2
have the ability to step in and shut them down and dismiss the case. So those four circuits have all decided that that there's not a constitutional problem. But again, that's four circuits. There are one six, seven others that have not weighed in. So and one of those being the 11th, that's Florida is in the 11th Circuit. So question is, does the 11th Circuit have a view?
00;21;40;20 - 00;22;23;18
Speaker 2
Now, I've only seen one other decision since the after off that is cited back to Zakharov. And that was a case out of Tennessee, which is in the sixth Circuit. Remember, Sixth Circuit has already said that this this argument doesn't hold water. But what was interesting about that Tennessee case and this is Adams v Chattanooga Hospital, the Tennessee case looked at its binding precedent for the appeals court, but also looked at the Zafirov decision and found the whole reasoning to be unpersuasive because that Zafirov decision was focusing on non-binding authorities, law review article staying your distance in cases rather than the actual decision.
00;22;24;04 - 00;22;47;07
Speaker 2
So we're getting a little wonky and lawyer world here, but that sort of counterbalance between the case coming out of Tennessee to look at the rationale from Zafirov and just found a generally unpersuasive because there weren't really any authorities behind it. Plus the fact that we've got four out of four circuit courts that have decided that it is constitutional balance that against Justice Thomas.
00;22;47;07 - 00;23;27;16
Speaker 2
And there there seems to be some signals from at least a couple of the other justices that they might be receptive to this argument. You've kind of got a top, top end and bottom in pressure working on these issues that I think we will see it continue to percolate and have attention. But thinking about the members of Congress, such as Senator Grassley, who are such proponents and advocates for False Claims Act, that if there is even an inkling that this provision might get taken out of the statute or found to be unconstitutional, I expect that Congress will swoop in and make some amendments to address it.
00;23;28;07 - 00;23;54;29
Speaker 2
I would expect that you'd see similar action by the Justice Department doing the saying that looking at whether they want to have key tams as part of their crime, fighting to other fraud fighting tool to look at modifications as the way they look at the incoming volume of key and related cases. Again, I think that there's likely to get some more attention to the fear of that.
00;23;54;29 - 00;24;24;25
Speaker 2
At the end of the day, what we'll probably see is that FCA comes through in largely its current form and let me just make one additional point on this, is why I think that is sort of this whistleblower concept will continue to have traction, and that is looking at current by administration. Deputy Attorney General Monaco has spearheaded an initiative to expand the types of whistleblower options and bounties that are paid to whistleblowers throughout DOJ.
00;24;25;07 - 00;25;06;07
Speaker 2
So we've now got where these whistleblower concepts were kind of isolated in pockets of the Department of Justice. It's now much more comprehensive, and walking that back is going to be difficult and probably politically unpopular. So down in fits into that whistleblower concept. And so I think if you've got this this statute that is well established provides a mechanism to bring allegations of fraud out of the shadows and into the attention of the Department of Justice, while also providing incentives to whistleblowers who were sticking their necks out for new careers.
00;25;06;07 - 00;25;21;16
Speaker 2
Interpretations of one I just don't see. The Trump administration tried to aggressively walk it back in any kind of significant way. So I think if there's going to be any real change, it'll be maybe modifications in the way the statute written.
00;25;22;02 - 00;25;41;19
Speaker 1
Thanks, Cormac. Yeah. Thinking about what this might look like if the Justice Department were directed to embrace Zafirov. I mean, they've already filed statements of interest in a lot of key terms, saying we think key terms are constitutional. You'll be really interesting if they were to walk that back and need to reverse support for key towns. Quick story to close this out.
00;25;41;19 - 00;25;59;05
Speaker 1
When I was in the USA, I handled a hearing in federal court early in my tenure at DOJ, where we were fighting with the state of Georgia on something. And by the way, representing Georgia were the solicitor general and deputy solicitor general. Georgia, both of whom are now on the Georgia Supreme Court. They were excellent, as you would imagine, excellent advocates.
00;25;59;15 - 00;26;25;25
Speaker 1
But it was an insane hearing because the case started during the Obama administration and DOJ took one position and the hearing was during the Trump administration. And DOJ leadership hadn't yet decided whether to reverse course when the hearing came around. So this main justice lawyer flies down from DC and I'm with the main justice lawyer and the issue was that the lawyer didn't have any authority to actually do anything.
00;26;26;04 - 00;26;44;24
Speaker 1
His leadership was considering reversing course but hadn't made up their mind yet. So this poor DC lawyer has to artfully say nothing at all during this hearing in federal court. It was an absolute mess. At one point the judge called on me and said something like, Mr. Porter, are you allowed to argue anything of substance? It was a total, total disaster.
00;26;44;24 - 00;27;06;21
Speaker 1
I'm fairly sure Georgia won whatever the dispute was and the feds lost. The reason I tell the story is because DOJ turnover causes some weird things to happen, but those are rare. Every other case that I'm aware of carried on like normal. So we might see some weird things in the next administration, but more likely than not, the FCA enforcement will keep chugging along.
00;27;06;21 - 00;27;27;11
Speaker 1
So Cormac, thanks for coming on the podcast. Thanks for exploring this episode in depth with me and to our listeners. We're grateful that you're listening. Thanks for supporting us throughout this first year of the podcast. We really do appreciate you and make sure you continue to listen to us in the New Year as we continue to bring you cutting edge False Claims Act discussions.
00;27;27;11 - 00;27;29;23
Speaker 1
So thanks for that and we'll see you next time.
00;27;29;26 - 00;27;38;25
Speaker 2
Thanks, Jon. This is great.