Arbitration of False Claims Act cases may bind the U.S.

False Claims Act (FCA) qui tam fraud claims must be arbitrated as a result of arbitration agreements signed by relators who have brought FCA Justice Dept. sealfraud claims on the government’s behalf, author Dino L. LaVerghetta of Wilmer Cutler Pickering Hale and Dorr LLP says, following the holding of a little-noticed case.

What’s more, he explains, such binding arbitration should bar the U.S. from later re-litigating issues decided in arbitration.

If so, this is a factor that both defendants and the Justice Department must weigh in assessing the grounds for DOJ to intervene in a qui tam case.

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False Claims Act filing requirements trump shipping rule, whistleblower case reinstated

A federal appeals court has reinstated a whistleblower lawsuit brought in 2008 against shipping company DHL Express.

Kevin Grupp and Robert Moll alleged DHL improperly billed the federal government for jet fuel surcharges on ground shipments. DHL had won dismissal at the trial court, the federal court in Buffalo, but on Feb. 5 the U.S. Court of Appeals for the Second Circuit reversed that ruling.

Judge Ralph Winter authored the opinion for the Second Circuit. He wrote that a rule that requires challenges to shipping disputes to be brought within 180 days does not apply to False Claims Act cases.

“Application of the 180-day rule would completely nullify the tolling allowance as the Government is often unlikely to become award of fraud immediately following the violation,” Winter wrote.

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Audit planned in fraud case as Navy reinstates shipper

The Navy has quietly lifted the suspension of a shipping contractor under investigation for possible fraud, allowing the company to compete for new work. In exchange, the company has agreed to pay for an independent audit that could help the Justice Department determine how much it may have overcharged the government.

Records show that the Navy recently decided to reinstate Inchcape Shipping Services, a company based in Dubai in the United Arab Emirates. The move came after a federal judge questioned whether the service had presented enough evidence to justify the suspension.

Contracting experts said it was unusual for the government to turn to an outside auditor in this type of case, and some questioned whether an independent firm could do as thorough a job.

The auditing firm must be approved by the Justice Department, which is conducting a civil fraud inquiry into whether the company systematically overcharged the Navy in providing provisions and sewage-removal services for warships in the Middle East and Africa. Officials said the audit could help spur settlement talks between Inchcape and the Justice Department.

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Top contractor for background checks charged with fraud

The contractor that performed federal background checks on such headline personalities as National Security Agency leaker Edward Snowden and Navy Yard shooter Aaron Alexis has been accused of fraud by the Justice Department.

Falls Church, Va.,-based USIS, which had already been the subject of a False Claims Act suit filed by former employee Blake Percival, drew the intervention from Justice’s Civil Division because it “failed to perform quality control reviews in connection with its background investigations for the U.S. Office of Personnel Management,” Justice said in a complaint filed Wednesday.

Under the False Claims Act’s qui tam, or whistleblower provisions, a private party is eligible to sue on the government’s behalf and may receive a financial settlement. After a preliminary investigation of Percival’s claims, the department asked a U.S. District Court in Alabama to allow it to file its own complaint against USIS by Jan. 22, 2014.

“We will not tolerate shortcuts taken by companies that we have entrusted with vetting individuals to be given access to our country’s sensitive and secret information,” Assistant Attorney General Stuart Delery said in the complaint, which was prepared last fall. “The Justice Department will take action against those who charge the taxpayers for services they failed to provide, especially when their nonperformance could place our country’s security at risk.”

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United Technologies begins appeal of $664 million False Claims Act judgment

United Technologies has filed its appeal brief – albeit incorrectly – in a False Claims Act lawsuit brought by the United States that resulted in a $664 million judgment against the company.

The verdict, reached in June after a bench trial in federal court in Dayton, Ohio, was touted by the Department of Justice when it announced in December that Fiscal Year 2013 saw a record $3.8 billion recovered as a result of False Claims Act lawsuits.

The case against United Technologies was filed in 1999 and alleged it made false statements to the Air Force while negotiating a contract for fighter jet engines.

According to the appeal’s docket at the U.S. Court of Appeals for the Sixth Circuit, the brief is not available because of errors contained within it.

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See related article: DOJ says 2013 a record year for False Claims Act lawsuits

Navy Secretary Mabus expects bribery scandal to widen

Navy Secretary Ray Mabus said Friday that he bluntly told criminal investigators to pursue a widening bribery scandal “wherever it leads” and that he expects more people to get swept up in a case that has already tarred several senior officers and exposed an international, multimillion-dollar fraud scheme.

“I certainly don’t think we’ve seen the end of it,” Mabus told reporters at the Pentagon in his first public comments on the scandal since it came to light in September. “I would rather get bad headlines than let bad people get away.”

Mabus, the Navy’s top civilian official since 2009, spoke a day after he held an unusual video conference with the Navy’s fleet commanders and other admirals around the world to emphasize the need to uphold ethical standards and prevent contracting fraud. With the scandal showing no sign of abating, he also has ordered several reviews and an audit into how the Navy pays for port services.

The Navy has been tarnished by a succession of embarrassing revelations over the past three months about its relationship with a major foreign defense contractor, Singapore-based Glenn Defense Marine Asia, that has provided port services to U.S. ships and submarines in the Pacific for a quarter-century.

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False Claims Act overused, reform advocates say

The United States has come a long way since the Civil War era.

A once splintered nation torn apart by infighting is now whole, although an ideological split over hot-button political issues continues to keep the country divided.

Aside from an end to slavery and a patching up of our national identity, another thing to come out of the Civil War, at least on the legislative front, was the passage of the False Claims Act.

The measure was enacted with the goal of fighting profiteering by those who supplied the Union Army with things such as weapons and ammunition.

The measure, also referred to as “Lincoln’s Law,” allowed the government to hold contractors liable for bad faith dealings.

The False Claims Act came about during a time when contractors took advantage of wartime dependence to defraud the U.S. Government by dealing faulty ammunition and weaponry, sick live stock and tainted food rations, according to a summary of the statute on the website of the law firm Messa & Associates.

Today, however, court reform advocates maintain that the statute is being overused, and at times misused, by both the federal government and those who sue on behalf of the government.

The issue was touched upon this week in the nation’s capital during the 14th Annual Legal Reform Summit of the U.S. Chamber Institute for Legal Reform. (The ILR owns Legal Newsline.)

The ILR contends that while the statute was well intentioned, it has since been turned into a “lucrative money machine for plaintiffs’ lawyers and their clients,” while simultaneously hurting businesses and U.S. taxpayers.

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Vendor settles in case over Chinese-made supplies

When contractor Malcolm Wilson lost out in a competition to outfit four federal buildings in Illinois with lamps, he suspected the winning vendor of supplying products made in China, a violation of the Trade Agreements Act.

To find out, he filed a Freedom of Information Act with the U.S. Army Corps of Engineers, which oversaw the project, to learn the model of lamp the competitor was supplying, then sent an email to the lamp maker asking where the product as made.

China, the manufacturer responded.

One year after Wilson filed a False Claims Act lawsuit against the competitor, Supplies Now Inc., the company agreed to pay $270,000 to resolve the case, according to the General Services Administration’s Office of Inspector General, which announced the July 30 settlement Monday.

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FEMA official gets two years’ probation for revolving-door relationship with contractor

Private industry frequently considers hiring existing and former federal government employees for their experience, knowledge base and skill set. As a reaction to the continuing perception that high-level federal employees jump from government to private industry and take sensitive government information with them, over the years Congress has introduced complex and often overlapping revolving-door legislation that imposes post-government employment restrictions on certain employees. While many government employees successfully transition to the private sector, failure to observe revolving-door laws and regulations can result in severe consequences for both contractors and government employees. A recent example of what can go wrong for both such parties is the case of Timothy Cannon and the Gallup Organisation.

On April 9 2013 Judge Jackson of the District Court for the District of Columbia sentenced Timothy Cannon, former director of the human capital division at the Federal Emergency Management Agency (FEMA), to two years of probation for conflict of interest violations.

According to Cannon’s plea, he helped Gallup to acquire a $6 million contract, while at the same time pursuing employment with the company. As a result of its alleged employment discussions with Cannon and related conduct, Gallup faces potential liability for civil damages and penalties under the False Claims Act and the Procurement Integrity Act, including treble damages and disgorgement of all money received under the contract. Moreover, these types of case always raise the risk of the contractor’s suspension or debarment, which would preclude any new contract awards for up to three years. This case serves as a reminder for private contractors wishing to hire existing or former government employees that they must have rigorous internal controls in place in order to ensure compliance with post-government employment requirements.

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Feds investigate office supply vendor

The government is investigating whether an office supply contractor has been improperly selling products made in China in violation of the Trade Agreements Act, court records show.

The General Services Administration’s inspector general’s office has been investigating Florida-based Capitol Supply Inc. for more than two years, according to a motion the IG filed earlier this week in U.S. District Court in Washington. The motion asks a judge to force Capitol Supply Inc. to turn over billing, sales and other information in response to two subpoenas.

Separately, the Justice Department this week joined in a False Claims Act lawsuit filed against Capitol Supply. The suit, filed back in 2010 but unsealed on Monday, accuses the company of selling illegal office products to the government.

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