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What to DOGE about Fraud, Waste, and Abuse?

Unless you’ve been living under a rock, you’ve seen the headlines. “Department of Defense pays $32,000 to replace 25 coffee cups.” “Boeing overcharges Air Force by 8,000% for soap dispensers.” While there is much room for debate as to whether DOGE – as currently constituted – is the right watch dog, and whether Inspectors General should have an oversight role, these allegations are alarming. Yet, they are not surprising. Fraud on a busy and complacent government is nothing new.

The original False Claims Act – also known as Lincoln’s Law – was enacted in 1863 in response to rampant fraud encountered by the Union Army in connection with its procurement of military equipment and supplies. For example, it was common for the military contractors of the day to fill munitions with sawdust instead of proper explosives to reap huge windfalls under their contracts.1 Lincoln’s Law, which initially had a robust qui tam provision to incentivize company insiders to come forward with fraud and share in the resultant government recovery following a lawsuit, significantly reduced such fraud. But fast forward to the 1980s, by which time the qui tam provisions had been weakened substantially, abuse was on the rise.

As the military-industrial complex grew, reports of flagrant abuses permeated the halls of Congress. Contractors to the United States Navy were especially abusive, charging the Navy $7,000 for coffee pots, $660 for ashtrays, $16,571 for a three-cubic-foot refrigerator, $400 for socket wrenches and hammers, and $640 for aircraft toilet seats.2 The Secretary of the Navy, Secretary of Defense, and Secretary of the Air Force all raised complaints of profit-gouging by the defense industries.3 In the wake of such exorbitant charges, the False Claims Act was substantially strengthened in 1986, including its qui tam provisions to incentivize reporting of fraud by company insiders.

To the extent outrageous mark-ups continue to be seen, it is clear that more must be done. Either by statutory law (i.e. Medicaid) or contract, many government contracts already have “most favored customer” or “best price” clauses. For example, a contractor that that sells goods to the Department of Defense must treat the Government as the “most favored customer” and provide it with the contractor’s best pricing.4

Questions remain as to whether these clauses appear only in products essential to the Department’s mission or also appear in contracts for ordinary goods that any business needs. Investigations must take place to determine how compliance with such provisions is assessed during and after the contracting process. While the False Claims Act plays a critical role, it is a tool to pair with Government diligence in contacting. Possible contracting requirements could have government contractors provide the terms of their most favored private sector contracts annually to the government and require that government officials entering into contracts affirmatively certify – on an annual basis – that they have determined that products are being provided at reasonable costs commensurate with all contract provisions.

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1. First Session on § 1562 A Bill to Amend the False Claims Act, and Title 18 of the United States Code Regarding Penalties For False Claims And For Other Purposes, Hearings Before the Subcommittee on Administrative Practice and Procedure of the Committee of the Judiciary of the United States Senate, 99th Congress (1985) (Statement by Sen. Charles Grassley); see also https://kkc.com/wp-content/uploads/2020/03/FCA-hear-j-99-52-1985.pdf

2. 131 Cong. Rec. 17818 (1985); Bill Keller, Navy Pays $660 Apiece for Two Ashtrays, N.Y. TIMES, May 29, 1985, at A-14; Fred Hiatt, Now, the $600 Toilet Seat, WASHINGTON POST, Feb. 5, 1985, at A5.

3. Richard Halloran, Contractor Penalties Harsher, N.Y. TIMES, Mar. 29, 1985, at D4; Navy Investigating Bills for $660 Ashtrays, $400 Wrenches, ASSOCIATED PRESS NEWS ARCHIVE (May 28, 1985); see also NAVY RELIEVES 3 OF DUTY OVER $659 ASHTRAYS, available at https://www.nytimes.com/1985/05/31/us/navy-relieves-3-of-duty-over-659-ashtrays.html.

4. Government Contractor Pays $4 Million to Resolve Pricing and Sourcing Allegations Brought Under the False Claims Act | GSA Office of Inspector General, available at https://www.gsaig.gov/news/government-contractor-pays-4-million-resolve-pricing-and-sourcing-allegations-brought-under

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What the judicial branch can do when a president refuses to comply with a court order

NPR speaks with retired federal judge Nancy Gertner about how the judicial branch could, or could not, enforce a court order against a sitting president who refuses to comply.

Click here to listen to the interview with Judge Nancy Getner (Ret.) for more information.

Excerpt:

LEILA FADEL, HOST:

A federal judge in Rhode Island says the White House has defied an order to unfreeze federal grant and program funds and is ordering the administration to immediately end any federal funding pause. And this case is just one of dozens of lawsuits that have been filed to try to block some of President Trump’s many executive actions that are pushing legal limits. But what if the Trump administration just ignores court rulings?

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GERTNER: Well, the – a court – a judge has tools available to him or her in the first instance. You know, they can cite the parties in front of them for contempt. They can impose fines. Of course, since one of the parties, arguably, here is Elon Musk, it’s not clear that fines are going to make a particle of difference. There’s even the possibility of imprisoning someone until the order is followed. All of these are, obviously, empty threats with respect to the defendants in this case. The marshals would have to enforce whatever orders the judge entered. The problem is that the Marshals Service is under the Department of Justice, and if Trump wanted to fully not comply, he could direct the Department of Justice not to comply. At that point, you have a full unconstitutional crisis. You have one branch of the government ignoring the legitimate comments – the legitimate orders, rather, of another branch.

Let me also say the other thing available to the – to Trump, if he doesn’t agree with the judge, is to appeal. And so to some degree, hastening a constitutional crisis says something about what he’s trying to do, which is more about showing his power than it is about following the law.

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The question is whether or not Trump is exercising power in a legitimate way. And when he violates the Administrative Procedure Act, which says that you can change regulations only if you follow certain procedures, when he violates the Privacy Act, threatening to release the names of the FBI agents who arguably participated in January 6, when he holds up the funding of programs that have been appropriated by Congress – that’s the question of whether or not he’s acting in a legitimate fashion. And these cases are essentially saying there’s nothing remotely legitimate about what the president is doing under these circumstances.

I can’t say – I can’t emphasize enough how difficult it is for a judge to enter a temporary restraining order, which is the case in these cases. You have to find the likelihood of success on the merits, and you have to find irreparable harm. And the bar is high. It says something about how far Trump has gone from what the legitimate lawmaking function is in these cases that judges are doing this.

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Read full transcipt here.

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Courts Affirm Constitutionality of FCA Qui Tam Provision

On September 30, 2024, Judge Kathryn Mizelle in the Middle District of Florida granted a defense motion for judgment on the pleadings and dismissed an FCA case after concluding that the FCA’s qui tam provision is unconstitutional.   U.S. ex rel. Zafirov v. Fla. Medical Assoc. LLC, No. 19-cv-1236, Dkt. No. 346 (M.D. Fla. Sept. 30, 2024).

Judge Mizelle first concluded that FCA relators are “officer[s] of the United States,” because they 1) “exercise significant authority pursuant to the laws of the United States,” in the form of possessing civil enforcement authority on behalf of the United States, and 2) “occupy a ‘continuing’ position established by law,” because “the position of relator does not depend on the identity of the person initiating the action, as any ‘person’ can be the relator if she satisfies the statutory prerequisites.”  Based on the foregoing, she determined that qui tam relators must be appointment in a manner consistent with the Appointments Clause, which is not satisfied by a relator’s “self-appointment.” The opinion was predicated almost entirely on dicta by Justice Thomas in a dissent in the case of United States ex rel. Polansky v. Exec. Health Res., 599 U.S. 419 (2023). The dicta questioned but did not answer whether the qui tam device violates Article II’s appointments clause because this determination was unnecessary to rule on the matter before the Court. Justices Kavanaugh and Barrett concurred in the query.

At odds with longstanding appellate precedent, the Zafirov opinion ignores the oversight mechanisms and safeguards built into the FCA to ensure the Government can maintain control of declined cases as the real party in interest. It has gotten little traction in the ensuing weeks. In early November, a federal court in the Eastern District of Tennessee criticized it as an “outlier” that relies “chiefly on selections of dissents, concurrences, and law review articles” while “whistl[ing] past precedent.” United States ex rel. Adams v.Chattanooga Hamilton Cty. Hosp. Auth., 2024 U.S. Dist. LEXIS 209546, at *7-9 (E.D. Tenn. Nov. 7, 2024). Other district courts in the Eleventh Circuit have reached the same conclusion. E.g. United States ex rel. Butler v. Shikara, 2024 U.S. Dist. LEXIS 181390, at*40-41 (S.D. Fla. Sep. 6, 2024) (rejecting Thomas dicta as basis to find qui tam unconstitutional).

Indeed, prior to Zafirov, the Sixth Circuit, Ninth Circuit, Tenth Circuit, and Fifth Circuit (en banc) have all affirmatively upheld the constitutionality of the qui tam provisions with robust discussions as to why there is no violation of the appointments clause. See United States ex rel. Kelly v. Boeing Co., 9 F.3d 743, 751-58 (9th Cir. 1993); United States ex rel. Taxpayers Against Fraud v. Gen. Elec. Co., 41 F.3d 1032, 1040-42 (6th Cir. 1994); Riley v. St. Luke’s Episcopal Hosp., 252 F.3d 749, 753-58 (5th Cir. 2001) (en banc); United States ex rel. Stone v. Rockwell Int’l Corp., 282 F.3d 787, 804-07 (10th Cir. 2002). Prior to Zafirow and Justice Thomas’s dicta, these appellate courts and district courts nationwide have been near unanimous in concluding relators are not officers subject to the appointmenta cause because (1) their duties are temporary; and (2) they do not wield government power, instead being subject to significant government oversight during the pendency of a qui tam that leaves in place government ability to intervene, monitor and limit discovery, and dismiss or settle the action over relator objections. United States ex rel. Wallace v. Exactech, Inc., 703 F. Supp. 3d 1356, 1366 (N.D. Ala. 2023) (summarizing appellate cases and rejecting argument).

Zafirov acknowledged the statutory provisions that allow the Government to control qui tam litigation but took issue with the fact that judicial review remains and courts must give qui tam relators an opportunity to be heard and express their position. This ignores that the standard is highly deferential and a Court must nearly always acquiesce to the Government’s determination that dismissal or settlement is in the best interest of the United States absent evidence the Government is engaged in active malfeasance. Zafirov is on appeal with the Eleventh Circuit. It seems unlikely that the Eleventh Circuit will break rank with other appellate decisions, but if it does, the case is poised for Supreme Court review.

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The Lawyer Pharma Loves to Hate

A conversation about the False Claims Act

October 17, 2024, 5-7pm
Georgetown Law Students Association, Corporate Crime & Anti-Corruption, Georgetown Law School