Securing Dismissal of a False Claims Qui Tam Suit
Jeff Ifrah successfully represented global health care leader Merck in a False Claims Act qui tam suit and got the case dismissed.
The suit involved a whistleblower that worked for a health care buying company (a group purchasing organization that purchases supplies and drugs). Terminated from the buying group, the employee alleged she was retaliated against because of issues she raised about the buying process.
The case was brought before the U.S. District Court for the Northern District of Texas, and 18 drug companies were named as defendants in an alleged bribery scheme. Jeff represented Merck, which was one of the named defendants. He filed a successful motion to dismiss the complaint, based on the former employee’s alarming lack of specificity in her claim.
Not only was our motion to dismiss successful, it was efficient: Jeff won the dismissal roughly one year after Merck and the other defendants were originally served.
(United States ex rel. Fitzgerald v. Novation LLC, et al., S.D. Tex., No. 3:03-CV-01589))
Public schools and libraries in the U.S. can save a lot of money on Internet service by applying for the Schools and Libraries Program, a federal subsidy better known as E-Rate.
E-Rate funding, capped yearly at $3.9 billion, helps eligible institutions cover costs of Internet service. Participants can save anywhere from twenty to ninety percent of their Internet expenses—the precise amount being dictated by the economic standing of both the participating institution and the school district where it is located.
E-Rate and three other programs are part of the Universal Service Fund (USF), a system of subsidies born out of the Telecommunications Act of 1996 as a way to ensure affordable telecom rates across the country. Although the Federal Communications Commission (FCC) oversees the USF, the fund is managed by a nonprofit corporation called the Universal Service Administrative Company (USAC).
Detailed information on how to apply for E-Rate can be found in the Schools and Libraries Program overview. Basically it works as a bidding process. An applicant fills out FCC Form 470, requesting specific services, and submits it to the USAC. The USAC then issues an RFP for telecom providers who want to bid for the requested services. After 28 days, the applicant can study the bids. When it selects one, it requests E-Rate funding by filing FCC Form 471 within a deadline set by the FCC (for FY2016 it is May 26).
The discount rate is generally determined by the size of the population, in the applicant’s school district, that qualifies for the National School Lunch Program. The applicant must also file Form 486, listing services for which funds are requested and ensuring compliance with the Children’s Internet Protection Act.
There are limits to what E-Rate can cover. The applicant is solely responsible for end-user equipment, like hardware and software, and also for any non-discounted portions of Internet services.
While it is a great opportunity to save money, E-Rate isn’t a free-for-all. To discourage abuse and misuse of the program, the FCC requires applicants to comply with a series of rules, notably:
- Compliance with state and local law. It’s not enough to follow the FCC standards only.
- Applicants cannot seek discounts for services not requested. In other words, services listed on Form 471 must match (or not exceed) services requested on Form 470.
- Fair, competitive bidding. Applicants are responsible for ensuring an open, fair, and competitive bidding process to select the most cost-effective provider.
- Document retention. Applicants must save all competing bids for services to demonstrate they selected the most cost-effective bid, with price being the primary consideration. Records should be kept for at least ten years after the last date of service delivered.
- CIPA compliance. Applicants must confirm compliance with the Children’s Internet Protection Act, which requires schools and libraries that receive federal funding to employ Internet filters that protect children from harmful content.
In spite of these rules, the wealth of funds in the E-Rate program can attract abuse. In response, the FCC created the USF Strike Force in 2014 and tasked it with combatting waste, fraud, and abuse of the USF programs. Federal agents have shown that they are serious about investigating alleged abuses. One widely publicized case in Ramapo, NY, recently led to several raids. We will look at that case and others like it in upcoming posts.
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Does the federal government have the right to seize a domain name without notice? With growing frequency, the feds have seized the domain names of thousands of websites for alleged criminal wrongdoing. The latest example is the seizure earlier this week of 67 website domain names for the alleged illegal sale and distribution of counterfeit and prescription drugs.
There still is little information publicly available on the recent seizure. The Justice Department issued a short new release with a statement from U.S. Attorney Bill Nettles, in which he noted,
It’s important for consumers to understand the significant risks involved in purchasing pharmaceutical drugs from these websites. The generic versions of these prescription drugs are not approved by the Food and Drug Administration and cannot be distributed in the United States legally. To be safe and effective, prescription drugs must be taken under the care and supervision of appropriate health care professionals; not purchased off the internet from unknown and unregulated foreign sources.
Whether or not the sites facilitated the alleged criminal behavior remains to be decided by a judicial proceeding (if the case ever gets to that point). Federal agents can obtain a seizure order based merely upon probable cause set forth in an affidavit. That’s a relatively low bar considering the consequences of domain name seizures.
The only recourse for the sites at this point is to file a petition with a federal court to contest the forfeiture. Contesting a forfeiture is an uphill—and oftentimes protracted—battle. In the meantime the businesses operating through those domain names are effectively shut down, if the seized websites were their main channel of business. Once the feds carry out a domain name seizure, the “offending” sites will show a seizure banner notifying any visitors that the domain name has been seized by federal authorities for violations of federal laws. No business can be done on the site and the chances of visitors returning are slim.
So how is it okay for a domain name to be seized based on the allegation of a crime, before proper notice and hearing? The feds are taking advantage of a process known as an in rem proceeding, whereby they can file suit against the offending property itself for its alleged role in facilitating criminal conduct. Typically in rem proceedings are filed against tangible assets like a car involved in a drug deal or a bank account used to funnel illegal funds. But in recent years, in rem proceedings have been used by both state and federal agencies against domain names in order to crack down on alleged criminal behavior carried out through the websites. Examples include (1) the Justice Department’s “In Our Sites” operation in which it seized the domain names of thousands of sites accused of violating U.S. copyright laws and (2) the state of Kentucky’s attempt to seize 141 domain names of online poker sites.
Despite the increasing use of pretrial domain name seizures, the legality is still hotly debated by civil liberties groups, free market advocates, and international organizations. These groups raise constitutional concerns, such as due process and restraint on free speech, as well as jurisdictional concerns, such as federal or state authority to reach domain names owned by foreign individuals or entities. The biggest issue is that an in rem proceeding is inappropriate against domain names because a domain name is not property – it is a contractual right that, as such, should not be subject to seizure. We will discuss these concerns in more detail in a coming post once we learn more about the Justice Department’s recent actions against the 67 pharmaceutical domain names.
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Today, the New Jersey DGE issued a “Director’s Advisory Bulletin” clarifying how it would apply its suitability rules to gaming license applicants who conduct internet gaming in other jurisdictions. If you offer a game that is illegal in any jurisdiction, the DGE will consider you unsuitable and bar you from the New Jersey market. The new Bulletin clarified what New Jersey considers illegal: If you operate in a “grey market” jurisdiction where internet gaming laws are ambiguous – or no affirmative enforcement actions have been taken – you’re probably good to go where NJ licensure is concerned. But if you operate in a jurisdiction where the relevant authorities have taken affirmative action to prevent internet gaming activity, it will be considered a “black market” and you may be ineligible for a New Jersey license. Make sure you know what a black market is and stay out!
As a prerequisite to any gaming license determination, the DGE must determine whether an applicant is “suitable” for licensure under the New Jersey Casino Control Act. Internet gaming companies operating illegally in other jurisdictions will be unable to establish the “good character, honesty, and integrity required for a New Jersey gaming license. Operating a legal internet gaming business in another jurisdiction presumably poses no obstacle to suitability. Today’s Bulletin was a result of the DGE’s struggle with how to determine “suitability” when internet gaming companies operate in jurisdictions – as is often the case – where the legality of online gaming is “unclear or inconsistent.” The DGE deemed such jurisdictions “grey markets.” Recognizing that it was in no position to opine on the laws of these grey market jurisdictions, the DGE opted not to adopt a standard that would have imposed its own views on the laws or actions (or inaction) of other sovereign jurisdictions. For practical purposes, this means that New Jersey has adopted a suitability standard of “if it’s not prohibited there, you are permitted here.”
Instead, the DGE will deem an applicant unsuitable based on its operations in other jurisdictions only if the applicant has conducted gaming operations in a “black market” jurisdiction: one in which the online gaming is clearly illegal or where the jurisdiction has “taken affirmative, concrete action to enforce” its anti-gaming law. The DGE listed civil and criminal complaints and the issuance of formal cease and desist letters as examples of such affirmative actions. Where a jurisdiction has refrained from taking any affirmative steps to prevent an internet gaming market to develop, the DGE will consider that jurisdiction to be a “grey market.”
The Bulletin does, however, leave substantial ambiguity concerning the hot area of daily fantasy sports (“DFS”). Some states, like Alabama and New York, have issued cease and desist letters or taken other actions to prevent the operation of DFS sites in their states. New Jersey’s Bulletin clarifies that those states should now be considered “black markets” and operation of DFS in those states could cause an applicant to be found unsuitable by the DGE. The attorney generals of several other states have issued opinions declaring that DFS constitutes illegal gambling. But unlike Alabama and New York, many of those jurisdictions have taken no affirmative action to enforce any law against DFS operators. It remains unclear how the DGE will address those jurisdictions. It could, however, consider the operation of a DFS business in those states as a prohibited “black market” activity.
For internet gaming companies, many of which operate both internationally and in multiple U.S. states, the DGE’s newly announced standard provides welcome clarity to companies looking to do business in the Garden State. Companies currently operating in New Jersey, or hoping to do so in the future, should work with their counsel to ensure that they are not operating in any “black market” jurisdiction.
Republished with permission from FEE.org, originally published April 12, 2016
There are limits to what the government can take from you. The Supreme Court recently ruled that the Constitution forbids the government from freezing a defendant’s “untainted” assets in advance of prosecution. The ruling is a significant victory for those caught in the government’s crosshairs. It is also a significant victory for a traditional concept of justice, which prefers to err on the side of the accused over government agents.
In its decision in Luis v. U.S., the high court agreed with a criminal defendant who argued that her Sixth Amendment right to counsel was violated when the government froze assets unrelated to allegedly criminal behavior. Without access to those funds, the defendant would be unable to retain the attorney of her choice.
The Court considered the government’s interest in preserving funds to pay restitution and criminal penalties, but concluded that a defendant’s right to counsel is “fundamental,” outweighing any interest the government mightultimately have: “[The government’s] interests are important, but — compared to the right to counsel — they seem to lie somewhat further from the heart of a fair, effective criminal justice system.”
In a 5-3 ruling, the Court based its decision on this balancing test, as well as on traditional understandings of common law, which distinguish between assets directly related to alleged criminal behavior and assets considered “innocent” or untainted. The Court found no legal precedent to authorize “unfettered, pretrial forfeiture of the defendant’s own ‘innocent’ property.” Moreover, the Court highlighted concerns that the government’s position has no obvious stopping point and could erode defendants’ right to counsel considerably.
Encroaching on the Sixth Amendment is but one of the several concerns posed by the government’s growing love of forfeiture — it has become too handy of a tool in prosecutors’ pockets — but it is perhaps the gravest concern, as it threatens an individual’s ability to effectively defend him or herself. It puts defendants at a significant disadvantage: they want to obtain the best representation they can afford in order to defend themselves, but they may not be able to afford any if the government freezes all their assets in the hope of confiscating them after a conviction. They may be left begging friends and family to help fund their defense or relying upon overburdened public defenders to represent them. The government’s tactic is the courtroom equivalent of inviting an opponent to a boxing match and then tying one hand behind his back.
The criminal defense bar has decried government’s overuse of asset forfeiture for years. While the government has argued that pre-trial asset seizure is justified in order to preserve its ability to recover funds and penalties, the process has been used to try to deter behavior by making an example of people. Moreover, pre-trial asset seizure looks a lot like presumed guilt, as opposed to presumed innocence. The occasional constitutionally minded congressional representative has tried to curb forfeiture overuse through legislative initiatives, but these bills keep getting left to die in committees and subcommittees. It is nice to see some effective limits placed on the practice by the Court.
Justice Thomas, in a concurring opinion, took issue with Justice Breyer’s opinion “balancing” the state’s interest against individuals’ constitutional rights. He argued the Sixth Amendment prevents the government from seizing untainted assets, period; there is no need to consider a balancing approach. But at least the plurality of the Court recognized that, when balancing the government’s interests in the outcome of a case against the individual’s right to adequately defend him or herself, you should err on the side of the individual.
If that means the state sometimes loses out on full satisfaction of a monetary judgment, that is preferable to defendants being prevented from mounting an effective defense. More wrongful convictions would result from that policy, and the seizure of a few more dollars from the truly guilty would be no consolation. If there is any question whether historically we have favored individual rights over the state’s interests in criminal prosecutions, look only to the Bill of Rights. Justice demands that if anyone’s hand is to be tied in the courtroom, it should be the hand of the government.
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The New York Attorney General, FanDuel, and Draft Kings announced yesterday that a settlement had been reached in the litigation over the future of daily fantasy sports (“DFS”) in New York. Effective immediately, FanDuel and DraftKings will discontinue operations in New York and pay out existing balances to New Yorkers. This sounds like a major victory for the AG, and a surprising capitulation by the DFS sites after an appellate court allowed them to keep operating in New York while the court cases were in progress. But a closer study of the DraftKings and FanDuel agreements plainly shows that this is far from a definitive settlement.
The agreement would be better described as an armistice. No claims will be dismissed and no resolution has been agreed upon. Everyone has agreed to postpone action on the pending appeals until at least this summer, when the filings will be due for the Appellate Division’s September session, and suspend all litigation in the trial court until the appeals are resolved.
The DFS sites, in other words, have agreed to suspend operations in New York, and now appear to be turning their attention to the New York State legislature as the agreements revolve entirely on whether there is a change in state law expressly legalizing DFS before June 30, 2016. If so, all parties agree not to proceed further and neither DFS site would incur any penalties or pay restitution on the majority of the AG’s claims. This would be a big win for DFS in New York—not only would it be able to operate legally in the state, but DraftKings and FanDuel would be off the hook for any claims about its previously questionable status.
But there’s plenty in this agreement that is unfavorable to the sites. First, the matter of false advertising—central to the AG’s prosecution—is almost entirely unaffected, although it bears little relevance to the permissibility of DFS in general. More interestingly, if the legislature does not expressly legalize DFS, the sites have agreed not to appeal a loss to the New York Court of Appeals, the state’s highest court. This is a curious concession that leaves the sites vulnerable to an adverse decision from an intermediate appellate court in Manhattan. For its part, the AG has made no such concessions. If the Appellate Division rules in the sites’ favor, it would send the case back to the trial court for further proceedings without committing either the AG or the sites to any specific course of action.
Because nothing has changed about the DFS litigation itself, there is good reason to wonder why this “settlement” happened at all. The best-case scenario for the DFS sites would be that the AG, faced with conflicting signals from state courts and New Yorkers alike, has agreed to collaborate on finding a legislative solution that would allow DFS to exist in New York subject to state approval and a method of oversight that allays some of his concerns. A less encouraging possibility is that DraftKings and FanDuel are losing the stomach for a protracted fight in their biggest market and that, if it is not possible to restore DFS to New York quickly, the sites have decided it would be more prudent to cut their losses and focus on other markets.
In the meantime, New Yorkers likely will be without DFS through this summer. If they don’t want it to stay that way indefinitely, they should do as we will and turn their attention to the New York State legislature—where S 6793 in the State Senate is the most promising bill—and where we can expect to see a strong push to finalize a legislative solution before the end of June. So serious a deadline has potent ramifications on the future of DFS in New York and perhaps the nation. As such, we hope it will encourage action even from those who have viewed DFS as a low-priority issue until now.