Case 8:07-cv-00669-SDM-TGW

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UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA TAMPA DIVISION UNITED STATES OF AMERICA ex rel. CARLOS URQUILLA-DIAZ, et al., Plaintiffs, v. KAPLAN UNIVERSITY et al., Defendants. UNITED STATES’ SUR-REPLY STATEMENT OF INTEREST AS TO DEFENDANTS’ MOTION TO DISMISS In their Reply, the Defendants argue that False Claims Act (FCA) liability cannot be predicated on the violation of a condition of participation, and that their position is validated by the Supreme Court’s recent decision in Allison Engine Co. v. United States ex rel. Sanders, 128 Sup. Ct. 2123 (2008). Allison does no such thing. A long line of Supreme Court and lower court decisions have imposed FCA liability based on violations of conditions of participation. Nothing in Allison Engine purports to change this result. Indeed, Allison does not even mention the term “condition of participation.” Accordingly, the defendants’ suggestion that this case suddenly and silently reversed course and stands for the proposition that the violation of a condition of participation can never be the basis for an FCA violation lacks any merit. The issue before the Supreme Court in Allison was whether §§ 3729(a)(2) and (a)(3) of the FCA require that a false claim be presented to a federal official as an element of liability. The Court concluded that they do not. Allison, 128 Sup. Ct. at 2129-30. The Court relied heavily on the fact that § 3729(a)(1) expressly references “presentment,” but that no such reference is contained in §§ 3729(a)(2) or (a)(3). 8:07-cv-669-T-23-TGW

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Although it concluded that §§ 3729(a)(2) and (a)(3) do not contain a presentment requirement, the Court held that they require proof that the defendant intended that its conduct would result in the payment of a claim by the United States, as opposed to a private party. As the Court explained, “[e]liminating this element of intent . . . would expand the FCA well beyond its intended role of combating ‘fraud against the Government.’ ” Id. 2128 (emphasis in original). Later in its opinion, the Court reiterated that the FCA applies only if the defendant intended the Government, rather than a private party, to rely on its misrepresentation: “If a subcontractor or another defendant makes a false statement to a private entity and does not intend the Government to rely on that false statement as a condition of payment, the statement is not made with the purpose of inducing payment of a false claim ‘by the Government.’ ” Id. at 2130. The Defendants now contend that this passing reference to a “condition of payment” means that even conduct aimed at the Government is outside the FCA if that conduct violated a condition of participation or eligibility (as opposed to a condition of payment). According to the Defendants, this one sentence in Allison stands for the proposition that the violation of a condition of participation or eligibility can never be the basis for an FCA violation. The Defendants’ argument lacks merit for several fundamental reasons. First, the Defendants’ argument erroneously assumes that conditions of payment and participation are mutually exclusive. That very argument was rejected by the 9th Circuit, which properly recognized that a condition of participation can also be a condition of payment. See United States’ Statement of Interest (Dkt. 28) at 6, citing U.S. ex rel. Hendow v. University of Phoenix, 461 F.3d 1166, 1176 (9th Cir. 2006); see also U.S. ex rel. Quinn v. Omnicare Inc., 382

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F.3d 432, 442-43 (3d Cir. 2004) (concluding that New Jersey Board of Pharmacy regulations were both conditions of participation and payment). As the 9th Circuit explained, a condition of payment is merely a condition that is a “prerequisite” to payment. Id; see also United States v. Rogan, 517 F.3d 449, 453 (7th Cir. 2008). While not every condition of participation or eligibility is necessarily a prerequisite to payment, it does not follow that no condition of participation can ever be a prerequisite to payment.1 And there is certainly nothing in Allison that supports such a conclusion, given that the case does not even mention the term condition of participation, let alone hold (or even suggest) that conditions of participation and payment are mutually exclusive. Second, the Defendants’ argument entirely ignores the context of the Allison decision and, in particular, the one sentence they rely upon in that decision. As noted, the Supreme Court was concerned that subsections (a)(2) and (a)(3), because they lack a presentment requirement, could be construed to encompass fraud directed solely at private parties. Accordingly, to guard against such a result, the Supreme Court interpreted these subsections to require proof that the defendant intended a false claim to be paid by the Government. The isolated sentence that the Defendants’ cite from Allison was intended merely to reiterate that § 3729(a)(2) does not encompass fraud directed at private parties. See Allison, 128 S. Ct. at 2130 (“If a subcontractor or another defendant makes a false statement to a private entity and does not intend the Government to rely on that false statement as a condition of payment, the statement is not made with the purpose of inducing payment of a false claim ‘by the Government.’ ”) (emphases

A condition of participation or eligibility is typically a requirement that must be met to qualify for a government program or benefit, and the violation of such a requirement may result in disqualification and/or some lesser sanction, including the denial of payment. Where the denial of payment is authorized, the condition of participation is also properly considered a condition of payment.

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added). Nothing in this sentence suggests that it was intended to carve out a category of conduct from the FCA that was directed at the government rather than a private party – and to immunize a defendant who claims money to which it is not entitled just because the defendant violated a condition of participation or eligibility. Third, the Defendants’ proffered interpretation of Allison is inconsistent with more than 50 years of FCA jurisprudence. As far back as U.S. ex rel. Marcus v. Hess, 317 U.S. 537 (1943), which upheld liability against a defendant that engaged in bid-rigging, the Supreme Court has made clear that violations of conditions of participation or eligibility can provide the basis for FCA liability. Since then, “[a] number of courts in a variety of contexts have found violations of the False Claims Act when a government contract or program required compliance with certain conditions as a prerequisite to a government benefit, payment, or program . . . .” Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 786 (4th Cir. 1999) (citing cases). If the Supreme Court in Allison had intended to overrule Marcus and its progeny, presumably it would have signaled such an intention beyond a passing reference to the term “condition of payment.” Finally, this Court should reject the Defendants’ unjustified attempt to extend Allison’s holding to limit the scope of § 3729(a)(1). Allison grounded its holding that subsections (a)(2) and (a)(3) require proof that the defendant intended its conduct to result in the payment of a claim by the United States in the specific language of these sections. Specifically, Allison relied on the similar language in both sections requiring proof that the defendant used a false statement “to get” a false or fraudulent claim paid by the Government, 31 U.S.C. §3729(a)(2), or conspired to defraud the Government “by getting” such a claim paid by the Government, id. § 3729(a)(3). See Allison, 128 S. Ct. at 2128 (“ ‘To get’ denotes purpose, and thus a person must have the

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purpose of getting a false or fraudulent claim ‘paid or approved by the Government’ in order to be liable under § 3729(a)(2).”); id. at 2130 (“Our interpretation of [the language of §3729(a)(3)] is similar to our interpretation of the language of § 3729(a)(2).”). Significantly, subsection (a)(1) does not contain the “to get” language found in subsections (a)(2) and (a)(3). Accordingly, the Defendants’ attempt to extend Allison’s holding to subsection (a)(1) violates the principle of statutory interpretation that Allison itself invoked: that “[w]hen Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Id. at 2129-30. Moreover, there is no reason to try to stretch Allison to cover (a)(1). Since this provision, unlike (a)(2) and (a)(3), requires that a claim actually be presented to the United States, the Supreme Court’s overriding concern that the FCA will encompass purely private misconduct does not arise. That concern arises only under subsections (a)(2) and (a)(3) because they do not contain any such presentment requirement. Accordingly, the Defendant’s argument that Allison limits the scope of subsection (a)(1) ignores both the letter and the spirit of that decision. Accepting their argument would be a misapplication of the Supreme Court’s holding in that case.

Respectfully submitted, Dated: July 29, 2008 ROBERT E. O’NEILL United States Attorney By: s/Charles T. Harden III CHARLES T. HARDEN III Assistant United States Attorney Florida Bar No. 97934 400 North Tampa Street, Suite 3200 -5-

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Tampa, Florida 33602 Telephone No: (813) 274-6316 Facsimile: (813) 274-6200 E-mail: charles.harden@usdoj.gov GREGORY G. KATSAS Assistant Attorney General JOYCE R. BRANDA MICHAEL GRANSTON RENEE BROOKER JAY D. MAJORS LINDA M. McMAHON Attorneys, Civil Division Commercial Litigation Branch Post Office Box 261 Ben Franklin Station Washington, D.C. 20044 Telephone: (202) 307-0448

CERTIFICATE OF SERVICE I hereby certify that on July 29, 2008, I electronically filed the foregoing with the Clerk of the Court by using the CM/ECF system which will send a notice of electronic filing of same to the following: John W. Andrews, Esq.
Andrewslawgroup@ix.netcom.com

Susan Eisenberg
susan.eisenberg@akerman.com

James L. Zelenay, Jr.
jzelenay@gibsondunn.com

J. Troy Andrews
andrewslawgroup@ix.netcom.com

Mia Rene Martin
mia.martin@akerman.com

Nicola T. Hanna
nhanna@gibsondunn.com

Andrews Law Group 3220 Henderson Blvd. Tampa, FL 33609 Counsel for Relators

Samuel S. Heywood
samuel.heywood@akerman.com

Timothy J. Hatch
thatch@gibsondunn.com

Akerman Senterfitt One S.E. 3rd Ave., 28th Flr. Miami, FL 33131-1714 Counsel for Defendants By:

Gibson, Dunn & Crutcher, LLP 333 South Grand Avenue Los Angeles, CA 90071 Counsel for Defendants

s/Charles T. Harden III CHARLES T. HARDEN III Assistant United States Attorney

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