Justice Muse

Another day, another kickback testing settlement: Last week, the DOJ announced a settlement between the United States and two clinical laboratories located in Mississippi and Texas (and their owners). Under the Settlement, the labs and their individual owners agreed to pay $5.7 Million to resolve kickback allegations. The DOJ alleges that the labs entered into sham agreements with marketers to provide various services at an hourly rate, when, in reality, the labs paid the marketers a percentage of revenue, including Medicare reimbursement, in return for the samples.  Most practitioners in this space know that kickbacks can show up in a number of different forms. But, often liability/exposure turns on the intended purpose of the underlying agreements. What is the spirit of the agreement in question? At times, companies want to rely on papered agreements, when, in fact, those sham agreements often serve as evidence of remuneration.

Last week, the DOJ announced a settlement between Aerojet Rocketdyne Inc. (“Aerojet”) and, relator, Brian Markus, related to allegations that Aerojet violated the False Claims Act (“FCA”) by misrepresenting its compliance with cybersecurity requirements in certain federal government contracts. There a few interesting things to note here. 

First, despite the Government’s clear interest in this area evidenced by the Department’s Civil Cyber-Fraud Initiative, the DOJ declined to intervene in the matter.  Second, the parties settled this matter only after the Court declined to dismiss this case at the Summary Judgment stage. Notably, it appears that Aerojet disclosed its noncompliance to the Government. The Court considered this fact, but also noted that “these disclosures hold less weight when they are incomplete.” Memorandum and Order Re: Cross-Motions For Summary Judgement, U.S. ex rel. Markus v. Aerojet Rocketdyne Holdings, Inc., No. 2:15-cv-02245 (E.D. Cal.), at 11. As such, the Court held that there was a “[a] genuine dispute of material fact . . . as to the sufficiency of the disclosures about the 2013 breaches and information gathered in audits done by outside firms.”  See id. at 14.