Commercial – Lab owner liable for $111M judgment

Listen to this article

Where the owner of a blood testing laboratory and two lead salespersons were repeatedly warned that paying commissions to independent contractors might violate an anti-kickback statute, but they went ahead and paid physicians for drawing patients’ blood and processing the samples, an $111 million False Claims Act judgment was affirmed.

Background

The government presented evidence that defendants—the owner of a blood testing laboratory and two men who led its sales operation (Dent and Johnson)—violated the False Claims Act in several ways, including by paying physicians for drawing patients’ blood and processing the blood samples in violation of the anti-kickback statute.

The jury found that defendants had indeed violated the False Claims Act. After trebling the actual damages and adding civil penalties, the district court entered judgment against all three defendants for $111,109,655.30 and against Dent and Johnson for an additional $3,039,006.56.

Merits

Defendants contend that the government failed to prove that they “knowingly and willfully” violated the anti-kickback statute, and so they cannot have “knowingly” run afoul of the False Claims Act. This argument rings hollow.

Multiple attorneys warned defendants that paying commissions to independent contractors might well violate the anti-kickback statute. Defendants’ justifications for their continued blind eye to illegal activity in no way undermine the jury’s conclusion as to their knowledge.

Equally unpersuasive is defendants’ contention that they could not have known about the commissions’ illegality because attorneys helped draft the contracts providing for commission payments. Defendants point to no legal opinion on which they relied in concluding that the anti-kickback statute permitted commission payments to independent contractors. Similarly, defendants cannot rely on outside audits as a justification for questioning the legality of the commission scheme.

Defendants also contend that they are entitled to judgment as a matter of law because, assertedly, commissions to salespeople can never constitute kickbacks under the anti-kickback statute. But no language in the statute so provides. Moreover, federal appellate courts have frequently, and indeed invariably, upheld anti-kickback statute violations based on commission payments to third parties

Defendants also argue that, because BlueWave sales representatives did not directly refer HDL or Singulex tests to patients, defendants cannot be liable under the anti-kickback statute. But they misread the plain text of the statute.

Jury instructions

Although defendants argue that the district court erred in refusing to give a stand-alone advice-of-counsel instruction, the district court’s refusal provides no basis for reversal because it did instruct the jury to consider defendants’ “good faith” reliance on legal advice, which captured the essence of defendants’ proposed instruction.

Defendants’ next challenge to the jury instructions arises from former BlueWave sales contractor Kyle Martel’s invocation of the Fifth Amendment. Courts have often permitted invocation of the Fifth Amendment by a former employee of a company that is a party to the litigation. The court sees no error in the jury instructions permitting the jury to make adverse inferences based on Martel’s testimony.

Defendants next contend that the district court erred by failing to instruct the jury that it must find that a false claim be “material.” Instead, the court instructed the jury that if it found that a claim violated the anti-kickback statute, the second element of the False Claims Act—that “the claim was false or fraudulent”—was necessarily satisfied. The instruction was proper.

Defendants also argue that the district court erred when it told the jury that the government must prove “that at least one purpose of the remuneration” was to induce the referral of services, rather than the “primary purpose of the remuneration.” This instruction, too, was proper, as every circuit to address the issue has held.

Remaining issues

Defendants contend that the district court abused its discretion by excluding three defense experts. The court finds the district court did not abuse its discretion.

Finally, Dent challenges the district court’s grant of prejudgment writs of attachment. At issue are three properties that Dent transferred to his wife and to two corporations that she controlled, each time for $5, although one of the properties was purchased for $1.6 million and another was purchased for $2.75 million. Dent’s actions meet the standard for a fraudulent transfer.

Affirmed.

United States ex rel. Lutz v. Mallory (Lawyers Weekly No. 001-036-21, 21 pp.) (Diana Gribbon Motz, J.) Case Nos. 18-1811, 18-1812, and 18-1813. Feb. 22, 2021. From D.S.C. (Richard Mark Gergel, J.) William Walter Wilkins, Beattie Ashmore and Nekki Shutt for Defendants. Benjamin M. Shultz for Appellees.