Archive for June 2016

FALSE CLAIM ACT: THE SUPREME COURT RECOGNIZES IMPLIED CERTIFICATION LIABILITY

June 21, 2016

In a unanimous decision delivered by Justice Clarence Thomas, the Supreme Court recently recognized the “implied false certification theory of liability” under the False Claims Act (FCA).  The FCA imposes civil liability on “any person who…knowingly presents, or causes to be presented, a false or fraudulent claim for payment” for services rendered to the Government.  The implied false certification theory admits FCA liability where a defendant makes certain representations in submitting a claim but fails to disclose noncompliance with material statutory, regulatory, or contractual requirements that renders these representations misleading.

In Universal Health Services, Inc. v. United States ex rel. Escobar, http://www.supremecourt.gov/opinions/15pdf/15-7_a074.pdf, a mental health facility operated by a subsidiary of Universal Health Services, Inc. submitted Medicaid reimbursement claims for services rendered to the decedent daughter of the respondents.  After their daughter died due to an adverse reaction to a medication prescribed by a purported psychiatrist at the facility, respondents discovered that few of the facility’s employees were actually licensed to provide the services rendered.  A qui tam suit was filed in 2011 relying on the implied false certification theory of liability, alleging that Universal Health defrauded the Government by submitting Medicaid reimbursement claims that “made representations about the specific services provided by specific types of professionals, but that failed to disclose serious violations of regulations pertaining to staff qualifications and licensing requirements for these services.” While circuit precedent had previously embraced the implied false certification theory of liability, the District Court dismissed the case for failure to state a claim because the regulations Universal Health violated were not express conditions for payment under the Medicaid program.  The United States Court of Appeals for the First Circuit reversed on that point, and the Supreme Court granted certiorari to resolve a circuit split over the validity and scope of the implied false certification theory of liability.

The Court first looked to the text of the FCA, noting that by failing to define what makes a claim “false” or “fraudulent” under the statute, Congress incorporated the well-settled common-law understanding of the terms.  Accordingly, the Court held that the claims in this case fell “squarely within the rule that half-truths—representations that state the truth only so far as it goes, while omitting critical qualifying information—can be actionable misrepresentations.”  The parties agreed that misrepresentations by omission can be the basis for liability, but Universal Healthcare argued that it had made no representations—and therefore no misrepresentations through half-truths—in submitting its claim.  The Court did not reach respondents’ counter-argument that every claim implicitly represents that the claimant is legally entitled to payment.  Instead, it held that Universal Healthcare’s claim did make such representations because it used special payment codes that correspond to specific counseling services and because its claim used National Provider Identification numbers that correspond to specific job titles.  The Court recognized the validity of the implied false certification theory where the claim submitted makes “specific representations about the goods or services provided” and the “failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”

The Court, however, circumscribed the potential scope of implied false certification theory with its treatment of the issue of materiality.  At first, the Court rejected Universal Healthcare’s contention that FCA liability for failing to disclose violations of legal requirements should only attach where those requirements were designated as express conditions of payment.  The Court found nothing in the text of the FCA, nor a valid public policy reason, for so restricting liability.  On the other hand, the Court disagreed with the Government’s contention that the designation of a requirement as an express condition of payment automatically triggers liability, nor would it find that the Government’s legal entitlement to refuse payment were it aware of the violation qualifies the violation as material.   Instead, the Court found a middle ground, holding that the designation of a specific legal requirement as an express condition of payment was relevant, but not singularly dispositive, of the requirement’s materiality.  After Escobar, the FCA’s materiality requirement tracks that of other areas of the law, looking to whether the statement or omission has an “effect on the likely or actual behavior of the recipient of the alleged misrepresentation.”  In this case, the Government surely would have acted differently had it known of United Healthcare’s failure to operate its health facility with licensed staff, but the Court remanded the case for reconsideration under the now-clarified standards of FCA liability.

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San Francisco Goes Solar: First Major U.S. City to Require Solar on New Construction

June 10, 2016

In April, San Francisco’s Board of Supervisors unanimously adopted a proposal amending the city’s building codes to require the installation of solar panels on new commercial and residential buildings.[1] This is the first such legislation in a major U.S. city, and it looks like other major cities may be taking notice.  San Francisco’s resolution comes several years after two smaller California cities adopted similar policies—first Lancaster, on the edge of the Mojave desert north of Los Angeles, and several months later Sebastopol, close to Napa and Sonoma wine countries[2]—and has been closely followed by Santa Monica’s vote to implement an even more expansive solar requirement.[3]

Supervisor Wiener’s innovative proposal—the Better Roofs amendment to San Francisco’s Green Building Code §§ 4.201.2 and 5.201.1.2—goes into effect on January 1, 2017 and covers new residential and non-residential buildings ten floors or less.[4]  Larger buildings are exempt. While the city’s building code previously required builders to construct solar-ready zones atop new projects, developers will now be required to actually install solar panels on those rooftops.  The legislation promotes the city’s goal of meeting 100% of its energy needs from renewable sources, even as it allows an exception for buildings with non-solar “living roofs.” These “living roofs” utilize vegetation to provide insulation, create wildlife habitat, absorb pollution, and help manage the drainage of excess storm water.

Weiner hopes that this push to activate underutilized roof space will efficiently promote the use of solar energy and ensure a sustainable future for San Francisco and the surrounding region. While this is a lofty goal, the new legislation’s direct impact may be limited by the relatively small number of new and planned buildings in San Francisco that are under ten stories. Still, the ordinance is expected to add 50,000 solar panels and avert 26.3 million tons of carbon dioxide annually, and will contribute to San Francisco’s move toward 100% sustainability.  The move to solar is not without indirect economic benefits as well, as consumer investments in renewable resources lessen the need for expensive construction and maintenance of traditional infrastructure systems.  A combination of energy efficiency and renewable energy production has reduced the expected burden on the California grid, allowing for the cancellation of several major infrastructure projects to the tune of $192 million in savings for California taxpayers.[5]  These cost savings, together with the environmental benefits of renewable energy, should prompt even more cities to follow San Francisco, and now Santa Monica, on the quest for alternative energy sources.

[1] San Francisco Ordinance No. 70-16 (Amended in Board April 19, 2016), http://www.sfbos.org/ftp/uploadedfiles/bdsupvrs/ordinances16/o0071-16.pdf.

[2] Devi Glick, A Tale of Two Solar Cities, Rocky Mountain Institute Outlet, August 27, 2013, http://blog.rmi.org/blog_2013_08_27_a_tale_of_two_solar_cities.

[3] Chris Meehan, Santa Monica Joins San Francisco in Mandating Solar on New Rooftops, Solar Reviews, May 4, 2016, http://www.solarreviews.com/news/santa-monic-mandates-solar-rooftops-040416/.

[4] Ordinance No. 70-16, §§ 4.201.2-601.

[5] Julia Pyper, Californians Just Saved %192 Million Thanks to Efficiency and Rooftop Solar, GreenTech Media, May 31, 2016, http://www.greentechmedia.com/articles/read/Californians-Just-Saved-192-Million-Thanks-to-Efficiency-and-Rooftop-Solar.

THE WAIVER OF THE IMPLIED WARRANTY OF HABITABILITY: PROTECTION AGAINST CLAIMS BY SUBSEQUENT PURCHASERS IN ILLINOIS

June 1, 2016

 

2016-06-01

On May 19, 2016, the Illinois Supreme Court handed a victory to developers and builder-vendors of new residential construction.  In Fattah v. Bim,  2016 IL 119365,  the court held that the implied warranty of habitability may not be extended to a second purchaser of a home when a valid, bargained-for waiver of the warranty was executed between the builder-vendor and the first purchaser.  In Fattah, the original builder-vendor built and sold a new home in the Chicago suburbs in 2007.  Approximately three years later, the original purchaser resold the home.  That sale included an “as-is” addendum in the sales contract.  Not long after the second sale, portions of a retaining wall around the rear patio of the house began to give way resulting in a portion of the patio collapsing.  The second purchaser brought suit alleging, among other things, a breach of the implied warranty of habitability.  At the trial court level, the plaintiff was denied relief because the trial court found that the original waiver of the implied warranty of habitability was enforceable as against the second purchaser.  The Illinois Appellate Court reversed but the Illinois Supreme Court ultimately agreed with the trial court.

The Illinois Supreme Court clarified that its holding in the 1982 case of Redarowicz v. Ohlendorf, 92 Ill. 2d 171 (1982) was decided on a particular set of facts that warranted the extension of the implied warranty of habitability to a subsequent purchaser.  However, in the Fattah case, the question was whether an original, valid waiver of the implied warranty of habitability with the first purchaser of a home would extend to a second purchaser of that home.  The Redarowicz decision never considered this question.  The Illinois Supreme Court held that for a variety of legal and public policy reasons the waiver should be enforced as against the second purchaser.  Among other reasons, the court stated that when a builder-vendor offers the original purchaser of a new house a bargained-for waiver of the implied warranty of habitability to gain financial certainty as to when its exposure for certain liabilities ends, that certainty would be lost if the waiver were not enforceable against a second purchaser.  In addition, the court found it nonsensical to allow an implied warranty of habitability to be resuscitated in the face of an otherwise valid waiver simply because a home had been resold.


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