#:1224. Attorneys for the United States of America UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION 14

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1 #: Filed //0 Page of Page ID 0 ANDRÉ BIROTTE JR. United States Attorney LEON W. WEIDMAN Chief, Civil Division GARY PLESSMAN Chief, Civil Fraud Section DAVID K. BARRETT (Cal. Bar No. Room, Federal Building 00 North Los Angeles Street Los Angeles, California 00 Telephone: ( -0 Facsimile: ( - David.Barrett@usdoj.gov Attorneys for the United States of America UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION 0 P. VICTOR GONZALEZ, QUI TAM PLAINTIFF, ON BEHALF OF HIMSELF, THE UNITED STATES OF AMERICA, AND THE STATE OF CALIFORNIA, Plaintiff, v. PLANNED PARENTHOOD OF LOS ANGELES, et al., Defendants. NO. CV 0- AHM (FMOx UNITED STATES AMICUS CURIAE BRIEF IN RESPONSE TO DEFENDANTS MOTION FOR JUDGMENT ON THE PLEADINGS Date: January, 0 Time: 0:00 a.m. Judge: Hon. A. Howard Matz Courtroom:

2 #: Filed //0 Page of Page ID 0 0 The United States of America (the government respectfully submits this amicus curiae brief in response to defendants Motion for Judgment on the Pleadings, set for hearing on January, 0. This brief does not take a position on the merits of defendants Motion or the qui tam plaintiff s (the relator s action, but rather is intended to address certain assertions in the Motion regarding the False Claims Act, U.S.C et seq. ( FCA, that the government believes are incorrect or require clarification. I. THE GOVERNMENT S INTEREST IN THIS CASE The relator, P. Victor Gonzalez, filed this whistleblower action pursuant to the qui tam provisions of the FCA, U.S.C. 0 et seq., on December, 00. The government gave notice that it was not intervening in the action on November, 00. The government does not presently take a position on the merits of the action. Notwithstanding its non-intervention, however, the government remains deeply concerned that case law interpreting and applying the FCA develop in a manner that is consistent with the language and purposes of the FCA. The FCA is the government s principal tool for fighting fraud in government programs. In addition, the government is the real party in interest in every case brought pursuant to the qui tam provisions of the FCA, including cases in which the government does not intervene, because the government receives a minimum of 0% of any recovery. See U.S.C. 0(d(; United States ex rel. Killingsworth v. Northrop Corp., F.d, 0 (th Cir.. --

3 #: Filed //0 Page of Page ID 0 0 Because defendants Motion contains inaccurate or misleading assertions regarding ( the impact of ambiguity in a billing rule on FCA liability, ( the supposed government knowledge defense, and ( the impact of communications between the government and a defendant on the latter s FCA liability, the government submits this amicus curiae brief to correct those assertions. This amicus curiae brief does not address any of the other issues raised by defendants Motion, but the government s silence on those issues should not be construed as tacit approval of defendants positions on those issues. II. AMBIGUITY IN A BILLING RULE DOES NOT, AS A MATTER OF LAW, PRECLUDE FCA LIABILITY Defendants assert that ambiguity in the billing rules governing Medi-Cal reimbursement of contraceptive drugs dispensed by defendants precludes FCA liability as a matter of law. First, defendants assert that ambiguity precludes a finding of falsity under the FCA. (Mot. :-, :. Second, defendants assert that ambiguity precludes a finding of scienter under the FCA as a matter of law. (Mot. :0-, :-. Neither assertion is correct. Notwithstanding that defendants Motion repeatedly refers to the pertinent billing rules as regulations (Mot. :-, 0:-, :-0, the only billing rule discussed in the Motion is the at cost billing rule contained in the Family PACT manual, which is not a regulation. (Mot. :-, 0:-. The government does not address in this brief whether the at cost provision in the Family PACT manual is ambiguous, but insofar as defendants are suggesting that, in the context of a cost-based billing limitation, the plain meaning of the word cost can include profit, the government disagrees. Absent a special definition to the contrary, cost in such a context cannot include profit. See, e.g., Merriam-Webster s Collegiate Dictionary (0th ed. (defining cost as... the outlay or expenditure (as of effort or sacrifice made to achieve an object

4 #: Filed //0 Page of Page ID 0 0 A. Ambiguity Does Not Preclude Falsity Even assuming, arguendo, that the Family PACT at cost billing rule were ambiguous, the ambiguity of the rule would not preclude a finding that defendants violated the rule, and that defendants claims for Medi-Cal reimbursement thereby were rendered false. The Ninth Circuit in United States ex rel. Oliver v. The Parsons Co., F.d, (th Cir., cert. denied, 0 U.S. (000, has squarely held that ambiguity in a regulation may be relevant to whether a defendant acted with knowledge of falsity (scienter under the FCA, but is not relevant to whether a claim is false. In Parsons, the Ninth Circuit held that ambiguity in a regulation (a federal cost accounting standard does not preclude a finding that a defendant s representation of compliance with the regulation was false. F.d at -. The court explained that it is [the defendant s] compliance with these regulations, as interpreted by this court, that determines whether its accounting practices resulted in the submission of a false claim under the Act. While the reasonableness of [the defendant's] interpretation of the applicable accounting standards may be relevant to whether it knowingly submitted a false claim, the question of falsity itself is determined by whether [the defendant s] representations were accurate in light of applicable law. Id. (emphasis added. The court explained that if ambiguity were relevant to falsity rather than scienter, a defendant who submitted a claim with the requisite knowledge of its falsity nevertheless would be able to avoid liability by successfully arguing that its claim reflected a reasonable interpretation of --

5 #: Filed //0 Page of Page ID 0 0 the requirements. Id. at n.. The defendants Motion relies on Hagood v. Sonoma County Water Agency, F.d, - ( th Cir. (Mot. :-:, but Hagood did not hold that ambiguity negates falsity. Rather, Hagood held that, where a statute granted the government agency discretion to determine the precise nature of the defendant s obligations under a federal project, and the defendant conformed its conduct to the agency s determinations, the defendant did not make or use false statements or records to avoid an obligation to pay money to the government under the FCA s reverse false claims provision. The same argument regarding the meaning of Hagood that defendants make in their Motion was advanced by the defendant in Parsons and rejected by the Ninth Circuit: Hagood does not stand for the proposition that a reasonable interpretation of a regulation precludes falsity.... In Hagood, the statute itself granted discretion in deciding the cost allocation that the plaintiff claimed was false.... Unlike Hagood, this case involves regulations that, while unquestionably technical and complex, are not discretionary. Their meaning is ultimately the subject of judicial The relator in Hagood alleged that the defendant water agency had violated the FCA s reverse false claims provision, U.S.C. (a(, by inducing the Army Corps of Engineers to refrain from updating an old allocation of the costs of building a dam. The Army Corps failure to update the cost allocation allegedly resulted in an insufficient allocation of costs to the defendant. The court found that the statute governing the allocation of costs merely required that costs be allocated equitably... as determined by the [Army Corps]; that the statute was imprecise and gave the Army Corps fairly wide and arguably too much discretion to decide whether to update the old allocation; and that by agreeing to the old cost allocation the defendant did merely what the [Army Corps] bid it to do. F.d at -. --

6 #: Filed //0 Page of Page ID 0 0 interpretation, and it is [defendant s] compliance with these regulations, as interpreted by this court, that determines whether its accounting practices resulted in the submission of a false claim under the [FCA]. Parsons, F.d at. Any lingering doubt that adherence to a reasonable interpretation of an ambiguous regulation does not preclude falsity in the Ninth Circuit was put to rest by United States v. Bourseau, F.d (th Cir. 00. Appellants argue that their statements were not false under a reasonable interpretation of the applicable regulations. Some courts hold that the government must prove that a claim is false under any reasonable interpretation of applicable law to succeed under the FCA. [Citation omitted.] We reject this approach. See Parsons, F.d at (holding that the reasonableness of an interpretation may be relevant to the knowledge requirement but not the falsity requirement. Id. at, n.. Defendants contend that there appears to be some tension between Hagood and Parsons (Mot. :, and purport to resolve this supposed tension by arguing that Hagood -like this case - addressed the effect of an admittedly ambiguous statute, whereas Parsons addressed a finding regarding the defendant s reasonable interpretation of a regulation. (Mot. :-; emphasis added. This argument fails for several reasons. First, as discussed above, and as confirmed in Parsons, defendants misread Hagood, Defendants also rely on various reported district court cases and cases from other circuits (Mot. :-, :, n.,, but none of them is authoritative law in the Ninth Circuit. --

7 #:0 Filed //0 Page of Page ID 0 0 which does not support the proposition that ambiguity precludes falsity. Second, for purposes of determining the impact of ambiguity on falsity under the FCA, there is no logical reason to distinguish between ambiguous regulations and ambiguous statutes. Third, no such distinction was drawn by the court in Bourseau, even though that case appears to have involved the interpretation of both regulations and statutes. See F.d at,. Finally, defendants argue that this Court should give deference to the opinion expressed by the deputy Director of Medical Care Services for the California Department of Health Services ( CDHS that the pertinent provision of the Family PACT manual was ambiguous, notwithstanding that CDHS auditors may have held a contrary view. (Mot. 0:-:. The government currently takes no position on whether principles of judicial deference to an agency s interpretation of its enabling statutes and regulations should be applied to these facts. The government notes, however, that even where deference is owed, deference applies only where the agency s interpretation is based on a permissible or reasonable construction of the statute or regulation at issue. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., U.S., 0 S.Ct.,, L.Ed.d (; Thomas Jefferson University v. Shalala, U.S. 0, S.Ct.,, L.Ed.d 0 (. Thus, although defendants fail to quote all of the pertinent language in the Family PACT manual provision at issue, any conceivable analysis of the supposed ambiguity of that Even if defendants argument had merit as an abstract legal matter, moreover, as noted above the only billing rule discussed in the Motion is contained in the Family PACT manual. See Mot. :, :-; see also footnote, supra. The Family PACT manual obviously is not a statute. --

8 #: Filed //0 Page of Page ID 0 0 provision must start with an examination of the full text of that provision by this Court. B. Ambiguity Does Not Invariably Preclude Scienter Defendants also suggest that, under the FCA, ambiguity precludes a finding of scienter as a matter of law. (Mot. :-. This is incorrect. Although ambiguity can be relevant to scienter, it cannot preclude liability unless a defendant can show that, at the time it submitted the claims or engaged in the conduct at issue, it believed in good faith, and without recklessness or deliberate ignorance, that its conduct was lawful and proper. The mere fact that a defendant can show that its conduct was consistent with a reasonable interpretation of the pertinent rules is insufficient, absent proof that it actually believed in that interpretation at the time it submitted its claims, and that its belief was neither reckless nor deliberately ignorant. See Parsons, F.d at (reasonableness of defendants interpretation of applicable rules may be relevant to scienter; Bourseau, F.d at, n. (same. See also Parsons, F.d at ( A contractor relying on a good faith interpretation of a regulation is not subject to [FCA] liability, not because his or her interpretation was correct or reasonable but because the good faith nature of his or her action forecloses the possibility that the scienter requirement is met.. III. THE GOVERNMENT S POSSESSION OF INFORMATION REGARDING A DEFENDANT S ALLEGED FALSE CLAIMS DOES NOT CONSTITUTE A DEFENSE TO AN FCA ACTION Defendants further assert that their [o]peneness [a]bout [t]heir [b]illing [p]ractices [p]recludes a [f]inding of [both] --

9 #: Filed //0 Page of Page ID 0 0 [f]alsity and [k]nowledge. Mot. :- (emphasis added. Again, however, neither assertion is correct. A. Government Knowledge Does Not Preclude Falsity Defendants argument regarding the falsity element of an FCA violation is incorrect, because the government s possession of information regarding a defendant s alleged FCA violations is not relevant to whether a claim is false under the FCA. See Bourseau, F.d at (... courts decide whether a claim is false or fraudulent by determining whether a defendant s representations are accurate in light of applicable law. [Citation omitted]. Applicable law is subject to judicial interpretation.. As an obvious example, if a government official detects that a claim is false and withholds payment from a defendant, the claim is still false, even though the government has avoided being damaged. See also United States ex rel. Butler v. Hughes Helicopter, Inc., F.d, (th Cir. (since the amendments to the FCA, government knowledge is no longer an automatic bar to suit... ; United States ex rel. Hagood v. Sonoma County Water Agency, F.d, (th Cir. ( That the relevant government officials know of the falsity is not in itself a defense.. B. Government Knowledge Does Not Invariably Preclude Scienter Evidence of government knowledge can be relevant to whether a defendant submitted claims with the requisite scienter, but only if the evidence shows that:! the government was aware that the defendant had engaged in the conduct or practice at issue;! the government communicated to the defendant the --

10 #: Filed //0 Page 0 of Page ID 0 0 government s agreement with or assent to the conduct or practice; and! in reliance on the government s agreement or assent, and without acting recklessly or with deliberate ignorance, the defendant in good faith concluded that its conduct or practice was proper and that the claims it thereafter submitted were not false. Accordingly, in assessing defendants argument, the Court should determine whether the factual allegations before the Court (construed in the light most favorable to the relator compel the conclusion that, in good faith and without recklessness or deliberate ignorance, defendants concluded that their billing conduct was proper based on CDHS prior approval of or assent to that conduct. While the government currently takes no position on that question, the government notes that ( at least some of the facts before the Court seem to suggest that, at least on certain occasions, CDHS communicated to defendants its disapproval of defendants billing practices (see, e.g., First Amended Complaint, Exs. a, b,, and ( it appears that there are no facts before the Court showing good faith reliance by defendants on any of CDHS communications with defendants. // // Because government knowledge is relevant to scienter but not falsity, government knowledge cannot preclude FCA liability absent proof that the defendant concluded, in good faith and nonrecklessly, that its conduct was proper based on its belief that the government had approved its conduct. See, e.g., Butler, F.d at (government knowledge can be relevant to scienter; Parsons, F.d at (falsity depends on the court s assessment of whether the defendant s representations were accurate in light of applicable law as determined by the court. --

11 #: Filed //0 Page of Page ID IV. CONCLUSION The United States of America respectfully requests that the Court consider the foregoing points and authorities when ruling on defendants Motion for Judgment on the Pleadings. 0 0 Dated: December, 00 Respectfully submitted, ANDRÉ BIROTTE JR. United States Attorney LEON W. WEIDMAN Chief, Civil Division GARY PLESSMAN Chief, Civil Fraud Section /S/ - David K. Barrett DAVID K. BARRETT Attorneys for the United States of America -0-