DOJ Fraud Lawsuit Against State Research Hospital Expelled

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By Eric Topor

A state university in Oregon is an “arm of the state” and immune from False Claims Act liability even in lawsuits brought by the federal government ( United States ex rel. Doughty v. Or. Health & Scis. Univ. , 2017 BL 118712, D. Or., No. 3:13-cv-1306, 4/11/17 ).

The U.S. District Court for the District of Oregon April 11 dismissed FCA allegations filed by the Department of Justice against Oregon Health and Sciences University, a public corporation created by Oregon. The court said the university, which was facing allegations that it falsely inflated facilities costs and fees related to primate research to get higher government grants, is a state entity that couldn’t be sued in federal court.

Judge Anna J. Brown said U.S. Supreme Court precedent establishing state immunity from FCA liability didn’t include a carve-out for actions in which the DOJ intervened, which was what had happened in the case. The ruling, if followed by other courts, could signal that state university hospitals, research institutions and other state entities involved in health-care delivery are heavily shielded from FCA prosecution.

Stacy C. Gerber Ward, a shareholder at von Briesen & Roper SC in Milwaukee, saw some significance in the court’s ruling that the DOJ had no more authority to bring FCA allegations against a state entity than a private whistle-blower. Gerber Ward told Bloomberg BNA April 13 Brown’s ruling “will make it more difficult for the government to make that argument in the future.”

Bloomberg BNA contacted counsel for the DOJ, the original whistle-blower and the university for comment on the decision but didn’t receive responses.

Arm of the State

The DOJ explicitly argued in its complaint that the university “is not a state agency or an arm of the state of Oregon” entitled to assert the state’s immunity. The agency further argued that the usual arm of the state FCA immunity didn’t apply when the federal government itself, rather than a private whistle-blower, was alleging FCA claims.

Gerber Ward, a former DOJ prosecutor and now leader of von Briesen’s government enforcement and corporate investigations practice, said the court’s ruling wasn’t necessarily a signal that any state agency or entity is immune from FCA liability, because the arm of the state determination “is a very fact-specific analysis.” Gerber Ward noted that the DOJ cited a number of cases in which state universities weren’t found to be state entities for FCA purposes.

Brown said the test for arm of the state status under the court’s jurisdiction “mirrors the test for whether an entity is entitled to sovereign immunity under the Eleventh Amendment.” Brown followed several prior federal court decisions which held the university to be an arm of the state because it performs state functions, exercises government power, is subject to state control and is ultimately accountable to the state.

DOJ Position Not Superior

Brown also rejected the DOJ’s position as being different from a private whistle-blower when an FCA defendant is deemed an arm of the state. Brown said the U.S. Supreme Court in Vt. Agency of Natural Res. v. U.S. ex rel. Stevens, 529 U.S. 765 (U.S. 2000) was clear that a state or state agency wasn’t a “person” under the FCA and isn’t subject to FCA liability, though Stevens didn’t involve DOJ intervention.

Jesse A. Witten told Bloomberg BNA April 12 that, ever since the Stevens ruling, “the DOJ has taken the position that a state entity is not a ‘person’ under the FCA when it does not intervene but is a ‘person’ when it does.”

Witten said the “DOJ position on this point does not make sense,” and that he wasn’t surprised that the court ruled against the government. Witten is a partner at Drinker Biddle & Reath in Washington who specializes in health-care fraud defense.

The U.S. Attorneys office for the District of Oregon represented the DOJ. Elizabeth Farrell in Portland, Ore., and Crispin Employment Lawyers represented the whistle-blower. Hogan Lovells US LLP and Garvey Schubert Barer represented the university.

To contact the reporter on this story: Eric Topor in Washington at etopor@bna.com

To contact the editor responsible for this story: Peyton Sturges at psturges@bna.com

For More Information

The opinion is at http://src.bna.com/nRy.

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