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False Claims Act Cases Based on Fraudulent Inducement

By Joy Clairmont

Liability under the False Claims Act (“FCA”) for fraud in the inducement is established when eligibility to receive funds under a government program was procured by misstatements or other misleading actions.  Courts have repeatedly held fraudulent inducement is a viable theory of liability under the FCA.  See United States ex rel. Miller v. Weston Educ., Inc., 840 F.3d 494, 498 (8th Cir. 2016) (citations omitted); In re Baycol Prods. Litig., 732 F.3d 869, 876 (8th Cir. 2013).  In these whistleblower cases, “FCA liability attaches to ‘each claim submitted to the government under a contract so long as the original contract was obtained through false statements or fraudulent conduct.” See United States ex rel. Miller v. Weston Educ., Inc., 840 F.3d 494, 498 (8th Cir. 2016) (citations omitted).

It is well established that fraud at the outset of a series of dealings with the government can render all subsequent claims false under the FCA.  See S. Rep. No. 99-345, at 9, reprinted in 1986 U.S.C.C.A.N. at 5274 (“each and every claim submitted under a contract, loan guarantee, or other agreement with was originally obtained by means of false statements or other corrupt or fraudulent conduct . . . constitutes a false claim”).

Fraudulent Inducement Qui Tam Case Examples

The fraudulent inducement theory has been used in FCA cases with regard to fraudulently inducing a variety of different government agencies’ actions:  the Department of Defense to enter into contracts for the purchase of a drug, see In re Baycol Prods. Litig., 732 F.3d 869, 876 (8th Cir. 2013); the Department of Education to obtain federal subsidies, United States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166 (9th Cir. 2006); and the Department of Energy for the award of a subcontract, Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 786-87 (4th Cir. 1999).

In the 8th Circuit case of United States ex rel. Miller v. Weston Educ., Inc., 840 F.3d 494, 498 (8th Cir. 2016), relators allege that a college fraudulently induced the Department of Education to provide funding by falsely promising to keep accurate grade and attendance records.  The Miller court found that defendant’s promise to keep accurate grade and attendance records influenced the government’s decision to provide funding and denied defendant’s motion to dismiss. Id. at 503.

Fraud-on-the-FDA under the False Claims Act

In addition, the theory had been relied on to support FCA liability for fraud-on-the-FDA.  Courts have found FCA violations based on defrauding the FDA. See United States ex rel. Brown and Vezeau v. Pfizer, Inc., 2016 WL 807363, *8-10 (E.D. Pa. 2016) (relator’s allegations that defendant submitted a false and misleading application to the FDA were upheld as sufficient under the False Claims Act); United States ex rel. Krahling v. Merck & Co., Inc., 2014 WL 4407969, *6-7 (E.D. Pa 2014) (denying defendant’s motion to dismiss relator’s FCA case alleging fraud-on-the-FDA related to the efficacy of its mumps vaccine); Krahling, Statement of Interest from the United States Department of Justice (“the False Claims Act expressly authorizes private citizens to bring suits on behalf of the Government, and carving out an exception for suits arising from allegations of fraud on the FDA or conduct in violation of FDA regulations is not supported by the statutory text or case law and is inconsistent with the purposes of the False Claims Act”).

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