Crowell & Moring Partner Michael Shaheen on the False Claims Act

Michael Shaheen is one of a handful of Justice Department attorneys who has taken a False Claims Act case to trial.

Michael Shaheen
Crowell & Moring
Washington, D.C.

Shaheen spent the last six years at the Justice Department Civil Fraud Section working False Claims Act cases.

In July, he left the Department to become a partner at Crowell & Moring in Washington, D.C.

Describe the interplay between Justice Department attorneys and relators’ counsel. And who generally is in the driver’s seat?

“The federal government is in the driver’s seat,” Shaheen told Corporate Crime Reporter in an interview last week. “It is the federal government’s claim to pursue how it sees fit. The relator files the complaint. And that’s it for their participation for the time being. The Department takes over. The Department runs the investigation, sometimes with the help of relators’ counsel, but not always. And then the Department makes a decision as to whether or not it wants to dismiss and essentially kill the case in its entirety, or not intervene and let the relator take over the litigation. Or the government intervenes and maintains control of the litigation going forward. Those are the three options. It’s only the second option where relator and relator’s counsel take back control of the case after the case is filed the initial complaint.”

“There is a very collegial relationship between Department attorneys and relators’ counsel. Often we work together but sometimes personalities clash. That can happen too. But generally speaking, everyone knows that the Department is going to be the lead dog until they say otherwise.”

You have gotten to know the players on both sides fairly well. What kind of advantage does that give you now that you are in private practice?

“I like to think it does give me an advantage. There are not many civil fraud attorneys who have taken a case to trial. I manage to be one of those. I have seen the process from beginning to end. Through that, I have insight into how the Department will investigate, litigate and fight an appeal. I have a key understanding of relators’ counsel and their roles in the investigation and litigation phase of a case. And I’ve obviously sat across from a whole host of defense counsel and have seen how they choose to defend against these cases.”

“I have a perspective from all three sides.”

What was the case you took to trial?

“It was a case out of South Carolina. It was a case involving the anti-kickback statute. It was a lab case. This was the very first case that was put on my desk when I arrived at the Department. It was brought through qui tam relators. The relators alleged that several labs were paying illegal kickbacks in the form of processing and handling fees to physicians in exchange for physicians referring blood samples back to the labs.” 

“A marketer or a sales rep would reach out to a physician. They would often target small family physicians in rural communities. They would say – look, if you refer all of your blood samples to this lab, the lab will pay you a $20 processing and handling fee. That was the arrangement. Everyone acknowledged that that was the arrangement. The physician would get $20 for every referral back to the lab.”

“We initially settled with many of the labs. But there were some individuals who did not settle with the Department. And we went to trial in South Carolina against the CEO of one of the labs and the two CEOs of the independent marketing firm that represented the labs. And we were successful. We secured a $117 million judgment. The defendants appealed. And I left before the appellate process finished.”

Going to trial in false claims cases is extraordinarily rare. That was an outlier. Most of the cases settle. Give us some insight into the settlement process.

“The False Claims Act and the Anti-Kickback Statute are enormous hammers. Objective players will want to settle. The stakes are so significant and large that both parties are incentivized to settle. Much more often than not, parties will settle.” 

“In the South Carolina case, individuals had taken a significant amount of money related to the alleged fraud. We were going to take all of their money either way. So they were incentivized to roll the dice. Whereas a large corporation has a different set of incentive structures. The Department of Justice is not going to take all of the money from a Fortune 500 corporation. The stakes are very different for a large corporation compared to an individual.”

Can you think of a large corporation that has taken the Department to trial in a False Claims Act case?

“Crowell has represented several of them. MWI was one. Lockheed Martin was one. In both instances, Crowell & Moring successfully defended those companies against the Department of Justice. There are times when it happens. It makes it all the way through trial and through the appellate process. But it has been an anomaly for sure. In the last three or four years while I was at the Department of Justice, I can think of only a handful of cases that went to trial. And of those cases, none of them involved large corporations.”

False Claims Act cases can be brought through Main Justice or through the U.S. Attorneys offices. Some of the more aggressive False Claims Act offices have been in Boston and Philadelphia. Any others?

“I worked with talented people across the country. I went to school at Vanderbilt. I had friends in the Deep South. When I arrived at the Department, I was given an option of taking cases in specific regions. And I took the Deep South. There weren’t many other takers, so I got a lot of Deep South cases. And I ended up working with many talented Assistant U.S. Attorneys in North Carolina, South Carolina, Florida, Texas.” 

“The Southern District of New York runs its own shop, so the Civil Fraud Section doesn’t have a ton of work with them. I didn’t work with the Pennsylvania or Massachusetts offices.”

People say that Philadelphia and Boston are major drivers of False Claims Act cases.

“That’s true, as is the Southern District of New York and the Eastern District of New York – Florida and Texas also. I did a lot of work in Florida. There are a lot of drivers outside of Pennsylvania, New York and Massachusetts. I would include Florida and Texas in that list of states that have a significant share of False Claims Act work.”

Foreign Corrupt Practices Act (FCPA) cases are brought by Main Justice. Who decides whether a U.S. Attorney or Main Justice will take the lead in a False Claims Act case?

“It’s driven by the amount at stake. There is guidance within the Department about the size of the claim that dictates whether it will go to the U.S. Attorney or whether Civil Frauds will work it.”

Is there a minimum dollar amount necessary before the Department will investigate?

“No. Once the claim is filed by relators in federal court, the Department is going to run it to ground one way or another.”

What part of your prosecutorial experience comes to play in defending large corporations?

“I have insight into relators’ counsel, government counsel and defense counsel. I have good relationships with the Civil Fraud Section attorneys and many Assistant U.S. Attorneys around the country. I have a good sense of the decisions they will make, the leverage points that exist. I have seen the process from the beginning of a case up to the appellate process. I have an understanding of what everyone is going to do in that process and what vulnerabilities exist at each of those stages.” 

“I was part of over sixty investigations at the Department. The skills there expand beyond the False Claims Act context. Running an investigation can apply in the FCPA context, the internal investigation context. My experience and relationship and calling card is in the False Claims Act context, but the skills that I have developed expand beyond just the False Claims Act.”

It used to be said that if the government declines to join a case, the odds are long that qui tam relator counsel could bring a successful case. But many qui tam relator counsel now say the ground has shifted in their favor even when the government declines to intervene.

“If I were relators’ counsel, and I had filed a complaint and the government investigated it for months or years and decided to decline, that would not be a happy day for me. If I were a defense counsel, and I am now a defense counsel, and I am representing a client who is a target of a False Claims Act investigation and we defend for months or years and learn that the government has declined to intervene, that is a very good day for me. Champagne may get popped that day.” 

“That doesn’t mean the case is over. And relators’ counsel are very good and competent. And there are instances where they have taken cases to trial and won. Nevertheless, it is a good day if you are defense counsel and the government has declined to intervene.”

[For the complete q/a format Interview with Michael Shaheen, see 34 Corporate Crime Reporter 34(13), Monday September 7, 2020, print edition only.]

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