In United States ex rel. Bidani v. Lewis, the Northern District of Illinois held recently that a defendant may defeat False Claims Act ("FCA") liability by showing that the actions at issue were taken in accordance with the advice of a competent attorney.  The Court premised its holding on its finding that the defendant acted in good faith reliance on the advice of his counsel, thereby defeating any claim that the defendant had actual knowledge or acted in reckless disregard or deliberate ignorance of the truth or falsity of the claim submitted.

The advice of counsel defense is an oft argued, seldom successful defense utilized to refute or negate scienter in knowledge- or intent-based crimes.  A defendant seeks to establish that he was acting in good faith by proving that an attorney advised him that his contemplated actions were appropriate or lawful.

The advice of counsel defense is useful in negating bad faith or providing mitigating evidence of good faith in statutes requiring intent to defraud.  However, when a defendant's intent is not an element of the offense, the advice of counsel defense generally is not useful.  

A violation of the FCA occurs when a person 1) knowingly presents or causes to be presented  2) a false or fraudulent 3) record, statement or claim 4) for payment or approval to the United States government.  Section 3729 of the FCA states that "knowingly" means that with respect to the information in question, a person 1) has actual knowledge, 2) acts in deliberate ignorance of the truth or falsity of the information, or 3) acts in reckless disregard of the truth or falsity of the information.

Lewis was a nephrologist who owned two companies--American Medical Supply Corporation ("AMS"), a company that supplied home dialysis supplies, as well as Circle Medical Management Corporation ("CMM"), a dialysis facility.  Lewis's home dialysis patients received dialysis supplies through AMS where reimbursement rates were higher than CMM's reimbursement rates for those supplies because of the methodology used to reimburse dialysis suppliers as compared to dialysis facilities.  The relator, Bidani (Lewis's former employee), alleged multiple violations of federal law, including the FCA.   

One alleged FCA violation was based upon Lewis's common ownership of both AMS and CMM.  The relator alleged that Lewis violated the FCA, by illegally referring patients to AMS while he was the owner of AMS and CMM.  The court had ruled in a prior proceeding that a dialysis facility could not seek reimbursement under the more lucrative reimbursement rate and that this prohibition extended to a dialysis supplier which was wholly owned by the same person who owned the dialysis facility and utilized the same corporate space and employees.

Lewis claimed that he could not have violated the FCA through is common ownership of AMS and CMM because he did not know or have reason to know that the arrangement violated any laws.  In fact, Lewis contended that he had a good faith belief that the arrangement was proper because he had sought legal advice, had been advised by and had followed the instructions of his attorneys on corporate formation and reimbursement issues. 

The court first dealt with Lewis's lack of knowledge assertion based on the advice of counsel defense.  To successfully argue an advice of counsel defense, the defendant must show that 1) before he took any action, 2) the defendant sought legal advice in good faith from a competent attorney, 3) for the purpose of determining the legality of future conduct, and 4) disclosed all material facts that he knew, after which he 5) strictly followed the advice of his counsel.

The court examined all of the communications between Lewis and his attorneys, as well as the relevant statutes and regulations for the time period of the alleged violation.  The court found that Lewis's attorneys had continually advised Lewis throughout the course of several years that his operations were lawful.  The Court also found it noteworthy that when the attorneys advised Lewis that a new statute would make common ownership of the two entities illegal, Lewis ceased the operations of one of the entities before the new statute went into effect.  Finally, the court found that Lewis followed his attorneys' advice.  Therefore, the court reasoned that during the "only reasonable inference" that could be drawn from the evidence was that Lewis had no actual knowledge that his common ownership of AMS and CMM was illegal.  The court also stated that it could not be inferred from the evidence that Lewis had acted with deliberate ignorance or with reckless disregard of the truth. 

Upon finding that Lewis' good faith reliance on the advice of counsel precluded the relator from establishing the knowledge element of an FCA violation, the Court granted Lewis' motion for summary judgment.

The Courts holding in Bidani demonstrates that an advice of counsel defense may help defeat an alleged FCA violation in the case of a health care providerCor other FCA defendant-who in good faith sought legal counsel from a competent attorney before initiating an action, who disclosed all material facts to his attorney and who followed the advice of his counsel.  It also represents one of the few cases where this defense has been asserted in a FCA action. (ELH)