In the March 26, 2026 edition of The Legal Intelligencer, Edward Kang and Kandis Kovalsky co-authored, “Taking a Plaintiff’s Case to the Next Level, Part II: It Does Not Always Take Two—Why Naming Individuals as Defendants Is Not Always the Best Strategy.”

In the February 19, 2026 edition of The Legal Intelligencer, Edward Kang and Kandis Kovalsky co-authored, “Taking a Plaintiff’s Case to the Next Level: Holding Individuals Liable Under Pennsylvania Law.”

For plaintiffs counsel, winning a verdict against a corporate entity is often only the opening act. The real contest begins post-judgment, when the defendant reveals itself to be a shell: a defunct LLC, a dissolved partnership, or a corporation with nominal assets. The plaintiff, having prevailed on liability, is left holding a judgment that is legally pristine but could be practically worthless.

This outcome is avoidable. Strategic practitioners do not need to treat entity liability as the finish line; they may treat it as a starting point. Holding individual owners or officers personally liable—whether as partners, corporate actors, alter egos, or signatories—fundamentally alters the litigation landscape. It expands the pool of recoverable assets, concentrates the minds of defense counsel, and aligns the case with the core purpose of civil liability: meaningful accountability against wrongdoers.

Why Individual Liability Matters

The pursuit of individual liability is not a secondary consideration; it is a force multiplier for three distinct reasons.

First, individual exposure changes behavior. A corporate entity, insulated by limited liability and defense counsel, often litigates with strategic detachment. An individual whose personal assets, reputation, and future earnings are at risk does not. Cases involving individual defendants often settle differently—earlier, at higher values, and with fewer procedural hurdles. Personal risk concentrates attention in ways that corporate liability rarely does.

Second, the assets often reside with the individuals. Commercial general liability policies carry limits and exclusions. Directors and officers (D&O) policies, by contrast, frequently provide broader coverage that follows the individual, not the entity. A dissolved corporation cannot respond to a judgment; a former officer with a D&O tail policy can. General partners remain personally liable for partnership obligations—a fact often forfeited when plaintiffs name only the partnership in the complaint.

Third, accountability is the product. The Department of Justice’s 2015 Yates Memo recognized that corporate enforcement is incomplete when it stops at the entity level. Civil plaintiffs experience this reality firsthand. A family suing a nursing home chain is not made whole by a judgment against a corporate shell. They seek accountability from the individuals who made the decisions that caused the harm. That impulse is not merely human—it is legally and strategically sound.

Direct Liability Under Pennsylvania Statutes

It is well known that general partners are jointly liable for the debts of a partnership. This most straightforward path to individual liability is often statutory—and frequently overlooked at the pleading stage. Under the Pennsylvania Uniform Partnership Act, a judgment against a partnership is not, by itself, a judgment against any individual partner. See 15 Pa.C.S. Section 8437. Pennsylvania Rule of Civil Procedure 2132 reinforces this principle: a judgment entered against a partnership sued only in its firm name supports execution only against partnership property. To reach a partner’s individual assets, the partner must be named and served in the lawsuit.

The same logic applies to limited partnerships, under 15 Pa.C.S. Section 8645. General partners are jointly and severally liable for partnership obligations, but only if they are properly joined. A judgment against the limited partnership alone does not reach them. This is not a substantive limitation on liability; it is a pleading requirement. Plaintiffs who fail to name individual partners at the outset may forfeit the ability to collect from them entirely.

The lesson is elementary: name the partners when warranted. The cost of doing so is negligible; the cost of failing to do so can be fatal to recovery.

Participation Theory: Liability Through Conduct

Beyond statutory partnership liability, Pennsylvania recognizes a common-law doctrine that imposes individual liability on corporate officers and directors based on their personal involvement in tortious conduct. This is the participation theory, articulated most clearly in the Pennsylvania Supreme Court case Wicks v. Milzoco Builders, 470 A.2d 86 (Pa. 1983). Under Wicks, a corporate officer is individually liable for torts committed in the course of employment if the officer personally participated in the wrongful conduct or directed it to occur. See our earlier article on this topic, here.

Participation theory is not veil-piercing. It does not require proof of fraud, undercapitalization, or disregard of corporate formalities. It does not attack the corporate structure. Instead, it reflects a bedrock principle: individuals remain liable for their own torts, even when acting on behalf of a corporation.

But the doctrine has limits. Alleging that a defendant held a corporate title or signed a document is insufficient. Plaintiffs must plead specific facts demonstrating personal involvement: directing the conduct, approving the scheme, making the misrepresentation, or physically engaging in the wrongful act. Courts are skeptical of boilerplate allegations of “participation.” Overreaching invites dismissal and damages credibility.

Participation theory applies only to individuals, not affiliated entities. To reach parent companies or sister corporations, plaintiffs must turn to other doctrines, such as alter ego or enterprise liability.

Contractual Liability: The Signatory Problem

In contract cases, the path to individual liability is narrower and more nuanced. The general rule is familiar: an agent who signs a contract on behalf of a disclosed principal is not personally liable on that contract (unless the agent specifically agrees to assume liability). See Vernon D. Cox & Co. v. Giles, 406 A.2d 1107, 1110 (Pa. Super. 1979). But the exceptions are where cases are won or lost.

One common exception arises from ambiguity. If a contract does not clearly indicate the signatory’s representative capacity, parol evidence may be admissible to determine whether the parties intended individual liability. See Trenton Trust v. Klausman, 296 A.2d 275, 277 (Pa. Super. 1972). Ambiguous signature blocks, inconsistent use of letterhead, or vague agency language can expose individuals to personal liability. See Hazer v. Zabala, 26 A.3d 1166, 1170 (Pa. Super. 2011).

Another fertile theory is misrepresentation of authority. An agent who warrants they have authority to bind a principal—but does not—may be personally liable for breach of warranty of authority. See Kribbs v. Jackson, 129 A.2d 490, 496 (Pa. 1957) Similarly, an individual who makes material misrepresentations to induce a contract may face tort liability for fraudulent inducement, even if the contract itself binds only the entity. See Felix v. Fraternal Order of Police, Philadelphia Lodge No. 5, 759 A.2d 34, 39 (Pa. Commw. Ct. 2000).

These theories should be explored early. Discovery into the signatory’s knowledge, the entity’s financial condition at the time of contracting, and the parties’ communications can reveal evidence of individual intent and responsibility. In the right case, contractual individual liability is not ancillary; it is central.

Alter Ego and Piercing the Corporate Veil

The most demanding—and most powerful—path to individual liability is veil piercing. Pennsylvania law requires a showing that the corporation was a mere alter ego or business conduit of the individual and that respecting the corporate form would sanction fraud, illegality, or fundamental unfairness. Put simply, veil-piercing is most viable when someone uses a corporate form to perpetrate fraud.

Unlike participation theory, veil piercing attacks the corporate structure itself. It can also extend beyond individuals to affiliated entities under enterprise liability theories. In Mortimer v. McCool, 255 A.3d 261 (Pa. 2021), the Pennsylvania Supreme Court recognized the viability of enterprise liability while declining to apply it on the facts. More recently, in Dewberry Group v. Dewberry Engineers, 604 U.S. 321 (2025), the U.S. Supreme Court reaffirmed the presumption of corporate separateness but left room for traditional veil piercing and equitable adjustments where corporate forms obscure economic reality. See our latest article on this topic, here.

These decisions offer both caution and opportunity. Courts will not disregard corporate form lightly, but they remain receptive to well-supported claims involving commingling, asset shifting, undercapitalization, and artificial inter-company transactions. Discovery into inter-company transfers, pricing practices, and the use of shell entities can provide the factual foundation necessary to overcome the presumption of separateness.

As a practical matter, veil piercing should rarely be pled in an initial complaint. The necessary facts are almost never available pre-discovery, and premature allegations risk early dismissal under Pennsylvania’s fact-pleading standards, and potentially, a loss of credibility with the court. A more effective strategy is to plead viable individual claims under participation theory and statutory liability, then develop the evidentiary record to support alter ego claims as the case progresses.

Choosing the Right Theory

Each individual liability doctrine serves a distinct function, and understanding their interplay is critical to effective case management.

• Partnership liability is mandatory, not discretionary. Name the partners.
• Participation theory is the primary tool for holding officers and managers accountable for their own tortious conduct.
• Contractual liability theories apply where ambiguity, misrepresentation, or extra-contractual conduct creates individual exposure.
• Veil piercing and enterprise liability are reserved for cases involving manipulation of corporate form to evade responsibility or to perpetuate fraud.

Used together, these doctrines transform litigation strategy. They expand the defendant pool, increase settlement leverage, and protect plaintiffs from the all-too-common scenario of winning on liability but losing on collectability.

Conclusion

The shift from entity liability to individual accountability is not merely tactical; it reflects the economic realities of modern commerce. Corporate entities can be created, dissolved, and restructured with ease. Individuals endure. They hold assets, carry insurance and bear responsibility for their conduct. On many occasions, individuals are the wrongdoers.

Plaintiffs who treat the corporate defendant as the endpoint of litigation will continue to obtain judgments against shell companies and wonder why their clients remain uncompensated. Plaintiffs who integrate individual liability into their strategy from the outset—by naming partners, pleading participation, scrutinizing contractual authority, and preserving alter ego theories—are likely to recover more. They will fulfill the fundamental promise of civil law: that wrongdoing leads to meaningful accountability, not empty judgments.

Edward T. Kang is the managing member of Kang Haggerty. He devotes the majority of his practice to business litigation and other litigation involving business entities. Contact him at ekang@kanghaggerty.com.

Kandis L. Kovalsky, a member with the firm, focuses her practice on a broad range of high stakes business-related civil litigation in Pennsylvania, New Jersey, and New York state and federal courts and arbitral tribunals, and representing relators in high stakes qui tam actions filed under the federal and state False Claims Acts. Contact her at kkovalsky@kanghaggerty.com. 

Reprinted with permission from the February 19, 2026 edition of “The Legal Intelligencer” © 2026 ALM Global, LLC. All rights reserved. Further duplication without permission is prohibited. Request academic re-use from www.copyright.com. All other uses, submit a request to asset-and-logo-licensing@alm.com. For more information visit Asset & Logo Licensing.

In the October 23, 2025 edition of The Legal Intelligencer, Edward T. Kang and Kandis L. Kovalsky co-authored, “The False Claims Act (FCA) can be a powerful tool to protect veteran health care in the wake of an uptick in private equity’s participation in the sector, in that it is now well-established that private equity companies and their principals can be held liable under the FCA.”

On Sept. 9, 2025, we had the great honor, along with our colleague Jacklyn DeMar, the chief executive officer of The Antifraud Coalition (TAF), of participating in a roundtable meeting at the U.S. House of Representatives Committee on Veterans’ Affairs at the invitation of the Honorable Mark Takano, the Ranking Member of the Committee. The roundtable, titled “Profit Over Quality: Examining the Effects of Private Equity on Veteran Healthcare,” was specifically focused on private equity’s role in the demise of health care for veterans. We discussed with Reps. Mark Takano and Jullia Brownley how the False Claims Act (FCA) can be a powerful tool to protect veteran health care in the wake of an uptick in private equity’s participation in the sector, in that it is now well-established that private equity companies and their principals can be held liable under the FCA.

Under the FCA, a whistleblower, called a “relator,” can file an action for violations of the FCA in federal court on behalf of the U.S. government; this is known as a qui tam action. The FCA requires that the action must be filed under seal and remain sealed for 60 days, during which time the government can investigate the reported fraud and misconduct. The reality is that the seal period in qui tam actions is usually extended many times, and it is not uncommon for the investigations to take several years. Oftentimes, litigation follows the investigation, which can take another few years, and sometimes more. The recent monumental case of Penelow v. Janssen Products, out of the U.S. District Court for the District of New Jersey, which resulted in a $1.64 billion judgment, is a good example. This case was filed in 2012, yet a judgment was not obtained until 2025—13 years later.

We explained to Ranking Member Takano and other members of Congress that to disincentivize private equity companies from participating in fraud on the government, the investigations in qui tam actions must move much quicker than they do now. The speed of the investigation regarding any private equity defendant is critical. This is because, generally, private equity companies exit their portfolio companies within three to seven years, to align with the life cycle of their investment funds. Private equity firms do not typically have a large pot of money sitting in an operating account like other types of companies may. To be able to collect damages under the FCA against a private equity firm, there needs to be liquidity in the specific fund formed for the acquisition of the portfolio company at issue. In situations where qui tam actions, through investigation and litigation, are taking a case to a point where settlement or obtaining a judgment is occurring seven to 10 years after the private equity firm’s acquisition of the portfolio company, it can make it difficult to have any chance of collecting, unless individual liability can also be established. Even so, settlements based on individual liability will almost always be on an ability-to-pay basis (especially when the mandatory trebling of damages and statutory penalties are accounted for).

DeMar explained to Takano that one solution to this predicament is to increase resources and staffing to the civil departments within the Department of Justice that are responsible for investigating and prosecuting qui tam cases. Rep. Takano responded: “I am wondering if some of the members here, we might write a letter to DOJ about the staffing challenges. If we are looking for government efficiency and rooting out fraud, waste, and abuse, I think we have hit a pretty big vein here, and if we could redirect DOGE into things like this, I would hazard to guess what that amount of money would be.”

This is correct. Government fraud is rampant. According to the Government Accountability Office (GAO), the federal government loses between $233 billion and $521 billion annually to fraud, waste and improper payments. Since 2003, federal agencies have reported about $2.8 trillion in improper payments. In 2024, 16 agencies reported improper payment estimates that totaled $162 billion. Specific high-problem areas include government health care programs (Medicare, Medicaid, TRICARE) and government defense contracts. All these statistics directly correlate to taxpayers’ hard-earned money being effectively stolen. According to The Heritage Foundation, this pattern continues to contribute to a taxpayer burden that already exceeds more than $270,000 per household due to the $36 trillion in taxpayer debt.

In 2024, $2.9 billion was recovered under the FCA, 83% of which is attributable to qui tam suits. Since the enactment of Sen. Chuck Grassley’s 1986 reforms to the FCA, FCA actions have returned $78 billion to the taxpayers, with more than 70% of this amount being because of qui tam actions (and the remainder being from FCA actions filed directly by the government). These cases also have a strong deterrent on future fraud, estimated to be in the many billions.

While we were at the U.S. House of Representatives, discussing how to better use FCA to fight fraud, others sought to dismantle its very existence.

On Sept. 10, 2025, an article was published here in The Legal Intelligencer titled “Historical Patterns Cannot Justify Contemporary Violations of Constitutional Guarantees—Renewed Constitutional Attacks on FCA Qui Tam Provisions.” The authors of this article argued that “this is a pivotal moment for defendants to raise and preserve constitutional challenges to qui tam actions.” The article summarizes two court opinions from Judge Kathryn Kimball Mizelle, from the U.S. District Court for the Middle District of Florida, and one concurrence from Judge Stuart Kyle Duncan, from the U.S. Court of Appeals for the Fifth Circuit, in which these judges held that the FCA’s qui tam allowance violates Article II of the Constitution.

The FCA, also known as “Lincoln’s Law, was passed in 1863, during the Civil War. It was passed in response to war profiteers who defrauded the Union Army. The FCA has been good law for 162 years. So, why is there a push to change the law now? More importantly, why is this something defense lawyers would want and celebrate? If the FCA is ruled unconstitutional, the taxpayers will be saddled with billions more in debt each year while fraudsters profit from them, and the government will be left much more powerless to do anything about it. Further, holding the qui tam mechanism of the FCA statute as unconstitutional would not preserve or advance the interests of the Constitution; in fact, it would do the opposite and undermine many decades of precedent.

The constitutionality of the qui tam mechanism has been challenged many times before, and every circuit to consider the issue, including the Second, Fifth, Sixth, Seventh, Ninth, and Tenth Circuits, has held, in decisions ranging from 1993 to 2002, that the qui tam provision is in accordance with the Constitutional separation of powers. This aspiration to dismantle the FCA began with a 2023 dissent by Justice Clarence Thomas, who has authored many FCA opinions since his tenure on the high court began in 1991 without raising this issue, including the infamous Escobar decision in 2016.

In 2023, in the case of Polansky v. Executive Health Resources, Thomas disagreed with the eight-Justice majority, which held that the government has broad discretion to seek dismissal of relators’ qui tam actions. Justice Thomas went further, though, in arguing that the qui tam function of the FCA violates Article II of the Constitution. In his flawed opinion, representation of the United States’ interests is an executive function conferred only to the president and individuals appointed as officers of the United States under Article 2, the appointments clause.

Shortly thereafter, Judge Mizelle, who clerked for Justice Thomas in 2018 and 2019, reached the same flawed conclusion in Zafirov v. Florida Medical Associates. The Eleventh Circuit’s decision in this case will be a defining moment for the FCA. If the court rules in favor of the appellants, it will be the seventh circuit to join the majority view that qui tam actions are constitutional. Suppose it rules in favor of the appellees. In that case, it will create a circuit split on the issue, and with not only Justice Thomas, but also Justices Brett Kavanaugh and Amy Coney Barrett itching to revisit this issue, it is somewhat unclear what the outcome would be.

Justice Thomas said last month that he does not view the high court’s prior rulings as “the gospel” and that any precedent that does not respect the U.S. Constitution or the country’s legal traditions is ripe for reconsideration. Justice Thomas’ attack on the constitutionality of qui tam actions seems to be a part of his larger philosophy to upend any precedent, no matter how longstanding, that he believes is violative of the Constitution. This approach undermines the public’s faith in the judiciary, which is already at an all-time low. In the case of the FCA, there appears to be no upside. More than 75% of the recoveries in FCA actions are from cases filed by whistleblowers. Simply put, the government does not have the resources to achieve what whistleblowers can in the FCA space. To dismantle qui tam actions would be bad for the public. And, for the reasons outlined in all the briefs filed on behalf of the appellants in the Zafirov appeal, particularly the amicus brief filed on behalf of Sen. Grassley, Justice Thomas, and Judges Mizelle and Duncan are wrong in their analysis.

For the sake of this country, let’s hope that the Eleventh Circuit does the right thing in the Zafirov appeal, that more resources can be allocated to the DOJ to fight fraud on the government, and that there can be a bipartisan approach in doing so under the FCA so that the government can recoup more of the billions of dollars that are siphoned off by fraudsters each year.

Edward T. Kang is the managing member of Kang Haggerty. He devotes the majority of his practice to business litigation and other litigation involving business entities. Contact him at ekang@kanghaggerty.com.

Kandis L. Kovalsky, a member with the firm, focuses her practice on a broad range of high stakes business-related civil litigation in Pennsylvania, New Jersey, and New York state and federal courts and arbitral tribunals, and representing relators in high stakes qui tam actions filed under the federal and state False Claims Acts.

Reprinted with permission from the October 23, 2025 edition of “The Legal Intelligencer” © 2025 ALM Global, LLC. All rights reserved. Further duplication without permission is prohibited. Request academic re-use from www.copyright.com. All other uses, submit a request to asset-and-logo-licensing@alm.com. For more information visit Asset & Logo Licensing.

In Show Me the Evidence: How Whistleblowers Can Obtain Information from the Federal Government Through Touhy Requests, Kovalsky breaks down what Touhy requests are, why they are useful, and what information to include in a request letter.

• What is a Touhy Request?
• Why are Touhy Requests Important?
• What Does a Touhy Request Look Like?
• Whistleblowing Healthcare Fraud? Don’t Forget About HIPAA!
• What Sort of Information Should be Included?

Learn more about Kang Haggerty’s qui tam practice at the Whistleblower Advocates.

In the July 6, 2023 Edition of The Legal Intelligencer, Edward T. Kang and Kandis L. Kovalsky co-authored, “Emerging ‘Securities’ Litigation in Cryptocurrency.“

Cryptocurrency has emerged as a revolutionary form of digital currency that has disrupted traditional financial systems and opened new possibilities for decentralized transactions. As the number of transactional options continues to grow, so does the risk for potential buyers, sellers, traders and investors. The world of cryptocurrency is complex and perpetually changing, creating a difficult landscape for financial agencies to oversee and regulate effectively.

The U.S. Securities and Exchange Commission (SEC) has repeatedly urged investors to take caution when considering an investment in cryptocurrency, pointing to the exceptionally volatile and speculative nature of the currencies (coins) and the lack of protections for investors in the cryptocurrency trading platforms. The SEC has explicitly stated that crypto trading platforms may not be complying with applicable federal securities law by allowing exchanges of coins that are not registered or exempt from registration with the SEC. Moreover, many crypto trading platforms have not registered as broker-dealers, investment advisers, alternative trading systems or exchanges subject to securities regulations. And many of these trading entities allow investors to “stake” their coins (the process of buying and holding coins with the goal of receiving interest). This practice may be subject to additional federal securities laws.

Two recent lawsuits filed by the SEC against crypto trading platforms, Binance and Coinbase, illustrate the ongoing struggle for tighter regulation of cryptocurrency trading. In filing these suits, the SEC alleges that the platforms have blatantly disregarded federal securities laws to enrich themselves with billions of dollars while placing investors’ assets at significant risk. To understand the nature of the pending lawsuits and the potential implications, it is necessary to have a brief understanding of the complex world of crypto trading.

Cryptocurrency transactions are managed through cryptographic proofs that are verified and recorded on a blockchain—an open ledger that records all transactions in code. Transactions are recorded in blocks that are linked together on a chain of past crypto transactions. By using a blockchain, cryptocurrency users have their own copy of the transaction ledger to create a unified record. Every transaction is logged and updated in the blockchain simultaneously, keeping all records accurate and identical. Each transaction is validated through a consensus mechanism—the process in which a group of computers on a network determines the validity of all blockchain activity.

Two major consensus mechanisms are used to verify transactions: proof of work (PoW) and proof of stake (PoS). PoW verifies transactions by using an algorithm to provide a complex mathematical problem that computers race to solve. Each participating computer, referred to as a miner, solves this mathematical puzzle to verify a group of transactions (a block) and adds them to the blockchain ledger. The first computer to solve the complex puzzle is rewarded with a small amount of cryptocurrency. For example, a Bitcoin miner receives 6.25 coins for each block it validates. Due to the complexity of the puzzles, PoW verification can require immense power and electricity to complete validation. As of this column, Bitcoin continues to use the PoW verification system.

In its claims against Binance in the District of Columbia and Coinbase in the Southern District of New York, the SEC alleges that these platforms merge three functions typically separated in traditional securities markets: brokers, exchanges and clearing agencies. Accordingly, the SEC alleges that because Binance and Coinbase failed to register with the SEC as brokers, national securities exchanges, or clearing agents, they have evaded the disclosure regime that Congress has established for securities markets. The purposeful efforts to evade U.S. regulatory oversight allowed the defendants to transfer investors’ crypto assets as they pleased, at times commingling and diverting them in ways that properly registered brokers, exchanges and clearing agencies would not have been able to do. The SEC alleges that these platforms have earned billions of dollars in revenue by collecting transaction fees from investors who have been deprived of the disclosures and protections that registration entails, exposing them to significant risk. These lawsuits illustrate the idea that Congress has already enacted legislation regulating securities, and the SEC is simply asking the courts to apply existing securities law to cryptocurrency.

The SEC believes the vast majority of cryptocurrencies are securities based on the Howey test, the framework used to determine if an asset is a security articulated in SEC v. W.J. Howey, 328 U.S. 293 (1946). In deciding Howey, the court set forth the relevant test for determining whether a crypto asset is part of an investment contract subject to regulation under securities laws. Under the Howey test, an investment contract exists when there is an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” This test applies to any contract, scheme, or transaction regardless of whether it has any of the characteristics of typical securities. The test’s analysis is not only on the form and terms of the asset itself but also on the circumstances surrounding the asset and how it is offered, sold, and resold. Entities engaged in marketing, offering, selling, reselling, or distributing any asset must analyze the relevant transactions to determine if federal securities laws apply.

In its suit against Coinbase, the SEC named 13 coins it deemed fit into the securities classification. These recent additions bring the growing list of crypto coins deemed securities to 55, totaling over $100 billion of the market. These pending suits mirror claims brought by the SEC against similar trading platforms earlier this year. Marc Fagel, former head of the SEC’s San Francisco regional office, has indicated that the Coinbase suit takes a broad look at the industry by asking if a coin in the secondary marketplace is a security covered by securities laws. “It’s a defining moment for the question ‘Is there something about crypto that is different from all of the securities, or is it going to be treated like any other?’” he questioned. The answer to these questions will likely impact everyone involved in the crypto market. The growing number of lawsuits against crypto trading platforms and Gensler’s statement regarding the status of all cryptocurrencies as securities indicate that these lawsuits are just the beginning of what will likely be future suits brought against crypto trading platforms for securities law violations. It is indicative of a future where crypto trading occurs under more stringent regulations and crypto trading platforms are required to follow all securities regulations and requirements.

A large part of cryptocurrency’s appeal is that it is mainly independent of intermediary entities and free from regulation by institutions like the SEC and the U.S. Department of the Treasury. The lack of oversight has allowed cryptocurrency to operate on a near-instantaneous basis among its many users without fear of outside intrusion. The recent actions taken by the SEC may dissuade potential investors, traders, stakers, and trading platforms from getting involved with cryptocurrency. The unclear landscape of the future of crypto assets looms over those who wish to get involved, and the pending litigation over the status of coins as securities likely mars what once made cryptocurrency alluring. With the pending litigation occurring in different districts, the possibility of a circuit split may add to this confusion and unease over the future of crypto. Without guidance from the court, such a circuit split could result in trading platforms redirecting their businesses to practice in areas where coins are not deemed securities. In the event of a circuit split, the future of cryptocurrency may become even more unclear than it currently stands.

Regardless of the outcome of the pending cases, the U.S. government has made a clear effort to implement tighter restrictions on crypto trading and hold exchange platforms responsible for protecting their users. Courts will likely be grappling with questions regarding cryptocurrency for years to come—with the results from the suits against Binance and Coinbase potentially serving as guiding precedent in answering those questions. Practitioners—both securities law lawyers and other litigators—should follow these developments closely as they are likely to be called upon to represent investors in cryptocurrencies in the near future.

Edward T. Kang is the managing member of Kang Haggerty. He devotes the majority of his practice to business litigation and other litigation involving business entities. Contact him at ekang@kanghaggerty.com.

Kandis L. Kovalsky, a member at the firm, focuses her practice on representing both corporate and individual clients in a broad range of complex commercial litigation matters in Pennsylvania and New Jersey state, federal and bankruptcy courts. Contact her at kkovalsky@kanghaggerty.com.

Reprinted with permission from the July 6, 2023 edition of “The Legal Intelligencer” © 2022 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

This grant of certiorari arises out of two Seventh Circuit cases in which the whistleblowers alleged that two companies who operate national pharmacies, Safeway and SuperValu, had defrauded the Federal Government for years by submitting false claims for reimbursement under Medicare and Medicaid. Proctor v. Safeway, 30 F.4th 455 (7th Cir. 2022); Schutte v. SuperValu, 9 F.4th 455 (7th Cir. 2021). The petitioners in both cases alleged that the two companies offered a significant discount in pricing to out-of-pocket Medicare and Medicaid patients at around $4.00 and then billed Medicare and Medicaid under a “usual and customary” price of around $108.00. Additionally, petitioners maintain that both companies knew about and supported efforts to conceal this practice. Albeit, recognizing the companies did overcharge Medicare and Medicaid, the Seventh Circuit used an “objective reasonable” standard articulated in Safeco Insurance Co. of America v. Burr, which states that an individual who acts under an incorrect legislative interpretation could not possibly have acted with knowledge or reckless disregard if their interpretation was “objectively reasonable” and there was no “authoritative guidance” explicitly cautioning against their interpretation. 551 U.S. 47 (2007). 

Medicare and Medicaid provide federal and state-funded health insurance to patients over 65 and low-income patients. Nonetheless, the Centers for Medicare and Medicaid have promulgated regulations that limit reimbursement to the lower of two amounts; one of which, is the provider’s “usual and customary” charge to the general public. According to petitioners, the “usual and customary” lower charge offered to the general public was never the amount reported to the programs by the defendant pharmacies, who instead reported their much higher retail cash prices. Petitioners further alleged and presented evidence that both companies knew their lower discounted prices should qualify as the “usual and customary” price but tried to conceal this price. 

The Supreme Court states that the FCA defines the term “knowingly” as three states of mind: 1) “has actual knowledge of the information”, 2) “acts in deliberate ignorance of the truth or falsity of the information”, and 3) “acts in reckless disregard of the truth or falsity of the information”. Any of these three mental states suffice to constitute scienter under the FCA. Justice Thomas further quoted Halo Electronics, Inc v. Pulse Electronics, Inc., stating, “[C]ulpability is generally measured against the knowledge of the actor at the time of the challenged conduct.” 579 U.S. 93, 105 (2016). The Court quotes Halo to highlight that the “knowing” standard should be evaluated in the present tense of the action. The Court concludes that the respondent’s assertion that they could not have acted “knowingly” because they could not have “known” what the phrase “usual and customary” actually meant, is not plausible. The Court states that in and of itself, the term may be ambiguous; however, the ambiguity doesn’t preclude the respondent from having knowledge of what it means or, at a minimum, being aware they risk misinterpreting the term. Applying this to the facts, respondents were provided notice and tried to hide their discounted prices. This shows they comprehended the notice or were at least aware of the high risk of their misinterpretation. Thus, the Court held that facial ambiguity does not preclude a finding of scienter. 

The respondents relied on the holding in Safeco, which defines the common law definitions of “knowing” and “reckless” by contemplating whether the reading of the statute was “objectively unreasonable”. Respondents further asserted that because the FCA has the same common law terms, it should be read with the same objective common law focus. Justice Thomas writes that this assertion fails because Safeco interprets the Fair Credit Reporting Act differently than the FCA, which applies a different mens rea (state of mind) standard of willfully rather than knowingly. Further, Safeco stated that a person is reckless “if he acts knowing or having reason to know of facts which could lead a reasonable man to realize” that his actions were substantially risky. This interpretation does not support the respondents’ argument. The Court concluded that it would not look to a legal interpretation that nullifies the respondent’s belief at the time they submitted their claims. 

Justice Thomas described the final argument as an approach from a different angle in which respondents allege that under common law, misrepresentations of law are not actionable, and because the FCA incorporates the common law of fraud, the same limitation should be upheld. Respondents claim that because they correctly understood what “usual and customary” meant, their reports, in turn, were not false because of a misrepresentation of fact but rather one of law. The Court was unconvinced by this argument, stating that the respondent’s disclosure does not say “this is what our ‘usual and customary’ prices mean” but rather “this is what our ‘usual and customary’ prices are,” essentially misrepresenting fact under the guise of interpreting a legal meaning. 

The Court vacated and remanded the Seventh Circuit’s rulings for new judgments in both cases. So, what does this mean for the future of FCA claims? It means a lower bar for proving scienter in FCA cases. The Court unanimously confirmed that a lower threshold of scienter is required under the FCA. They confirmed that this new lower threshold should be one that is based on a subjective standard. Had they decided otherwise, a respondent could only be liable if there was no showing of an “objectively reasonable” explanation. This would have provided respondents in future cases the opportunity to justify their conduct after the fact, all the while discouraging otherwise valid relator claims of fraud. Now that the actions involving FCA scienter are evaluated in the present tense, more bad actors will experience the consequences of their fraudulent acts. 

Kandis L. Kovalsky, a member at the firm, focuses her practice on representing both corporate and individual clients in a broad range of complex commercial litigation matters in Pennsylvania and New Jersey state, federal and bankruptcy courts. Her whistleblower practice focuses on healthcare fraud. Kandis represents relators in high stakes qui tam actions filed under the federal and state False Claims Acts relating to fraud on government healthcare payors such as Medicare, Medicaid, Department of Defense TRICARE, State Children’s Health Insurance Program, Veterans Health Administration, and the Indian Health Service program. Contact her at kkovalsky@kanghaggerty.com. 

Looking to read more? Kang Haggerty members Edward T. Kang and Kandis L. Kovalsky recently analyzed this case in The Legal Intelligencer, When Is Knowing ‘Knowing’ in FCA Cases? High Court Examines Two Cases, published on May 19, 2023. 

In the April 13, 2023 edition of The Legal Intelligencer, Edward T. Kang and Kandis Kovalsky wrote “When Is Knowing ‘Knowing’ in FCA Cases? High Court Examines Two Cases“

The knowledge of falsity element in False Claims Act (FCA) cases—i.e., whether fraudulent claims were submitted knowingly, not merely negligently, may soon become an objective standard regardless of the defendant’s actual knowledge. The Supreme Court is taking up two U.S. Court of Appeals for the Seventh Circuit cases where rulings shielded both food-and-pharmacy chains from FCA liability for alleged improper billing involving prescription drugs. If the high court sides with the Seventh Circuit, the impending result could mean an exponential loss of taxpayer money.

Under the FCA, “any person who knowingly submits a false claim to the government or causes another to submit a false claim to the government or knowingly make a false record or statement to get a false claim paid by the government” may be held liable. The term “knowingly” anticipates a knowledge requirement such that a person who simply submits a false claim to the government without the knowledge of falsity does not violate the act. Rather, they must have submitted such a claim with knowledge of the falsity or “scienter.” As laid out in Section  3729(b)(1), the FCA’s standard for scienter only allows liability when fraud occurs with actual knowledge; deliberate ignorance of the truth or falsity of the information, or; reckless disregard of the truth or falsity of the information. In recent years, courts have struggled with interpreting the scienter element, especially where FCA defendants assert an objectively reasonable alternative interpretation of an ambiguous statute to justify their conduct.

The two Seventh Circuit cases are Proctor v. Safeway, 30 F.4th 649 (7th Cir. 2022) and Schutte v. SuperValu, 9 F.4th 455 (7th Cir. 2021). In both cases, the circuit court’s rulings rejected liability because the purported misconduct allowed for reasonable views of compliance obligations. In these cases, the relators alleged that the pharmacy chains overcharged Medicare and Medicaid for generic drugs, despite charging customers paying for the drugs out of pocket much lower prices through discounts. In other words, the pharmacy chains were not offering discounted drug prices to the government while they offered such prices to those customers who paid out of pocket. The relators-plaintiffs contributed this overcharge to a deliberate failure by the retailers, citing that federal law required these pharmacies to bill Medicare and Medicaid based on “usual and customary” (U&C) pricing offered to customers. The relators further alleged that both Safeway and SuperValu knew of their defrauding scheme and took efforts to conceal these pricing practices. Despite the Seventh Circuit’s agreeing that the companies overcharged the government, it held that the retailers would avoid liability as they made “objectively reasonable” determinations of U&C pricing under an ambiguous regulation. The court further opined that this “objectively reasonable” standard withstood scrutiny even if Safeway and Supervalu did not actually believe their interpretation was correct and consciously intended to deceive the government.

The Seventh Circuit adopted the Supreme Court’s “Safeco standard for scienter” arising out of the 2007 decision in Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007). The Safeco court held that an individual acting under an incorrect legislative interpretation could not possibly have acted with knowledge or reckless disregard if their interpretation was “objectively reasonable” and there was no “authoritative guidance” explicitly cautioning against their interpretation. Applying this two-step inquiry, the Seventh Circuit held that Safeway’s and SuperValu’s conduct was consistent with an objectively reasonable interpretation of “usual and customary” price since no statute or regulation precluded this interpretation.

Unlike the Seventh Circuit, the Third Circuit has long emphasized a distinction between falsity and scienter, rejecting the Seventh Circuit’s “objectively reasonable” standard. In United States v. Care Alternatives, 2020 WL 103808 at *4 (3d. Cir. 2020), relators alleged that Care Alternatives, a hospice facility, “admitted patients who were ineligible for hospice care and directed its employees to improperly alter those patients’ Medicare certifications to reflect eligibility.” This posed the question of whether a reasonable physician would determine that the patients were hospice eligible. The Third Circuit held that findings of falsity and scienter must be independent of one another for purposes of FCA liability, warning that by grouping the scienter element into an “objective” falsity test, a court would fail to fully consider evidence of scienter.

A circuit split has developed on this issue and where an objectively reasonable interpretation can shield an FCA defendant from liability. In Phalp v. Lincare Holdings, 857 F.3d 1148 (11th Cir. 2017), where relators alleged diabetic testing suppliers submitted claims to Medicare without adequate authorization from beneficiaries, the Eleventh Circuit held that scienter “can exist even if a defendant’s interpretation is reasonable.” The court relied upon the Eighth Circuit’s holding in Minnesota Association of Nurse Anesthetists v. Allina Health System, 276 F.3d 1032 (8th Cir. 2002), that “scienter is established if a defendant knowingly disregards the proper interpretation of an ambiguous regulation.” Both circuits recognize that those who do business with the government are obligated to ensure they are in conformity with compliance laws and cannot simply rely on their interpretation even if such interpretation is reasonable.

If the Supreme Court were to adopt the Seventh Circuit’s decision—i.e., an FCA defendant could escape liability even if it subjectively believed its claims for payment to the government were false as long as it could come up with a reasonable explanation after the fact—it will likely change the landscape of FCA drastically. A potential defendant could knowingly submit false claims to the government as long as it has a creative legal team that could come up with a reasonable explanation that could justify its conduct after the fact. Circuit Court Judge David Hamilton wrote the dissenting opinion for both of the Seventh Circuit decisions. In his Safeway dissent, Hamilton pointed to the contemporaneous evidence of Safeway’s choices in hiding its U&C price-matching, and its after-the-fact reasons for doing so, which easily permits the interference that Safeway knew it was perpetrating a fraud that required concealing. Similarly, in his SuperValu dissent, Hamilton believed relators provided substantial evidence of actual knowledge of fraud or at the very least, deliberate ignorance, given that SuperValu’s usual and customary prices were eight to fifteen times greater than prices it was charging the public. He opined that the majority’s interpretation creates “a safe harbor for deliberate or reckless fraudsters whose lawyers can concoct a post hoc legal rationale that can pass a laugh test.”

Recognizing the magnitude of the appeal, the Supreme Court will allow the federal government to participate in oral argument, allocating 10 minutes to argue alongside the relators. This concession comes after a motion by the U.S. Solicitor General to participate in the proceeding, arguing that the government had substantial interest in the resolution. The Supreme Court’s hearing of this case in and of itself is significant. Although there is no rule regarding how many FCA cases the court hears per term, it typically hears no more than one such case per term. And, the court has already heard Polanksy v. Executive Health Resources, Inc. on Dec. 6, 2022, an FCA case from the Third Circuit.

Many practitioners on the relator’s bar are concerned about what the Supreme Court would do with the Seventh Circuit rulings. It is no secret that the court’s partisan balance has shifted, and FCA defendants have found support among right-leaning justices. These justices have shown contempt for Chevron deference, a doctrine upholding a government agency’s interpretation of a statute that the agency administers. If the court were to side with the Seventh Circuit, FCA litigation could be completely reshaped by new scienter standards. The Seventh Circuit’s interpretation could allow creative lawyers to run wild with any conceivable argument and also allow defendants to escape liability for conduct the defendants subjectively believed could be fraudulent. This new standard would run contrary to basic tort principles. The Supervalu majority ignored the Restatement’s discussion of common law fraud, which relies heavily on subjective belief. For instance, Restatement (Second) of Torts § 550 governs liability for fraudulent concealment and sets forth an “intent” requirement, in that a defendant is liable for a material representation that is false and known by the defendant to be false. The Seventh Circuit’s standard contains no such subjective element.

Recently, a district court in Pennsylvania has recognized the implications of evaluating FCA claims based on the “objectively reasonable” interpretation of Medicare compliance laws by denying a motion to dismiss where CVS is accused of colluding with drugmakers to keep Medicare beneficiaries from accessing certain generic drugs. See Ellsworth Associates v. CVS Health Corporation, Civil No. 19-2553 (E.D. Pa. March 10, 2023). In that case, relators have accused CVS of a scheme in which the pharmacy took rebates from 11 drugmakers to ensure that as many as 15 brand-name drugs were a part of its formulary, rather than less expensive and less profitable generic alternatives. Defendants argue they made a reasonable interpretation of Medicare law and eventually, no longer stocked generic versions of drugs in accordance with their rebate agreements. This conduct resulted in consumers being unable to obtain cheaper generic equivalents. Ultimately, the court addresses the Safeco standard by saying, “Safeco is not the blank check Defendants appear to think it is … it does not give an all-purpose liability escape hatch.”

The Supreme Court should join in the dissenting view of Hamilton, that evidence of actual knowledge is determinative of whether a fraudster is knowingly presenting false claims. That is, a defendant should be liable under the FCA if scienter is met based on an either subjective or objective standard. “Scienter” means knowingly or willingly. That means, if a defendant submits a false claim to the government for payment believing that the claim is false and that the claim was in fact false, it should be held liable for its conduct. It should not matter whether the defendant could conceive objectively reasonable explanations after the fact. This approach is consistent with the FCA goal of policing those who do business with the government to be honest and transparent. If the Seventh Circuit rulings stand, the court will be providing a “safe harbor” for unscrupulous defendants that offer “objectively reasonable” explanations after the fact. The EDPA ruling showcases the need for a scienter standard that goes beyond such a bare-bones explanation, and the Supreme Court should cognizably follow suit and seal this liability escape hatch.

Edward T. Kang is the managing member of Kang Haggerty. He devotes the majority of his practice to business litigation and other litigation involving business entities. Contact him at ekang@kanghaggerty.com.

Kandis L. Kovalsky, a member at the firm, focuses her practice on representing both corporate and individual clients in a broad range of complex commercial litigation matters in Pennsylvania and New Jersey state, federal and bankruptcy courts. Contact her at kkovalsky@kanghaggerty.com.

Reprinted with permission from the April 13, 2023 edition of “The Legal Intelligencer” © 2022 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

In the December 1, 2022 edition of The Legal Intelligencer, Edward T. Kang and Kandis Kovalsky wrote “Fighting Fraud in Health Care Through the False Claims Act in the Third Circuit“

The U.S. health care industry is a fraudster’s paradise. While the vast majority of the players in the industry are focused on saving lives and improving health care for patients, fraudsters use this goodwill to their benefit. The health care industry is also buoyed by significant government funding—be it through Medicare, Medicaid, or the many grant programs designed to support health systems nationwide. Fraudsters manipulate these programs, and the goodwill associated with them, to steal funds from the government to line their pockets.

A major health care industry overhaul occurred in 2010 with the passage of the Patient Protection and Affordable Care Act, otherwise known as just the Affordable Care Act or, colloquially, Obamacare. The bill attempted to help block fraudsters by amending a longstanding Anti-Kickback statute to assure that fraudsters could not use the government funding programs contained in the ACA to further their fraudulent schemes. In the decade since the ACA’s passage, the courts’ interpretation of the Anti-Kickback statute in relation to ACA fraud has become split, with the split most notable between the U.S. Court of Appeals for the Third and the Eighth Circuits. The Third Circuit has adopted a more plaintiff/relator friendly interpretation while the Eighth Circuit has reached the opposite conclusion. Until the U.S. Supreme Court settles the circuit split, choice of venue is key for those bringing claims under the Anti-Kickback statute.

The federal Anti-Kickback Statute (AKS), 42 U.S.C. Section 1320a-7b, is a criminal statute that prohibits an exchange or offer to exchange anything of value to induce or reward the referral of business reimbursable by federal health care programs. Violations of the AKS are per se violations of the False Claims Act (FCA) pursuant to the ACA, which amended the AKS to provide that “a claim that includes items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of subchapter III of chapter 37 of Title 31 the FCA.” In other words, a demonstrable violation of the AKS is sufficient to establish a violation of the FCA, including the oft-litigated element of materiality. In the past, many courts had interpreted the FCA to mean that claims submitted as a result of AKS violations were false claims and therefore gave rise to FCA liability though there were opportunities for courts to hold otherwise. The ACA codified the majority view that compliance with the AKS is a precondition to payment of a claim by the government.

When assessing AKS violations, a court must first examine the underlying FCA claim that the relator has brought. Under the AKS, “a claim that includes items and services resulting from a violation of that statute constitutes a false or fraudulent claim for purposes of the False Claims Act.” The statute does not define the term “resulting from.” The Supreme Court has traditionally interpreted “resulting from” in statutes as imposing “but-for” causation. See Burrage v. United States, 571 U.S. 204 (2014); University of Texas Southwestern Medical Center v. Nassar, 570 U.S. 338 (2013) (“‘Results from’ imposes, in other words, a requirement of actual causality. … This requires proof the harm would not have occurred in the absence of—that is, but for—the defendant’s conduct”). The Supreme Court has not established a nationwide standard for how courts should interpret the language within the AKS context, and so—in the Greenfield case— the Third Circuit had the opportunity to posit its own interpretation.

Greenfield v. Medco Health Solutions, 880 F.3d 89 (3d Cir. 2018) is a landmark case in the Third Circuit involving interpretations of kickbacks, misused funds and specialty pharmaceuticals. The events that led to the Greenfield case are as follows. Accredo Health Group, a specialty pharmacy that provides home care for patients with hemophilia, made donations to two charities who, in turn, recommended Accredo as an approved provider for hemophilia patients. After Accredo told the two charities that it planned to reduce the amount of donations in the following year, one of the two charities, Hemophilia Services, Inc. (HSI) wrote a letter to its members encouraging them to request Accredo to restore funding. As a result, Accredo received about 75 letters from HSI members requesting an increase in funding. Accredo, in turn, tasked Greenberg, an area vice president of Accredo, to analyze the potential return on investment if it were to increase the amount of its donation. Greenfield concluded that if Accredo did not increase the funding it would likely “lose 100% of the margin” associated with the HSI members. Based on this finding, Accredo increased (or restored) the amount of funding. Greenfield then filed a qui tam action against Accredo, alleging that violated the FCA by violating the AKS. The United States declined to intervene as a plaintiff, and Greenberg took the qui tam action to trial himself asserting a False Claims Act violation.

In the case, the Third Circuit expressly rejected the “but for” causation test for FCA claims premised on violations of the AKS. The Third Circuit examined the legislative history of both the FCA and AKS and found that while some “link” is required between the alleged false claim and the underlying AKS violation, a direct causal link is not required. The U.S. government, in an amicus brief, argued that imposing “but-for” causation in the context of AKS violations of the FCA would lead to an incongruous result where “a defendant could be convicted of criminal conduct under the AKS … but would be insulated from FCA liability for the exact same conduct, absent additional proof that each medical decision was in fact corrupted by the kickbacks.” The court agreed, finding that the imposition of “but-for” causation would be “inconsistent with the drafter’s intentions” underlying both he AKS and FCA.

The Greenfield court ultimately concluded that a relator does not need to prove that a kickback actually caused a patient to use a particular health care provider and that the “link” required is that at least one of the provider’s claims for reimbursement was for medical care provided in violation of the AKS, as a kickback renders a claim ineligible for payment. This standard for causation has continued to be used by courts within the Third Circuit. See Gohil v. Sanofi U.S. Services, 500 F. Supp. 3d 345, 360 (E.D. Pa. 2020) (While the relator does not need to prove a kickback “actually influenced a patient’s or medical professional’s judgment,” he must show that a “particular patient was exposed to an illegal recommendation or referral and a provider submited a claim for reimbursement pertaining to that patient.”).

Not every court has adopted the Third Circuit’s standard, however. Some courts, in fact, have outright rejected the government’s contentions about the efficacy of a “but for” causation standard. To that end, the Eighth Circuit has notably forged its own path on the issue in recent months. In Cairns v. D.S. Medical, 42 F.4th 828 (8thCir. 2022), the Eighth Circuit issued a decision that heightened the standard of proof for FCA claims based on a violation of the AKS. Under the Eighth Circuit’s promulgated standard, a plaintiff must prove that the false claim would not have been submitted “but for” the underlying illegal kickbacks. The Cairns decision was a windfall for FCA defendants, allowing them to assert that the plaintiffs have not shown sufficient connection between alleged wrongful acts and the claims submitted as a sufficient defense. As of yet, the Supreme Court has declined to intervene and cure the circuit split, meaning that forum selection by plaintiffs is extremely important.

The nation spent about $4.3 trillion in health care in 2021, of which about $1.5 trillion was for Medicare and Medicaid. The Centers for Medicare & Medicaid Services (CMS) Programs estimates that approximately 6.5% of its spending was for improper payments in 2021 In other words, almost $100 billion of the Medicare spending alone was directed for potentially fraudulent payments in 2021.

The government cannot fight this massive fraud alone. More relators should come forward and fight the fraud. For those relators seeking to file FCA claims relating to health care fraud and antikickback violations, they should think carefully about where they file their claims. The Third Circuit gives the plaintiff very favorable conditions for establishing the link between the fraudulent conduct and the government funding program. Additionally, in the Third Circuit the relator is not presented with the challenging “but for” causation standard. In other words, as relators continue to pursue these claims to combat health care fraud involving kickback schemes, they should keep in mind the Third Circuit as a favorable venue for pursuing the claims.

To incentivize whistleblowers to assist the Government in combatting fraud on the Government and its taxpayers, the False Claims Act, 31 U.S.C. § 3729, et seq. (the “FCA”) ensures that a whistleblower under the FCA (referred to as a “Relator”) receives at least 15 percent of the proceeds recovered by the Government in any action filed under the FCA by a Relator (referred to as a “qui tam” action). A Relator receives 15 percent of the proceeds of an FCA action just by causing a complaint to be filed; 15 percent is the minimum.

A Relator’s share of a qui tam action’s proceeds can range up to thirty percent of the monies recovered. Where exactly a Relator’s share falls on this 15-30% spectrum depends on many factors. The main factor is whether the Government intervenes in the action. When the Government intervenes in a qui tam action, the Government takes over the prosecution of the case.

Even when the Government does not intervene in a qui tam action, a Relator is still entitled to prosecute the case, through their counsel. When the Government intervenes, the Government uses its resources to prosecute the case, whereas when the Government does not intervene, the Relator uses his or her resources to prosecute the case, which explains why the awards to Relators in intervened cases are almost always a lower percentage of the recovery than in non-intervened cases.

When the Government decides to intervene in a qui tam action, an event that occurs in approximately 20% of qui tam actions, the Relator is entitled to receive at least 15% but not more than 25% of the proceeds of the action, as described in 31 U.S.C. § 3730(d)(1). When the Government does not intervene in a qui tam action, the amount paid to the Relator shall not be less than 25% and not more than 30% of the proceeds of the action or settlement, as described in 31 U.S.C. § 3730(d)(2). The reason the Government still receives the bulk of a qui tam action’s proceeds even when it does not intervene is because, despite not intervening, the Government remains the real party in interest, and the party that was harmed.

After a qui tam case concludes, whether by trial or settlement, the Relator and the Government will engage in discussions about, among other things, the Relator’s share of the action’s proceeds. In practice, the Relator’s share of the proceeds often falls between 18% and 22% for intervened cases, and around 27% or 28% for non-intervened cases. This variation in share percentages can be credited to the different factors considered by the Department of Justice (“DOJ”) in connection with qui tam actions. Certain factors increase a Relator’s share percentage, while others decrease it.

In addition to intervention, another factor that can often influence where on the spectrum a Relator’s award falls is the amount of the proceeds. A larger recovery means the Government will receive a larger sum of money, even if the Relator is awarded a percentage of the proceeds that falls on the high-end of the spectrum. Another factor that can influence the size of a Relator’s award is the Relator’s job title and position.

Where a Relator is a high-level executive, the Government may be incentivized to offer a higher reward than where a Relator is a lower-level employee. This is because the Government is incentivized to encourage high-ranking executives to expose fraud, as high-level executives are more likely than lower-level employees to have direct evidence of fraud at a company.

In intervened cases, the timing of when the Government intervenes can influence the amount of the Relator’s award. If the Government intervened in the early stages of the case, it is likely that a Relator will be awarded a lesser percentage than in cases where the Government intervened in the later stages of the case. This is because the amount of work that the Relator and his or her counsel must do in cases with subsequent Government intervention is greater than in cases where the Government intervenes right away.

Other factors that can commonly influence the size of a Relator’s award include whether the information obtained by the Relator was first-hand, when the Relator learned about the fraud, and the extent to which the Relator participated in the fraud. A Relator can rest assured, however, that they are still guaranteed a minimum of fifteen percent of the monies awarded in a successful qui tam action, with the potential to earn up to 30% of the proceeds.

Kandis L. Kovalsky is a member of Kang Haggerty LLC. Her whistleblower practice focuses on healthcare fraud. Kandis represents relators in high stakes qui tam actions filed under the federal and state False Claims Acts relating to fraud on government healthcare payors such as Medicare, Medicaid, Department of Defense TRICARE, State Children’s Health Insurance Program, Veterans Health Administration, and the Indian Health Service program.

In the April 2021 Young Lawyers Issue of Law Practice Today, Kandis Kovalsky wrote “Zoom Court Appearances: Rising to the Occasion While Seated”

On March 13, 2020, a national emergency was declared in the United States as a result of the COVID-19 pandemic. Instantly, courts across the country were shuttered. Many courts, particularly the federal courts, quickly rallied and embraced Zoom as a means to continue to hold hearings and move the many criminal and civil cases on their dockets. Some lawyers reveled in the courts’ embracement of Zoom, as the legal profession is often criticized as being somewhat of a dinosaur. Others were initially less excited about having to use a webcam and embrace modern technology, and while appearing in court, no less. Indeed, some lawyers even exclaimed that using Zoom (e.g., the technology) is more stressful than participating in the hearing itself.

Some of those initial cynics have now adjusted, and appreciate the practicalities that Zoom offers over having to travel by plane, train, or automobile to appear for an in-person hearing that lasts a few hours or less. But lawyers by and large seem to agree that, at least for major events like evidentiary hearings or oral arguments on dispositive motions or temporary restraining orders, Zoom offers a much-less satisfying alternative to a courtroom—the majesties of which cannot be replicated virtually.

The extent to which courts will continue to uses Zoom after the pandemic remains to be seen, but for now, and likely the rest of 2021, courts will continue to hold hearings on Zoom. As such, learning Zoom etiquette for court appearances is critical. We are slightly more than a year from when the legal profession cozied up to Zoom, yet I still see and hear of lawyers making embarrassing mistakes. So, while some of the below tips may seem obvious and mundane, they all correspond to mistakes I have heard of or seen lawyers make recently. The good news is that these tips are all easy to follow.

Here are nine important tips for setting yourself, and your clients, up for success while appearing before a court on Zoom.

Suit Up.

Just because your daily work attire has likely become relaxed, does not mean your court attire can or should. We have all heard of the term “dress for success,” and this principle remains the same for court appearances on Zoom. How you dress is also an important part of courtroom decorum. Generally, men should appear in court in a suit and tie, and women should appear either in a suit, or alternatively, a dress, or skirt and blouse combination. Lawyers should dress for a Zoom hearing as they would for an in-person hearing (although, ladies can probably safely skip the heels). In the last year, I have seen and heard of lawyers appearing before judges not only not in suits, but in hoodies (!), t-shirts, sweaters, unbuttoned shirts, and without ties. Dressing like this before a (likely robed) judge is disrespectful to the court and a disservice to the clients being represented. I recommend strictly following this tip, and not taking any liberties with it. By that I mean I would not even risk wearing jeans, spandex, or sweatpants (with the idea being only your top half will be seen on the camera while you are seated), because you may have to get up during the hearing for any number of reasons (I have). By the way, the lawyer in the sweater was reprimanded by the judge. Not a position any lawyer wants to be in, ever.

Speak Slowly.

Audio lags happen on Zoom for a number of reasons. While it is always important to speak slowly, it is even more important to do so during a Zoom hearing. This tip is especially important if a court reporter is transcribing the hearing. I recently participated in a hearing where the judge had to request, more than once, that one lawyer arguing speak slower because the court reporter could not transcribe what was being said. Speaking too fast often occurs when reading notes, so I would suggest that you also do not read an argument word-for-word from your notes. This strategy is not effective in a courtroom, and nor on Zoom.

Kill the Noise.

And, I mean, all noise. Just like electronic devices must be turned off, or at least silenced, in the courtroom, they should be turned off or silenced while you are participating in a virtual hearing. If you are participating in the hearing from your office, then I recommend placing a “Do Not Disturb” sign on your closed office door, placing your landline on “Do Not Disturb,” silencing your mobile phone and silencing any sounds on Microsoft Outlook, Teams, Skype, or another messaging platform. If you are working from home, do the same, and no, it is not acceptable to say “Sorry, your honor, that is just my dog.” Dogs are cute, but they have not filed an entry of appearance, and should not make any guest appearances during your hearings. Prepare ahead of time so the space you will be using for the hearing will be free of possible noise from children, dogs, birds, cats, etc. If necessary, meaning you cannot ensure an animal or kid-free noise zone for the hearing, make arrangements for a relative, neighbor, friend, or babysitter to look after your kids or pets.

Don’t Lean Back.

This is an easy one to forget, especially with longer hearings with multiple participants, but remember to sit upright throughout the hearing. Just like you would not slouch in your chair in a courtroom, you should not slouch in your chair while participating in a Zoom hearing. Slouching and leaning back, while not as bad as the hoodie, signal a too relaxed and casual attitude. I recently participated in a hearing where opposing counsel was leaning back the entire time, even while he was addressing the court. I found it to be distracting and unprofessional, which means the judge likely did as well. Save leaning back for your post-hearing victory dance.

Tech Check.

The day before any hearing, restart your computer to make sure it installs all recent updates. Also, make sure that you have the most recent version of Zoom installed, and the most recent version of any other program you intend to use during the hearing, like Adobe, Microsoft Word, or Microsoft Teams. Recently, during an oral argument, my Adobe froze. I was using Adobe to access copies of the pleadings and other relevant filings, so this was a problem. Additionally, during the oral argument, I was concerned that the freezing of Adobe would affect my Zoom connection with the court, but thankfully it did not. It did, however, provide an unwelcome distraction, which is not something you want while appearing in court. After you restart your computer and make sure you are using the most up-to-date version of Zoom, do a test run of Zoom, including a soundcheck. Separately, make sure that your name appears on Zoom as your first and last name. When you join a Zoom meeting, you should receive a prompt that allows you to type in your name how you would like it to appear. Sometimes, if you do not do this, your name will as an unclear default—e.g., “Kandis’ iPad.” Lastly, this should go without saying, but check, under the settings tab on Zoom, that you do not have any strange filters turned on, like a cat….

Don’t Be Camera Shy.

If a court schedules a Zoom conference, assume that you should appear using video. I have seen attorneys of record dial-in with a phone to a Zoom hearing, and then have to switch to using video (which is what led to some of the unfortunate attire selections discussed earlier). Obviously, always read the text of the applicable order and check in advance with the clerk or courtroom deputy about the judge’s intentions or preferences, but if a court schedules a hearing on Zoom, as opposed to a conference line, it is safe to assume that the court intends for the parties to appear on camera—even if the judge might not. My colleague recently participated in a hearing where the judge was not using the video function but required that the parties use it. When addressing the court, look into the camera. This will make it seem to the judge that you are making eye contact. If you are looking at the judge (or anything else) on your screen, you will appear as though you are looking down. Once you are “in” a virtual court hearing, avoid “leaving” the hearing—meaning, avoid turning your video off without first notifying the court. Repeated entrances and departures in the middle of a hearing in court would likely not be accepted, and the same rule applies to Zoom too. Last, make sure the area you will be attending the hearing has appropriate lighting. If your screen is too dark, the judge cannot properly see your face. Generally, the lighting behind your camera should be brighter than the lighting behind you. If there are windows in the room you will be using, position yourself to face the window rather than have the window behind you. As someone with two big skyscraper windows behind her and who cannot easily sit on the other side of her L-shaped desk, I appreciate this can be tricky. A lifesaver can be found in the “Adjust for low light” setting under the Video Settings in Zoom. In this same tab, you can also use the “Touch up my appearance” scale to brighten up your image. You’re welcome.

Surround Yourself with Less.

Your surroundings say a lot about you. Look at the background of the space you intend to use for the hearing (which I know is already immaculate) and consider whether it contains any pictures, posters, artwork, or things that would be controversial, distracting, or that could paint you in an unfavorable or unserious light (even if unfairly). I would strongly suggest that attorneys remove any political posters, books, or memorabilia from the view of the camera. Beyond that, this one involves largely good judgment and reasonable minds can differ on what is distracting and potentially unfavorable. I want the court to focus on me, not what is behind me, so I avoid having any personal pictures, sports memorabilia, books, or other clutter behind me.

Five Minutes Early Is On Time.

I always enter any Zoom hearing five to seven minutes early. This way, I have a buffer to deal with tech issues. I routinely see attorneys arriving to Zoom hearings a few minutes late, even after the host (the court) has started the meeting, because they had “trouble with the link.” Avoid having to be in a position of apologizing to the court by joining the meeting five minutes early.

Pass Virtual Notes.

Gone are the days where we have to furiously scribble down our thoughts on yellow sticky notes and then stealthily pass them to our co-counsel, all the while hoping we are not distracting the court. Now, we can pass virtual notes. I recently used Microsoft Teams, which our office uses, to correspond with my legal team (all of whom were in different places) during an oral argument. It was a great experience. Most of us type faster (and neater) than we write by hand, so I was able to communicate with my team with ease while still listening to everything the judge and opposing counsel said. During the oral argument, one of the lawyers on my team ended up sending me a key suggestion, which I was able to address and weave into my rebuttal argument. Just remember that when you are passing virtual notes—keep the sound off!

Remember that just because you are seated, does not mean you should not rise! Good luck.

About the Author

Kandis L. Kovalsky is a member of Kang Haggerty LLC, a business law firm in Philadelphia, PA. She is co-chair of the ABA Litigation Section, YLD Division. Contact Kandis at kkovalsky@kanghaggerty.com.

Reprinted with permission from the  April 2021 edition of “Law Practice Today” © 2021 American Bar Association.  All rights reserved. Further duplication without permission is prohibited.