Fourth Circuit Upholds Judgment Of Over $237 Million Against Tuomey Healthcare System

On July 2, 2015, the U.S. Court of Appeals for the Fourth Circuit affirmed the U.S. District Court for the District of South Carolina's judgment of $237,454.195 in damages and penalties against Tuomey Healthcare System in United States ex rel. Drakeford v. Tuomey Healthcare System, Inc. (No. 13-2219). The judgment followed a rare False Claims Act (FCA) trial, after which the jury found Tuomey liable for submitting 21,730 false claims to Medicare. While the Fourth Circuit's Tuomey decision addressed many claims of error advanced by Tuomey on appeal, this post highlights the court's response to Tuomey's challenges based on the "advice of counsel" defense and on the computation and size of the judgment.

Tuomey was alleged to have entered into part-time employment contracts with physicians that violated the Stark Law. After one of the physicians expressed compliance concerns about the structure of the proposed arrangement, Tuomey sought Stark Law compliance advice about the contracts from several attorneys - one of whom, Kevin McAnaney, indicated that the contracts raised "red flags" under the Stark Law. McAnaney was jointly retained by Tuomey and the physician, Drakeford, after Tuomey received a legal opinion from its longstanding counsel that the contracts were Stark compliant. Despite McAnaney's advice, Tuomey elected to move forward with the contracts. Drakeford subsequently filed an FCA qui tam lawsuit against Tuomey, and the extensive litigation ensued.

Tuomey asserted that no reasonable jury could have found that it knowingly violated the FCA because it reasonably relied on the advice of counsel. The Fourth Circuit rejected this challenge, finding the record to be "replete with evidence indicating that Tuomey shopped for legal opinions approving of the employment contracts, while ignoring negative assessments." According to the court, it was reasonable for the jury to conclude that Tuomey did not rely on counsel's advice in good faith because it refused to "to give full consideration to McAnaney's negative assessment of the part-time employment contracts and terminated his representation." With respect to the more favorable legal opinions Tuomey obtained from others, the court observed that they were issued without knowledge of the concerns raised by McAnaney.

The court's resolution of the advice of counsel issue presents some obvious questions. Among these are: when a defendant seeks more than one legal opinion on the same issue and the...