Agency Investigated Possible FCA Violation But Dropped the Case. Did this Investigation Negate the Materiality Element of Relator’ Subsequent Qui Tam Action?

An agency investigated the defendant for false claims but dropped the investigation. The defendant argued the dropped investigation negated the materiality element in the relator’s qui tam suit. The court rejected the defendant’s argument.

U.S. ex rel. Muhawi v. Pangea Equity Partners et al., N.D. Ill., NO 18-CV-2022 

• Alleged Fraud – The defendant was a landlord. The landlord rented to tenants who received housing vouchers. The vouchers were funded by the federal government. To receive the vouchers, the landlord had certify to a local housing authority that it was not charging higher rent to voucher holders. The relator alleged the defendant had made false certifications by charging higher rent to voucher holders.
• Agency Investigation – A local housing authority suspected the defendant was charging more rent to voucher holders. The housing authority investigated. The evidence was suspicious. Indeed, internal emails indicated the defendant was trying to cover up a fraud. But, for whatever reason, the housing authority dropped the investigation.
• Materiality – The relator brought a qui tam action after the investigation. The defendant moved for summary judgment. The defendant argued because the housing authority had known of the alleged fraud but dropped the investigation and continued to make voucher payments, the fraud must not have been material. The court denied the defendant’s motion. The court reasoned there are many reasons an agency may continue to make payments while suspecting fraud. For instance, an agency may continue payments for public health and safety. indeed, this case involved public housing. An agency could still pay the vouches without negating the materiality of an FCA claim.

—Case summary by Craig LaChance, Senior Editor 

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