Expert testimony of custom or practice in False Claims Act memo

Author: LegalEase Solutions

MEMORANDUM

QUESTION PRESENTED

Whether a party may use an expert witness to introduce evidence of industry custom and practice in a false claims act case?

SHORT ANSWER

This memorandum includes (1) an overview of the standard for admissibility of expert testimony regarding industry custom and practice generally in federal cases, (2) a summary of cases from the Seventh, Ninth, and D.C. Circuits (including any state and federal cases from Illinois or Hawaii) touching on the admissibility of expert industry custom and practice testimony in False Claims Acts cases, and (3) a summary of cases from any other jurisdiction regarding the admissibility of expert industry custom and practice evidence. Note that there was little case law available dealing with the specific issue requested, i.e. admissibility of custom and practice evidence in False Claims cases.

RESEARCH FINDINGS

  1. General Standard of Admissibility of Expert Testimony Regarding Industry Custom and Practice Evidence

 As a general matter, the admissibility of expert testimony in an action under the False Claims Act is governed, like expert testimony generally, by Rule 702 of the Federal Rules of Evidence, which limits admissible expert testimony to “scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue”[1] and to with “technical issues that laypeople would have difficulty resolving on their own.”[2]        “Rule 702 of the Federal Rules of Evidence establishes two general requirements regarding expert testimony: (1) the expert must be qualified, and (2) the subject matter of the expert’s testimony must consist of specialized knowledge that will be helpful or essential to the trier of fact in deciding the case.”[3] “Rule 702 specifically contemplates the admission of testimony by experts whose knowledge is based on experience.”[4] This includes experience related to custom and practice in a particular industry which may be useful to the trier of fact.[5] However, court must exclude expert testimony if it relates to matters of law or legal conclusions.[6] In addition, the party seeking to offer expert testimony has the burden of establishing that the pertinent admissibility requirements are met by a preponderance of the evidence.[7]

  1. Industry Custom and Practice Expert Testimony in False Claims Act Case

 Expert testimony on industry custom and practice is generally admissible in a False Claims Act case where it otherwise meets the requirements of Rule 702, i.e. where the expert is qualified to testify on the industry in question and such testimony provides specialized knowledge helpful to the trier of fact in deciding the case.[8]

  1. Summary of False Claims Act Cases Involving Admissibility of Industry Custom and Practice Evidence From Illinois, Hawaii, and the Seventh, Ninth, and District of Columbia Circuits

In Klaczak v. Consolidated Medical Transport, Northern District of Illinois, assessed among other issues, the Relators’ motion to exclude expert testimony in a False Claims Act case proposed by the Defendant hospital.[9] In assessing the issue, the court dismissed Relators’ interpretation of the expert’s testimony that it resulted in the interpretation of a contractual obligation, holding that the expert in question was not an expert of contract interpretation, and that even if he were, he would not be permitted to offer testimony as to how, as a matter of law, a contract is to be construed.[10] The court determined that, however, “expert testimony may be allowed when it addresses on custom and practice in a particular trade, as it relates to a contract dispute” and that “to the extent that [the Defendant’s expert’s] testimony is relevant and admissible as to the meaning of the contracts, it supports the Hospital Defendants’ claim that the contract rates should be adjusted to account for their assumption of patients’ unpaid debts.”[11]

In Garbe v. Kmart Corporation, the Relator, a pharmacist who had worked for Defendant Kmart Corporation at one of its in-store pharmacies, brought qui tam action against Kmart, as operator of the pharmacies, alleging that Defendant violated False Claims Act by misrepresenting its usual and customary prices for certain generic prescription drugs, resulting in overcharges to Medicare and other state and federal prescription drug benefit programs.[12] Kmart moved for partial summary judgment and to exclude certain expert testimony.[13]

The expert in question planned to testify as to two matters: (1) as to whether a certain standards organizations definitions controls as to the definition of Usual & Customary (U&C) price and (2) regarding industry custom and practices with regard to the pharmacy claims adjudication process.[14] With regard to the first point of proposed testimony, the court implied that such testimony would involve impermissible legal conclusions and would, as such, be inadmissible, but declined ultimately to render a substantive decision on the argument because the court had decided the pricing question earlier in its decision, finding instead that the argument that Plaintiff’s expert could not testify to the pricing definition was therefore moot.[15] With regard to the second issue, the Plaintiffs’ expert stated in his deposition that his “intention is only to explain how claims are submitted by a pharmacy, how they are paid by a payer in general, and what rules have to be followed in order to prevent cases of fraudulent activity.”[16]

Defendant asserted that this discussion of the claims adjudication process was inadmissible as it was “unsubstantiated, merely duplicative of fact witness testimony, and something that does not take an expert to explain.”[17] In assessing the admissibility of the proposed expert’s testimony, the court applied the two-part inquiry discussed above for determining the admissibility of expert testimony under Rule 702.[18] With regard to the first prong of the test, regarding expert qualifications, court found that Plaintiff’s expert was qualified based on his substantial professional experience in the “technical aspects of the prescription reimbursement process.”[19] With regard to the second prong of the inquiry, the Defendant had argued that the expert’s testimony should be excluded because it consisted of information that “would be obvious to the lay person.”[20] The court dismissed this argument, noting that “[w]hile it is true that a ‘trial court is not compelled to exclude the expert just because the testimony may, to a greater or lesser degree, cover matters that are within the average juror’s comprehension …. [an expert] must testify to something more than what is ‘obvious to the layperson’ in order to be of any particular assistance to the jury.’”[21] The court found that the alleged fraud is complex and that the adjudication process was not straightforward, involved a series of intermediaries, and required explanation of a technical process that was not typically known to a layperson.[22] According, the court found that the proposed expert’s testimony was relevant and would assist the jury in understanding and determining the facts at issue in the case.[23]

These were the only two cases within the requested focus jurisdictions to discuss admissibility of expert testimony in a False Claims Act case.

  1. Summary of False Claims Act Cases Involving Admissibility of Industry Custom and Practice Evidence from All Other Jurisdictions

In U.S. v. Leo, the Defendant challenged on appeal to the Third Circuit Court of Appeals the district court’s admission of the government’s expert’s trial testimony regarding customs and practices in the field of defense contracting.[24] Specifically, the expert testified concerning custom and practice in areas of the defense industry governed by the False Claim Act, stating that “contractors generally provide updated cost and pricing data to the government during contract negotiations.”[25] Defendant argued that the expert’s testimony should have been excluded because it was “nothing more than an improper legal opinion on the Act’s requirement.”[26] In finding that the district court had not abused its discretion in admitting the testimony, the Court of Appeals held that the testimony was relevant to the trier of fact in “both to explain the practice of the industry in which this prosecution arose and to establish what someone with [Defendant’s] extended background in the industry probably would know.”[27] Further, the court cited the district court’s careful limitation of the expert’s testimony such that he was not testifying about legal conclusions and the Defendant’s opportunity to present his own witness to contradict the government’s expert as further support for its holding.[28] Finally, the court found that even if the district court erred in admitting some of the expert’s testimony, the error was not prejudicial to Defendant.[29]

In Palmer v. C&D Technologies, Inc., Plaintiff sought to offer expert testimony from a Retired Air Force Colonel with “extensive military contract experience” regarding industry customs and practice with regard to government contracting in a False Claims Act case.[30] The Defendant sought to prevent this testimony on the basis that the expert’s report demonstrated that his planned testimony was not related to contracting industry customs, but rather that he planned to testify to the meaning of specific contract terms, which would result in impermissible legal conclusions.[31] The court concluded that the proffered expert could be “helpful to the trier of fact in wading through the technical terms involved in government contracting” and, as the case in question involved “a great deal of technical terminology” and “a long relationship between a contractor and the [g]overnment.”[32] As such, the court noted “all of the customs and language wrapped up in that very specialized world would likely be outside the common experience of jurors” and thus that the expert’s testimony was relevant to the trier of fact in deciding the case.[33] However, the court warned that only such testimony which remained “in the province of the general business and customs of [g]overnment contracting” would be admissible and that the expert could not give testimony which would be seen as interpreting contractual provisions.[34]

  1. Conclusion

The admissibility of custom and practice evidence in a False Claims Act case is determined, as is the admissibility of any expert testimony before a federal court, by application of the two-part test for admissibility which examines both (1) the expert’s qualifications to testify on the proposed subject matter and (2) the relevancy of the proposed testimony to the question before the trier of fact in the case. If both of these prongs are met and the testimony is not in the nature of a legal conclusion or opinion, a court will generally admit the testimony.

[1] Fed. R. Evid. 702.

[2] Stollings v. Ryobi Technologies, Inc., 725 F.3d 753, 765 (7th Cir.2013).

[3] Rasmusen v. White, 970 F.Supp.2d 807, 813 (N.D.Ill.2013) (citing United States v. Lanzotti, 205 F.3d 951, 956 (7th Cir.2000)).

[4] Walker v. Soo Line R.R. Co., 208 F.3d 581, 591 (7th Cir.2000).

[5] Metavante Corp. v. Emigrant Sav. Bank, 619 F.3d 748, 761 (7th Cir.2010).

[6] Hooper v. Lockheed Martin Corp., 688 F.3d 1037, 1052 (9th Cir. 2012).

[7] Rasmusen, 970 F.Supp.2d at 813 (citing Dukes v. Illinois Cen. R.R., 934 F.Supp. 939, 946 (N.D.Ill.1996)).

[8] Klaczak v. Consolidated Medical Transport, 458 F.Supp.2d 622, 637 (N.D. Ill. 2006).

[9] Id. 626.

[10] Id. 636.

[11] Id.

[12] 73 F.Supp.3d 1002,1006-1007 (S.D. Ill. 2015).

[13] Id. at 1009.

[14] 1020.

[15] Id.

[16] Id.

[17] Id.

[18] Id.

[19] Id. (“[Plaintiff’s expert] is an expert in the technical aspects of the prescription reimbursement process. As set forth in his Report, he served eight years as Vice President and Chief Technology Officer for Express Scripts. He also served nine years as Express Script’s Director of Information Technology Systems where he led the teams that developed its reimbursement processes. He is obviously knowledgeable regarding the adjudication process.”).

[20] Id. at 1020.

[21] Id. (quoting Ancho v. Pentek Corp., 157 F.3d 512, 519 (7th Cir.1998) (internal citations and quotation marks omitted)).

[22] Id. at 1020-21.

[23] Id. at 1021.

[24] 941 F.2d 181, 188 (3rd Cir. 1991).

[25] Id. at 196.

[26] Id.

[27] Id. at 197.

[28] Id.

[29] Id.

[30] 2015 WL 4470291, No. 12-907, at *6 (E.D. Penn. July 22, 2015).

[31] Id. at *5-6.

[32] Id. at *6.

[33] Id.

[34] Id.