FCA’s fraudulent inducement request requires causal link – appeals court

A man stands near an IBM logo at the Mobile World Congress in Barcelona, ​​Spain on February 25, 2019. REUTERS / Sergio Perez

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(Reuters) – A whistleblower must litigate causally in order to bring a fraudulent inducement complaint under federal false claims law, a federal appeals court has ruled, allowing a case accusing International Business Machines Corp of having defrauded the government.

A DC Circuit Court of Appeals panel on Tuesday rejected the argument of former IBM sales representative Paul Cimino that he did not have to allege except for causation, but nonetheless quashed the lower court ruling dismissing the lawsuit, finding that Cimino had met the pleading standard.

IBM and its attorney Cate Stetson of Hogan Lovells did not immediately respond to requests for comment. Neither does Cimino’s lawyer, Tejinder Singh of Goldstein & Russell.

Cimino filed his 2013 lawsuit in federal court in Washington under the False Claims Act, which allows whistleblowers to sue companies on behalf of the government to recover taxpayer money paid on the basis of fraudulent claims.

He alleged that IBM faked an audit to show that the Internal Revenue Service owed the company $ 91 million in misuse penalties under the agency’s existing software license in order to put pressure on the company. IRS to renew the license for $ 265 million.

In 2018, the US Department of Justice refused to intervene in the case.

In 2019, U.S. District Judge Amit Mehta concluded that Cimino’s trial had failed because he did not allege that the IRS would not have entered into the license agreement without IBM’s deceptive audit. The judge’s conclusion was based in part on the fact that the IRS continued to pay IBM after the complaint was filed.

On appeal, Cimino argued that causation was not a necessary element of a fraudulent inducement claim under the FAA.

Circuit judge Neomi Rao noted that the court had never directly addressed the issue, but said common law principles weighed against Cimino.

“Because the fraud must be in the inducement, liability under the FCA for fraudulent inducement must depend on whether the fraud caused the government to contract,” she wrote.

However, the court concluded that Mehta dismissed the case simply because he “doubted” Cimino’s claims, while at the plea stage they must be considered true.

“But this disbelief did not deserve rejection in light of Cimino’s allegations,” Rao wrote, overturning the denial of Cimino’s request for fraudulent inducement.

Rao was joined by circuit judge Sri Srinivasan and senior circuit judge Douglas Ginsburg.

The case is Cimino v. International Business Machines Corp, United States Court of Appeals for DC Circuit, No. 19-7139.

For Cimino: Tejinder Singh of Goldstein & Russell

For IBM: Cate Stetson of Hogan Lovells

Read more:

Justice Department backs relaunch of accusations IBM defrauded IRS

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