The U.S. also offered evidence that both in-house and outside lawyers warned all three defendants about the illegality of the commissions. HDL’s general counsel also wrote a memo to HDL board members explaining there was a “high degree of risk” that BlueWave was violating AKS, and notified the board of the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG), cautioning against independent contractor sales agreements with compensation based on a percentage of sales. Another HDL compliance lawyer told HDL that the AKS prohibited commission-based arrangements like the one with BlueWave. Outside counsel testified that they also cautioned BlueWave about the likely AKS violations. The jury returned a verdict in favor of the government, finding that the government proved that the commissions paid constituted knowing and willful violations of the AKS.
Throughout the case, the defendants attempted to rely on the advice of counsel defense. The court of appeals paid particular attention to this argument, and stated that it was not persuaded by the defendants’ contention that they could not have known that the commissions were illegal because attorneys helped draft the underlying contracts. The court pointed out that the defendants did not identify any legal opinion on which they relied in concluding that the AKS permitted commission payments to independent contractors.
The court also acknowledged the defendants’ arguments regarding the AKS safe harbor for commissions paid to salespeople. The court determined the safe harbor was not applicable because it applies only to employees. The court emphasized prior legal advice from HDL’s general counsel expressing concern over the independent contractor sales agreements and urging HDL to change to an employee-based sales system. Ultimately, the court affirmed the verdict for the government, concluding there was sufficient evidence to show that the commissions that the defendants paid knowingly and willfully violated the AKS and FCA.
JEFFREY NEWMAN REPRESENTS WHISTLEBLOWERS IN FALSE CLAIMS ACT CASES. HE CAN BE REACHED AT WWW.NEWMANSHAPIRO.COM. 617-823-3217