District Court Rejects Government’s FCA Claim Seeking Return of Retained Benefits; Decides that Agency Policy Guidance Did Not Create an “Obligation” Under the Act

In an opinion issued earlier this month, the United States District Court for the Eastern District of Oklahoma refused to impose False Claims Act liability on a defendant who retained and invested his mother’s Social Security benefits after she went missing. The case adds to the growing body of law on the word “obligation” as it is used in the FCA; it also showcases the various other (i.e., non-FCA) remedies available to the Government.

The case involved somewhat odd facts: on June 1, 2007, the defendant’s mother, Janet DeFelice, went missing. At the time Janet went missing, she was a recipient of Social Security benefits that were deposited into a checking account held jointly by Janet and the defendant, her son John DeFelice.  Defendant made investments on Janet’s behalf using her Social Security benefits, including investments after Janet went missing. Defendant did not report his mother’s missing status to the Social Security Administration.  As a result, the government continued to deposit funds into the joint checking account for five years, only suspending payments when the Government learned of Janet’s missing status in April 2012.

Following the suspension, the United States brought three claims against defendant: (1) violation of the FCA; (2) unjust enrichment; and (3) payment under mistake of fact. The court rejected the FCA claim, but ruled in favor of the United States on its common law claims.

Regarding the FCA claim, the United States argued that defendant violated 31 U.S.C. § 3729(a)(1) by failing to return Janet’s benefits paid after she went missing. Section 3729(a)(1)(G) imposes liability on any person who “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.”  Among other things, “knowingly” means that a person, with respect to information, acts in reckless disregard of the truth or falsity of the information.  31 U.S.C. § 3729(b)(1)(A).  As relevant here, “obligation” means “an established duty, whether or not fixed, arising from . . . the retention of any overpayment.”  31 U.S.C. § 3729(b)(3).

To support its FCA claim, the United States cited a provision from the Social Security Administration’s Program Operations Manual System (“POMS”)—a policy that is publicly available online—that instructs that benefits are to be suspended when a recipient’s whereabouts are unknown. According to the United States, this provision showed that defendant acted in reckless disregard of his obligation to return Janet’s Social Security benefits

After a bench trial, the court rejected the FCA claim. In what it characterized as a “close” issue, the court determined that the POMS was not binding on defendant because it was a general statement of policy intended for Social Security Administration employees. At most, the court determined that defendant’s failure to locate the POMS policy online was negligence.  And, under Tenth Circuit authority, the court concluded that the defendant’s conduct amounted at most to simple negligence.  The court nonetheless ordered repayment of approximately $120,000 in payments under common-law theories of unjust enrichment and mistake.

The case is United States v. John DeFelice, No. 14-415 (E.D. Okla. Feb. 9, 2016).