Justia U.S. 7th Circuit Court of Appeals Opinion Summaries

McClellan operated T&M Daycare. Nearly all of its clients participated in an Illinois program that reimbursed daycare centers. To qualify, a parent or guardian had to reside in Illinois, be employed or attend school, and have an income below a specified amount. McClellan instructed T&M’s director to falsify records so that T&M could receive state reimbursement. McClellan was also seen changing numbers on sheets submitted for state reimbursement of meals. McClellan purchased Paragon restaurant. The Department of Homeland Security had been investigating information that illegal aliens were working there. Paragon’s manager agreed to record conversations with McClellan and to provide documentary evidence that McClellan was paying wages in cash and was not reporting those wages to the state. McClellan used T&M’s account to purchase a house, where undocumented kitchen staff lived rent‐free. Recorded conversations revealed McClellan’s knowledge of the workers’ illegal status. Agents executed search warrants and found 12 workers without legal status. McClellan was charged with harboring illegal aliens, 8 U.S.C. 1324(a)(1)(A)(iii); mail fraud, 18 U.S.C. 1341, based on his submission of fraudulent employment tax reports; and engaging in a monetary transaction involving criminally derived property, 18 U.S.C. 1957, based on the transfer of T&M funds for the house purchase. The Seventh Circuit affirmed his convictions, rejecting challenges to the sufficiency of the evidence and to jury instructions. View "United States v. McClellan" on Justia Law

Nelson spent six months as the Director of Education at Sanford‐Brown College, a for‐profit educational institution in Milwaukee. After he resigned, Nelson initiated suit under the False Claims Act (FCA), 31 U.S.C. 3729. Based on its receipt of federal subsidies from the U.S. Department of Education, Nelson alleges that the college’s recruiting and retention practices resulted in the transmission of thousands of false claims to the government, potentially subjecting the college and its corporate parent to hundreds of millions of dollars in liability. After the United States declined to intervene, the district court ultimately entered summary judgment in favor of Sanford‐Brown. The Seventh Circuit affirmed. The district court did not err by holding that its subject matter jurisdiction was limited to the period of time when Nelson was employed by SBC (2008-2009). FCA liability is not triggered by an institution’s failure to comply with Title IV Restrictions after its entry into a Program Participation Agreement, unless the relator proves that the institution’s application to establish initial Title IV eligibility was fraudulent. Sanford-Brown entered into its PPA in 2005. View "United States v. Sanford-Brown, Ltd." on Justia Law

Clark’s trucking business was hired to perform hauling services on a state‐ and federally funded highway project in Missouri. Because federal funds were involved, Clark’s contract with the project’s general contractor required that he pay his truck drivers the federal prevailing wage pursuant to the Davis‐Bacon Act (then $35.45/hour). Clark did not do so, but individually contracted with his drivers for roughly $15/hour instead. Throughout the project, Clark submitted weekly payroll certifications in which he falsely attested to paying his workers $35.45/hour. After his work concluded, he submitted an affidavit to the Missouri Department of Transportation, certifying compliance with Missouri state law and its state wage order. Based on these attestations, the government charged Clark with 10 counts of making false statements,18 U.S.C. 1001. The Seventh Circuit affirmed his convictions on nine counts, rejecting An argument that there was insufficient evidence to conclude that his false statements were material to the federal government. The court agreed that the government failed to prove that his affidavit to MODOT had a natural capability of influencing the federal government and reversed conviction on Count 10. View "United States v. Clark" on Justia Law

DiFoggio worked as an FBI cooperating witness and introduced Medrano to a man purporting to be Castro, a health care consultant. Castro told Medrano that by bribing a corrupt official he could obtain contract approval from Los Angeles County for the purchase of bandages for its hospital system. Castro was an undercover FBI agent. There was no corrupt official. When the medical bandages deal was concluded, Medrano approached Castro about making another deal to involve his friend, Buenrostro. Buenrostro and Castro brought Barta into the discussions; A bribe would be paid to the corrupt official by Castro to obtain a county contract for Sav‐Rx, a company founded by Barta, to provide pharmaceutical dispensing services. Sav‐Rx would service the contract through a business started by Buenrostro and Medrano. Barta wrote a check for $6,500 to Castro. Buenrostro and Medrano were to pay their 35 percent share after that last meeting. Before that happened, they were arrested. In a separate opinion, the Seventh Circuit held that Barta was entrapped as a matter of law. Neither Buenrostro nor Medrano argued entrapment. The Seventh Circuit affirmed their convictions for conspiracy to commit bribery, rejecting challenges to the sufficiency of the evidence and the sentences. View "United States v. Buenrostro" on Justia Law

O’Gorman worked for Chicago from 1996-2007, as a carpenter and later as a General Foreman, placing city orders with Arrow Lumber, owned by Beal. After an investigation following reports from an Arrow employee, O’Gorman was arrested and charged with theft of city property and violations of City Personnel Rules. The city also pursued a civil case under the Illinois Whistleblower Act and the Chicago False Claims Act, which remains pending. The city issued a press release announcing the charges that he had diverted $50,000 in goods for his own use and tried to cover the theft. Beal pled guilty. O’Gorman’s complaint under 42 U.S.C. 1983 alleged that the investigation improperly focused on O’Gorman and protected Arrow and Beal for political reasons and that Beal covered up Arrow’s fraud; that the Human Resources Director informed a union representative that if O’Gorman did not resign he would be fired and that any hearing would be a sham; and that supervisors told him that if he resigned, he would be reinstated once he was acquitted. O’Gorman resigned, was acquitted of all criminal charges, and unsuccessfully requested reinstatement. The district court dismissed. The Seventh Circuit affirmed, finding the termination claims untimely and that there is no property interest in rehiring. View "O'Gorman v. City of Chicago" on Justia Law

Chicago’s Minority and Women-owned Procurement Program requires companies contracting with the city to hire or subcontract with minority-owned businesses (MBEs). An MBE must be at least 51 percent owned by members of a minority group, and its management and operations must be controlled by those members. RCN, a cable provider, participates in the MBE program. RCN seeks out MBE subcontractors using the city’s directory, where it found defendants in 2003. Defendants, white men, held out their cable installation business, ICS, as an MBE, but used false documentation and hired a black front-man to pose as ICS’s president. ICS fired defendant Giovenco before the fraud was discovered, but he continued to receive checks. In total, RCN paid ICS $8,303,562 before the city investigated. Its members dissolved ICS, trying to avoid detection. Convicted of mail fraud, 18 U.S.C. 1341, Potter was sentenced to 54 months’ imprisonment, and Giovenco was sentenced to 36 months. The Seventh Circuit affirmed, rejecting Giovenco’s claim that, because he no longer worked for ICS at the time of the mailings underlying the charges, he could not be held legally accountable for the scheme, and Potter’s challenge to his sentence, arguing that RCN did not actually suffer a loss. View "United States v. Potter" on Justia Law

Grenadyor is a pharmacist formerly employed by Ukrainian Village Pharmacy, which with pharmacies that serve similar communities in other states (joined as additional defendants in this suit), is alleged to be controlled by individuals of Ukrainian origin, mainly members of the Bogacheck family. Grenadyor claims that the pharmacy defrauded the government by making gifts to customers (such as tins of caviar), or forgiving their copays, to induce them to have their prescriptions filled by it rather than by competing pharmacies. He also alleged that the pharmacy sought government reimbursement for drugs that were not delivered to the buyers. The district court dismissed his complaint under the False Claims Act, 31 U.S.C. 3729, which also claimed retaliation. The Seventh Circuit affirmed as to the kickback claims under the Act, noting that Grenadyor was unable to name any person who had received more than $50 worth of kickbacks in a year, when the court requested that he do so. Allegations about claims for reimbursement for undelivered prescriptions were also inadequate. The court reversed with regard to the retaliation claim. View "Grenadyor v. Ukrainian Vill. Pharmacy" on Justia Law

Applying for federal grants between 2005 and 2008, Chicago represented that it had formulated an Equal Employment Opportunity Plan in accordance with 28 C.F.R. 42.301. This certification is required by regulations implementing the Omnibus Crime Control and Safe Streets Act, under which the grants were made. Hill claimed, in a qui tam action under the False Claims Act, 31 U.S.C. 3729–33, that the first certification was false because, although the city had a written plan, and implemented an equal opportunity and affirmative action program, the program differs from the plan. Hill did not contend that the city’s program falls short of federal requirements only that the program does not follow the written plan. The district court granted summary judgment to the city. The Seventh Circuit affirmed. Any written plan sensibly can be understood to allow adaptations. No federal agency has parted with money under false pretenses and the record does not establish that the people in the Police Department and other bureaus who wrote grant applications and attached the city’s plan knew that the Department of Human Resources was implementing a program different from the plan, and without knowledge of falsity there cannot be a knowingly false claim. View "Hill v. City of Chicago" on Justia Law

Thulin was a Shopko pharmacist. During his tenure, Thulin observed what he believed to be a scheme in which Shopko submitted inflated claims for prescription drugs to the Medicaid program. Thulin filed a qui tam complaint, claiming violation of the federal False Claims Act by overbilling Medicaid, alleging that Shopko is a “sophisticated,” “multi-regional” business that developed and programmed the PDX system and should have been aware of federal law governing submission of claims, and bringing claims under the laws of eight states. The district court dismissed the federal claim under FRCP 9(b) and 12(b)(6). The Seventh Circuit affirmed. To be liable under the Act, Shopko must have acted with “actual knowledge,” or “deliberate ignorance” or “reckless disregard” of the possibility that its claims were false. Thulin’s allegations were not sufficient to satisfy that requirement even if Shopko’s practices were contrary to the Federal Assignment Law. Although malice, intent, and other conditions of the mind may be alleged generally, vague allegations that a corporation acted with reckless disregard or with reason to know of facts that would lead a reasonable person to realize that it was submitting false claims, simply because of its size or sophistication do not clear even this lower pleading threshold. View "Thulin v. Shopko Stores Operating Co., LLC" on Justia Law

Kolbusz owns and operates the Illinois Center for Dermatology and Skin Cancer and was a participating Medicare provider from 1993 until December 2012, receiving payment directly from Medicare. In October 2012 he was indicted for Medicare fraud. As a consequence, the Department of Health and Human Services imposed fraud prevention procedures on the practice, including payment suspension, resulting in his ultimate withdrawal from the Medicare program. In 2013, Kolbusz filed suit against the Secretary of Health and Human Services and her contractors, asserting jurisdiction under 28 U.S.C. 1331 (federal question); the Medicare Act, 42 U.S.C. 1395; and 28 U.S.C. 1361 (mandamus) to compel review of reimbursement claims he had submitted. The district court dismissed for failure to exhaust administrative remedies. The Seventh Circuit affirmed. Kolbusz’s failure to exhaust Medicare’s administrative appeals process precludes subject-matter jurisdiction of his mandamus action.View "Ctr for Dermatology & Skin Cancer, Ltd. v. Burwell" on Justia Law