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False Claims Act cases: A cautionary tale in transactional diligence

William J. Spratt Jr. (william.spratt@akerman.com) is Partner in the Miami office and Noam Fischman (noam.fischman@akerman.com) is Partner in the Washington, DC, office of Akerman, LLP.

An increase in healthcare deal activity and intense diligence have resulted in False Claims Act (FCA) settlements in which the government has focused not only on the seller but the buyer as well. Third-party buyers may be exposed to liability post-sale related to their diligence findings, the seller’s pre-sale operations, and the post-sale response of both parties.

This article will explore the genesis of this relatively new development and the government’s approach to the liability of third-party buyers. We will suggest some preventive measures to mitigate the risk exposure of sellers and buyers. The structure of transactions will vary widely, and the structural options to mitigate or isolate liability between and among the parties, the parent entities, and affiliated organizations are beyond the scope of this article.

Our premise is simple. Buyers and sellers participating in a transaction will gain knowledge of sensitive information that may result in a whistleblower, i.e., a qui tam relator, filing an FCA suit. Similarly, a qui tam relator may already have sensitive information, and an FCA suit could be in process or could already have been filed under seal. And the conduct of the respective parties pre-sale and post-sale with respect, particularly, to the issues that surfaced in diligence may heavily influence the outcome of the case.

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