Fresenius Med. Care Holdings, Inc. v. U.S. (Summary)

False Claims Act Settlement

Fresenius Med. Care Holdings, Inc. v. U.S., No. 13-2144 (1^st Cir. Aug. 13, 2014)

After a series of criminal plea and civil settlement agreements with the government, a dispute remained over how the settlement payments made under the False Claims Act by an operator of dialysis centers were to be taxed. The sums paid in criminal fines were deemed non-deductible, while the sums paid in civil settlement agreements were deductible. However, there remained a dispute of the treatment for the existing balance of the civil settlements. The operator of the dialysis centers then filed amended tax returns, taking no deduction for the existing balance. An administrative appeal followed, determining that the existing balance owed to qui tam relators was deductible. The operator of the dialysis centers then began a tax-refund action against the United States District Court for the District of Massachusetts to determine the deductibility of the remaining civil settlement balance. In a subsequent trial, a jury found that $95,000,000 of the $126,796,262 balance was deductible. After the parties stipulated to the verdict’s tax effect, the court entered judgment for the operator of the dialysis centers for $50,420,512.34. The court denied the government’s motion for judgment as a matter of law. The government then appealed.

The government argued that the district court erred in denial of its motion for judgment as a matter of law. The government urges that deductibility cannot be granted because no deductibility agreement existed between the parties. The court affirmed the district court’s ruling, finding this rationale to be single-minded and unrealistic. Furthermore, the court found that the parties specifically manifested the intent to disagree on the issue of deductibility, leaving the court no choice but to take a common-sense approach based on economic realities.

The government also argued that the district court erred in the instructions it presented to the jury. However, the court dismissed this claim, finding that the argument could not be raised for the first time on appeal.