Former U.S. Department of Labor Officials Pen Open Letter to Contractor Community Addressing Executive Order 14173 and the Current Administration’s Stance on Diversity, Equity and Inclusion
Ten former Department of Labor Officials, including former EEOC Commissioner and past OFCCP Director Jenny Yang, sent an open letter to federal contractors responding to President Trump’s issuance of Executive Order 14173 and newly appointed OFCCP Director Catherine Eschbach’s recent statements about OFCCP.
The letter is aimed to
“help federal contractors and other employers navigate this complex environment, providing clarity about their options and obligations under the law.”
The 14-page letter details how the current administration’s actions are in contravention of established law, explains compliance with Executive Order 11246 did not require the unlawful use of preferences or quotas, and describes how continued proactive practices, including self-assessments and data analysis to remove discriminatory barriers remain lawful and are essential to prevent discrimination.
The letter concludes reiterating that “America’s enduring promise is that talent and effort – not background or origin – should determine one’s path” and encourages the federal contracting community to “stand firm in your commitments to lawful diversity, equity, inclusion, and accessibility practices that promote civil rights compliance, true merit, and a strong economy.”
Outlining Critical MTS Cybersecurity Requirements
On January 17, 2025, the US Coast Guard published a final rule titled “Cybersecurity in the Marine Transportation System,” setting a baseline for cybersecurity standards. This rule, which is set to take effect on July 16, 2025, introduces mandatory cybersecurity measures for US-flagged vessels, Outer Continental Shelf facilities, and certain facilities regulated under the Maritime Transportation Security Act of 2002.
This article I co-authored with Andy Lee for MarineLink highlights the implications of the rule on the maritime transportation system. We recommend industry participants begin evaluating their current capabilities and developing comprehensive compliance strategies.
The integration of digital technologies and interconnected systems within the MTS has heightened vulnerability to cyber threats. Recognizing these risks, the USCG’s rule sets a baseline for cybersecurity standards, ensuring entities within the MTS can effectively detect, respond to, and recover from cyber incidents.
www.marinelink.com/…
Old North State Report – April 14, 2025
UPCOMING EVENTS
April 14, 2025
Raleigh Chamber Business After Hours – Raleigh
April 16, 2025
Federalist Society Housing Policy and Regulation in NC – Raleigh
April 17, 2025
NC Chamber Building NC – Durham
April 22, 2025
NC Chamber Spring Member Roundtable – Asheville
April 24, 2025
Raleigh Chamber Young Professionals Network Social – Raleigh
RTAC – Association of Corporate Counsel Spring Reception – (Raleigh)
April 28, 2025
Thinkers Lunch: Rob Christensen
LEGISLATIVE NEWS
SENATE BUDGET TO BE RELEASED NEXT WEEK
The Senate is set to release its budget bill Monday afternoon, according to Republican Senate leader Phil Berger (R-Rockingham), who spoke to reporters after the Senate session on Tuesday evening.
This budget is a two-year spending plan that will likely exceed $30 billion, funding raises for state employees and teachers, and replenish the rainy-day fund to get back to the $4.75 billion it contained before Hurricane Helene.
Leadership in the House and the Senate have agreed the budget can grow by 2.75% in fiscal 2025-2026 and 2.25% above that in fiscal 2026-2027. The current budget appropriated $29.7 billion for general fund spending in fiscal 2023-2024 and $30.8 billion in fiscal 2024-2025.
The process begins with the Senate version going through committees on Tuesday, with floor votes on Wednesday and Thursday. The House is expected to pass its version in May, followed by negotiations among Republican leaders for a final budget.
Read more by Under the Dome/The News & Observer
LAST-MINUTE HOUSE PROPOSALS FILED AHEAD OF BILL FILING DEADLINE
Offering on-site childcare for state employees, allowing private school students to take classes at local public schools, addressing issues with loose dogs, and dealing with slow drivers in the left lane are among the last-minute proposals filed by House members before the Thursday deadline. House lawmakers had a deadline to file bills by 3 p.m., resulting in more than 100 new proposals. This brings the total number of bills introduced this session to nearly 2,000, reflecting emerging policy goals.
Education and public safety were key themes among the last-minute bills, with many aimed at attracting and keeping teachers. There were also efforts to increase penalties for loose dogs and new rules for domestic violence cases. A unique proposal allows tax payments in cryptocurrencies, amid fluctuations in the market. Some proposals from Democrats, like those focusing on environmental issues, may not succeed in the Republican-majority legislature, though a few may have potential.
Bipartisan sponsors back some bills, including Jesse’s Law, which would provide training for judges and mediators on recognizing signs of domestic violence and child abuse. This initiative is inspired by the tragic murder of a 3-year-old boy.
Other important bills include reforms to liquor laws to allow Sunday openings for ABC stores, legalizing video poker, creating a disaster response fund, and increasing penalties for various public safety violations. Additional initiatives aim to expand childcare options, support social conservative causes like restrictions on gender-reassignment lawsuits and abortion, and enhance educational transparency and teaching standards. There are also bills addressing drug arrests, protecting teenagers’ social media data, exploring cryptocurrency and AI research, directing the Legislative Research Commission to study the abolition of contributory negligence, and proposing the removal of barriers to employment due to court debt.
The crossover deadline, the date set by the legislature for a bill to be approved in its originating chamber to continue being reviewed by the opposite chamber, is May 8. Lawmakers are anticipated to increase their activity in the weeks ahead to make certain that any important legislation stays eligible for consideration during this session.
Read more WRAL News
PROPOSED HOUSE BILL TO EXPAND AUDITOR’S INVESTIGATIVE POWERS
A North Carolina House panel approved a bill on Tuesday that expands the investigative powers of the state auditor’s office, despite some concerns about which agencies and individuals could be investigated. The Judiciary 1 Committee voted for House Bill 549 after hearing from its sponsor, Representative Brenden Jones (R-Columbus), and Kirk O’Steen, the Director of Government Affairs for the auditor’s office. The bill will next go to the Committee on State and Local Government for further consideration.
If passed, the bill would allow the auditor to investigate any entity receiving state or federal funds for reports of improper activities, including fraud and misappropriation. It would also grant the auditor unrestricted access to necessary databases and exempt the office from certain regulations. Additionally, the Senate approved Senate Bill 474 to create a new team to oversee state spending and job openings.
Read more by NC Newsline (Kingdollar)
Read more by NC Newsline (Bacharier)
SENATE’S PBM BILL APPROVED BY HEALTH CARE COMMITTEE
The Senate is entering the debate over pharmacy benefits managers (PBMs) with the approval of Senate Bill 479 by the Health Care Committee. This bill provides an alternative to the House’s approach regarding PBMs, which act as intermediaries between drug manufacturers and insurers or drugstores. Unlike the House’s proposal, Senate Bill 479 does not include a provision that would require PBMs to pay drugstores a $10.24 dispensing fee. Senator Benton Sawrey (R-Johnston), a lead sponsor of the bill known as the SCRIPT Act, prefers to avoid any cost increases for consumers.
The bill is supported by key Senate leaders, and it will undergo further revisions as it progresses through additional committees. Key aspects of the Senate bill include allowing insurers to offer higher reimbursements to drugstores in areas without pharmacies, licensing pharmacy services administrative organizations, and requiring PBMs to provide more data to state officials. It also prohibits PBMs from paying pharmacies less than their acquisition costs for medications and from treating independent pharmacies unfairly compared to their owned drugstores. Independent pharmacies could refer patients to other drugstores if necessary.
The bill does not currently impact the State Health Plan, a point of concern for some senators. Meanwhile, the House’s PBM legislation remains under discussion in committee, with its previous iteration receiving unanimous approval before being stalled in the Senate without a counterproposal.
Business North Carolina (Ray Gronberg – [email protected])
LOWER LEGAL ALCOHOL LIMIT FOR DRIVERS PROPOSED
North Carolina lawmakers are collaborating to support a bill introduced this year to reduce the legal blood alcohol concentration limit for driving from 0.08 to 0.05.
House Bill 108 will also increase penalties for adults who help minors buy alcohol, particularly in cases of serious injury, and will allow repeat offenders to regain limited driving privileges by proving sobriety. Additionally, the measure mandates the recording of district court proceedings and public reporting on impaired-driving cases.
Representative Eric Ager (D-Buncombe) will hold a press conference on Tuesday at noon regarding the bill, joined by Ellen Pitt from the WNC Regional DWI Task Force, law enforcement, and families impacted by drunk driving.
Ager and Representative Mike Clampitt (R-Jackson) are the primary sponsors, along with Representatives Keith Kidwell (R-Beaufort) and Brian Echevarria (R-Cabarrus). The bill is currently in the House Alcoholic Beverage Control Committee.
Read more by Under the Dome/The News & Observer
TRAUMATIC BRAIN INJURIES TREATMENT FOR VETERANS
A bill that would enable treatment of traumatic brain injuries in veterans was introduced on March 27. House Bill 572 allows the Department of Military and Veterans Affairs to create a pilot program for veterans, first responders, and their immediate families to treat traumatic brain injuries as well as sleep disorders and substance abuse.
Representative David Willis (R-Union), mentioned that the treatment called eTMS, or electroencephalogram combined transcranial magnetic stimulation, was suggested by veterans seeking similar programs in other states. Willis noted that the program aims to support both first responders and veterans, citing successful outcomes in other states.
Representative Grant Campbell (R-Cabarrus), a former Army Lieutenant Colonel, also endorsed the bill. “There is significant data to show that there are high rates of these patients being able to discontinue current chronic therapy once they undergo this. This is an incredibly promising intervention,” Campbell said.
On Tuesday, the bill received a favorable report and has been referred to the Health Committee.
Read more by State Affairs Pro
Recent DCSA Updates Regarding Expansion of FOCI Requirements to Unclassified Government Contracts
The Defense Counterintelligence and Security Agency (DCSA) has provided new updates about the highly anticipated changes that will apply foreign ownership, control or influence (FOCI) mitigation requirements to unclassified contracts.
DCSA recently posted updates to a central webpage dedicated to the forthcoming expansion of FOCI reviews to contractors seeking to perform on certain unclassified contracts pursuant to Section 847 of the FY20 National Defense Authorization Act (NDAA) (Section 847). According to the DCSA’s update, Section 847 is likely be implemented in the next 12 to 18 months, following publication of the corresponding Defense Federal Acquisition Regulation Supplement (DFARS) clause.1 The corresponding Department of Defense (DoD) Instruction 5205.87 was published last year – see our client alert from July entitled “Foreign Ownership, Control or Influence (FOCI) Mitigation Specifically for Unclassified Contracts”.
When implemented, Section 847 requires DCSA to assess beneficial ownership (i.e., individuals or entities who ultimately control a contractor, even if indirectly) for FOCI concerns, and mitigate those concerns if deemed necessary by the agency. This assessment will be conducted for contractors prior to contract award (for unclassified contracts), and again post-award if there are material changes to the information originally submitted during this phase or during the contract performance phase. For cases that may require mitigation, DCSA will leverage a commitment letter and interim measures in order to permit contract award, while governance and operational mitigations are negotiated. This is similar to the process for protecting facility security clearances in cases of foreign acquisitions of cleared contractors today.
Notably, the webpage states that classified contractors will still undergo FOCI review and mitigation post-award (versus pre-award).
Section 847 is widely considered to be massive change, not only for industry, but for government acquisition personnel and DCSA. DCSA states that, respecting FOCI matters, it currently processes about 2,000 cases per year. DCSA estimates that, when fully implemented, Section 847 will result in processing approximately 41,000 cases annually (for classified and unclassified contract awards), and adding security requirements for up to US$200 billion worth of acquisitions. To meet this demand, DCSA has been adding and training personnel, who will not only process the cases but also provide training and customer service to contractors.
1 Per the open DFARS cases (as of April 3, 2025), the Defense Acquisition Regulations Council (DARC) Director tasked the Acquisition Technology & Information Team to draft the proposed DFARS rule for “Mitigation Risks Related to Foreign Ownership, Control or Influence.” That report is due on May 14, 2025, but that could be extended by the DARC Director.
Circuit Split on Anti-Kickback Causation Poses Complications for Whistleblowers, But First Circuit Ruling Also Provides a Path Forward
In February, a panel of three judges in the U.S. Court of Appeals for the First Circuit issued a decision in United States v. Regeneron Pharmaceuticals, Inc. ruling that “but-for” causation is the proper standard for False Claims Act (FCA) cases alleging improper kickbacks and referrals in violation of a 2010 amendment to the Anti-Kickback Statute (AKS). This decision deepens a circuit split on the issue, as the Sixth Circuit and Eighth Circuit have adopted a but-for causation standard, while the Third Circuit ruled that the kickback only needs to be a contributing factor.
The circuit split is likely to be resolved by the Supreme Court, but in the meantime, its impact on FCA enforcement poses complications for whistleblowers looking to report kickbacks under the FCA’s qui tam provisions.
However, the First Circuit panel in Regeneron also clarified that there still exists a key route for whistleblowers and the government to pursue AKS-based FCA cases under the implied false certification theory. The court held that there still remains FCA liability when compliance with the AKS is a recognized precondition of payment under a federal healthcare program and a provider falsely certifies compliance with those requirements to get a claim paid by Medicare or Medicaid. Notably, the court held that there is no but for causation required when such an implied false certification claim is pursued under the FCA.
The Anti-Kickback Statute, False Claims Act and Whistleblowers
Dating back to the Civil War, the False Claims Act targets fraud among government contractors. It holds that any person who knowingly submits, or causes to submit, false claims to the government is liable for three times the government’s damages plus a penalty.
A key element of the FCA is its qui tam provisions, which empower whistleblowers with knowledge of FCA violations to come forward and file lawsuits on behalf of the government, which then has the option to intervene and take over the lawsuit. Regardless of whether the government intervenes, whistleblowers whose qui tam suits result in successful cases are eligible to receive between 15-30% of the funds collected in the case.
The Anti-Kickback Statute prohibits the exchange (or the offer to exchange) of any form of remuneration to induce or reward referrals for services or items reimbursable by federal healthcare programs. In violating the AKS, a company or individual can also be liable under the FCA. While the AKS imposes criminal liability on violations, the FCA adds civil liability.
Over the years, the government and whistleblowers have aggressively enforced violations of the AKS and FCA in tandem. For example, in July 2024, the Department of Justice announced that DaVita Inc., a healthcare company providing kidney dialysis services, agreed to pay $34 million to settle allegations that it violated the FCA through the illegal payments of kickbacks to induce referrals to DaVita’s dialysis centers and DaVita Rx, a former subsidiary that provided pharmacy services for dialysis patients. The settlement resolved a qui tam whistleblower suit filed by Dennis Kogod, a former Chief Operating Officer of DaVita Kidney Care, who received a $6,370,000 whistleblower award from the settlement proceeds. Over the years, many of the largest False Claims Act whistleblower recoveries have been based on alleged AKS violations in the health care industry.
First Circuit Ruling and Circuit Split
The First Circuit’s ruling in Regeneron centered around a provision in the 2010 amendments to the AKS which states that “a claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of [the FCA].” (Emphasis added)
In Regeneron, the government alleged that drug manufacturer Regeneron Pharmaceuticals paid tens of millions of dollars in kickbacks for its macular degeneration drug Eylea by using a foundation as a conduit to cover Medicare co-pays for Eylea.
The issue before the First Circuit in Regeneron was the level of causation required to satisfy the “resulting from” language. The First Circuit ruled that that “but-for” causation is the proper standard, meaning that there is no FCA liability if the claim would have been submitted regardless of the illegal kickback.
In Regeneron therefore, the Court ruled that Regeneron Pharma was not liable under the FCA because the government could not prove that doctors prescribing Eylea would not have done so “but for” the alleged kickbacks covering the co-pay cost.
According to the First Circuit, “The Supreme Court has held that a phrase like ‘resulting from’ ‘imposes… a requirement of actual causality,’” and “Accordingly, ‘it is one of the traditional background principles ‘against which Congress legislate[s]’ that a phrase such as ‘result[ing] from’ imposes a requirement of but-for causation.” While the Court notes that textual or contextual indications may suggest a different standard of causation, it ruled that none were present in the 2010 AKS amendment.
The First Circuit ruling deepens a circuit split on the issue. The Sixth and Eighth Circuits had also previously adopted the more stringent “but-for” causation standard for AKS-based FCA claims. The Third Circuit on the other hand has rejected the “but-for” causation standard and instead adopted a broader standard allowing for FCA liability if the kickback was merely a contributing factor to the submission of the claim.
Implications and Routes Forward for Whistleblowers
The circuit split on the causation standard for AKS-based FCA claims poses some complications for whistleblowers looking to hold fraudsters accountable through qui tam lawsuits. Firstly, the split will cause confusion about what standard applies for which justifications. But even more importantly, the “but-for” causation standard will make it much harder for whistleblowers and the government to prove False Claims Act liability in kickback cases.
There still remains a key route for whistleblowers and the government to pursue AKS-based FCA cases: the false certification theory. Under the false certification theory, a violation of the AKS can give rise to FCA liability when compliance with the AKS is a recognized precondition of payment under a federal healthcare program and a provider falsely certifies compliance with the law when it submits a claim, or causes the submission of a false claim.
The false certification theory predates the 2010 amendments at issue and is considered a distinct pathway towards proving FCA liability. In Regeneron, the First Circuit clearly states that “claims under the 2010 amendment run on a separate track than do claims under a false-certification theory” and that “there is nothing in the 2010 amendment that requires proof of but-for causation in a false certification FCA case.”
Barring a Supreme Court decision striking down “but-for” causation or a Congressional amendment clarifying a different standard of causation, FCA whistleblower claims can still survive if they can file qui tam suits based upon the false certification theory. Additionally, many whistleblower qui tam FCA cases alleging illegal kickbacks and violations of the AKS can meet the but for causation test. Consequently, whistleblowers and their counsel will need to evaluate the possible routes available when there are allegations of illegal kickbacks being paid in the context of providing health care that is reimbursed by Medicare, Medicaid or other government healthcare programs.
The government has made AKS enforcement a major FCA priority in recent years and the Deputy Assistant Attorney General Michael Granston recently promised that under the Trump administration the Department of Justice “plans to continue to aggressively enforce the False Claims Act.”
Individuals looking to blow the whistle on illegal kickbacks should contact an experienced False Claims Act whistleblower attorney.
Geoff Schweller also contributed to this article.
Key Legal Issues Facing U.S. Government Contractors in 2025
As the regulatory environment continues to evolve in the new administration, U.S. government contractors are facing an increasingly complex array of legal challenges. Staying compliant and competitive requires close attention to several ongoing legal issues in addition to emerging ones:
1. Cybersecurity Compliance and CMMC Implementation
Cybersecurity remains a top priority for federal agencies, and the rollout of the Cybersecurity Maturity Model Certification (CMMC) 2.0 framework has brought new compliance expectations. Contractors must ensure that their information systems meet required security standards, or risk disqualification from Department of Defense (DoD) contracts. The phased implementation schedule means that affected contractors should act now to assess readiness and begin remediation efforts.
2. False Claims Act (FCA) Enforcement
The Department of Justice continues to actively pursue FCA cases, particularly in areas like procurement fraud, mischarging, and non-compliance with contract terms. Moreover, consistent with DOGE’s stated mandate of combatting fraud in federal contracting and grants, the Trump administration is likely to place additional emphasis on this tool. Contractors should invest in robust internal compliance programs and training to mitigate risks of whistleblower complaints and audits.
3. Supply Chain and Buy American Act Scrutiny
Recent executive orders and proposed regulations are reinforcing domestic sourcing requirements. Contractors must carefully assess their supply chains to ensure compliance with Buy American Act and Trade Agreements Act rules. Non-compliance could lead to severe adverse consequences, such as contract termination or debarment.
4. Labor and Employment Mandates
Despite changes in emphasis from the new administration, government contractors are still subject to a variety of federal labor requirements, including those related to minimum wage, paid leave, and workplace safety. With recent changes from the Department of Labor – such as updates to prevailing wage rules under the Davis-Bacon Act – contractors must remain agile in adapting to new mandates.
5. ESG and DEI Reporting Requirements
Environmental, social, and governance (ESG) initiatives are becoming increasingly important in federal procurement. Contractors may soon face new disclosure obligations related to sustainability and diversity, equity, and inclusion (DEI) practices. Proactively developing transparent ESG and DEI strategies can offer a competitive edge.
6. Bid Protests and Procurement Integrity
With increased competition for contracts, bid protests are becoming more common. Understanding protest procedures, debriefing and intervention rights, and ethical boundaries in the procurement process is crucial to protecting your interests and reputation.
Conclusion
The legal terrain for government contractors is shifting rapidly. A proactive approach to compliance, risk management, and strategic planning is essential for long-term success in this high-stakes sector.
Executive Order Overhauls Foreign Military Sales: Building on Momentum for Reform
On April 9, 2025, President Trump issued an Executive Order titled “Reforming Foreign Defense Sales to Improve Speed and Accountability.” This directive is the first Executive Order ever issued by a U.S. President on the foreign military sales (FMS) process and sets in motion a substantial modernization. The Order aims to strengthen U.S. global competitiveness, advance strategic objectives, and ensure that trusted allies and partners receive American defense systems more swiftly and reliably.
While the Executive Order is historic, it builds on previously proposed reforms from Congress and the Department of Defense (DoD). In 2024, the House Foreign Affairs Committee published a “Foreign Military Sales Tiger Task Force Report,” which offered legislative reforms to the FMS process (Foreign Affairs FMS Report). A 2023 “Tiger Team” report identified chronic inefficiencies in the U.S. arms sales system and laid out comprehensive recommendations for reform (DoD Tiger Team Report). Though not explicitly cited, many elements of the Executive Order reflect the Congressional and DoD findings.
White House Fact Sheet Highlights
According to the White House, the Executive Order will:
Improve accountability and transparency across the foreign defense sales system to ensure predictable and reliable delivery of U.S. products in support of foreign policy objectives.
Reduce regulatory friction in the development and execution of arms transfers to ensure sales advance national interests.
Promote U.S. competitiveness, revitalize the defense industrial base, and deliver cost efficiencies for both the United States and its partners.
Prioritize strategic partnerships by identifying a list of key countries and defense articles that will receive expedited consideration.
Institutionalize exportability early in the acquisition cycle to speed up approvals while protecting sensitive technologies.
Create a digital tracking and accountability system that allows real-time visibility into the status of FMS and Direct Commercial Sales (DCS) approvals.
Streamline and consolidate the approval process to reduce delays, facilitate joint operations, and improve burden-sharing with allies.
Alignment with Tiger Team and Industry Reform Demands
The Executive Order responds to long-standing frustrations voiced by both industry stakeholders and foreign governments regarding the slow, opaque, and risk-averse nature of the current U.S. arms transfer process. In particular, it echoes recommendations made by the DoD 2023 Tiger Team, including:
Accelerating acquisition and release timelines for key technologies;
Focusing FMS resources on the most strategically significant partners;
Enhancing workforce expertise and coordination across agencies.
Together, these reforms aim to bolster U.S. credibility as a security partner while helping trusted allies access advanced capabilities amid growing regional threats.
Congressional Support and Competitive Implications
Senator Jim Risch (R-Idaho), Chairman of the Senate Foreign Relations Committee, welcomed the Executive Order, stating that “our current system suffocates our ability to support our partners” and praising the new directive for its potential to “unclog the system” and push back against Russian and Chinese influence (Risch Statement).
Industry voices echoed this sentiment. As reported by Breaking Defense, defense firms see the order as a major opportunity to improve predictability, increase deal flow, and adapt to a changing security landscape in which U.S. competitors often outpace Washington on speed and flexibility (Breaking Defense).
Strategic Takeaways
For Defense Contractors: The EO signals that the U.S. government is serious about streamlining sales pathways. Firms should prepare to engage early on exportability design and prioritize systems likely to appear on the upcoming “priority end-item” list.
For Foreign Partners: Allied nations should expect greater clarity and speed in the sales process. Those with longstanding requests may see movement in the near term as agencies implement new tracking and prioritization tools.
For Policymakers: The order raises important policy tradeoffs between speed and oversight, especially in transactions involving sensitive technologies or countries in volatile regions.
What Comes Next?
Within the next 60–120 days, the Departments of State and Defense are required to deliver:
A list of priority defense partners;
A list of priority end-items for expedited review;
A plan to integrate exportability into the defense acquisition cycle;
A prototype for a unified FMS and DCS digital tracking system.
Stakeholders should actively monitor implementation guidance and identify ways to influence agency priorities, program selections, and regulatory interpretations.
False Claims Act Settlements in Q1 Shows Scope of Frauds Targeted by Government as DOJ Official Promises “Aggressive” Enforcement
During the first quarter of 2025, the U.S. Department of Justice (DOJ) announced a number of False Claims Act (FCA) settlements and judgements, many of which resolved qui tam lawsuits filed by whistleblowers. The settlements and judgements showcase the variety of frauds which the government is pursuing and which False Claims Act whistleblowers can report.
Under the False Claims Act’s qui tam provisions, whistleblowers can file a qui tam lawsuit alleging violations of the FCA on behalf of the government, which then has the option to intervene and take over the lawsuit. Regardless of whether the government intervenes, whistleblowers whose qui tam suits result in successful cases are eligible to receive between 15-30% of the funds collected in the case.
The types of fraud targeted in settlements and judgments announced in the first quarter of 2025 include Medicare Part C fraud, cybersecurity fraud, illegal kickbacks and defense contract fraud.
In a keynote address at the Federal Bar Association’s annual qui tam conference in February, Deputy Assistant Attorney General Michael Granston promised that moving forward the Department of Justice “plans to continue to aggressively enforce the False Claims Act.”
$62 Million Settlement Over Medicare Part C Fraud Allegations
On March 26, the DOJ announced that Seoul Medical Group Inc., its subsidiary and majority owner, and Renaissance Imaging Medical Associates Inc., a radiology group that worked with Seoul Medical, agreed to pay a total of $62 million to resolve False Claims Act allegations relating to the submission of false diagnosis codes for two spinal conditions to increase payments from the Medicare Advantage program (Medicare Part C).
According to the DOJ, Seoul Medical and its owner “submitted diagnoses for two severe spinal conditions, spinal enthesopathy and sacroiliitis, for patients who did not suffer from either of these conditions” and “enlisted the assistance of Renaissance Imaging Medical Associates to create radiology reports that appeared to support the spinal enthesopathy diagnosis.”
These diagnoses allegedly led to the increased payment to Seoul Medical under Medicare Part C.
“Medicare Advantage is a vital program for our seniors and the government expects healthcare providers who participate in the program to provide truthful and accurate information,” said Acting Assistant Attorney General Yaakov M. Roth of the Justice Department’s Civil Division. “Today’s result sends a clear message to the Medicare Advantage community that the United States will zealously pursue appropriate action against those who knowingly submit false claims for taxpayer funds.”
The settlement resolved a qui tam whistleblower suit filed by Paul Pew, the former Vice President and Chief Financial Officer of Advanced Medical Management. Pew’s share of the recovery had not been determined at the time of the settlement.
$4.6 Million Settlement Over Cybersecurity Fraud Allegations
On March 26, the DOJ also announced a $4.6 million settlement MORSECORP Inc. resolving allegations that MORES violated the FCA by failing to comply with cybersecurity requirements in its contracts with the Departments of the Army and Air Force.
According to the DOJ, MORSE “submitted false or fraudulent claims for payment on contracts with the Departments of the Army and Air Force” and “those claims were false or fraudulent because Morse knew it had not complied with those contracts’ cybersecurity requirements.”
Among other things, the DOJ accused MORSE of “use[ing] a third-party company to host MORSE’s emails without requiring and ensuring that the third party met security requirements equivalent to the Federal Risk and Authorization Management Program Moderate baseline and complied with the Department of Defense’s requirements for cyber incident reporting, malicious software, media preservation and protection, access to additional information and equipment necessary for forensic analysis and cyber incident damage assessment.”
“Federal contractors must fulfill their obligations to protect sensitive government information from cyber threats,” said U.S. Attorney Leah B. Foley for the District of Massachusetts. “We will continue to hold contractors to their commitments to follow cybersecurity standards to ensure that federal agencies and taxpayers get what they paid for, and make sure that contractors who follow the rules are not at a competitive disadvantage.”
The settlement stemmed from a qui tam lawsuit filed by a whistleblower who is set to receive an $851,000 share of the settlement amount.
$15 Million Settlement Over Defense Contract Fraud Allegations
On April 1, the DOJ announced that DRI Relays Inc. agreed to pay $15.7 million to resolve allegations that it violated the FCA by supplying military parts that did not meet military specifications.
According to the DOJ, “between 2015 and 2021, under various Department of Defense (DoD) contracts and subcontracts, DRI invoiced for military grade electrical relays and sockets when it knew those parts had not met the testing requirements to be deemed military grade.”
“It is essential to the safety and operational readiness of our military that contractors comply with applicable military specifications,” said Acting Assistant Attorney General Yaakov M. Roth of the Justice Department’s Civil Division. “We will continue to hold accountable those who knowingly supply equipment to the U.S. military that fails to meet their contract obligations.”
$1.9 Million Settlement Over Kickback Allegations
On March 6, the DOJ announced that a group of health care providers and laboratory marketers agreed to pay a total of $1.9 million to resolve FCA allegations arising from their involvement in laboratory kickback schemes.
According to the DOJ, “health care providers received kickbacks in return for their referrals to a laboratory in Anderson, South Carolina” and “a marketer and his marketing company received kickbacks from that South Carolina laboratory to arrange for laboratory testing referrals.”
For example, according to the DOJ, one doctor and his medical practices “agreed to pay $400,000 to resolve allegations that from May 2016 to November 2021, they received thousands of dollars in remuneration disguised as purported office space rental and phlebotomy payments from the South Carolina laboratory in return for ordering testing.”
These alleged kickbacks were in violation of the Anti-Kickback Statute.
“Integrity must be the standard in our health care system,” said Acting U.S. Attorney Brook B. Andrews for the District of South Carolina. “Kickback schemes divert funds and focus away from patients and their medical needs.”
Conclusion
As these settlements show, the False Claims Act remains America’s number one anti-fraud law, covering a wide range of fraud affecting the federal government. Since 1986, the FCA has allowed the government to recover over $78 billion, with more than $55 billion stemming from qui tam whistleblower lawsuits.
Individuals looking to file a qui tam lawsuit alleging False Claims Act violations should consult an experienced whistleblower attorney.
Geoff Schweller also contributed to this article.
Replacement Cost Insurance Coverage in Turbulent Times
After the wildfires in Los Angeles, extreme weather events throughout the United States, and recently enacted tariffs, it seemed like a good time to revisit the calculation of replacement cost under policies insuring against loss or damage to property. The concept of replacement cost — sometimes referred to as “new for old” — seems simple, but issues often arise over the calculation and various policy terms and conditions. So, let’s dig in.
What Is Replacement Cost Coverage?
Replacement cost coverage is the most common type of insurance found in first-party property insurance policies, including standard business property policies and builder’s risk policies (for property in the course of construction). It usually applies to both “building” coverage and to business personal property (BPP) coverage, with some exceptions. It is referred to as “new for old” because it pays to replace lost or damaged property with new property of the same type.
Insurance companies frequently argue that because they cover only loss or damage to covered property, policyholders must prove that a particular item of covered property was damaged before the insurance company has an obligation to repair or replace it. Insurance policies, however, rarely are specific on this point. In Windridge of Naperville Condo. Ass’n v. Philadelphia Indem. Ins. Co., 932 F.3d 1035, 1040 (7th Cir. 2019), for example, the court held that “the unit of covered property to consider under the policy (each panel of siding vs. each side vs. the buildings as a whole) is ambiguous.” Thus, the court construed the policy in favor of the policyholder under the well-settled rule that ambiguous language in an insurance policy must be construed in favor of coverage and strictly against the insurance company.
The Windridge court also examined the so-called “matching” issue that often arises with partial damage. Specifically, where new materials will not match the existing undamaged materials, does the insurer have an obligation to pay for changes in the undamaged portions of a building so that the new and old will match? The court noted that the case law is “mixed” in answering this question. The court followed the case law holding that the insurer must account for matching, noting that “buildings with mismatched siding are not a post-storm outcome that the insured was required to accept under this replacement-cost policy.” Id. at 1041.
What Is “Like Kind and Quality”?
“New for old” is usually not difficult when property is a total loss, but it becomes a challenge when property is only damaged or partly destroyed. It can often be difficult, if not impossible, to replace only part of a damaged structure. Issues like tying the new into the old, matching the new and the old, material and technology changes, and code requirements for new versus old often arise.
Most policies require replacement of lost or damaged property with property of “like kind and quality,” or similar words. The standard ISO form uses the phrases “comparable material and quality…used for the same purpose.” These words usually are not further defined.
As discussed above, several courts and/or state statutes provide that replacement materials must match the undamaged portions of the property to qualify as like kind or comparable. For other issues, whether replacement materials are “comparable” often involves expert testimony. In Republic Underwriters Ins. Co. v. Mex-Tex, Inc., 150 S.W.3d 423 (Tex. 2004), for example, the court held that “comparable” does not mean “identical” and affirmed the trial court’s ruling finding coverage for a different type of roof based on expert testimony that the replacement roof was comparable, even though it was different from the damaged roof and cost more to replace.
What if Building Codes Have Changed?
The standard ISO replacement cost form states that the “cost of building repairs or replacement does not include the increased cost attributable to enforcement of or compliance with any ordinance or law regulating the construction, use or repair of any property.” However, some coverage is available for “Increased Cost of Construction,” which includes coverage for the increased cost necessary to comply with the minimum costs of complying with building codes or ordinances, subject to certain conditions. This additional coverage also is sometimes referred to as “Ordinance or Law” coverage. It is limited to certain amounts in the standard ISO form ($10,000 or 5% of the applicable limit), but additional coverage can be purchased.
How Is My Value Determined?
At a high level, replacement cost valuation is straightforward — it is cost to repair or replace the lost or damaged property with comparable property. The standard ISO form limits recovery to the maximum of “the amount actually spent that is necessary to repair or replace the lost or damaged property.” But the total replacement cost can be affected by the issues discussed above (e.g., matching or whether the replacement property is “comparable”), as well as a host of other issues.
The number of factors that can affect replacement cost vary based on the type and age of construction, materials, geography, and macroeconomic events like weather, tariffs and the labor market. These factors affect things like:
The availability of replacement materials
The cost of replacement materials
Alternatives to the damaged property
Lead times for materials
Labor rates and intensity of different repair options
Market or aesthetic changes
The schedule for repairs or replacement
Most insurance companies and their experts use software programs to calculate replacement costs. These programs contain regularly updated labor and materials costs by geographical regions. In calculating replacement cost estimates, they also consider additional costs, such as overhead, profit, permitting, and other costs that may be included in a general contractor’s “general conditions.”
While these programs are the insurance industry’s standard for calculating replacement cost, they are the map and not the territory. Nothing in the policy requires the use of estimates to calculate replacement cost, and recovery ultimately is based on the actual costs of repairs or replacement, subject to the policy’s terms and conditions, such as those discussed above.
Contractors and builders generally do not use the same programs that insurance companies use — they base their cost estimates on sub-contractor bids and their general knowledge about the costs and time involved in a potential job. In tight labor markets or times of rapidly rising or fluctuating prices, the replacement cost estimates in an insurance company’s software program may not reflect the events on the ground.
The numbers in the estimating software used by insurance companies also necessarily reflect figures among a range of possible costs a policyholder might receive from a contractor in an estimate for actual repair or replacement work. The costs of the most available or desirable contractor may be higher than the cost reflected in an insurance company’s insurance program. In addition, the accuracy of an estimate will only be as good as the information entered into the program. If the details of the loss are entered incorrectly, or if the scope changes as additional work becomes necessary or additional damage is uncovered during demolition, the estimate will need to be corrected or updated.
Policyholders should not accept software driven estimates as final costs, but as useful tools for receiving early partial payments on a claim and for setting a general framework for replacement costs. Policyholders should not settle claims until after they fully understand the scope of their loss and the actual costs they will incur in repairing or replacing damaged or destroyed property.
Do I Get Replacement Cost if I Don’t Rebuild or Rebuild Something Different?
Many policy forms state that the insurer will pay only the “actual cash value” or “ACV” of property damage until after repairs are made. Some courts have held that this condition may be waived by an insurer’s handling of a claim. In Rockford Mut. Ins. Co. v. Pirtle, 911 N.E.2d 60 (Ind. Ct. App. 2009), for example, the court held that this condition was waived where the insurer waited six months and until after foreclosure proceedings were initiated to offer an ACV payment.
Most insurers define ACV as replacement cost less depreciation, and some policies define the term in this way. But many policies do not define ACV. In the absence of a policy definition of ACV, or where the policy language allows, many states use the “broad evidence rule” for calculating ACV. This rule is a “flexible rule” that permits consideration of “any relevant factor” in determining ACV. Travelers Indem. Co. v. Armstrong, 442 N.E.2d 349, 356 (Ind. 1982).
Some policies allow recovery of replacement cost where the policyholder rebuilds at another location, or even if the policyholder rebuilds something different from the damaged or destroyed property. Other policies go so far as to allow a replacement cost recovery where the policyholder does not rebuild, if the proceeds are used elsewhere in the policyholder’s business. These provisions often also require that the proceeds are used on unplanned expenses. In these situations, disputes center on the “hypothetical” replacement cost of repairing or rebuilding with like kind or comparable property, given that no actual costs are incurred for that work.
Who Decides What I Get?
There are three ways disputes over replacement cost may be decided. If the dispute involves a question of what the insurance policy language means, then the issue is usually decided by a court. But courts only decide what the law mandates or what the insurance policy language means. Juries typically decide factual disputes or issues that turn on experts’ credibility.
In the case of disputes over the amount of replacement cost, property insurance policies usually contain a third remedy, called appraisal. The appraisal process involves each side choosing an appraiser and those appraisers choosing an umpire. The appraisers and the umpire then evaluate the differences in replacement cost calculations and the umpire’s agreement with one of the party’s appraisers is binding. Appraisals too can be fraught with issues, which is discussed in a prior article linked here.
Conclusion
Disputes over replacement cost raise legal and factual issues in normal times, but they present enhanced challenges when costs, climate, and market forces are changing and uncertain. Policyholders should navigate those challenges thoughtfully to ensure they obtain the benefits they paid for under their property insurance policies.
White House Unveils Government-Wide Plan to Streamline AI Integration
On April 7, the White House issued a fact sheet outlining new steps to support the responsible use and procurement of AI across federal agencies. The initiative builds on the Biden Administration’s 2023 Executive Order on AI and is intended to reduce administrative hurdles, improve interagency coordination, and expand access to commercially available AI tools.
The announcement requires the Office of Management and Budget, the Office of Federal Procurement Policy, and the General Services Administration to issue updated guidance and provide centralized tools to support implementation. Key measures of the guidance include:
Appointing Chief AI Officers. Each agency must designate a senior official responsible for overseeing AI governance and compliance.
Developing AI Strategies. Agencies are required to submit AI implementation plans within 180 days, identifying operational uses, risk mitigation strategies, and workforce needs.
Removing procurement barriers. Agencies must streamline acquisition processes that may hinder the timely adoption of AI systems, including by adopting performance-based procurement approaches.
Standardizing commercial AI guidance. OMB will release uniform guidance to support the responsible procurement and deployment of off-the-shelf AI tools, with a focus on privacy, equity, and safety.
Expanding Shared Tools and Expertise. The Administration will centralize technical resources to help agencies evaluate AI systems and manage associated risks.
Increasing Access for Small Businesses. The initiative aims to ensure that small and disadvantaged businesses can compete for AI-related government contracts.
Putting It Into Practice: The directive highlights the federal government’s commitment to institutionalizing responsible AI use across sectors while promoting innovation (previously discussed here). Similar momentum is building at the state level, where we expect to see continued parallel developments (previously discussed here and here).
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Unwinding Executive Order 11246: What Federal Contractors Need to Know [Podcast]
In this podcast, shareholders Chris Near (Columbia) and Lauren Hicks (Indianapolis, Atlanta) discuss federal contractors’ and subcontractors’ obligations in unwinding Executive Order (EO) 11246, which mandates affirmative action programs for women and minorities. Lauren and Chris focus on the new administration’s EO 14173, the ongoing requirements for affirmative action programs for veterans and individuals with disabilities, and the necessary adjustments contractors must make to their policies, self-identification processes, and internal communications.
Diversity, Equity and Inclusion: Under Scrutiny, But Still Viable
Diversity, Equity, and Inclusion (DEI) initiatives have been a cornerstone of workplace culture for many organizations, developed in response to historic and ongoing patterns of exclusion, and have been linked to better profits and improved work environments. But under the current administration, these programs are facing increased legal and political scrutiny. Recent executive orders, federal guidance, and high-profile lawsuits have significantly altered the landscape for DEI, especially for companies that rely on federal funding or government contracts.
While most DEI programs remain legal, employers must now be more cautious than ever about how they structure and communicate their inclusion efforts. A misstep in this evolving environment can trigger not just reputational damage, but also serious legal consequences.
The Legal Framework: What Still Stands
The foundational legal standards for workplace discrimination remain protected by Title VII of the Civil Rights Act of 1964, which prohibits employers from discriminating based on race, color, religion, sex, or national origin. Courts interpreting Title VII have made clear that DEI programs must avoid certain practices—specifically, using race or other protected traits as a basis for hiring, promotion, or termination, or instituting race-based quotas or preferences.
Categorizing employees by race or creating benefits that are only available to particular demographic groups may violate Title VII’s equal treatment principles. However, participating in a race-conscious training program does not by itself constitute an “adverse employment action,” which is a necessary element of a discrimination claim.
Two additional statutes are relevant for organizations receiving government funds or operating in regulated sectors. Title VI of the Civil Rights Act of 1964 (42 U.S.C. § 2000d) prohibits discrimination on the basis of race, color, or national origin in programs receiving federal financial assistance. Title IX of the Education Amendments of 1972 (20 U.S.C. § 1681) prohibits sex-based discrimination in educational programs and activities.
The Ripple Effect of the Harvard Case
In Students for Fair Admissions, Inc. v. President & Fellows of Harvard College, the U.S. Supreme Court held that race-conscious admissions policies at Harvard and the University of North Carolina violated the Equal Protection Clause and Title VI, which now impacts all college and university admissions. While the decision directly applies to educational institutions, its reasoning has clear implications for employment under Title VII. The Court rejected the use of race as a categorical factor in decision-making but allowed for its consideration within the context of a personal narrative. Employers should heed this logic: considering race explicitly in hiring decisions is likely unlawful, even if well-intentioned.
Executive Orders under the Trump Administration
Two executive orders signed under the Trump Administration have intensified compliance obligations for government entities and contractors. Executive Order 14151 directs all federal agencies to terminate existing DEI programs. Executive Order 14173 requires federal contractors to certify they do not maintain “illegal DEI programs,” with the threat of False Claims Act liability (31 U.S.C. §§ 3729–3733) for misrepresentation.
Under EO 14173, each federal agency may nominate up to nine contractors for compliance review. The Department of Justice is scheduled to begin prosecuting non-compliant contractors beginning May 21, 2025. The Equal Employment Opportunity Commission (EEOC) issued clarifying guidance on March 19, 2025, addressing permissible DEI practices and identifying potential areas of legal exposure. Companies engaged in federal contracting should review this guidance closely.
What’s Still Permissible?
Despite these constraints, employers still have room to foster inclusive workplaces—if they do so carefully and in compliance with federal law. For example, outreach and recruitment efforts aimed at underrepresented communities remain permissible, so long as employers do not use race or sex as decision-making criteria.
Employee Resource Groups (ERGs) and affinity networks can continue to exist and serve important cultural roles, provided they are open to all employees and do not grant or restrict access based on protected characteristics. The content and focus of these groups may center on shared identities or experiences, but eligibility must remain non-discriminatory.
With respect to DEI training programs, employers should avoid separating employees by race or tailoring content based on demographic traits. These practices could be viewed as discriminatory under Title VII. Training should emphasize respectful communication, bias awareness, and inclusion principles—without suggesting that any racial or identity group is inherently privileged or deficient.
Messaging Matters
Optics and tone are increasingly important in managing DEI risk. Companies do not need to eliminate all references to DEI in their public-facing materials, but careful messaging can help mitigate scrutiny. Legal counsel should review websites, social impact statements, and recruitment materials to ensure they reflect the company’s commitment to equal opportunity and inclusion—without suggesting preferential treatment.
Many organizations are shifting from terminology like “diversity,” “equity,” and “DEI” toward softer framing such as “belonging,” “community values,” and “inclusive culture.” These alternatives often better capture the intent of such programs while lowering the risk of being perceived as discriminatory or exclusionary.
Lessons from the Courts
Several recent cases illustrate how DEI-related policies can give rise to litigation—and how courts are approaching these claims.
In Herrera v. New York City Department of Education (S.D.N.Y. 2021), several white executives alleged they were demoted and replaced as part of a discriminatory push against “toxic whiteness.” The case settled for $2.1 million, underscoring the risk of implementing perceived race-based personnel decisions.
In Duvall v. Novant Health, Inc. (4th Cir. 2024), a jury awarded $3.4 million to a white male executive who alleged his termination was driven by the company’s diversity goals. The jury found that race and sex were impermissible factors in the decision, reinforcing that DEI initiatives must not violate anti-discrimination laws.
In contrast, the court in Young v. Colorado Department of Corrections (D. Colo. 2022), dismissed a claim that DEI training created a hostile work environment, emphasizing that discomfort with DEI content does not meet the legal threshold for harassment.
Finally, in Diemert v. City of Seattle (W.D. Wash. 2022), a white male employee challenged the city’s Race and Social Justice Initiative. While some of his claims were dismissed, others survived early motions, indicating how DEI efforts, if seen as exclusionary or coercive, can be vulnerable to legal challenges.
Proceed with Purpose
Despite the legal and political headwinds, DEI is not dead—but it is evolving. Employers should avoid the temptation to abandon inclusion initiatives entirely. Instead, they should take this moment as an opportunity to reassess, refine, and reframe.
In the rush to reduce legal exposure, some employers are choosing to rapidly scale back or entirely eliminate their DEI initiatives. A growing number of companies have quietly scrubbed DEI language from their websites, renamed employee groups, or disbanded inclusion committees altogether. While these changes may be intended to align with new federal directives or to preempt political scrutiny, they carry their own set of legal risks.
As recent coverage has tracked (HR Brew DEI Tracker), this trend is becoming increasingly visible—and potentially problematic. From a litigation standpoint, an abrupt reversal of DEI commitments could be cited as evidence of a company’s shifting culture or intent. In the context of a hostile work environment or disparate treatment claim, particularly one involving race or gender, the removal of DEI programs could be used to support an inference of discriminatory motive or tolerance of bias.
Put simply, if a plaintiff alleges that their employer fostered or ignored a toxic or exclusionary workplace, the dismantling of programs designed to promote inclusion may undermine the employer’s defense. Employers should therefore proceed thoughtfully, ensuring that any changes are rooted in legal compliance and sound business judgment—not in fear or political reaction.
A careful review of training programs, ERGs, recruitment policies, and public messaging can go a long way in ensuring that DEI efforts are both legally compliant and culturally meaningful. In this environment, thoughtful recalibration—not retreat—is the key to continuing to build inclusive workplaces without exposing the company to unnecessary legal risk.