The United States False Claims Act
- United States
- 07/17/2002
- Frank, Haron, Weiner and Navarro P.L.C.
The False Claims Act is an excellent tool for private persons throughout the world to report contractor fraud against the government and taxpayers of the United States of America and to receive a reward for their efforts.
What is the False Claims Act?
The False Claims Act (31 U.S.C. Sections 3729-33) allows a private individual or “whistleblower”, with knowledge of past or present fraud on the federal government, to sue on behalf of the government to recover stiff civil penalties and triple damages. The lawsuit is called and “Qui Tam suit” and the person bringing the suit is formally known as the “Relator.” If the suit is successful, it not only stops the dishonest conduct, but also deters similar conduct by others and may result in the Relator’s receipt of a substantial share of the government’s ultimate recovery – from 15 to 30 percent of the total.
The False Claims Act, also called the “Lincoln Act,” “Informer’s Act,” or the “Qui Tam statute,” was enacted during the American Civil War. Qui Tam is shorthand for the Latin phrase “qui tam pro domino rege quam pro seipse”, meaning “he who sues for the king as for himself.” The law was targeted at stopping dishonest suppliers to the Union military at a time when the war effort made it all but impossible for the government to investigate and prosecute the fraud itself.
Today it serves a similar purpose because of the enormous size of the federal government and the variety or programs under which it expends taxpayer funds. More than 3,600 Qui Tam suits have been filed since 1986, when the statute was strengthened to make it easier and more rewarding for private citizens to sue. The government has recovered almost $5 billion as a result of the suits, of which over $808 million has been paid to Relators/whistleblowers.
The False Claims Act also prohibits an employer from harassing or retaliating against an employee for attempting to uncover or report fraud on the federal government. If retaliation does occur, the Relator may be awarded “all relief necessary to make the employee whole,” including reinstatement, back pay, two times the amount of back pay, litigation costs, and attorney fees.
Fraud under the False Claims Act means that a contractor has knowingly presented a false claim for payment to the United States. The fraud can occur wherever federal or state monies are directly or indirectly used to purchase services or goods.
Fraud most often occurs in areas where the United States is spending the most money. In the late 1980s, many cases were brought for fraud in connection with the defense industry. After the Cold War ended, more Qui Tam cases were filed as a result of fraud against government medical health insurance programs – Medicare, Medicaid and Tri-Care (Military Health Care—formerly CHAMPUS). After the tragedies of September 11, 2001, military and anti-terrorism spending increased as did the possibility of fraud. The False Claims Act is also used more and more for fraud which results from violations of labor or environmental statutes.
How do you discover the fraud?Did someone make a false statement to the government for purposes of getting a claim paid, or for purposes of avoiding paying money back to the government?
If so, who made the false statement, to whom, when, where, why, and how? What government programs or funds are involved? What is the process that must be followed to obtain the funds? What regulations or documents exist that describe the process? What part of the process did the defendant perform in a knowingly false manner?
Much of what makes people angry about government is not actually fraud —but rather waste, incompetence, mismanagement, apathy and similar problems. However, unless someone knowingly made a false statement to the government, there will not be a basis to file suit under the False Claims Act. It is important to discover as many of the details about the fraudulent act as possible—the actual false claims, the people involved, the regulations that were violated and the operation of the claim’s process—both at the company and at the government. Journals, memos, documents and notes are very helpful.
Is it possible that anyone within the government knew or approved of the alleged fraud or the improper billings?
Is there any evidence of wrongdoing by the government itself?
If the government was told about the issues now the subject of the fraud allegations and did nothing about it, you may still have the right to file the case. The issues are: who within the government was told, when, what was said, and what happened as a result.
Has anyone done anything to try to cover up this fraud?
Have defendants told the government about it?
A key element of a False Claims case is that someone knowingly did something wrong, not just made a mistake. Few things can be more effective in proving that someone knew what he/she was doing was wrong than making efforts to cover it up.
Can you document the fraud?Other than the defendants and you, who else knows about the fraud? Where are these people employed? Were they ever, or are they now, employed by the defendant? Are they likely to be helpful to, or hostile to, the defendant? What documents were submitted to the government to obtain payment and what is false about them?What other documents exist that would help show the fraud, and who has them?
In a Qui Tam case, the more knowledgeable and credible witnesses you can identify, the better. The same is true for documents that show the fraud. Government lawyers will be looking to build a case that does not completely rely on any single witness or document. Corroboration helps persuade the government to intervene and bring all its resources and authority to bear on the case, while at the same time, takes some of the pressure off of you. Make a “corporate family tree” or organizational chart showing how the entity that committed the fraud is organized, what the different departments are, what their functions are, and who works/worked where.
In order to determine whom to sue, and in order to subpoena the right individuals to produce records, your lawyers and the government will need to know as much as possible about the defendant entity, including its business, management, structure, assets, as well as where you or your source of information fits in.
Who was responsible for or involved in the fraud, and what evidence is there to prove it?
Your “gut feeling” is important, and may be helpful in steering your lawyer in the right direction, but it isn’t enough to support naming someone as a defendant.
Who, in a position of authority at the defendant entity or elsewhere, was knowingly and actively involved in the fraud?
A Qui Tam lawsuit must be more than just a series of general allegations and speculations. It must be as thoroughly verified as possible and very detailed. In addition to a Complaint, you will have to provide a detailed “Written Disclosure” to the United States Department of Justice, containing all the facts you know. The more details and information you are able to supply, the more likely the government will be persuaded to “intervene” and take over the case, thereby aligning its enormous authority and resources with you. The more helpful you are to the government, the larger percentage of any eventual recovery you may be awarded.
How was the government damaged by this fraud?
In general, the more damage the government sustained, the greater the level of interest in the case on the part of the government. Since the Relator’s recovery is a percentage of the government’s, in a successful case, the greater the damages, the greater your recovery will be as well. In addition to the amount of money the government paid when it shouldn’t have, the False Claims Act also provides for the recovery of two or three times the amount of damages which the government sustains plus a $5,500 to $11,000 penalty for each false claim submitted.
In some situations, each individual bill or form submitted to the government counts as a “claim,” which means the penalties in these cases can sometimes be as much as, or more than, the actual damage caused to the government. Each case, however, is different and not all of the damages or penalties are recovered in every case.
What are your potential risks?
What is your involvement in the fraud? Is your knowledge of the fraud direct and independent, or is it second or third-hand? Has the fraud been publicly disclosed?
Too much and too little involvement can both be a problem. To qualify as a Relator, if the fraud has been publicly disclosed, you may need to show that you have direct and independent knowledge of the fraud (not just something you heard or read about third-hand). On the other hand, too much involvement on your part can lead to a decreased monetary recovery, or worse, can lead to your becoming a target of a government investigation. Blowing the whistle does not automatically protect you from prosecution. Not only that, a person who “planned or initiated” the fraud, or who is convicted of a crime arising out of the fraud, or who is given immunity by the government, may be barred from all or part of a Qui Tam recovery.
Is there information about you or your past that reflects negatively on you?
Your lawyer needs to know about any skeletons that may be in your closet in order to deal with them effectively, instead of being surprised by them at an inopportune moment. If you find yourself in doubt about whether to confide in your lawyer, remember what you tell them is confidential and they cannot deal with a problem without knowing about it.
What will happen if the other side knows about it and the lawyer does not?
If the government finds out on its own–or from the defendant–you and they may lose credibility. By keeping the lawyer uninformed about problem areas, you are hurting yourself.
Did you ever complain or protest about this fraud, or any of the issues or facts relating to the fraud?
As a result, were you discriminated against, retaliated against, or otherwise harmed at work?
Whistleblowers are not always popular at their work, and they are sometimes subjected to harassment or ostracism. The False Claims Act provides some protection, stating:
“Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole.” (31 U.S.C. 3730(h))
What are your Rewards and Protection?
What Rewards and Protections Does the False Claims Act Give a Whistleblower?
The False Claims Act also prohibits an employer from harassing or retaliating against an employee for attempting to uncover or report fraud on the federal government. If retaliation does occur, the Relator may be awarded “all relief necessary to make the employee whole,” including reinstatement, two times the amount of back pay, litigation costs, and attorney fees.
Final Points to Remember
• Even though the case is initially filed “under seal,” your anonymity, once the case has been filed, cannot be assured.
• These cases can, and usually do, drag on for years, and the results are never certain.
• If the Department of Justice decides not to intervene, and the Relator continues with the case, the Relator may be responsible for paying the defendant’s legal fees and expenses.
• If the defendants have any claims against you, they may be able to bring them against you in connection with the Qui Tam action or in a separate action.
• If you personally have committed a crime, filing a Qui Tam case will probably not provide you with any legal protection.
• Certain types of cases are exempt from the Qui Tam statute.
There is no guarantee that any qui tam case will be successful. But even in a successful case, results can be a very long time in coming. It is not unusual for a settlement to be reached only after years of investigating on the part of the government.
Although each case will be different, the outline below shows the steps that a typical qui tam case will go through from the time the whistleblower discovers the fraud up until the government decides whether to intervene. If the case is not settled at that time, then several additional years of litigation and appeals can be expected.
Qui Tam Procedure Outline for a Health Care Case
1. Relator finds out about ongoing fraud.
2. Relator assesses the magnitude of fraud.
A. Gather as much documentary evidence as possible
B. Do not steal documents
C. Create records of how documents were obtained if risk that confidentiality/theft of documents will be an issue
D. Create a journal documenting meetings, relevant statements, etc.
3. Consider raising concerns with employer in order to come under the False Claims Act whistleblower protection, Section 3730(h) and/or other applicable whistleblower protection provisions. Discuss with lawyer.
4. Consider raising concerns with employer in order to ensure that relator’s perception of fraud is correct (there may be a valid explanation/rationale for the suspect procedures.) Discuss with lawyer.
5. Relator should not discuss the matter in public or disseminate information about the matter in order to avoid public disclosure issues and/or a preemptive qui tam action by a co-worker or others.
6. Contact a lawyer:
A. Lawyer should instruct client on applicable law so that client will be sensitive to events when they occur.
B. Lawyer should direct client on additional steps necessary for a successful action.
C. Lawyer should instruct client on likely consequences to reputation, ability to obtain employment, likelihood of success, possibility of lawsuits against client for defamation, tortious interference, etc.
7. Before taking case, lawyer should assess:
A. Degree of knowledge by potential relator.
B. Amount and nature of relator’s documentary evidence.
C. Relator’s determination and ability to stomach case/see it to completion, as evidenced by:
a. Amount of documentary evidence
b. Nature and frequency of complaints by relator to employer
c. Trustworthiness and reliability of relator
d. Relator’s motives
D. Likely weight that government will assign to relator’s story
E. Relator’s position in the corporate hierarchy
F. False Claims Act law.
a. Intermediary letters
b. Advisory opinions
c. Clarity of rules
d. Case law
e. Any other materials
G. Extent of fraud: national corporation vs. local entity.
H. Existence of a national or regional initiative; similar pending cases
I. Position of local U.S. attorney’s office regarding case
A. Determine federal causes of action available.
B. Determine existence of analogous state law
9. Lawyer prepares disclosure statement, usually containing
A. Confidentiality/Privilege statement/issues
B. Legal background/specific laws violated
C. Factual background
D. Witnesses
E. Exhibits
10. Notify government to protect “original source” exemption.
11. Determine local federal district court’s seal procedures and file complaint under seal:
A. Educate clerk of court about secrecy of action.
B. Go to judge’s chambers and obtain seal order
C. Judge will place all documents to be filed in a sealed envelope, which lawyer is to file with the clerk. Reemphasize again secrecy requirement. Ask clerk to deposit envelope in vault in your presence.
D. Lawyer must have originals or copies of everything before envelope gets sealed.
E. Disclosure statement does NOT get filed in court.
12. Lawyer or law firm employee delivers disclosure statement to local U.S. attorney’s office together with copies of documents filed with the court.
13. After case number and judge assigned to case, serve copies of disclosure statement on DOJ, as well as copies of documents filed with court.
14. Provide copies of everything to relator with letter outlining what will likely happen in the future.
15. During sixty day initial seal period:
A. Government communication unlikely during first sixty days
B. At end of sixty-days, Government will likely ask for six-month extension of seal.
C. At end of sixty-days, Government will likely ask for meeting with relator and relator’s counsel.
D. Government likely review of case during seal:
a. DOJ reviews
b. DOJ will take lead only if national matters.
c. DOJ will submit the case to the affected agency for its review.
d. Agency will assign review of the case to a unit in charge of area in question.
e. Other government actors involved in review are local United States Attorney’s office, FBI, and Office of Inspector General of agency.
E. Government’s decision to intervene or to decline intervention made at end of six-month extended period, unless seal renewed once again.
16. If Government ultimately declines to intervene:
A. Investigate through FOIA whether government is pursing matter through alternative administrative avenues.
B. Monitor alternative procedures
C. Claim reward if there is administrative recovery, pursuant to False Claims Act, Section 3729©(5).
D. Relator and lawyer need to discuss future of case.
a. Private Prosecution
b. Drop case
Conclusion:
The False Claims Act enables private persons to assit the United States government in stopping fraud against the taxpayers. Generally, only the Relator who is the first to file a lawsuit can be rewarded for reporting the fraud. Even if one person uncovers the fraud, someone else can file the lawsuit first and bar the first whistleblower from sharing in any recovery. So, if you think you have a case, it is important for you to contact an experienced Qui Tam lawyer right away.
