False Claims Act / Qui Tam
About the False Claims Act / Qui Tam
The False Claims Act allows private citizens to sue those who commit fraud against government programs.
The Federal False Claims Act is the primary tool used by the US Government to combat fraud. It allows whistleblowers to sue individuals or entities that are defrauding the government and recover damages and penalties on the government’s behalf.
The statute also provides whistleblowers with financial rewards and job protection against retaliation.
A key feature of the law is the qui tam (or whistleblower) provision, under which an individual or entity (known as a “relator”) with knowledge of fraud against the Government may file a lawsuit under seal on behalf of the United States. If the case is successful, the relator can share in the Government’s monetary recovery and recover attorney’s fees and costs from the defendant. Congress hoped that creating these monetary incentives, along with provisions protecting whistleblowers from reprisal or retaliation, would encourage whistleblowers to come forward and incentivize private lawyers to commit legal resources to representing whistleblowers in prosecuting fraud on the Government’s behalf.
The FCA has been highly successful as a public-private partnership. As of the end of 2022, Government recoveries have exceeded $72 billion following the 1986 amendments that strengthened the False Claims Act, with rewards to whistleblowers totaling billions of dollars.
Basics of a False Claims Act / qui tam lawsuit.
Filing and Service of Complaint
The False Claims Act requires that – prior to filing his or her lawsuit – the Relator (also called a “whistleblower”) must first provide to the Government a “written disclosure of substantially all material evidence and information the person possesses” of the fraud. Thereafter, the False Claims Act lawsuit is filed, under seal, and a copy of the Complaint, along with the Disclosure Statement containing all material evidence of the fraud is then served on the United States Attorney General and on the U.S. Attorney in the judicial district where the case is filed. The defendant is not served with the Complaint or Disclosure Statement and will not be aware that a lawsuit has been instigated against them while the suit is under seal.
Under Seal - Investigation by the Government
The Complaint and Disclosure Statement remain under seal for at least 60 days, and very likely longer, while the Government investigates the allegations of fraud. During the time the case is “under seal,” the Government uses investigators, such as agents of the Office of Inspector General (OIG) for the affected federal agency, FBI agents, DCIS and/or NCIS agents, or state Medicaid investigators (all depending on the type of case and the nature of the fraud), to investigate the allegations of the Complaint. At the end of the initial 60-day “under seal” period, and any additional time extensions, the Government will either choose to proceed with the action and litigate the action itself or choose not to proceed with the action. During this period, the Government may also seek Court approval to unseal, or to partially unseal, the case in order to engage in settlement discussions with the Defendant.
The Relator's Right to Proceed After Government Declination
If the Government chooses not to litigate the action, the Relator then has the right to prosecute the action. The Federal Government typically intervenes in only a small number of cases every year (about 20%).
Damages, Penalties, and Relator's Share of the Award
If the Defendant is determined to have violated the False Claims Act by making false or fraudulent claims, the statute mandates that the fraudster pay three (3) times the amount of damages which the Government sustained because of the act of that person, as well as civil penalties ranging from $5,500 to $11,000 for each false or fraudulent claim, adjusted for inflation under the Federal Civil Monetary Penalties Inflation Adjustment Act of 1990, as amended.
The Relator is entitled to an award if the Government is able to recover through a settlement or successful judgment at trial. In cases in which the Government chooses to litigate the action, the Relator is entitled to receive 15% to 25% of the amount recovered by the Government. In cases in which the Relator conducts the action, he or she is entitled to receive 25% to 30% of the amount recovered by the Government.
There are several limitations and exceptions in the False Claims Act which may affect the viability of a Relator’s case. The False Claims Act has a 6-year statute of limitations, and certain actions are barred altogether. For instance, qui tam lawsuits generally must be based on information that has not been publicly disclosed. Further, the False Claims Act does not apply to claims involving federal tax fraud. Tax fraud whistleblower cases are addressed in a separate federal statute.
Origins in our nation's history
In the United States, the concept of the citizen-initiated lawsuit to address fraud against the government dates back to the earliest days of the Republic.
The First Continental Congress, and later the early Congresses of the United States, passed numerous statutes imposing penalties or fines that rely upon qui tam provisions for enforcement.
These enforcement actions came to be known as "Qui Tam" lawsuits, referring ot the original English common law that allowed such suits to be brought "on behalf of the King, as well as oneself."
Civil War
"[W]orse than traitors in arms are the men who pretend loyalty to the flag, feast and fatten on the misfortunates of the national while patriotic blood is crimsoning the plains of the South and their countrymen are mouldering in the dust." -President Lincoln.
In 1863, during the Civil War, Congress passed the first version of the False Claims Act, which at that time was commonly known as 'Lincoln's Law.' This legislation was enacted to punish and deter military procurement fraud by unethical Civil War contractors.
The Act conferred upon any person the right to file a qu tam action against anyone who filed a false claim for payment to the United States government.
1943 Congress curtrails Reach of the FCA
In 1943, Congress drastically curtailed the reach of the False Claims Act in response to a series of cases that were branded as "parasitic" because they were brought by Relators who had no original information, but rather their cases were based on information contained in public indictments or related news articles.
The 1943 Amendments greatly reduced the award to the Relator, from a guaranteed 50% of the recovery, to 10% if the government prosecuted the case, and 25% if the Relator proceeded with their case without the government.
The 1986 Amendments Reviltalized the Act
The early years of the Reagan Administration witnessed significant increases in defense spending. As with any increase in government spending, the inevitable profiteering was not far behind.
In 1986, US Senator Charles Grassley (R-IA) and US Rep. Howard Berman (D-CA) joined forces to introduce a new round of amendments that greatly enhanced the role of the Relator and the qui tam provisions.
By increasing incentives, providing anti-retaliation protections for whistleblowers, and introducing a public discovery bar, the 1986 Amendments revitalized the False Claims Act.
Fraud Enforcement and Recovery Act of 2009
In 2009, Congress passed the Fraud Enforcement and Recovery Act of 2009 (FERA), again amending the False Claims Act to clarify and strengthen its effectiveness.
FERA was corrective legislation in response to Court decisions that narrowly interpreted some of the Act's privisions and imposed limitations that were inconsistent with the intent of Congress to protect all government funds and property.
