The False Claims Act
The False Claims Act allows private citizens to sue those that commit fraud against government programs. The Act provides for treble damages and penalties and also provides awards of 15 to 30 percent of recoveries for those bringing cases. The False Claims Act is the single most important tool U.S. taxpayers have to recover the billions of dollars stolen through fraud by U.S. government contractors every year.
Historical Origins of the False Claims Act
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 relied upon qui tam provisions for enforcement. These enforcement actions came to be known as “Qui Tam” lawsuits, referring to the original English common law that allowed such suits to be brought “on behalf of the King as well as oneself.”
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 who were profiteering by selling sick or lame horses and mules, faulty munitions, spoiled food, and other worthless materials to the Union Army. In President Lincoln’s words:
“[W]orse than traitors in arms are the men who pretend loyalty to the flag, feast and fatten on the misfortunes of the nation while patriotic blood is crimsoning the plains of the South and their countrymen are mouldering in the dust.”
The Act made it illegal for anyone to submit false claims for payment to the Government for worthless or nonconforming goods. The Act conferred upon any person the right to file a qui tam action against anyone who filed a false claim for payment to the United States Government. Such persons, known as “relators,” were essentially bounty hunters who were rewarded or incentivized to pursue such claims by receiving 50% of all monies recovered. As originally enacted, the amounts recoverable under the False Claims Act included twice the damages caused by the fraud as well as a $2,000 penalty for each claim submitted to the United States.
In 1943, Congress drastically curtailed the reach of the False Claims Act, in response to a series of cases that they branded as “parasitic” because they were brought by relators who had no original information, but rather based their cases on information contained in public indictments or related news articles. The 1943 Amendments eliminated the so-called “parasitic lawsuits” by barring a claim if the Government possessed any knowledge of the fraud at the time the action was filed. The Amendments also 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 without the Government). As predicted by the opponents of the Amendments, these changes ceded control of the cases to the Government and diminished the incentives to relators sufficient to virtually eliminate qui tam actions for 40 years, until the next set of Amendments in 1986.
The 1986 Amendments - Revitalizing the False Claims Act
The early years of the Reagan Administration witnessed an unprecedented military build-up fueled by significant increases in defense spending. As with any increase in government spending, the inevitable profiteering was not far behind.
In 1986, U.S. Senator Charles Grassley (R - IA), and U.S. Representative Howard Berman (D - CA.), joined forces in a bipartisan effort to reinvigorate the False Claims Act with a new round of amendments that greatly enhanced the role of the Relator and the qui tam provisions.
By increasing the incentives, providing anti-retaliation protections for whistleblowers, and eliminating the crippling government knowledge defense and replacing it with the public disclosure bar, the 1986 Amendments revitalized the False Claims Act, allowing it to become the Government’s most effective tool to fight fraud in government programs.
The Fraud Enforcement and Recovery Act of 2009 (FERA)
In 2009 Congress passed the Fraud Enforcement and Recovery Act, again amending the False Claims Act to clarify and strengthen its effectiveness. Over the course of twenty-three years, following the 1986 Amendments, some courts had narrowly interpreted some of provisions, imposing limitations that were inconsistent with Congresses intent to protect all government funds and property. FERA enacted corrective legislation intended to reverse these unacceptable limitations. Modifications included:
Elimination of limiting language suggesting requirement that claim must be submitted directly to federal officer
Addition of materiality as element for false statements made to get claim paid
Expansion of conspiracy liability to a apply to all False Claim Act violations
Expansion of reverse false claims liability
The Basics of a False Claims Act Lawsuit
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. Pursuant to the Federal Civil Monetary Penalties Inflation Adjustment Act of 1990, as amended, the civil penalties under the False Claims Act have been adjusted to a range of $10,957 to $21,916 for each false or fraudulent claim submitted after February 3, 2017.
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.
It is wise to seek an experienced attorney to evaluate and possibly to pursue your potential False Claims Act case. These cases can be highly complex, and there are critical filing considerations for False Claims Act cases that can create problems for inexperienced counsel. From start to finish, False Claims Act cases typically last for many years. It is therefore essential to seek out an attorney who will best represent your interests for the duration.
For cases that we accept, we thoroughly investigate the fraud, extensively research the law and facts, and prepare a complete and convincing Disclosure Statement and Complaint prior to bringing the claim in federal district court. We have established relationships with federal prosecutors and the Department of Justice, as well as with other members of the qui tam bar across the United States. The Stone Law Firm, LLC, led by Andrew Stone, is well-equipped to handle False Claims Act cases and has been successful in representing whistleblower plaintiffs. We presently are involved in numerous False Claims Act cases of significant size that are pending in several federal districts.