False Claims Act 101 – Q3 2024 Facts & Findings

The False Claims Act (FCA), 31 U.S.C. §§ 3729, et seq., is the federal government’s primary tool to combat fraud. The qui tam¹ provision of the FCA allows private citizens to file lawsuits on behalf of the government against individuals or entities defrauding the government. To encourage individuals to report government fraud, the FCA provides financial incentives and safeguards against retaliation for whistleblowers.

Background

The FCA, also known as “Lincoln’s Law,” was initially enacted during the Civil War to address rampant fraud by military contractors. It was substantially revised in 1986 to increase the incentives for whistleblowers and to make it easier for the federal government to punish fraud. It has been amended three more times, but the key provisions remain essentially the same as in the 1986 version.

Liability

The FCA establishes liability for seven types of conduct: false claims for payment, making false statements, conspiracy, conversion, false receipts, unlawful purchase of government property, and reverse false claims. The relevant statutory text states:

31 U.S.C. 3729(a)(1)

(a) Liability for Certain Acts

(1) In general. —Subject to paragraph (2), any person who—

(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;

(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim;

(D) has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property;

(E) is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;

(F) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property; or

(G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government, is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note; Public Law 104–410 [1]), plus 3 times the amount of damages which the Government sustains because of the act of that person.

Damages and Penalties

The United States may recover up to three times the damages caused to the government by the fraud plus a civil penalty for each violation. While the FCA references a penalty of between $5,000 and $10,000, it is indexed to inflation, usually annually, since 2015. As of February 2024, the FCA penalty range is $13,946-$27,894 per violation. Often a single fraudulent scheme will generate many false claims, even thousands, and each warrants a penalty.

False Claim vs. Reverse False Claim

The FCA hinges on the presentation of false claims to the government for payment. The statute broadly defines “claim” as “any request or demand, whether under a contract or otherwise, for money or property.” 31 U.S.C. § 3729(b)(2). This encompasses requests for payment directed to federal agencies, personnel, contractors, grantees, or recipients, provided the funds are used on behalf of the government or to further a government initiative or program. Id.

Some examples of claims covered by the FCA include claims submitted to Medicare by medical providers for services that were not provided to patients or invoices submitted by federal contractors for work that was not performed or not performed to the specifications required. False claims to Medicaid are also actionable under both the federal FCA and respective state false claims acts.²

Reverse false claims occur when someone underpays or fails to repay what they are obligated to pay the government. For example, when an importer intentionally misrepresents the country of origin of an imported product to pay a lower customs duty, that is a reverse false claim. Another scenario would be when a pharmaceutical company manipulates the Average Manufacturer Price of its drug to reduce the amount it must pay under the Medicaid Drug Rebate Program.³

Qui Tam Provision

A significant aspect of the law is its qui tam provision, enabling individuals (referred to as relators) with knowledge of fraud against the government to file lawsuits under seal on behalf of the United States.⁴ Successful cases entitle relators to a share of the government’s financial recovery, along with reimbursement for attorney fees and costs from the defendant. 31 U.S.C. § 3730.

Relator’s Share

To encourage whistleblowers to report government fraud, FCA cases that result in a recovery for the government include monetary awards for whistleblowers, known as the “relator share.” The amount of the relator’s share depends on several factors. The primary factor is whether the government intervened in the relator’s FCA case.

If the government intervenes, the FCA allows for a relator share of 15%-25% of the proceeds collected by the United States. If the Government declines to intervene, and the relator litigates the matter alone, the FCA allows for a relator share of 25%-30%.

Knowledge

The FCA requires a “knowing” violation, yet it does not mandate proof of the fraudster’s specific intent to defraud the government. Instead, it defines “knowing” and “knowingly” as encompassing situations where a person has actual knowledge that a statement or claim was false, acted in deliberate ignorance of whether the information was true or false, or acted in reckless disregard of its truth or falsity. 31 U.S.C. § 3729(b)(1)(A).

Defendants in FCA cases have long argued that FCA liability does not extend to situations where the defendant followed an “objectively reasonable” legal interpretation, even if the defendant knew the interpretation was wrong. In 2023, the US Supreme Court rejected this “objectively reasonable” interpretation defense in its unanimous SuperValu decision. United States ex rel. Schutte v. SuperValu Inc., 598 U.S. 739, 143 S. Ct. 1391 (2023).

Materiality

Since 2009, the FCA has defined “material” as “having a natural tendency to influence or be capable of influencing the payment or receipt of money or property.” 31 U.S.C. § 3729(b)(4). The materiality requirement ensures that the FCA applies only when the false or fraudulent conduct was important enough that it would probably have influenced a government decision.

The Supreme Court deliberated on the materiality requirement in Universal Health Servs. v. United States ex rel. Escobar, 579 U.S. 176, 136 S. Ct. 1989 (2016), and stated that materiality is a “demanding” standard that requires a “holistic” analysis. See id. (materiality inquiry includes a “reasonable person” standard in which no one factor is determinative).

Statutory Bars to Qui Tam Cases

Whistleblowers may face barriers to bringing or maintaining qui tam complaints under certain circumstances. These bars are generally known as the “first to file rule” and the “public disclosure bar.”

The “first to file rule” prevents subsequent relators from maintaining suits or receiving rewards if someone else has already filed identical allegations. See 31 U.S.C.S. § 3730(b)(5). Because all FCA cases are filed under seal and may remain under seal for years while the government investigates, it is not unusual for multiple relators to unknowingly file competing FCA cases. In such situations, the later-filed relators are often out of luck unless they can assert that they were, in fact, “first to file” on specific allegations and/or can negotiate a means of sharing the financial reward with the whistleblowers of earlier-filed suits.

The “public disclosure bar” prohibits relators from filing or maintaining qui tam cases if substantially similar allegations have already been publicly disclosed. The one exception to the public disclosure bar is if the relator is the original source of the information. See United States ex rel. Drennen v. Fresenius Med. Care Holdings, Inc., 2012 U.S. Dist. LEXIS 29136 (D. Mass. Mar. 6, 2012) (Court found allegations had been publicly disclosed but denied dismissal of qui tam action because relator was the original source.).

Retaliation Protections

The FCA safeguards employees, contractors, or agents from retaliation for lawful actions taken to halt FCA violations. Whistleblowers who suffer retaliation may recover various forms of compensation, including reinstatement with seniority, double the amount of back pay plus interest, and compensation for special damages such as emotional distress, attorneys’ fees, and costs. Retaliation claims may be pursued alongside or separately from an FCA qui tam complaint.

Qui Tam Case Procedure

Prior to filing the FCA case, a relator discloses the allegations to the US Attorney in the district where the complaint will be filed. 31 U.S.C. § 3730(b)(2). Thereafter, the relator files the qui tam complaint under seal. The complaint and a memorandum detailing the information and evidence in the relator’s possession are served on the US Attorney General and the local US Attorney.

As the complaint is filed under seal, neither the defendants nor the public are made aware of its filing. The case remains under seal for 60 days, during which the government investigates the whistleblower’s allegations. If the government is still investigating after 60 days, it will request a seal extension. Most FCA cases remain under seal for many months or even years.

Before the case is unsealed, the government informs the relator and the court whether it intends to intervene. If the government intervenes, it assumes the primary role in prosecuting the case and will file a Complaint in Intervention. The relator and his or her counsel often remain actively involved in the government’s pursuit of the case. If the government declines to intervene, the relator retains the option to pursue the case independently on behalf of the government.

Conclusion

The FCA is the strongest anti-fraud weapon in the government’s arsenal, and the vast majority of FCA actions are initiated by whistleblowers. In fiscal year 2023, government recoveries from qui tam suits exceeded $2.3 billion, with rewards to whistleblowers totaling $349 million.⁵ Given the potential for substantial rewards and protection from retaliatory conduct, more whistleblowers are emboldened to come forward every day.

Yet many in the legal industry remain unaware of this powerful statute and miss opportunities to hold fraudsters accountable and recover critical dollars for federal taxpayers and their clients. Now, however, you have the tools to “issue spot” for these types of allegations and the wherewithal to consult with an experienced FCA practitioner as needed.

References

[1] Qui tam is shorthand for the Latin phrase “qui tam pro domino rege quam pro se ispo in hac parte sequitur,” which means “he who sues in this matter for the king as well as for himself.”

[2] A majority of states (along with the District of Columbia and Puerto Rico) have passed their own False Claims Act laws that track their federal counterpart. Most include qui tam provisions that allow whistleblowers to sue in the name of the state and receive a share of any recovery.

[3] The Medicaid Drug Rebate Program, 42 CFR § 447.509, is outside the scope of this article. However, there have been several FCA suits based on allegations of fraudulent drug pricing.

[4] A relator in an FCA case cannot proceed pro se because “the relator represents the interests of the United States, but a lay person cannot represent another party in court.” In re Syntax-Brillian Corp., 554 B.R. 323, 327 (Bankr. D. Del. 2016).

[5] https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-268-billion-fiscal-year-2023. Last accessed 2/22/2024.

About the Author

Kelly J. Shivery, ACP, is an Advanced Certified Paralegal in Alternative Dispute Resolution and E-Discovery. Ms. Shivery obtained an AS in paralegal studies in 1995. She began working in the area of whistleblower law in 2011. Ms. Shivery is a paralegal with the Whistleblower Law Collaborative, LLC. The firm represents whistleblowers in matters brought under federal and state False Claims Acts, the SEC and IRS Whistleblower Programs, and other laws. She is a paralegal member of the Boston Bar Association and The Anti-Fraud Coalition.
Email: kelly@whistleblowerllc.com

False Claims Act 101 – Q3 2024 Facts & Findings

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