In the latest issue of The Wright Toolbox:
- The False Claims Act – Qui Tam Actions an Overview – read now
- DOJ Announces False Claims Act Recoveries in FY 2019 – read now
The False Claims Act – Qui Tam Actions an Overview
The federal civil FCA was first enacted in 1863 to impose liability for presenting false claims to the government in order to prevent fraud by government contractors during the Civil War. 31 U.S.C. § 3729 et seq. Congress intended that the False Claims Act, and its qui tam action would help the government uncover fraud and abuse by unleashing a “posse of ad hoc deputies to uncover and prosecute frauds against the government.” Leading up to the enactment of the FCA, “[A] series of sensational congressional investigations” prompted hearings where witnesses “painted a sordid picture of how the United States had been billed for nonexistent or worthless goods, charged exorbitant prices for goods delivered, and generally robbed in purchasing the necessities of war.” Accordingly, Congress responded by imposing civil and criminal liability for various types of fraud on the Government, subjecting violators to double damages, forfeiture, and up to five years’ imprisonment. Later amendments by Congress have steadily increased the scope of FCA coverage.
The FCA’ s qui tam provisions allow a private individual to bring suit on behalf of the federal government. The individual, called a “relator,” is granted certain rights under the FCA, but must also cooperate with the government. Any individual with knowledge of fraudulent activity against the government may file a claim as the plaintiff/relator, and the relator need not have been personally harmed by the defendant in order to bring a qui tam suit. The United States Department of Justice (“DOJ”) is given the chance to be substantially involved in a qui tam relator’ s suit from its outset. Qui tam plaintiffs are required to file their claims under seal and to leave them under seal for at least 60 days. Upon receiving notice of the complaint and a disclosure statement from the relator, the DOJ is required to investigate the relator’ s allegations of fraud. Upon completing its investigation the DOJ may elect to: (1) intervene in the case, (2) decline to intervene or (3) move to dismiss the case.
Broadly speaking, a violation of the FCA occurs when there has been: (1) a false statement or fraudulent course of conduct; (2) made or carried out with knowledge of the falsity; (3) that was material; and (4) that involved a claim. A false or fraudulent claim is a claim aimed at extracting money from the government that it otherwise would not have paid or owed. This can include an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided. It can also include a claim that is predicated upon a false representation of compliance with a federal statute or regulation or a prescribed contractual term. Thus, where a contractor has either expressly or impliedly falsely certified compliance with some statutory, regulatory or contractual requirement.
FCA liability extends beyond the prime contractor, and can reach to any person knowingly assisting in causing the Government to pay claims grounded in fraud. Thus, a prime contractor who submits false subcontractor claims for reimbursement to the federal government can be liable under the FCA if the prime contractor knew of the falsity or acted with reckless disregard or deliberate ignorance of the falsity. In addition, one court held “[w]here a defendant has an ongoing business relationship with a repeated false claimant, and the defendant knows of the false claims, yet does not cease doing business with the claimant or disclose the false claims to the United States, the defendant’s ostrich-like behavior itself becomes a course of conduct that allowed fraudulent claims to be presented to the government.”
Statistics indicate that the number of qui tam actions filed by private citizens has greatly increased in recent years and government-brought actions have steadily declined. Part of the reason for the explosion of qui tam suits is that if the action is successful the whistleblower can receive up to 30 percent of the recovery. One of the largest qui tam cases in history involved swiss bank UBS, which at the time was the largest bank in the world. As a result of a whistleblower action, the U.S. recovered 13.7 billion in back taxes, civil fines and penalties and the relator received $104 million. The threat of FCA exposure is always present and can come from multiple sources including disgruntled current or former employees, customers or vendors or even “professional” whistleblowers who target certain industries and review publicly available information to generate claims.
Typically, the largest FCA recoveries in a given year come from the health care industry, including drug companies, medical device companies, hospitals, nursing homes, laboratories, and physicians. The next largest recoveries come from the financial industry. The construction industry has its fair share of FCA claims as well. Contact us if you have any concerns regarding the FCA.
DOJ Announces False Claims Act Recoveries in FY 2019
In fiscal year 2019, the Department of Justice (“DOJ”) obtained more than $3 billion in settlements and judgments from civil cases under the False Claims Act (“FCA”). The DOJ stated that “[T]he significant number of settlements and judgments obtained over the past year demonstrate the high priority this administration places on deterring fraud against the government and ensuring that citizens’ tax dollars are well spent.”
Of the $3 billion recovered, $2.6 billion relates to matters that involved the health care industry. The whistleblower, or qui tam, actions comprised a significant percentage of the FCA cases that were filed in FY 2019. Whistleblowers filed 633 qui tam suits in fiscal year 2019, that equates to over 12 suits filed every week; and these cases accounted for over $2.1 billion of the total recoveries. The government paid out $265 million to the individuals who exposed fraud and false claims by filing these actions.
One of the DOJ FCA recoveries involved a Virginia-based defense contractor, ADS, Inc. and some of its officers and general counsel, which collectively totaled over $36 million. The allegations were that the officers and company fraudulently obtained federal set-aside contracts reserved for small businesses that the company was ineligible to receive. The government alleged that ADS falsely represented that it qualified as a small business concern and that, as a result of the representations, the company was awarded numerous small business set-aside contracts for which it was ineligible.
If you need help with any FCA issues, just give us a call.
To browse past issues, visit The Wright Toolbox page.