$4 trillion dollars, Lamborghinis, Ferraris, and fraud. The federal government has spent nearly as much money on COVID relief as the entirety of federal spending in fiscal year 2019. It is reasonable to expect additional billions or trillions of dollars of federal COVID relief spending in the coming months. This deluge of money is a tempting target for fraudsters. Already multiple people have been caught buying “Lambos” or Ferraris with their ill-gotten gains.
Fortunately, the government, the public, and the bar are well armed to deal with these and other cheats that would steal taxpayer money. Center stage in that fight is the False Claims Act (“FCA”), 31 U.S.C. §§ 3729 - 3733. Widely heralded as the government’s best tool to combat fraud, the FCA was signed into law by President Lincoln in 1863 and was originally targeted at stemming the tide of war profiteers selling the Union Army defective materiel. The modern FCA remains an important tool for deterring and remedying all manner of fraud against the government. Although the law is now most often brought to bear to address healthcare fraud, the FCA remains broad.
With the exception of tax fraud, which is statutorily carved out, the FCA reaches almost all manner of fraud against the government. Submitting or causing the submission of false claims, making or using false documents to support a false claim, and withholding the payment of monies due to the government are all violations of the FCA. In addition, conspiring to violate the FCA is itself a separate explicit violation of the FCA.
One of the most powerful components of the FCA is the fact that the law empowers whistleblowers, called relators, to bring cases in the name of the government, participate in the prosecution of an action, and share in any recovery. In fiscal year 2019 alone, the government recovered more than $3 Billion through FCA cases. Of that total, more than $2.1 Billion came from qui tam cases brought by whistleblowers. In fact, since 1987, more than two thirds of FCA recoveries have come from whistleblower-initiated cases.
To bring a qui tam claim, a relator must file a complaint under seal. Maintenance of the seal is of utmost importance. During the seal, no papers are served on the defendants who remain “in the dark” as to the existence of the case and the allegations of fraud. During the seal, the government will interview the relator and undertake an investigation of the alleged fraud. The case remains sealed for an initial period of only 60 days, but the government may (and often does) request extensions of the seal in order to complete its investigation. The seal preserves the government’s ability to conduct a thorough and complete investigation and violations of the seal have been severely punished by the Courts.
At the conclusion of its investigation, the government will intervene and take over prosecution of the case or decline to intervene. Either way, the case is unsealed. Should the government decline to intervene, the relator may proceed to litigate against the defendant(s) on behalf of the government. Still, the government remains the injured party, will be involved in any resolution, and may seek to intervene at a later date. In fiscal year 2019, the government recovered more than $293 Million from declined cases.
The damages available under the FCA are substantial. The total effective damages liability imposed for repeat small dollar frauds (think a large quantity of individually small but false healthcare charges) quickly balloons. In addition to treble damages, defendants are liable for a per-offense civil penalty of between $11,181 and $22,363, an amount indexed to inflation. Defendants must also pay a successful relator’s reasonable expenses, attorneys’ fees, and costs. Relators may be awarded 15%-30% of the proceeds of the action depending on various factors including chiefly whether or not the government intervened.
Being a whistleblower is notoriously difficult and they remain unfortunately rare. The FCA protects whistleblowers by prohibiting retaliation and creating a cause of action for employees, contractors, and agents to vindicate their rights. The protection is reasonably broad and covers being “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment”. An individual need not actually file a whistleblower complaint to gain the protection of the law. “[E]fforts to stop 1 or more violations” are sufficient. The relief awarded to aggrieved whistleblowers “shall include” reinstatement, double their backpay plus interest, and an award of litigation costs and reasonable attorneys’ fees.
Many states have mini-FCAs of their own and most are modeled after the federal law. Some, including New York and California, have statutes that are meaningfully broader than the federal FCA. For example, the New York law permits whistleblowers to bring forward most claims of tax-fraud. Pennsylvania does not have a false claims act, but Allegheny and Philadelphia Counties do.
The FCA, mini-FCAs, and the caselaw that has grown up around them, set up myriad procedural pitfalls and best practices. As always, it is best to consult an experienced qui tam practitioner before filing. Beginning later this year, the Federal Court Section is producing a short series of CLEs discussing the practical side of the FCA. Dates and times to be announced.
Darth M. Newman represents whistleblowers and litigates complex commercial disputes across the country. He can be reached at [email protected] or 412-436-3443.
