How does the False Claims Act Work?
The federal False Claims Act (“FCA”) (31 U.S.C. §§ 3729 – 3733) provides another avenue for whistleblowers to report instances of fraud against the government. Suits brought by whistleblowers under this law are known as qui tam actions (pronounced “kee tam” or “kwee tam”), which means that the whistleblower is suing on the governments’ behalf. “Qui tam” is an abbreviated version of the Latin phrase “qui tam pro domino rege quam pro se ipso in hac parte sequitur,” which translates to, approximately, “he who brings an action for the king as well as for himself.”
In qui tam actions, whistleblowers are referred to as “relators.” A relator need not be an employee of the company they are reporting on; former employees, contractors, competitors, and even third parties are eligible to become whistleblowers.
Like the SEC and CFTC whistleblower rewards programs, a relator under the FCA is typically entitled to a reward if the action is successful. The rewards range from 15% to 25% in cases where the government “intervenes” (that is, takes over responsibility for the litigation). If the government does not intervene, but the action is still successful, the relator’s share increases to 25% to 30%. A relator in a successful action is also entitled to legal fees and other expenses. Unlike the SEC and CFTC whistleblower programs, however, these rewards are only available to the first relator to bring new information to the government. When a company is found to be in violation of the FCA, it will be liable for both civil penalties of up to $11,000 for each false claim, plus treble the amount of the government’s damages.
For a qui tam action to be successful, the information that the relator discloses in the complaint must be non-public. This is referred to as the “public disclosure bar.” Specifically, this means that the information cannot have been previously disclosed in a federal criminal, civil, or administrative hearing in which the government was a party; in a congressional or other federal report, hearing, or investigation; or in the news media.
The FCA sets out seven different liability provisions. The three most commonly used in FCA litigation are:
- The False Claims Provision (31 U.S.C. § 3729(a)(1)(A)) – Liability for knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to the government;
- The “Reverse” False Claims Provision (31 U.S.C. § 3729(a)(1)(G)) – Liability for avoiding payment to the government, or improper retention of an overpayment by the government; and
- The False Statement Provision (31 U.S.C. § 3729(a)(1)(B)) – Liability for knowingly making or using (or causing to be made or used) a false record or statement material to a false or fraudulent claim.
Some simple examples of these types of liability would include:
- Charging the government for more than what was provided;
- Fraudulently seeking a government contract;
- Submitting a false application for a government loan;
- Submitting a fraudulent application for a grant of government funds;
- Demanding payment for goods or services that are defective or of lesser quality than were contracted for;
- Submitting a claim that falsely certifies that the defendant has complied with a law, contract term, or regulation; and
- Attempting to pay the government less than is owed.
Filing a Qui Tam Action
A qui tam action is initiated by the filing of a complaint, together with a written disclosure of the material evidence and information available to the relator. Unlike a normal lawsuit, where such filings are both available to the public and served directly on the defendant, in a qui tam action, the complaint and disclosures are filed “under seal” – i.e. confidentially – and copies are provided only to the government. The confidentiality of this filing can be of critical importance to relators, who frequently place their livelihood at risk when they file such claims.
After the government receives this confidential filing, it is then given sixty days to review the materials and decide if they wish to proceed with the action. The courts will routinely grant requests to extent this period of review. If, after review, the government does decide to proceed – known as “intervention” – it means that the government will step in and conduct the litigation on its own behalf. The relator can step back from the case, though the government will often call the relator as a witness. However, if the government declines to intervene, the relator has the option to continue the action on their own. In either circumstance, the qui tam action will then proceed like a normal litigation: the defendant will be served with the complaint and have the opportunity to make a motion to dismiss; the case may settle, or it may move on to trial.
For information on how to bring a qui tam action, contact Lundin PLLC Senior Attorney Alexandra Douglas.