I. The “Qui Tam” Provisions of the False Claims Act.
The False Claims Act, a civil statute, is often said to be the government’s primary tool for recovering monies lost as the result of fraud against the government. See S. Rep. No. 345, 99th Cong., 2d Sess. At 2 (1986), reprinted in 1986 U.S.C.C.A.N. 5266. The Act provides, among other things, that persons who knowingly submit or cause the submission of false claims for payment by the United States government, or who knowingly use false statements to get such claims paid or approved, are liable for treble damages plus civil penalties of between $5,500 and $11,000 per false claim. 31 U.S.C. § 3729.1
Originally passed into law in 1863, the FCA has always contained “qui tam” provisions enabling a private citizen, known as the “relator,” to enforce the Act’s provisions by filing a lawsuit as a private attorney general. See United States ex rel. Williams v. NEC Corp., 931 F.2d 1493, 1496-98 (11th Cir. 1991). If the government is successful in recovering in a qui tam case, the relator is entitled to a percentage of the government’s recovery. In 1986, Congress modernized the FCA and its qui tam provisions. See Pub. L. No. 99-562, 100 Stat. 3153 (1986).
Thus, it is critical to keep in mind the criteria the government uses in evaluating your client’s lawsuit and what steps you can take to satisfy that criteria. Assuming that you have a viable legal theory and the evidence to establish a prima facie case, the two key questions the Department of Justice is likely to focus on when analyzing your lawsuit are: 1) What is the harm to the government; and 2) What evidence does your client have in her possession to corroborate her claims?
Under the current version of the Act, the relator may “bring a civil action for a violation of [the FCA] for the person and for the United States Government. The action shall be brought in the name of the Government.” 31 U.S.C. § 3730(b)(1).
To commence a qui tam suit, the relator must file a complaint under seal — i.e., secretly — in federal court and must not serve a copy of the complaint on the defendant until the court so orders. Instead, the relator delivers a copy of the complaint and a written disclosure of “substantially all material evidence and information the person possesses” on the U.S. Department of Justice (“DOJ”). The government then has the opportunity to investigate the relator’s allegations and decide whether or not to intervene in the lawsuit. Id. at § 3730(b)(2). The government has at least 60 days in which to conduct this investigation, but that time period may be extended by the court for “good cause” upon a motion by the government. Id. at § 3730(b)(3). In virtually any case that appears to have any merit, the government will file several motions for extensions of its time to investigate the relator’s allegations while the case remains under seal. It is common for this time period to be extended for more than a year.
When DOJ formally decides whether or not to intervene, the court is supposed to unseal the action. If the government intervenes, it assumes “the primary responsibility for prosecuting the action,” and the relator has “the right to continue as a party to the action.” Id. at § 3730(c)(1). If the government declines to intervene, the relator may conduct the action without DOJ’s participation. Id. at § 3730(c)(3). Even after declining to intervene, however, the Government may change its mind and intervene at a later date upon a showing of good cause. Id.
The statute defines certain circumstances in which a relator either is ineligible to pursue a qui tam suit, or the relator is eligible to proceed but may be entitled only to a reduced recovery. The most commonly-invoked bars against a relator pursuing a qui tam suit are the “public disclosure” bar and the “first to file” rule.
The “public disclosure” bar precludes a relator from pursuing a qui tam suit “if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed” through certain kinds of official proceedings, or in the news media, , unless the relator was an “original source” of the information upon which the lawsuit was based. Id. at § 3730(e)(4)(A). An “original source” is defined as “an individual who either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.” Id. at § 3730(e)(4)(B).
Under the FCA’s “first to file” rule, “[w]hen a person brings [a qui tam action], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” Id. at § 3730(b)(5). The FCA also precludes a relator from proceeding with a qui tam claim if the relator “is convicted of criminal conduct arising from his or her role in the violation of [the FCA].” Id. at § 3730(d)(3).2
The FCA also defines certain circumstances under which a relator may be eligible to proceed with a qui tam suit, but the court may reduce the relator’s award below the ordinary range specified in the Act. Most importantly, a court may reduce the relator’s share if it finds that the relator “planned and initiated the violation of [the FCA] upon which the action was brought, … taking into account the role of that person in advancing the case to litigation and any relevant circumstances pertaining to the violation.” Id.
II. Deciding Whether to Pursue a Qui Tam Case.
In deciding whether to pursue a qui tam case, one should consider the following questions: (A) Is the defendant able to satisfy a substantial judgment? (B) Is the defendant liable under the False Claims Act? (C) Did the government suffer substantial actual damages? (D) Does the relator satisfy the eligibility requirements specified in the Act? And, (E) Do the potential benefits of the lawsuit outweigh the personal risks the lawsuit may involve? If the answer to all five of these questions is yes, then one should consider proceeding with the case.
A. Can the Defendant Satisfy a Substantial Judgment?
A relator can recover a monetary award under the FCA only if the government is able to recover “proceeds” from the defendant. If the government cannot recover from the defendant, the fact that the relator’s actions might assist the government in other ways — for example, in obtaining criminal convictions or in ending an ongoing fraud — is not going to result in a monetary award to the relator. As a practical matter, the targets of profitable qui tam suits are usually large, solvent companies.
B. Is the Defendant Liable Under the False Claims Act?
In general, under the FCA, a person is liable for “knowingly” submitting or causing the submission of a false claim. The FCA covers a broad range of misconduct that can harm the federal treasury. The Supreme Court has held that “the Act was intended to reach all types of fraud, without qualification, that might result in financial loss to the Government. … This remedial statute reaches beyond ‘claims’ which might be legally enforced, to all fraudulent attempts to cause the Government to pay out sums of money.” United State v. Neifert-White Company, 390 U.S. 229, 233 (1968); see S.Rep. No. 345, 99th Cong., 2d Sess. 9 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5274.
Despite this broad language, courts have resisted attempts by relators or the government to expand the contours of the Act too far. The Supreme Court has held that the FCA “was not designed to reach every kind of fraud practiced on the Government.” United States v. McNinch, 356 U.S. 595, 599 (1958). Not every violation of a statute, rule, or regulation is tantamount to making a knowingly false statement to the government. See United States ex rel. Cantekin v. Univ. of Pittsburgh, 192 F.3d 402 (3rd Cir. 1999); United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1266-67 (9th Cir. 1996), cert. denied, 519 U.S. 1115 (1997).
In assessing whether a case is likely to involve liability under the FCA, one should pay close attention to smell. If the defendant’s conduct smells awful – for example, the defendant double-billed the government for services, billed for services not provided, lied about the essential nature of a product or service in order to get paid, falsified documents in order to get paid, egregiously lied about a material fact in negotiating a contract price, etc. – and, because of the misconduct, the government spent money it otherwise would not have spent or would have spent in a different manner, then courts are likely to find liability under the FCA. On the other hand, if there is a real difference of opinion over what kind of conduct was required by the defendant, and the evidence does not indicate that the defendant understood it was doing something wrong, then courts are likely to find that the defendant did not violate the FCA. One must remember: the primary aim of the FCA is to redress fraud against the government.
Another important question is whether the allegation can be proven. Because of the potentially large financial stake a relator has in the action, people will invariably be skeptical about accepting the relator’s version of events without corroborating evidence, whether it be another witness or incriminating documents.
C. Has the Government Been Seriously Harmed?
As a technical legal matter, a person can be liable under the FCA for knowingly submitting a false claim, even if the person’s misconduct did not cause the government to suffer any financial harm. See United States ex rel. Pogue v. American Healthcorp., Inc., 914 F. Supp. 1507, 1508-1509 (M.D. Tenn. 1996); Rex Trailer Co. v. United States, 350 U.S. 148, 152 (1956). Thus, for example, a person can be liable under the FCA for knowingly submitting a false invoice to the government for reimbursement, even where the government catches the person and does not pay on the invoice. That person is liable for a civil penalty for submitting the false claim, even though the government was not damaged.
As a practical matter, however, the government and courts are reluctant to impose a large number of civil penalties where the government’s the actual damages are negligible. In such cases, courts have found ways to limit the extent of the defendant’s liability, or even to hold the defendant not liable. For example, district courts found that the imposition of penalties in an amount grossly disproportionate to the government’s actual damages would violate the Excessive Fines Clause of the Eighth Amendment. United States v. Advance Tool Co., 902 F. Supp. 1011 (W.D. Mo. 1993); United States ex rel. Smith v. Gilbert Realty Co., Inc., 840 F. Supp. 71 (E.D. Mich. 1993). See generally United States v. Mackby, 339 F.3d 1013 (9th Cir. 2003). Other times, courts have simply refused to impose liability in these kinds of cases, citing a variety of other reasons. See, e.g., United States v. Ridglea State Bank, 357 F.2d 495 (5th Cir. 1966) (refusing to hold employer liable for civil penalties based on misconduct by its employee acting for his own benefit).
D. Is the Relator Eligible to Proceed With a Qui Tam Suit?
If a person reads about a government investigation of his employer in the newspaper and realizes that he has personal knowledge of the conduct that is under investigation, it may be too late to file a qui tam suit. Likewise, if a person hears through the company grapevine that another whistleblower has filed a qui tam suit against his company, it is probably too late for the person to pursue a qui tam suit of his own. Courts have frequently dismissed qui tam suits — particularly those in which the government has declined to intervene — on the grounds that the allegations in the lawsuit had been publicly disclosed prior to the relator’s filing suit.
Another significant issue is whether another whistleblower has already filed suit. The Act states that a pending qui tam suit can bar a subsequent qui tam suit “based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). See United States ex rel. Batiste v. SLM Corp., 659 F.3d 1204 (D.C. Cir. 2011); United States ex rel. Hampton v. Columbia/HCA Healthcare Corp., et al., 318 F.3d 214 (D.C. Cir. 2003).
E. What Are the Risks to the Relator from Filing Suit?
Although the Act contains a provision permitting suit against an employer who retaliates against a qui tam relator, see 31 U.S.C. § 3730(h), the filing of a qui tam suit can involve substantial risks. Once the word gets out that someone has been a whistleblower, that person can have a tough time finding a new job. The person may be ostracized by co-workers whose own jobs may be threatened by the lawsuit and ensuing investigation, or simply because they feel the person has violated some unwritten code of silence. In addition, if the relator has himself violated the law, by going forward to the government, the relator may be subjecting himself to criminal or civil liability. It is common for relators to suffer severe financial, social, and/or personal consequences.
Many factors, known and unknown, may influence the ultimate outcome of the qui tam case. Among the unknown factors is: Did government officials know about and approve the alleged misconduct (making it difficult to prove that the defendant “knowingly” engaged in the misconduct, or that the government suffered damages because of the misconduct)? Has another relator has already filed a qui tam lawsuit which is pending under seal? Has there been some public disclosure of the allegations which the relator does not know about? Will the lawsuit, once filed, will be assigned to a government attorney and case agent who have the time and energy to investigate the case properly?
Also, despite the illusion of speed created by the initial 60-day seal period, in successful cases one is not likely to see a recovery for two to six years. Particularly for an unemployed relator, this time factor can result in serious issues of financial and emotional survival.
Ultimately, even if all the known factors indicate that there is a good likelihood of recovery, the question of whether to pursue a qui tam case is a difficult judgment call, which should only be made after consultation with experienced counsel.
1 The False Claims Amendments Act of 1986 provided that the range of civil penalties was between $5,000 and $10,000 per false claim. However, this range was raised to between $5,500 and $11,000 per false claim for conduct which occurred on or after September 29, 1999. See 64 FR 47099, 47104 (8/30/99).
2 The FCA also precludes qui tam suits (1) by members of the armed forces against other members of the armed forces arising from the person’s service, (2) against certain government officials if the action is based on evidence or information known to the government when the action was brought, and (3) based on allegations or transactions which are the subject of a civil suit or an administrative civil money proceeding in which the government is already a party. 31 U.S.C. § 3730(e)(1)-(3).