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Understanding the False Claims Act

Breaking Down the False Claims Act

The federal False Claims Act, 31 U.S.C. §§ 3729 et seq., is the United States’s oldest whistleblower law. It was passed by President Lincoln in 1863 during the Civil War to combat widespread fraud against the government perpetrated by contractors who were supplying substandard goods to troops. It has since been expanded and strengthened several times and is now the primary tool for combating fraud against the government. Its signature feature is its qui tam provision, which allows private citizens to confidentially disclose fraud that results in financial loss to the federal government. The informant — known as a “relator” — then files a lawsuit on behalf of the United States. In exchange, the relator is rewarded with a portion of whatever proceeds the government recovers.  California has a very similar State False Claims Act, Cal. Gov’t Code §§ 12650 et seq., that also permits private citizens to bring qui tam lawsuits for fraud against the State of California.

What Kinds of Conduct Does the False Claims Act Cover?

Generally the Act imposes civil penalties on government contractors who defraud the government. It applies to individuals who:

  1. Knowingly present, or cause to be presented, a false or fraudulent claim for payment or approval, or
  2. Knowingly make, use, or cause to be made or used, a false record or statement material to a false or fraudulent claim, or
  3. Conspires to commit a violation of 1 or 2. 31 U.S.C. § 3730(a)(1)(A) and (B).

These provisions cover a wide range of fraudulent activities, such as:

  • Submitting invoices for goods or services that were never delivered or rendered
  • Submitting invoices for research that was never conducted
  • Double billing
  • Billing for drugs, medical devices and other equipment that has not been approved by government agencies
  • Failing to notify the government of overpayment
  • Submitting a false application for a government loan
  • Selling the government worthless or defective products
  • Misrepresenting the value of imported goods or where the goods came from
  • Inflating the number of hours a contractor worked
  • Misrepresenting that the contractor is a member of a minority group or a veteran
  • Performing unnecessary medical procedures for Medicare reimbursement

To “knowingly” present a false claim does not necessarily mean that the individual in question is certain that the information is false. It also encompasses individuals who:

  • Act in deliberate ignorance of the truth or falsity of the information, or
  • Act in reckless disregard of the truth or falsity of the information

The “knowingly” standard also does not necessarily require a specific intent to defraud; rather, the mere submission of a claim containing false information is enough.  See 31 U.S.C. § 3729(b)(1).

Please contact a California False Claims Act lawyer for more information about the kinds of fraudulent conduct that can give rise to qui tam actions.

What is “Materially False”?

A key inquiry in False Claims Act cases is whether the misrepresentation at issue was “material” — i.e., whether knowledge of the statement’s falsity would cause the government to refuse to pay the claim.  See 31 U.S.C. § 3729(b)(4) (defining “material”). For example, assume that a government contractor who is paid by the hour submits an invoice for 100 hours, but only worked 75. In that case, the misrepresentation would be material because, if the government knew of the statement’s falsity, it would not pay the claim. Now, however, assume the same facts as above, but that the contractor was paid a flat fee for the job rather than an hourly rate. The misrepresentation there might not be material, as the government would likely pay the fee for the work performed regardless of how many hours the contractor reported.

What Does “Qui Tam” Mean?

The phrase qui tam is Latin for “who as well,” and is used in actions that are brought “for the government as well as the plaintiff.” In these types of actions, the plaintiff sues the defendant on the government’s behalf and is entitled to a portion of the government’s recovery if the suit is successful. 31 U.S.C. § 3730(b)(1)(“The action shall be brought in the name of the Government.”).It is derived from the ancient Writ of Qui Tam at common law, which allowed a private party to sue on behalf of the king.

Who Can File a Qui Tam Lawsuit?

Any individual who has information about fraud against the government may bring a qui tam action. In most cases, the whistleblower is an employee or former employee of the company committing the fraud, although it is not uncommon for a government contractor’s competitors or other persons to do so as well. Ideally, the whistleblower will have deep knowledge of the defendant’s operations and concrete evidence to support his or her claims. If you believe you have witnessed fraud against the government, please consider contacting a California False Claims Act lawyer. 

What Happens after a Qui Tam Suit Is Filed?

Typically, a whistleblower in a qui tam action will hire an attorney to evaluate the merits of his or her case before deciding whether to proceed. If the whistleblower’s attorney feels that he or she has a strong case, the attorney will then:

  1. File a civil complaint under seal with the court
  2. Serve a copy of the complaint and a written disclosure of all of the material evidence on both the Attorney General and the United States Attorney. See 31 U.S.C. § 3730(b)(2) and Cal. Gov’t Code § 12652(c)(1).

The defendant is not served at the time the sealed complaint is filed and served on the Attorney General. The government then has 60 days to decide whether it wants to intervene in the case, during which time it will conduct an investigation into the allegations contained in the disclosure.  31 U.S.C. § 3730(b)(2).  It will also check with the agency involved to determine whether the allegations are known to them, as well as the United States Attorneys’ offices to determine whether the allegations relate to a pending criminal investigation. The case is sealed during this time, although the government may petition the court to partially lift the seal to discuss the allegations with the defendant and negotiate a settlement. At the conclusion of the government’s investigation, it will decide whether it wants to intervene. If it chooses to intervene, the Department of Justice will assume primary responsibility for pursuing the case, although the original whistleblower may choose to continue as a party to the action. 31 U.S.C. § 3730(c)(1). If it chooses not to intervene, the whistleblower may pursue on his or her own or dismiss the case. 31 U.S.C. § 3730(c)(3).

How Much Can a Plaintiff Recover in a Qui Tam Case?

If the government intervenes in the action, the whistleblower is entitled to between 15-20% of the government’s recovery. 31 U.S.C. § 3730(d)(1). If the government does not intervene and the whistleblower proceeds alone, he or she is entitled to 25-30% of the government’s proceeds, in addition to reasonable attorneys’ fees and costs. 31 U.S.C. § 3730(d)(2).

Generally, the amount the whistleblower will receive depends upon the quality and usefulness of his or her information to the government. According to DOJ guidelines, the factors can increase the percentage of the relator’s share:

  • The relator reported the fraud promptly
  • The relator tried to stop the fraud or reported it internally
  • The qui tam filing caused the defendant to halt the fraudulent practices
  • The complaint warned the government of a significant safety issue
  • The complaint exposed a nationwide practice
  • The relator provided extensive, first-hand details of the fraud to the government
  • The government had no knowledge of the fraud
  • The relator provided substantial assistance during the investigation
  • The realtor was an excellent, credible witness at trial
  • The realtor cooperated with the government during the entire proceeding
  • The case went to trial
  • The filing of the complaint had a substantial adverse impact on the relator

Likewise, factors that can decrease the relator’s share include:

  • The relator participated in the fraud
  • The relator substantially delayed reporting the fraud
  • The relator violated the Act’s procedural requirements
  • The relator had little knowledge or only a suspicion of the wrongdoing
  • The relator’s knowledge was based primarily on public information
  • The relator learned of the fraud in the course of government employment
  • The government already knew of the fraud
  • The realtor provided little help after filing the complaint or hampered the government’s efforts to develop the case
  • The case required a substantial effort by the government to develop the facts and win the lawsuit
  • The case settled

For more information about the usefulness of whistleblower information to the government, please contact a California False Claims Act lawyer.

How California Protects Whislteblowers

The primary fear for most potential whistleblowers is their personal safety, as well as their job security. For many, that fear is strong enough to prevent them from taking action. To assuage those concerns, the federal and California False Claims Acts include robust protections for whistleblowers that prevent their employers from retaliating against them.  See 31 U.S.C. § 3730(h) and Cal. Gov’t Code § 12653 and Cal. Labor Code § 1102.5.  Such retaliation can include a broad range of adverse actions, including termination, demotion, suspension, and harassment, and threats. To prove retaliation in a whistleblowing case, the whistleblower must prove that:

  1. The whistleblower engaged in a protected activity (i.e., reporting fraud against the government)
  2. The whistleblower’s employer took an adverse employment action against him or her
  3. The adverse employment action was due to the whistleblower’s protected activity

Upon a successful showing of retaliation, relief available to the whistleblower includes:

  • Reinstatement with the same seniority status
  • Two times his or her amount of back pay
  • Interest on back pay
  • Compensation for special damages caused by the discrimination (such as attorneys’ fees and litigation costs)

The statute of limitations for invoking the protections of the False Claims Act’s whistleblower protections is three years from the date the retaliation occurred.  31 U.S.C. § 3730(h)(3).

What Happens to Companies that Defraud the Government?

Companies that are found to violate the False Claims Act are liable for the three times the dollar amount that the government is owed plus additional civil penalties for each false claim. 31 U.S.C. § 3729(a)(1). Depending upon the amount of the fraud and the number of false claims submitted to the government, these penalties can be substantial. They can also translate to high dollar amounts in rewards for relators. However, the court may reduce the damages in cases where:

  • The defendant furnished the government with all information known to them within 30 days after they first obtained the information
  • The defendant fully cooperated with the government’s investigation of the violation
  • At the time the defendant furnished the government with information about the violation, no criminal prosecution, civil action, or administrative action had commenced with respect to the violation, and the defendant did not have actual knowledge of the existence of an investigation into the violation

In such cases, the court may lessen the damages to two times the amount the government is owed. 31 U.S.C. § 3729(a)(2).

How Do I Know if I Have a Strong Case? A California False Claims Act Law Firm Can Advise You

The strength of your case will be determined by your individual circumstances. Generally, strong cases involve relators who have inside information relating to a substantial fraud and who can prove it with hard evidence, such as documents, emails, phone calls, recordings, text messages, etc. A skilled attorney can help you evaluate the strength of your claim, as well as your likelihood of receiving a reward. Contact the Evans Law Firm today for a free and confidential consultation. 

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