Federal False Claims Act Attorneys | Qui Tam Lawyers

I. Introduction

The United States False Claims Act 31 U.S.C. §§ 3729- 3733 was enacted over 140 years ago. In brief, the False Claims Act (FCA) makes it illegal to promise the government one thing and deliver something less. This Civil War era statute, called for short "qui tam," based on the Latin (which translates “who sues for the King as well as himself) has its roots in English law, where the form of action has existed for centuries. The premise is that private citizens who know of a wrong against the government by another, incentivized by a share of the damage recovery and protected against retaliation, will come forward and hire lawyers who will be willing to invest time, skill, and money to litigate the sovereign’s claim. These citizen-whistleblowers are called "Relators." The False Claims Act partially assigns the government’s claim to the relator, who then acts "on the relation of" the sovereign. Successful relators generally receive between 15% and 30% of the Government’s recovery – the largest “relator’s share” to date being, we believe, $121,000,000 – and attorney’s fees are paid by the defendant. But these cases are inordinately complex and lengthy, and a majority of them result in, at best, no recovery—and at worst, financial ruin and professional blackball for the whistleblower, and at least a major setback for her unwise or unlucky lawyers. Far from the “litigation lottery” the defense bar will claim, these are difficult and challenging pieces of commercial litigation which should be undertaken with clear vision and great care.

The Civil War-era False Claims Act was modernized by amendments in 1986 which drastically changed the Act’s qui tam provisions. The Act was first proposed to Congress and signed into law by Abraham Lincoln in 1864. After several amendments, its current iteration was given life in 1986 by the pen of Ronald Reagan. The Act’s Senate sponsor (who remains its most staunch champion in Congress) is rock-ribbed Republican Charles Grassley of Iowa. Attorney General Alberto Gonzales recently lauded and recognized the FCA as "the principle civil tool to recover [Government] funds that have been fraudulently paid out."

The importance of the FCA has grown as the federal budget has grown and as the value of the retooled act has become apparent. In 2007 the federal government will spend in excess of $2.7 trillion. Of that $2.7 trillion, 40% of the governmental outlays will be for defense spending (discretionary and nondiscretionary) and 39% of governmental outlays will be for Social Security, Medicare and Medicaid. The sum of money paid by federal and state governments to private contractors has grown exponentially – as have the false and fraudulent claims which the False Claims Act addresses.

Total civil FCA recoveries since the 1986 amendments exceed over $20 billion. In the first quarter of 2007 alone $1 billion in settlements have been announced.
The False Claims Act is the single most important weapon that the United States and American Citizens have in their arsenal to recover tax dollars stolen through fraud and deception.

II. The Civil False Claims Act: 31 USC §§ 3729-3733
§3729. False Claims
(a) Liability for Certain Acts – any person who –
(1) knowingly presents, or causes to be presented, to an officer or employee of United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval;

(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the United States;

(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid;

(4) has possession, custody, or control of property or money used, or to be used, by the Government and, intending to defraud the Government or willfully to conceal the property, delivers, or causes to be delivered, less property than the amount for which the person receives a certificate or received;

(5) authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government makes or delivers the receipt without completely knowing that the information on the receipt is true;

(6) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the government, or a member of the armed forces, who lawfully may not sell or pledge the property; or

(7) knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease in obligation to pay or transmit money or property to the government,

Is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus three times the amount of damages which the government sustains because of the act of that person, except that if the court finds that –
(A) the person committing the violation of this subsection furnished officials of the United States responsible for investigating false claims violations with all information known to such person about the violation within 30 days after the date on which the defendant first obtained the information;

(B) such person fully cooperated with any Government Investigation of such violations; and

(C) at the time such person furnished the United States with the information about the violation, no criminal prosecution, civil action, or administrative action had commenced under this title with respect to such violation, and the person did not have actual knowledge of the existence of an investigation into such violation;

The court may assess not less than two times the amount of damages which the government sustains because of the act of that person. A person violating this subsection shall also be liable to the United States Government for the costs of a civil action brought to recover any such penalty or damages.

     (b) KNOWING AND KNOWINGLY DEFINED. For purposes of this section, in terms of "knowing" and "knowingly" mean that a person, with respect to information
          (1) has actual knowledge of the information;
          (2) acts in deliberate ignorance of the truth or falsity of the information; or
          (3) acts in reckless disregard of the truth or falsity of information,

and no proof of specific intent to fraud is required.

(c) CLAIM DEFINED- For purposes of this section, "claim" includes any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded, or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.

(d) EXEMPTION FROM DISCLOSURE- Any information furnished pursuant to subparagraphs (A) through (C) of subsection (a) shall be exempt from disclosure under section 552 of title 5.

(e) EXCLUSION- This section does not apply to claims, records, or statements made under the Internal Revenue Code of 1954.

§3730. Civil Actions for False Claims

(a) RESPONSIBILITIES OF THE ATTORNEY GENERAL. The Attorney General diligently shall investigate a violation under section 3729. If the Attorney General finds that a person has violated or is violating section 3729, the Attorney General may bring a civil action under this section against the person.

(b) ACTIONS BY PRIVATE PERSONS.
(1) A person may bring a civil action for a violation of section 3729 for the person and for the United States Government. The action shall be brought in the name of the Government. The action may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.

(2) A copy of the complaint and written disclosure of substantially all material evidence and information that person possesses shall be served on the Government pursuant to Rule 4(d)(4) of the Federal Rules of Civil Procedure. The complaint shall be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders. The Government shall elect to intervene and proceed with the action within 60 days after it receives both the complaint and the material evidence and information.

(3) The Government may, for good cause shown, move the court for extensions of the time during which the complaint remains under seal under paragraph (2). Any such motions may be supported by affidavits or other submissions in camera. The defendant shall not be required to respond to any complaint filed under this section until 20 days after the complaint is unsealed and served upon the defendant pursuant to Rule 4 of the Federal Rules of Civil Procedure.

     (4) Before the expiration of the 60 day period or any extension obtain under paragraph (3), the Government shall-
          (A) proceed with the action, in which the case shall be conducted by the Government; or
          (B) notify the court that it declines to take over the action, in which case the person bringing the action shall have the right to conduct the action.

(5) When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.
     (c) RIGHTS OF THE PARTIES TO QUI TAM ACTIONS.
          (1) If the Government proceeds with the action, it shall have the primary responsibility for prosecuting the action, and shall not be bound by the act of the person bringing the action. Such person shall have the right to continue as a party to the action, subject to the limitations set forth in paragraph (2).
          (2) (A) The Government may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court provided a person with an opportunity for a hearing on the motion.
                (B) The Government may settle the action with the defendant notwithstanding the objections of the person initiating the action if the court determines, after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances. Upon a showing of good cause, such hearing may be held in camera.
                (C) Upon a showing by the Government that unrestricted participation during the course of the litigation by the person initiating the action would interfere with or unduly delay the Government's prosecution of the case, or would be repetitious, irrelevant, or for the purposes of harassment, the court may, in its discretion, impose limitations on a person's participation, such as-
                         (i)limiting the number of witnesses that person may call;
                         (ii)limiting the length of the testimony of such witnesses;
                         (iii)limiting the person's cross-examination of witnesses; or
                         (iv)otherwise limiting participation by the person in the litigation.
               (D) Upon a showing by the defendant that unrestricted participation during the course of the litigation by the person initiating the action would be for purposes of harassment or would cause the defendant undue burden or unnecessary expense, the court may limit the participation of the person in the litigation.
          (3) If the Government elects not to proceed with the action, the person who initiated the action shall have the right to conduct the action. If the Government so request, it shall be served with copies of all pleadings filed in the action and shall be supplied with copies of all deposition transcripts (at the Government's expense). When a person proceeds with the action, the court, without limiting the status and rights of the person initiating the action, may nevertheless permit the Government to intervene in a later date upon a showing of good cause.
          (4) Whether or not the Government proceeds with the action, upon a showing by the Government that certain actions of discovery by the person initiating the action would interfere with the Government's investigation or prosecution of a criminal or civil matter arising out of the same facts, the court may stay such discovery for a period of not more than 60 days. Such a showing shall be conducted in camera. The court may extend the 60 day period upon a further showing in camera that the Government has pursued the criminal or civil investigation or proceedings with reasonable diligence and any proposed discovery in a civil action will interfere with the ongoing criminal or civil investigation or proceedings.
          (5) Notwithstanding subsection (b), the Government may elect to pursue its claim through any alternate remedy available to the Government, including any administrative proceeding to determine a civil money penalty. If any such alternate remedy is pursued in another proceeding, the person initiating the action shall have the same rights in such proceeding as such person would have had if the action had continued under this section. Any finding of fact or conclusion of law made in such other proceeding that has become final shall be conclusive on all parties to an action under this section. For purposes of the preceding sentence, a finding or conclusion is final if it has been finally determined on appeal to the appropriate court of the United States, if all time for filing such an appeal with respect to the finding or conclusion has expired, or if the finding or conclusion is not subject to judicial review.
               (d) AWARD TO QUI TAM PLAINTIFF-
                     (1) If the Government proceeds with an action brought by a person under subsection (b), such person shall, subject to the second sentence of this paragraph, receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending on the extent to which the person substantially contributed to the prosecution of the action. Where the action is one in which the court finds to be based primarily on disclosures of specific information (other than information provided by the person bringing the action) relating to the allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government [General] [A]ccounting [O]ffice report, hearing, audit, or investigation, or from the news media, the court may award such sums as it considers appropriate, but in no case more than 10 percent of the proceedings, taking into account the significance of the information and the role of the person bringing the action in advancing the case to litigation. Any payment to a person under the first or second sentence of this paragraph shall be made from the proceeds. Any such person shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’ fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.

(2) If the Government does not proceed with an action under this section, the person bringing the action or settling the claim shall receive an amount which the court decides is reasonable for collecting the civil penalty and damages. The amount shall not be less than 25 percent and shall not be more than 30 percent of the proceeds of the action or settlement and shall be paid out of such proceeds. Such person shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’ fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.

(3) Whether or not be Government proceeds with the action, if the court finds that the action was brought by a person who planned and initiated the violation of section 3729 upon which the action was brought, then the court may, to the extent the court considers appropriate, reduce the share of the proceeds of the action which the person would otherwise receive under paragraph (1) or (2) of this subsection, taking into account the role of that person in advancing the case to litigation and any relevant circumstances pertaining to the violation. If the person bringing the action is convicted of criminal conduct arising from his or her role in the violation of section 3729, that person shall be dismissed from the civil action shall not receive any share of the proceeds of the action. Such dismissals shall not prejudice the right of the United States to continue the action, represented by that Department of Justice.

(4) If the Government does not proceed with the action and the person bringing the action conducts the action, the court may award the defendant it's reasonable attorneys’ fees and expenses if the defendant prevails in the action and the court finds that the claim of the person bringing the action was clearly frivolous, clearly vexatious, or brought primarily for the purpose of harassment.

(e) CERTAIN ACTIONS BARRED.
(1) No court shall have jurisdiction over an action brought by a former or present member of the armed forces under section (b) of this section against a member of the armed forces arising out of such person’s service in the armed forces.

(2) (A) No court shall have jurisdiction over an action brought under subsection (b) against a Member of Congress, a member of the judiciary, or a senior executive branch official if the action is based on evidence or information known to the Government when the action was brought.
(B) For purposes of this paragraph, "senior executive branch official" means any officer or employee listed in section 201(f) of the Ethics in Government Act of 1978 (5 U.S.C. App.).

(3) In no event may a person bring an action under subsection (b) which is based upon allegations or transactions which are the subject of a civil suit or administrative proceeding in which the Government is already a party.

                     (4) (A) No court shall have jurisdiction over an action under this section based upon the public disclosure were allegations or transactions in a criminal, civil, or administrative hearing, and a congressional, administrative, or Government [General] Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
                           (B) For purposes of this paragraph, "original source" means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information.
                                             (f) GOVERNMENT NOT LIABLE FOR CERTAIN EXPENSES. The Government is not liable for expenses which a person incurs in bringing an action under this section.
                                             (g) FEES AND EXPENSES TO PREVAILING DEFENDANT. In civil actions brought under this section by the United States, the provisions of section 2412 (d) of title 28 shall apply.
                                             (h) [RETALIATION] Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole. Such relief shall include reinstatement with the same seniority status such employee would have had but for the discrimination, 2 times the amount of back pay, interest on back pay, and compensation for any special damages sustained as result of the discrimination, including litigation costs and reasonable attorneys’ fees. An employee may bring an action in the appropriate district court of the United States for the relief provided in this subsection.

§3731. False Claims Procedure

(a) A [subpoena] requiring the attendance of a witness at a trial or hearing conducted under section 3730 of this title may be served at any place in the United States.

(b) A civil action under section 3730 may not be brought-
(1) more than six years after the date on which the violation of section 3729 is committed, or
(2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever occurs last.

(c) In any action brought under section 3730, the United States shall be required to prove all essential elements of the cause of action, including damages, by a preponderance of the evidence.

(d) Notwithstanding any other provision of law, the Federal Rules of Criminal Procedure, or the Federal Rules of Evidence, a final judgment rendered in favor of the United States in any criminal proceeding charging fraud or false statements, whether upon which a verdict after trial or upon a plea of guilty or nolo contendere, shall estop the defendant from denying the essential elements of the offense in any action which involves the same transaction as in a criminal proceeding and which is brought under subsection (a) or (b) of section 3730.

§ 3732. False Claims Jurisdiction

(a) Actions under section 3730. Any action under section 3730 may be brought in any judicial district in which the defendant or, in the case of multiple defendants, any one defendant can be found, resides, transact business, or in which any act proscribed by section 3729 occurred. A summons as required by the Federal Rules of Civil Procedure shall be issued by the appropriate district court and served any place within or outside the United States.

(b) Claims under State law. The district courts shall have jurisdiction over any action brought under the laws of any State for the recovery of funds paid by a State or local government if the action arises from the same transaction or occurrence as an action brought under section 3730.
[Additional section 3733 is not presented here at this time and contains civil investigation provisions]

III. Statutory Overview

The FCA is very complex law which has been interpreted and applied by the federal judiciary in ways that one would not expect when simply reading the Act. When reading the Act it seems very straightforward and one would think that the federal judiciary would make every effort to interpret the facts and the law in favor of the American taxpayer. The reality, unfortunately, has been a mixed bag of judicial rulings mandating different pleading and procedural hurdles.
The following are some of the highlights of the statute:

• Each false invoice submitted is subject to a $5000-$10000 penalty and damages are trebled.

• The Relator (Whistleblower), if successful is awarded a percentage of the total recovery or settlement. (In most cases between 17% and 30% based on the circumstances)

• In general, the information, which is the basis of the suit, must not be publicly disclosed (as defined by the Act) unless the person is an “original source”.

• The defendant or defendants are required to pay reasonable and necessary attorneys’ fees and costs.

• Jurisdiction is federal and venue is based on a defendant’s residence or where a defendant conducts business.

• Subpoena power is nationwide.
The more commonly invoked aspects of the FCA are:

• Section 3729 (a) (1), direct false claims made to the government;

• Section 3729 (a) (2), the making of false records or false statements to support a false claim;

• Section 3729 (a) (3), conspiracy to get a false claim paid;

• Section 3729(a)(7), "reverse false claims provision," imposing liability for false records or statements made to reduce or avoid an obligation to the government. (Under paying royalties to the federal government for drilling or mining on federal lands)