Frequently
Asked Questions About the Federal False-Claims Act ("FCA"), 31
U.S.C. 3729-33, as Amended
1. What
is the False Claims Act?
The False-Claims Act ("FCA"), 31
U.S.C. ' 3729-33, as amended, provides for civil actions by the
United States government in order to recover damages and civil
penalties for false claims for payment. The qui tam provisions
of the FCA, 31 U.S.C. ' 3730(b)-(h), authorize private citizens,
acting as whistleblowers, and designated as relators, to
initiate FCA actions in order to benefit the federal government
and to share in any recoveries. Individuals and businesses that
"knowingly" submit false claims or fraudulent documentation to
the federal government can be liable for damages and civil
penalties. The False Claims Act covers fraud involving any
federally funded contract or program, with the exception of tax
fraud. The two largest categories of federal funding programs
represented in FCA actions are health care and defense industry
fraud. However, any fraudulent request for payment to the
federal government or its agents, or to states where the program
at issue is partially funded by the federal government, can give
rise to a FCA action.
"A Brief Introduction to the Federal False Claims Act" is a
good starting point for understanding the FCA.
The actual text of the act is also a useful tool.
2. What
are the types of false claims under the False Claims Act?
There are four principal types of
false claims that the FCA seeks to foreclose. First, one may
submit a claim to the government which, on its face, contains
false or fraudulent information-the "classic" false claim. This
is addressed in Section 3729(a)(1). An example would be billing
Medicare for laboratory tests that were never actually
performed.
Second, one may use a false
document in order to get a false or fraudulent claim paid or
approved. For example, if a defense contractor submits a written
certification declaring that certain tests were performed on
equipment manufactured for the Army, but in fact those tests
were never performed, and the certification is relied upon as
part of the payment process, then a violation of Section
3729(a)(2) has occurred. Frequently, counsel not familiar with
the FCA will mix-up the two sections. The distinction between
Sections 3729(a)(1) and (a)(2) of the FCA is well illustrated by
Jana v. United States, 34 Fed. Cl. 447 (1995). There, the
government's counterclaim alleged that false progress payments
had been submitted "substantiated by individual daily time
cards" that were fraudulent. Id. at 448. The time cards were
actionable under Section (a)(2). "The difference between '
3729(a)(1) and ' 3729(a)(2) is that the former imposes liability
for presenting a false claim, while the latter imposes liability
for using a false record or statement to get a false claim
paid." Id. at 449.
Third, the FCA addresses
conspiracies to engage in any of the acts forbidden by the Act
in Section 3729(a)(3). Finally, Section 3729(a)(7), contains the
so-called "reverse false claim" provision. The basic purpose of
this provision is to address situations where an individual or
entity has already received funds or material from the
government that ought to be returned. An example would be a
government contractor that falsely accounts for the value of
government property in its possession to avoid having to
compensate the government. See, e.g., United States v. PEMCO
AEROPLEX, INC., 195 F.3d 1234 (11th Cir. 1999).
3. What
are the components of an offense under the False Claims Act?
Under whatever section of the
Act, the government or a qui tam plaintiff must prove the
following: (1) that the defendant presented or caused to be
presented to the United States government a claim for payment or
approval, or a document to facilitate the payment of a false
claim; (2) that the claim and/or document was false or
fraudulent; and (3) that the defendant knew that the claim was
false or fraudulent or acted with reckless disregard of the
truth or falsity of the claim. If these elements are present, a
violation of the FCA occurs even if the government never
actually makes any payment or suffers a financial loss. The
defendant does not have to act with a specific intent to defraud
in order to be liable, as long as the submission was "knowing."
4. What
is the definition of "knowing" under the False Claims Act?
In 1986, the FCA was
substantially amended to improve and enhance the government's
ability to recover federal funds lost through fraud. One
important change was the clarified definition of "knowing" found
at ' 3729(b). The amended Act now mandates that a person
(including any health care provider or contractor) can be held
liable if it submits or causes to be submitted1 a false or
fraudulent claim or a false statement in support of a claim: a.
with actual knowledge that it is false (' 3729(b)(1)); b. in
deliberate ignorance of the truth or falsity of the information
(' 3729(b)(2)); c. or in reckless disregard of the truth or
falsity of the information (' 3729(b)(3)). Moreover, Congress
clarified that no proof of specific intent to defraud is
required. (' 3729(b)(3)). One of the most grievous mistakes
counsel unfamiliar with the FCA make is to equate the scienter
requirement of the FCA with criminal fraud statutes. Not only
does the statute state on its face "no specific intent" is
necessary, it offers three varying definitions of "knowing"
which do determine the scienter requirement. The first
definition, actual knowledge ['3729(b)(1)], is entirely
straightforward. If a false claim is submitted, or a false or
fraudulent document submitted, and the submission is from a
person who knows the document or claim is false or fraudulent,
then a knowing submission has occurred. The next two definitions
are somewhat more illusive.
A good illustration of acting in
deliberate ignorance of the truth or falsity of information
(section b(2)) is found where, for example, a physician practice
does not properly supervise or train its billing staff, so that
inappropriate claims are submitted. The practice cannot avoid
liability by asserting that it relied upon the billers if it
could have exercised appropriate supervision over them; the same
is true of independent billing companies. This provision is
sometimes said to deal with the "ostrich with its head in the
sand" problem. Put simply, you cannot look the other way and
thereby avoid FCA liability. The third definition, acting in
"reckless disregard," is very difficult to assess. Probably,
this provision relates to negligence of a very high category. An
example might be using a computer billing program for Medicare
billing that has not been updated for five years to see,
nonetheless, how many claims would be paid. The important point
to bear in mind is that nobody quite knows what the second and
third categories of "knowing" mean and how a court would
interpret these provisions. Therefore, compliance officers, in
particular, should act upon the assumption that careless or
mistaken claims can serve as the basis for a FCA prosecution.
5. What
constitutes a claim under section 3729(c) of the False Claims
Act?
It is important to bear in mind
that the definition of "claim" is broadly specified in the act:
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 required 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. (Emphasis added.) Therefore, false
claims or fraudulent documents do not have to be submitted to
the government directly, the provision covers virtually anything
of value, and the Act follows the flow of government money or
property. The safest rule of thumb is that if the money or
property at issue originated with the government, the FCA will
reach it. The definition of a claim does not depend on the
manner in which funds are received from the government. A claim
can be a direct request for funds or a request for a credit
against accountability for advanced funds.
For example, a presentation of
invoices or cancelled checks along with a certificate that the
work was performed is a demand upon the government to fulfill
its commitment to pay money, and thus, constitutes a claim under
the False Claims Act. A claim also could be the result of
reporting misinformation to the government which results in the
government being insufficiently compensated, i.e., the FCA
encompasses more than just payment by the government. Further,
even if the claim is legitimate (i.e., payment for work actually
and validly performed), it will still fall within the definition
of a false claim if done pursuant to a fraudulently obtained
contract. A claim does not have to be made directly by the party
contracting with the government if the third party knows that
the party will submit the claim to the government for payment.
As such, falsifying information relied upon by the party making
the claim with the knowledge that the party will use the
information for payment may constitute a claim.
6. What
are the potential damages and penalties for which a defendant
can be liable?
Section 3729(a) contains the
awesome penalty provisions of the FCA. As a starter, the
government is entitled to three times the amount of its loss
(also known as "single damages"). However, the more severe
penalty provision is that addressing penalties: between $5,000
and $10,000 for each false claim submitted and/ or false
document used to get a false claim approved for payment. In the
health care fraud area, it should be noted that the civil
penalties apply to each request to the Department of Health and
Human Services for reimbursement, causing a defendant's
potential exposure to mount very quickly. As a result, for every
100 false claims a government contractor or health care provider
submits, it can face liability of one million dollars or more in
penalties alone.
Because of the large number of
claims generated by health care providers, the penalty
provisions of the Act play a more important role in defining
total provider liability than does the treble damages provision.
Generally speaking, for defense contractors, the opposite is
true; the damages provision is predominant. The Department of
Justice has authority to periodically increase the penalties
under the Act in accordance with inflation and other factors.
Currently, penalties range from
$5,5000-$11,000. To illustrate how the penalty/multiple damages
provisions operate, in one case a claimant submitted 3,683
Medicare reimbursement claims and received $130,719. The court
found that the defendants "acted in reckless disregard of the
truth or falsity of the information they submitted on the form"
and awarded three times the amount of damages ($130,719), or
$394,157, and a civil penalty of $5,000 per claim (3,683 x
$5,000), which totaled $18,415,000.
7. Is
there a "voluntary disclosure" provision contained within the
False Claims Act?
It is frequently overlooked that
the FCA contains its own voluntary disclosure provision in '
3729(a)(7)(A)-(C). Please note that all three provisions therein
specified must be satisfied -an extremely difficult undertaking
when negotiating with the Department of Justice. Compliance
officers, in particular, should become conversant with this
provision, which can result in some substantial benefit if
properly invoked. Most importantly, in recognition of
cooperation with the government, a court may assess "not less
than 2 times the amount of damages which the Government sustains
because of the act of the person." Notice that this language
suggests that no penalties will be assessed. In actuality, this
section is never applied by courts; its real significance is in
negotiations with DOJ where it can afford an effective argument
for reducing ambitious government damage demands. It is
important to remember that no voluntary disclosure to any
government agency should be undertaken without thorough prior
review by counsel.
8. Where
are the Qui Tam or Whistleblower Provisions of the FCA located?
In 1986 the qui tam, or private
citizen suit provisions of the False Claims Act, (found at 31
U.S.C. ' 3730) were substantially strengthened and liberalized
to provide greater incentives for private individuals
(designated as "relators") to come forward and report fraud
against the government. Any violation of the Act may be brought
by a private person in the name of the United States (the cases
are captioned U.S. ex rel. [relator] v. Defendant) on behalf of
the government as a qui tam action. Particularly in the health
care area, qui tam actions alleging fraud increasingly are
becoming the predominant source of the government's actions
under the Act.2
9. How
does a Relator File a Complaint?
Section 3730(b)(1) states the
basic authority of a relator to act on behalf of the United
States. Please note that the relator cannot dismiss an action on
its own; the Attorney General must consent. Section 3730(b)(2)
specifies the procedures that must be followed in terms of
serving the government with the qui tam complaint. Briefly, the
relator files a complaint under seal, serves the Attorney
General and the appropriate U.S. Attorney, and in addition
furnishes the government with a statement of material evidence
in support of the complaint's allegations of fraud. The
government has an initial 60 days to investigate the
allegations. However, pursuant to Section 3730(b)(3), the
Department of Justice may (and almost always does) request
extensions of time. Eventually, the government must either
"intervene" and litigate the case, or "decline" to do so and let
the relator pursue it. Section 3730(b)(4). Once a complaint has
been filed, "no person other than the government may intervene
or bring a related action based on the facts underlying the
pending action (the so-called "first to file" rule). Section
3730(b) (5); see U.S. ex rel. Erickson v. Am. Inst. of
Biological Sciences, 716 F. Supp. 908 (E.D. Va. 1989).
10. Who
directs a Qui Tam action-the relator or the government?
The FCA addresses this issue
specifically. The FCA directs that the government has "primary
responsibility for prosecuting the action" [Section 3730(c)(1)],
and it may limit the relator's participation under appropriate
circumstances. Section 3730(c) (2)(C). The government may
dismiss an action without the consent of the relator as long as
the relator can contest the issue in a hearing. Section
3730(c)(2)(A). Similarly, the government may settle the action
with the defendant(s) even if the relator opposes the
resolution, as long as the district court affords the
opportunity for a hearing on the merits of the proposed
settlement. Section 3730 (c)(2)(B). If the government declines
participation, the relator may conduct the litigation on its
own. Section 3730(b)(4)(B).
11. What
financial incentives does the False Claims Act afford relators?
The relator is entitled to
between 15 and 30 percent of the recovery/settlement/judgment,
depending on whether the government intervenes and conducts the
litigation and other factors (less than 15 percent under some
circumstances). Section 3730(d)(1) & (2). However, there are
some substantial statutory limitations on a relator's potential
recovery. If the relator participated in the underlying actions
giving rise to the claim, the relator's share may be reduced or
eliminated in its entirety by the district court. Section
3730(d)(3). If the government declines participation, and the
defendant is successful, it may be entitled to "reasonable
attorneys' fees and expenses" pursuant to Section 3730(d)(4).
See related article specifically addressing this topic:
"Recovering Attorney's Fees and Expenses from Unsuccessful
Relators in Qui Tam Cases Pursuant to Section 3730(D)(4) of the
False Claims Act."
12. Does
the False Claims Act make provision for the award of fees to the
relator?
A particularly critical element
of Section 3730(d)(1) is that provision which specifies that the
relator "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." (Emphasis
added.) Unlike the relator's recovery, which is deducted from
the government's total recovery, the relator's expenses and
costs are separately assessed against the defendant. A common
mistake of inexperienced counsel is to either (a) assume that
any such award is also subtracted from the settlement or
judgment paid the government, or (b) assume that the issue of
attorney's fees is governed by the prevailing "American rule"
which usually forecloses such an award. Consequently, no
settlement agreement should be entered into with the government
until the issue of how much the relator will be paid under this
provision is determined. This is because awards under this
provision can prove to be enormous; by contrast, defendants have
maximum leverage when negotiating the underlying settlement and
can take advantage of the government's desire to settle to
restrain overly ambitious relators seeking exorbitant
compensation under this provision. Otherwise, a district judge
will decide the relator's "reasonable" expenses in a proceeding,
which itself can prove exceedingly expensive to defend.
13. Are
there statutory limitations in the FCA as to who can file a qui
tam action?
Section 3730(e),"Certain Actions
Barred," is of crucial importance to defendants in qui tam
actions. This is because Section 3730(e) contains jurisdictional
provisions that limit the ability of potential relators to
institute actions. For example, Section 3730(e)(3) forecloses
any action that "is based upon allegations or transactions which
are the subject of a civil suit or an administrative civil
monetary penalty proceeding in which the Government is already a
party."
This provision is rather
straightforward; this is not so for other components of the
section. The most important jurisdictional bar relied upon by
defendants to terminate qui tam litigation is found in Section
3730(e)(4)-the so-called "public disclosure bar." The reported
cases construing this section run into the hundreds; this is a
stark tribute to its potent power to terminate qui tam suits in
their tracks. This is because unless a relator can satisfy
Section 3730 (e)(4), its action is jurisdictionally barred.
An extensive analysis of this
section is beyond the scope of this essay; however, every
unfortunate recipient of a qui tam complaint should initially
direct their counsel to this provision. The best starting point
to understand this concept is the language of Section (e)(4)(A)
itself: No court shall have jurisdiction over an action under
this section based upon the public disclosure of allegations or
transactions in a criminal, civil, or administrative hearing, in
a congressional administrative, or Government 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. (Emphasis added.)
Simply put, if the allegations or
transactions upon which the qui tam complaint is based have been
publicly disclosed in judicial proceedings, government reports
or audits/investigations, or in the media, a "public disclosure"
has taken place. The intent of Congress here is explicit.
14. What
is a public disclosure?
The qui tam provision of the FCA
was enacted by Congress in an effort to financially reward
individuals who come forward with information about fraud
against the government. The legislative history of the FCA
suggests the legislative purpose was to use the public
disclosure jurisdictional bar to ensure that plaintiffs who have
not significantly contributed to the exposure of the alleged
fraud would not share in the bounty. United States ex rel.
Devlin v. California, 84 F.3d 358, 362 (9th Cir.), cert. denied,
519 U.S. 949 (1996). The public disclosure bar and the original
source exception, therefore, embody the legislative effort to
strike a balance between encouraging whistleblowing and
discouraging so-called parasitic suits. In order to qualify, a
plaintiff "must be a true whistleblower.' [A relator] is unable
to pursue the suit and collect a percentage of the recovery if
the case is based upon information that has previously been
public or if the claim has already been filed by another."
United States ex rel. McKenzie v. Bellsouth Telecommunications,
123 F.3d 935, 939 (6th Cir. 1997) (quoting United States ex rel.
Taxpayers Against Fraud v. General Elec., 41 F.3d 1032, 1035
(6th Cir. 1994)), cert. denied, 522 U.S. 1077 (1998).
Put differently, whistleblowers
sound an alarm while "second toots" merely mimic allegations
already exposed. Wang ex rel. United States v. FMC Corp., 975
F.2d 1412, 1419 (9th Cir. 1992) ("Qui tam suits are meant to
encourage insiders privy to a fraud on the government to blow
the whistle on the crime. In such a scheme, there is little
point in rewarding a second toot."). Relators must not be
"opportunistic late-comers who add nothing to the exposure of
the [alleged] fraud." See United States ex rel. Rabushka v.
Crane Co., 40 F.3d 1509, 1511 (8th Cir. 1994) (discussing the
purpose of the FCA), cert. denied, 515 U.S. 1142 (1995). An
allegation of fraud has been publicly disclosed when it is in
the public domain. United States ex rel. Dick v. Long Island
Lighting Co., 912 F.2d 13, 18 (2d Cir. 1990) (discussing the
meaning of "public disclosure" in the context of the FCA).
Stated differently, "potential
accessibility [of the information] by those not party to the
fraud [is] the touchstone of public disclosure." United States
ex rel. Doe v. John Doe Corp., 960 F.2d 318, 322 (2d Cir. 1992)
(citing United States ex rel. Stinson, Lyons, Gerlin &
Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1161 (3d
Cir. 1991).
Additionally, where the
allegations are not just potentially accessible to the public
but were actually divulged to "strangers to the fraud," the
requirements of a public disclosure have been met. United States
ex rel. Doe v. John Doe Corp., 960 F.2d at 322. When a relator's
complaint "merely echoes publicly disclosed, allegedly
fraudulent transactions that already enable the government to
adequately investigate the case and to make a decision whether
to prosecute, the public disclosure bar applies." United States
ex rel. Findley v. FPC-Boron Employees' Club, 105 F.3d 675, 688
(D.C. Cir.), cert. denied, 118 S. Ct. 172 (1997). In fact, the
jurisdictional bar may apply even if the public disclosure and
the qui tam complaint are not identical. Some courts have held
that the public disclosure need only raise an inference of
fraud. See United States ex rel. Springfield Terminal, 14 F.3d
at 654. Other courts have required that the publicly disclosed
allegations or transactions "encompass the essential element of
the fraud alleged." United States ex rel. Rabushka, 40 F.3d at
1514 .
Clearly, though, where the qui
tam plaintiff's complaint mirrors or "substantially repeat[s]
what the public already knows," the jurisdictional bar is
triggered. See United States ex rel. Findley, 105 F.3d at 687. A
qui tam plaintiff's complaint is "based upon" a public
disclosure if it merely repeats what the public already knows
via the public disclosure. See United States ex rel. Biddle v.
Board of Trustees of the Leland Stanford, Jr. Univ., 161 F.3d
533, 537-40 (9th Cir. 1998), cert. denied, 119 S. Ct. 1457
(1999); see also United States ex rel. Findley, 105 F.3d at 683
(finding that the purpose and legislative history of the FCA
support a construction of "based upon" as requiring only that
the qui tam plaintiff's allegation parrot information in the
public domain.)
A complaint is "based upon" a
public disclosure even if the qui tam plaintiff did not derive
his knowledge of the alleged fraud from the public disclosure.
See United States ex rel. Precision Co. v. Koch Indus., Inc, 971
F.2d 548, 552 (10th Cir. 1992), cert. denied, 507 U.S. 951
(1993); United States ex rel. Doe v. John Doe Corp., 960 F.2d at
324; United States ex rel. Kreindler & Kreindler v. United
Technologies Corp., 985 F.2d 1148, 1158 (2d Cir. 1993); Also see
United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d
1339, 1348 (4th Cir.), cert. denied, 513 U.S. 928 (1994). In
fact, several courts have held that a qui tam plaintiff's
complaint can be "based upon" a public disclosure of which the
plaintiff had no knowledge. See United States ex rel. Findley,
105 F.3d at 683.
15. Who
is an original source?
Once the complaint is challenged
as being based upon publicly disclosed information (such as in a
motion to dismiss under Fed R. Civ. P.12(b)(1)), the relator's
only device to survive is to demonstrate that she qualifies as
an "original source, as defined in Section (e)(4)(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. (Emphasis added.)
The litigation interpreting the
"original source" provision has, as can be surmised from the
language of the pertinent section, involved several key
concepts. What exactly constitutes direct knowledge? In other
words, must the relator have actually been involved or had
first-hand knowledge of the pertinent events, or even actually
witnessed those events? Or will indirect knowledge (such as
hearsay) suffice?
A related issue is whether the
relator must have had direct knowledge of the information that
was released into the public domain. See Findley, 105 F.3d at
690. A second hotly-debated issue is how one establishes
"independent knowledge." Interpretative case authority suggests
that this term means (a) knowledge gained independently of the
public disclosure, or (b) knowledge obtained independently of
the government. If any of the relator's knowledge is derived
from information available in the public domain, does that
trigger the entire issue of whether the relator is an original
source?
In all the fuss over the original
source provision, an important procedural element is often lost
in the shuffle. Section (e)(4)(B) also mandates that a
prospective relator must "voluntarily" disclose his information
to the government before filing his complaint. In contrast to
other elements of the original source provision, this
requirement has undergone limited interpretation. Interesting
issues nonetheless present themselves. What if the government
contacts a potential relator before the relator has contacted
the government? What is a public disclosure takes place prior to
the relator contacting the government, which has by then derived
some knowledge at least of the allegations from the public
disclosure. If the prospective relator is a government employee,
can he ever "voluntarily" disclose information?
Finally, one of the most
intriguing issues is whether a relator's status as an original
source survives if despite meeting the direct and independent
knowledge thresholds, he has no connection with the public
disclosure that occurs. Put differently, must the relator be the
"original source" of the information contained in the public
disclosure? Some circuits have so held as indicated above. Once
again, the best way to determine how courts have developed and
dealt with this provision is to read a sampling of the pertinent
cases. This is time well spent, since the two "hurdles" imposed
by Section 3730(e)(4) can be the death knell of a qui tam
action.
16. What
is an effective method for analyzing public disclosure and
original source issues?
District courts likely perform
variants of the following analysis when Section (e)(4) is
invoked:
1. Have relator's allegations
been publicly disclosed?
- What is a public disclosure
[manner of disclosure]?
- Does the public disclosure
sufficiently reveal a fraudulent transaction [substance of
the disclosure]?
2. If so, is the relator's suit
based on publicly disclosed information?
- Some courts apply an
"actually derived from" standard, i.e., is relator's
knowledge non-parasitic because the relator had knowledge of
any prior public disclosure?
- Other courts hold that if
the information contained in the allegations is consistent
with the content of a prior public disclosure-even if
relator's knowledge was not derived from the disclosure, and
the disclosure is merely coincidental-nonetheless, the suit
is barred.
3. If there has been a public
disclosure, is the relator an original source of that
information? What is "direct and independent knowledge"?
- "But for" test-If the
relator would not have had knowledge of fraud but for the
public disclosure, then the relator is not the original
source.
- b. Some courts require
first-hand knowledge of the fraud.
- How extensive must knowledge
be? In addition, some courts (e.g., Second and Ninth
Circuits) also require that the relator be a source to the
entity making the public disclosure or he cannot qualify as
an "original source." Given the imprecise parameters of
Section (e)(4) and its devastating potential impact on a qui
tam complaint, it is no wonder that the cases interpreting
this provision have multiplied at a geometrical rate. The
best way to become conversant with the multitude of Section
(e)(4) issues is to dip into the cases from the appropriate
jurisdiction. It will soon become evident why so much
scholarly attention in law reviews and books has been
devoted to this topic.
17. What
is the Whistleblower Protection provision found in Section
3730(h)?
In addition to the significant
penalties and multiple damages that may result from the
underlying allegations of fraud, it is important from the
employment law perspective to recognize that the FCA seeks to
protect whistleblowers from retaliation by their employers.
Section 3730(h) reads in pertinent part: 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 a [qui tam action], including investigation for,
initiation of, testimony for, or assistance in a [qui tam]
action filed or to be filed . . . , shall be entitled to all
relief necessary to make the employee whole. Such relief shall
include reinstatement ... 2 times the amount of back pay,
interest ... compensation for any special damages ... 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.
(Emphasis added.)
Since this provision was inserted
into the FCA in 1986 well over 100 reported actions have been
litigated involving Section 3730(h). As a consequence, when
faced with a suspected qui tam situation, counsel must give
separate consideration to the client's potential liability under
Section 3730(h) as well as develop a defense to the parent FCA
action. For a more complete discussion, see companion article,
"Retaliatory Discrimination Actions Under the Whistleblower
Protection Provision of the Federal False Claims Act, 31 U.S.C.
' 3730 (H)."
18. What
provision does the False Claims Act make regarding subpoenas?
The important thing to note about
Section 3731(a) is that it makes provision for nationwide
service of subpoenas compelling the appearance of witnesses at
trial or a hearing. As a result, the normal Rule 45 (b)
limitations, foreclosing a witness from being served more than
100 miles from the location of the trial, are inoperative. While
this provision assists the government, it is also available to
defendants. It is unclear whether this provision applies to
deposition notices. 19. Does the False Claims Act contain its
own statute of limitations provisions? The FCA contains two
provisions governing the statute of limitations; both are found
in Section 3731(b).
The first provision, Section
3731(b)(1) provides for a straightforward sixyear period that
begins to run when the "violation of section 3729 is committed."
That date could be the point in time when the false claim or
false or fraudulent document is submitted to the government. But
the government and relators frequently argue that the statute
does not begin to run until payment on the claim is made. In the
health care area, one could even argue that the statute does not
begin to run for providers who submit cost reports until final
settlement has occurred on the cost report. Section 3731(b)(2)
provides an alternative basis for the statute of limitations. It
forecloses any FCA action being brought: more than 3 years after
the date when facts material to the right of the 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....(Emphasis added.) This
provision raises several interesting issues.
First, who is the "official of
the United States" referenced in the paragraph? Most courts have
construed that to be either someone in the Civil Fraud Section
of the Civil Division of Main Justice or an Assistant U.S.
Attorney. Therefore, the case agent's investigation does not
cause the statute to begin to run. It is only when the
investigative report is presented to the Department of Justice
that the clock begins to tick.
The more interesting issue is
whether relators can rely upon this alternative provision. Given
the reference to "official of the United States," it has been
contended by some defendants that the provision applies only to
the government, not relators. The legislative history appears to
support this contention, and increasingly courts have construed
the provision as being inapplicable to relators. See, e.g.,
United States ex rel. Capella v. Norden Systems, Inc., No.
3:94-cv-2063 (EBB), 2000 U.S. Dist LEXIS 13352 at *35 (D. Conn.
August 24, 2000); United States ex rel. El Amin v. George
Washington University, 26 F. Supp. 2d 162, 170-73 (D.D.C. 1998).
However, even if this alternative
provision is applicable, it can only extend the statute period
no more than ten years from the date of the violation. For
further discussion of this important issue, see companion
article, Defending False Claims Act/Qui Tam Actions: Properly
Applying the FCA's Statute of Limitations Provision, 31 U.S.C. §
3731(b).
20. What
burden of proof must be satisfied in an action under the False
Claims Act?
The FCA is not a criminal
statute; it is controlled by the customary civil standard of
proof. The burden of proof as to the elements of the cause of
action and damages is by a preponderance of the evidence.
Section 3731(c).
21. Is
there a False Claims Act provision governing collateral estoppel?
It is important to recognize that
the FCA contains a highly stringent provision regarding
collateral estoppel. Section 3731 (d) reads: 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 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 the
criminal proceeding and which is brought under subsection (a) or
(b) of section 3730. (Emphasis added.)
Put succinctly, a negotiated
plea, as well as a finding of guilt after trial, can foreclose
the ability of a FCA defendant to defend the action if the prior
criminal action involves "the same transaction." This provision
is one of the main reasons why it is so important that
defendants facing both criminal and civil charges of fraud
coordinate their defenses so that nothing resulting in the
criminal proceeding forecloses their rights in a later civil
proceeding. In the health care area, similar care needs to be
taken relative to administrative proceedings, which may be
impacted irretrievably by criminal pleas and civil settlement
agreements.
22.
Where may a False Claim Act complaint be filed?
Subsection 3732(a) is the basic
venue provision of the FCA. It establishes venue in the usual
locations, with one important twist. Venue is appropriate when
"in the case of multiple defendants, any one defendant can be
found, resides [or] transacts business." Therefore, in a case
where more than one defendant is named, venue is appropriate in
a district where at least one of the defendants had contacts.
This provision can impose a substantial burden upon a distant
defendant who has no real contact with the pertinent judicial
district in which an action is brought, since barring transfer
under 28 U.S.C. ' 1404 (a), that is where the matter must be
tried. It is important to bear in mind that Section 3732(a) is
not a jurisdictional provision. United States ex rel.
Thistlethwaite v. Dowty Woodville Polymer, 110 F.3d 861, 863 (2d
Cir.1997). Frequently, relators will plead section 3732(a) as
their jurisdictional prerequisite. This is incorrect and can
serve as a basis for dismissal upon appropriate motion.
23. What
are Civil Investigative Demands under the False Claims Act?
The 1986 amendments to the FCA
equipped the Civil Division with a powerful investigative device
patterned upon the Civil Investigative Demand authority long
available to the Antitrust Division. Several dimensions of this
authority bear particular notice. First, Civil Investigative
Demands ("CIDs") under Section 3733 can consist of (a) a request
for the production of documents; (b) a demand for oral or
deposition testimony; (c) service of interrogatories requiring
written response; and (d) any combination of these devices.
Consequently, the CID is a much more potent device than most
administrative subpoenas, which usually are limited to
requesting documents. Second, CIDs can be utilized until DOJ
files a complaint or until it declines or enters a qui tam.
Therefore, the government is in the enviable position of being
able to conduct investigative discovery prior to any ability of
the potential defendant to conduct its own discovery. Finally,
one important way in which CIDs differ from administrative
subpoenas is that Section 3733 imposes substantial limitations
upon DOJ's ability to disclose any of the information it gathers
through their use. One helpful feature of Section 3733 is that
its procedures, limitations, and bases for judicial challenge
are all spelled out in precise detail. Therefore, when a CID is
received, the first step should be a thorough review of Section
3733, which will dispose of most questions that may arise. The
existing case authority interpreting Section 3733, while
evolving, is not yet extensive. CIDs are discussed more fully in
a companion article, "What are Civil Investigative Demands?"
24. How
can a contractor protect itself from liability from a false
claims action?
Government contractors, and
particularly health care providers, should have established and
implemented meaningful compliance programs. Compliance plans,
and their components, are discussed in a companion article,
"What Is a Healthcare Fraud Compliance Program and How Can a
Provider Design and Implement One?". Compliance plans are
particularly important in discouraging qui tam actions. As
discussed under question 6 above, under Section 3729(a) of the
FCA, if a corporation becomes aware that information regarding a
potential false claim has been submitted to the government, the
corporation may decide voluntarily to disclose the facts that
the government or relator may later claim forms the basis for a
false claim action. A company also may want to conduct an
internal investigation that focuses on the allegations of
potential wrongdoing. In conducting this investigation, the
company should obtain an unbiased, critical analysis from an
outside source of what happened, who was involved, and how and
why it happened. Document review and employee interviews are the
main sources of this information. It is important to involve
outside counsel at this stage, due to the sensitivity of the
issues and the need to protect confidentiality.
25. What
are some good sources for researching False Claims Act issues?
The "False Claims Act/Qui Tam"
section of the Arent Fox web page has a number of useful
articles discussing current developments under the FCA. New
articles are added frequently to update this section. In
addition, there are several outstanding reference books that can
be consulted: 1. Jack T. Boese, Civil False Claims and Qui Tam
Actions [second edition] 2. James Helmer, et al., False Claims
Act: Whistleblower Litigation [third edition] (written from the
relator's perspective) 3. Robert Fabrikant, Paul Kalb, Mark D.
Hopson, & Pamela Bucy, Health Care Fraud: Enforcement and
Compliance Criminal, Civil and Administrative Law 4. Robert
Salcido, False Claims Act and the Healthcare Industry (including
supplementation volume) 1 The government is inclined to give a
rather broad reading to the "caused to be submitted" language.
Usually, the government contends, anyone who does anything that
contributes to the eventual submission of a false claim has
"caused" it to be submitted. The absence of interpretative case
authority has allowed DOJ to assert its broad interpretation
aggressively in negotiations. 2 The Supreme Court recently
upheld the constitutionality of the qui tam provisions of the
FCA. See companion article, "New Developments Under the False
Claims Act." 3 The limited legislative history pertaining to
Section 3730(h) is found at 1986 U.S.C.C.A.N. 5266, 5299-5300
[the section was then designated as 31 U.S.C. 3734], which
reprints S. Rep. No. 345, 99th Cong., 2d Sess. on The False
Claims Act Amendments Act of 1986. The corresponding House
Report is 99-660; pertinent discussion is found therein at 4, 23
& 32. Both the House and Senate reports on the 1986 amendments
are reproduced as appendices D and E to JOHN T. BOESE, CIVIL
FALSE CLAIMS AND QUI TAM ACTIONS (first and second editions,
1993 & 2000). A particularly complete discussion of the
legislative history, including floor debates, is found in
Childree v. UAP/GA AG Chem., Inc., 892 F. Supp. 1554, 1562-63
(N. D. Ga. 1995) (giving broad interpretation to legislative
intent), aff'd in part, rev'd in part, vacated in part, 92 F.3d
1140 (11th Cir. 1996), cert. denied, 519 U.S. 1148 (1997).
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