Historical Origins of the False Claims Act – The Civil War
In the United States, the concept of a citizen-initiated lawsuit to address fraud against the Government originated during the Civil War, with the passage by Congress in March 1863 of what came to be known as “Lincoln's Law.” This legislation was enacted to punish and deter military procurement fraud by unethical Civil War contractors who were profiteering by selling sick or lame horses and mules, faulty munitions, spoiled food, and other worthless materials to the Army. President Lincoln was outraged by these frauds, which led to the first False Claims Act.
The Act made it illegal for anyone to submit false claims for payment to the Government for worthless or nonconforming goods. The Act could be enforced directly by the Government or by a private citizen – the “Relator” – with knowledge of the fraud. The Act provided for recovery by the Government of a multiple of the amount obtained by fraud, plus penalties. Under the original Act, the Relator shared in 50% of the recovery as an incentive to expose and prosecute the frauds. These actions came to be known as “Qui Tam” lawsuits, referring to early English common law which means to bring a suit “on behalf of the king,” as well as oneself.
During World War II, Congress heavily curtailed the False Claims Act, virtually ending qui tam lawsuits, in response to numerous “parasitic lawsuits” brought by Relators who had no original information about frauds, but who were merely repeating information already in the Government's possession.
The 1986 Amendments – The Act is Strengthened
In 1986, U.S. Senator Charles Grassley of Iowa led the charge to re-invigorate the False Claims Act by passage of new amendments that greatly strengthened the law. Importantly, the amendments lowered the measure of proof required for fraud to “actual knowledge,” “deliberate ignorance” or “reckless disregard,” and increased the damages to be recovered from the fraudster to a multiple of three. At the same time, the 1986 amendments enhanced the Relator's share of the recovery by the Government. Presently, Relators are entitled to an amount between 15% and 30% of the recovery to the Government, depending on various factors unique to each case and whether the Government intervenes in the action, or has declined intervention.
As a consequence, the volume of False Claims Act lawsuits and the amount of recoveries have grown dramatically since the passage of the 1986 amendments. The law is the single most effective weapon in the Government's arsenal of tools to fight fraud. The presence of the False Claims Act is a tremendous deterrent against fraud on the Government because the damages and penalties can be great. Today, this law targets practically every imaginable sort of fraud against the Government, as well as its agents, contractors, grantees, and all other entities or persons that receive money or property from the Government (directly or indirectly) to be spent or used on its behalf.
The Nuts and Bolts of a False Claims Act Lawsuit
The Disclosure Statement and Complaint
The False Claims Act requires that – prior to filing his or her lawsuit – the Relator (also called a “whistleblower”) must first provide to the Government a “written disclosure of substantially all material evidence and information the person possesses” of the fraud. Thereafter, the False Claims Act lawsuit is filed, under seal, and a copy of the Complaint, along with the Disclosure Statement containing all material evidence of the fraud is then served on the United States Attorney General and on the U.S. Attorney in the judicial district where the case is filed. The defendant is not served with the Complaint or Disclosure Statement and will not be aware that a lawsuit has been instigated against them while the suit is under seal.
Investigation by the Government While the Case is Under Seal
The Complaint and Disclosure Statement remain under seal for at least 60 days, and very likely longer, while the Government investigates the allegations of fraud. During the time the case is “under seal,” the Government uses investigators, such as agents of the Office of Inspector General (OIG) for the affected federal agency, FBI agents, DCIS and/or NCIS agents, or state Medicaid investigators (all depending on the type of case and the nature of the fraud), to investigate the allegations of the Complaint. At the end of the initial 60-day “under seal” period, and any additional time extensions, the Government will either choose to proceed with the action and litigate the action itself or choose not to proceed with the action. During this period, the Government may also seek Court approval to unseal, or to partially unseal, the case in order to engage in settlement discussions with the Defendant.
The Relator's Right to Proceed After Government Declination
If the Government chooses not to litigate the action, the Relator then has the right to prosecute the action. While the federal Government typically intervenes in only a small number of cases every year (about 20%), those cases in which the Government does intervene tend to be much more successful. According to statistics from the Department of Justice, in 2010, the Federal Government intervened in only 53 out of 224 cases filed that year. Of the qui tam lawsuits that were resolved in 2010, those in which the Government intervened accounted for nearly 95% of the Government's total recovery and 93% of the total awards given. For cases in which the Government does not intervene, the success rate by Relators who pursue the case after Government declination is very low.
Damages, Penalties, and Relator's Share of the Award
If the Defendant is determined to have violated the False Claims Act by making false or fraudulent claims, the statute mandates that the fraudster pay three (3) times the amount of damages which the Government sustained because of the act of that person, as well as civil penalties ranging from $5,500 to $11,000 for each false or fraudulent claim.
The Relator is entitled to an award if the Government is able to recover through a settlement or successful judgment at trial. In cases in which the Government chooses to litigate the action, the Relator is entitled to receive 15% to 25% of the amount recovered by the Government. In cases in which the Relator conducts the action, he or she is entitled to receive 25% to 30% of the amount recovered by the Government.
There are several limitations and exceptions in the False Claims Act which may affect the viability of a Relator's case. The False Claims Act has a 6-year statute of limitations, and certain actions are barred altogether. For instance, qui tam lawsuits generally must be based on information that has not been publicly disclosed. Further, the False Claims Act does not apply to claims involving federal tax fraud. Tax fraud whistleblower cases are addressed in a separate federal statute.
Choose an Experienced False Claims Act Attorney
It is wise to seek an experienced attorney to evaluate and possibly to pursue your potential False Claims Act case. These cases can be highly complex, and there are critical filing considerations for False Claims Act cases that can create problems for inexperienced counsel. From start to finish, False Claims Act cases typically last for many years. It is therefore essential to seek out an attorney who will best represent your interests for the duration.
For cases that we accept, we thoroughly investigate the fraud, extensively research the law and facts, and prepare a complete and convincing Disclosure Statement and Complaint prior to bringing the claim in federal district court. We have established relationships with federal prosecutors and the Department of Justice, as well as with other members of the qui tam bar across the United States. Rabon Frazier LLP, led by Chet Rabon, is well-equipped to handle False Claims Act cases and has been successful in representing whistleblower plaintiffs. In 2012, the Rabon Frazier LLP was involved in multiple successful cases in which the Government intervened. We presently are involved in numerous False Claims Act cases of significant size that are pending in several federal districts.
For a free consultation about a potential False Claim Act case, or other potential whistleblower case, please call us or click here to submit your information.