A Guide To The Federal False Claims Act

The Federal False Claims Act is the U.S. Government’s primary weapon for combatting fraud. It allows whistleblowers to sue persons or entities that are defrauding the government and recover damages and penalties on the government’s behalf. The statute provides whistleblowers financial rewards as well as job protection against retaliation.

The federal False Claims Act (FCA), 31 U.S.C. §§ 3729, et seq, is sometimes known as “Lincoln’s Law,” because it was enacted during the Civil War to counter widespread fraud by contractors supplying the military. More recently, it has been amended to enhance the Government’s ability to recover money for losses caused to it by fraud.

A key feature of the law is the qui tam (or whistleblower) provision under which an individual or entity (known as a “relator”) with knowledge of fraud against the Government may file a lawsuit under seal on behalf of the United States. If the case is successful, the relator can share in the Government’s monetary recovery and recover attorney’s fees and costs from the defendant. Congress hoped that creating these monetary incentives, along with provisions protecting whistleblowers from reprisal or retaliation would encourage whistleblowers to come forward and incentivize private lawyers to commit legal resources to representing whistleblowers in prosecuting fraud on  the Government’s behalf.

The FCA has been highly successful as a public-private partnership: as of the end of 2018, Government recoveries  have exceeded $59 billion following 1986 amendments that strengthened the False Claims Act, with rewards to whistleblowers totaling billions of dollars.

Liability Under the False Claims Act

The FCA is written broadly, with the aim of reaching all types of fraud that might result in financial loss to the  United States. It identifies seven violations, any of which is a violation of the False Claims Act.

1. False Claims – Presenting, or causing the presentment, of a false claim for payment or approval. 31 U.S.C. §§ 3729(a)(1)(A).
2. False Records or Statements – Making, using, or causing others to make or use, a false record or statement that is material to a false or fraudulent claim. 31 U.S.C. §§ 3729(a)(1)(B).
3. Conspiracy – Conspiring to violate the False Claims Act. 31 U.S.C. §§ 3729(a)(1)(C).
4. Conversion –  Failing to return government property. 31 U.S.C. §§ 3729(a)(1)(D).
5. False Receipts – Making or delivering a receipt of government property without completely knowing that the information in it is true. 31 U.S.C. §§ 3729(a)(1)(E).
6. Unlawful purchase of Government Property – Buying public property from a government employee who may not lawfully sell it. 31 U.S.C. §§ 3729(a)(1)(F).
7. Reverse False Claims – Making, using, or causing to be made or used, a false record or statement material to an obligation to pay money to the government; or conceals, avoids, or decreases an obligation to pay money to the government. 31 U.S.C. §§ 3729(a)(1)(G).

False Claims Act Damages and Penalties

The United States may recover up to three times the damages caused to the Government by the fraud plus a sizeable civil penalty for each violation.

While the False Claims Act references a penalty of between $5,000 and $10,000, it is indexed to inflation; by February 2024, False Claims Act penalties ranged as high as $27,894 per violation.

False Claims Act Materiality

A requirement of all fraud law (and contracts and torts for that matter), is that the subject of the fraud be material. The purpose of the materiality requirement is to ensure that the “thing” that someone was defrauded about is important enough to justify legal action. It is the same with the False Claims Act. The materiality requirement ensures that the False Claims Act applies only when the false or fraudulent conduct, was important  enough that it would have influenced a government decision.

Since 2009, the False Claims Act has defined the term material as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” 31 U.S.C. § 3729(b)(4).       In Universal Health Servs., Inc. v. United States ex rel. Escobar, the Supreme Court held that  that definition applied to all actions under the False Claims Act.

The Supreme Court went on to identify factors that were relevant but not dispositive to materiality:

• The Government’s decision to expressly identify a regulatory provision as a condition of payment;
• Evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement;
• If the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material;
• Or, if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.

136 S. Ct. 1989, 2002.

In the aftermath of Escobar, defendants have tried to argue that courts should dismiss False Claims Act cases on  materiality grounds. For the most part, they argue that lack of evidence that the government refused to pay when  it learned of identical fraud is a requirement for whistleblowers and the government. Escobar said no such thing and for the most part, courts have rejected these claims in favor of a holistic approach to determining whether fraud is material.

Establishing Knowledge

While the False Claims Act is an anti-fraud law that requires a “knowing” violation, it does not require proof that the fraudster had a specific intent to defraud the Government. Rather, the False Claims Act provides that the terms ‘knowing’ and ‘knowingly’ simply mean that a person:

• had actual knowledge that a statement or claim was false
• acted in deliberate ignorance of whether information was true or false, or
• acted in reckless disregard of truth or falsity

False or Fraudulent Claims

At the heart of several provisions of the False Claims Act is whether there is a false or fraudulent claim to the Government for payment. The law defines “claim” broadly as “any request or demand, whether under a contract or otherwise, for money or property and whether or not the United States has title to the money or property, that— (i) is presented to an officer, employee, or agent of the United States; or (ii) is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government’s behalf or to advance a Government program or interest, and if the United States Government— (I) provides or has provided any portion of the money or property requested or demanded; or (II) will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.” 31 U.S.C. § 3729(b)(2).

Reverse False Claims/Obligations to Repay

There is also what is known as the “reverse false claim” provision, which is where a person underpays or fails to pay back what they are obligated to pay the Government. The term “obligation” is defined generally in the False Claims  Act as “an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.” 31 U.S.C. § 3729(b)(3). In the health care context, the term “obligation” includes overpayments that have been retained for more than 60 days after they were identified as overpayments.

Statutory Limitations That Bar Qui Tam Cases

A whistleblower may be barred from bringing or maintaining a qui tam complaint under certain circumstances. The two most important restrictions are known as the “first to file rule” and the “public disclosure bar.”

• The “first to file rule” generally prevents a second relator from filing suit or recovering a reward if someone else has already filed the same allegations or claim with the court.
• The “public disclosure bar” generally prevents a relator from filing or maintaining a qui tam case where substantially the same allegations or transactions have already been disclosed in the news media, in a federal court or administrative proceeding to which the United States is a party, or in a Congressional or other Government report, hearing, audit, or investigation.
• The “Tax bar” prevents use of the False Claims Act to recover for tax fraud. Due to the Tax Bar, the False Claims Act does not apply to money owed to the IRS. While the IRS whistleblower program does apply to tax fraud, it lacks features that make the False Claims Act so valuable.

Whistleblower Reward (“Relator’s Share”)

The whistleblower’s share of the Government’s monetary recovery depends on several factors. The most important is whether the Government intervened in and “took over” the relator’s FCA case or whether the Government declined to intervene and the relator chose to proceed on his or her own to prosecute the case. The general guidelines are as follows.

• Intervention: the FCA provides for a relator share of 15%-25% of the proceeds collected by the United States “depending upon the extent to which the person substantially contributed to the prosecution of the action.”
• Declination: the FCA provides for a relator share of 25%-30% of the proceeds collected by the United States based on what the court finds “reasonable” for collecting the damages and penalties.
• Exceptions: The share may be reduced or eliminated where the relator was a planner and initiator of the fraud, or was criminally convicted, or based their qui tam action on information learned from a Government.

Attorneys’ Fees and Costs

A losing defendant is required to pay the relator’s reasonable attorneys’ fees and costs. If a relator proceeds with a case after the United States has declined to intervene, and loses, the court may award attorneys’ fees and costs to the defendant if the court finds that the relator’s claim was “clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.”

Anti-Retaliation Provisions

The False Claims Act protects employees, contractors, or agents who are discharged, demoted, suspended, threatened, harassed, or discriminated against in any other way because of lawful acts taken to stop violations of the FCA. Liability for retaliation is not limited to one’s employer, but may extend to others. Wronged whistleblowers may recover reinstatement with the same seniority status they would have had but for the discrimination, two times the amount of back pay plus interest, and compensation for any special damages sustained such as emotional distress and attorney’s fees and costs. A retaliation case may be brought together with or separately from a FCA qui tam complaint.