About The Author
Whistleblower & Qui Tam Suits
Whistle Blower, False Claims Act, and Qui Tam Actions
For centuries, English (and later American) law provided a way and incentive for citizens to assist their governments in protecting their national treasuries from fraud by allowing private parties to prosecute, on the government's behalf, lawsuits against wrongdoers who wrongfully sought or obtained money from the government, and rewarding the successful private litigants by paying them a monetary reward for recovering money of which the government had been defrauded. These kinds of cases are known as "qui tam actions," that term being short for the Latin phrase "qui tam pro domino rege quam pro se ipso in hac parte sequitur", which means "who pursues this action on our Lord the King's behalf as well as his own."
Such cases originated around the end of the 13th century, primarily as a way for individuals to get their cases heard by the respected royal courts, rather than by the lesser local courts. Royal courts would only consider lawsuit involving the Crown's interest, however, so qui tam actions were created as a way to get private complaints before those tribunals by alleging that it was the monarch's interests (as well as those of the private litigant) which were being vindicated. Over the next few centuries, Parliament passed several statutes expressly authorizing qui tam lawsuits, and providing that informers who successfully brought such cases would be entitled to retain a portion of the recovery as a bounty for having recouped funds for the benefit of the Crown. These were generally known as Informer Acts.
Qui tam actions enjoyed similar popularity in this country, both before and after the adoption of the Constitution. Several colonies passed informer statutes expressly authorizing qui tam lawsuits and the First Congress enacted several such laws. The most important of these laws in this country was originally enacted in 1863 and is known as the False Claims Act ("FCA"). At the time, there were a number of unscrupulous contractors profiting by supplying shoddy goods to the Union Army, but the government was so consumed fighting the war, it lacked the resources to pursue the dishonest suppliers. Thus, the False Claims Act, at the time known as the "Lincoln Law," was passed, allowing private individuals with knowledge of fraud on the federal government to bring a lawsuit on the government's behalf and to share in any resulting recovery of actual damages, statutory penalties of up to $2,000 for each false claim, or double damages allowed by the Act. By in effect out-sourcing enforcement of the government's civil fraud prosecution effort, to conserve federal resources for other more urgent tasks, the False Claims Act became one of the earliest examples of "privatization" of a governmental function to the private sector.
The Act has undergone two major amendments since then. In 1943, following the Supreme Court decision in the United States ex rel. Marcus v. Hess case, Congress amended the act to reduce the risk of parasitic suits filed by opportunistic plaintiffs who really had no first-hand knowledge of the underlying fraud. The amendment provided that a FCA lawsuit could not be maintained if the government had prior knowledge of the allegations, even if the plaintiff was the source of the government's information. The 1943 amendments also allowed the government to take over a FCA lawsuit if it chose to do so and reduced the bounty to be paid, especially in situations where the government did intervene.
By 1986, the burgeoning federal deficit and increased fears that defense contractors were siphoning off vast sums of money through waste, corruption, and outright fraud motivated Congress to re-tool the FCA into a far more available and aggressive instrument in the government's effort to root out and prevent corruption against the national government. Among the changes brought about by the 1986 amendments are an increase in the penalties from $2,000 per claim to a range between $5,500 to up to $11,000 per claim (for acts committed after September 29, 1999), a change of the "double damages" provisions to treble damages, increased bounties for successful qui tam relators, lessening (or at least clarification) of the burden of proof in FCA civil cases, modification of the statute of limitations, and restriction of the "prior disclosure" bar to allow FCA cases to be prosecuted by individuals who were the "original source" of information on which the case is predicated.
In its current form, the Act permits a private citizen (referred to as the "relator") to maintain a lawsuit on behalf of (and, indeed, in the name of) the United States government to redress the submission by any person to the government of a false or fraudulent claim for payment, the making of a false record or statement to get a false or fraudulent claim paid or approved, a conspiracy to defraud the government, or similar misconduct. The government may, if it chooses, file such a lawsuit itself, or it can be maintained by a private individual. Such a case cannot be brought against a state or an agency of a state because such entities are not regarded as being a "person" under the Act.
If an individual files such a lawsuit, it must be placed "under seal" for 60 days to give the government an opportunity to decide whether it wishes to intervene and take over prosecution of the case itself. This means that during the 60-day seal period, the relator cannot tell anyone that the lawsuit has been filed or what its allegation are. (The government frequently requests, and is routinely granted, extensions of this 60 day time limit.) The private individual must also provide the government with "written disclosure of substantially all material evidence and information the person possesses," to assist the government in making a decision about whether or not to take over the case itself. If the government elects to intervene, it assumes primary responsibility for prosecuting the case, though the private party , may continue to participate in the case and is entitled to a hearing for the court to determine reasonableness of any settlement or dismissal of the lawsuit. If the government declines to intervene during the 60-day period, the relator has the exclusive right to conduct the lawsuit, although the government may intervene later on for "good cause." If the government intervenes, the private plaintiff is entitled to receive a share of any proceeds from the action generally ranging from 15% to 25% (the exact amount of the bounty depending on a number of factors, including the extent of the relator's contribution to the success of the prosecution of the case); the private party is entitled to between 25% and 30% of the recovery where the government does not intervene. In either case, the private individual is also entitled to attorney's fees and costs.
Although the FCA encompasses any type of fraud against the government, there are two main areas in which most of the cases arise: defense contracting and healthcare (basically, Medicare/Medicaid) fraud. Currently more than 60% of the cases involve allegation of fraud in the health care system. These cases involve everything from false certifications of medical necessity, to billing for tests not performed or not really needed, to "upcoding" (that is, charging the government for more serious or more expensive conditions than actually justified by the circumstances), to paying illegal compensation to physicians to refer patients to a particular hospital, to seeking reimbursement for substandard care, to a wide variety of other illegal practices which result in overcharges or fraudulent charges being submitted to the government. Since Medicare is the largest item in the federal budget after defense spending, accounting for nearly $300 billion dollars per year in federal outlays and more than 800 million claims annually, the opportunity for fraud and abuse in the system is immense and the necessity for involvement by private parties in assisting in the elimination of corruption is especially urgent and acute in this area.
False Claims Act qui tam lawsuits are unavailable in certain circumstances. The two most important of these are the so-called "first to file" rule and the "public disclosure" bar. Concerning the "first to file" rule, the law prohibits a FCA case being maintained if the allegations or transactions are the same as those which are the subject of a pending (or previously disposed of) civil suit or administrative civil money penalty proceeding in which the government is or was a party. In other words, only the first relator to file a lawsuit asserting a particular fraudulent course of conduct by a defendant may maintain such a suit.
Regarding the "public disclosure" bar, if the factual allegations which form the basis of an FCA lawsuit have been publicly disclosed in a criminal, civil, congressional, or administrative proceeding, or a Government Accounting Office report, hearing, audit, or investigation, or by the news media, that circumstance precludes the bringing of an FCA case based on those allegations or transaction unless the relator was the "original source" of the information which became publicly disclosed. An "original source" is someone with "direct and independent knowledge of the information" and has voluntarily provided that information to the federal government before filing a lawsuit based on that information.
Especially because of the "public disclosure" bar and the "first to file" rule, a person who believes he or she possesses information which could form the basis of a False Claims Act lawsuit should consult with an attorney promptly and before publicly revealing the information. If one tarries in bringing the action, someone else may file first, triggering a "first to file" bar; if one acts precipitously and without the guidance of counsel, he or she risks inadvertently precluding his or her own lawsuit by making an improper public disclosure. Further, it is imperative that the "seal" rules be scrupulously observed once the lawsuit is filed and while the government is deciding whether or not to intervene, and advise of counsel may be critical to avoiding improper disclosure during this critical time period. Finally, a knowledgeable relator may, at some time, have been a participant in the illegal scheme, or at least have covered it up, in which case there is possible criminal exposure and self-incrimination considerations which need to be evaluated by a lawyer.
Employees concerned about adverse consequences from reporting misconduct by their employers should take comfort from the anti-retaliation provisions of the False Claims Act. The Act specifically provides that any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against because of the employee's lawful investigation, reporting, testifying, or assistance is entitled to "all relief necessary to make the employee whole," including reinstatement (including seniority status), two times the amount of back pay, interest, compensation for any special damages, litigations costs, and attorneys' fees. Of course, it is sometimes difficult to prove that the employee's protected activities were what caused the discriminatory treatment, but the courts and the government treat such cases with utmost gravity.
The False Claims Act is not the only protection employees have for exposing wrongdoing by their employers. Under Texas law, for example, a government entity may not take any adverse personnel action against a public employee who in good faith reports a violation of law by the governmental entity to an appropriate law enforcement authority, and an employee who is victimized by a governmental employer's retaliation for the employee's whistle blowing activities may invoke potent remedial provisions, including compensatory and punitive damages, reinstatement, attorney's fees, and other remedies. While the Whistle Blower Statute does not apply to private employers, an employee cannot be fired or discriminated against under Texas law on account of that employee's refusal to engage or participate in unlawful conduct (and covering up illegal activity by an employer may, under certain circumstances, itself be a crime). Further, a variety of federal statutes prohibit retaliation against whistle blowers and provide private causes of action where an individual is harmed, intimidated, or harassed on account of having reported a violation of law to an appropriate governmental authority.
Unlike the FCA, however, these Whistle Blower statutes do not permit recovery, on the government's behalf, of the monies of which it has been defrauded by the wrongdoer. They are aimed, instead, at protecting the whistle Blower and making him or her whole from the damages they suffer as a result of their exposing illegality. The FCA is a potent weapon in the government's arsenal against fraud perpetuated against it for a different and further reason: in addition to prohibiting and redressing retaliation taken against whistle blowers, the False Claims Act offers significant financial rewards to private parties to incentivize them to prosecute on behalf of and for the benefit of the United States civil suits against perpetrators fraud, encouraging them to help root out defalcations of the federal government and restore to the federal treasury funds of which it has been deprived by the illicit conduct of venal contractors and other unprincipled invaders of the public fisc.
RELATED LINKS - Opens in a new browser window
Joyce Riley, Plaintiff-Appellant, v. St. Luke's Episcopal Hospital, Branislav Radovancevic, O. Howard Frazier, M.D., Surgical Associates of Texas, P.A., The Univ. of Texas, Houston Health Science Center, Baylor College of Medicine, Texas Heart Institute, and Edward K. Massin, M.D., Defendants-Appellees