Overview

Published by the American Bar Association Center for Continuing Legal Education as part of A National Institute on the Civil False Claims Act and qui tam Enforcement

by Paul D.Scott
January 13, 2000

I. LIABILITY

The False Claims Act (“FCA” or “the Act”) provides liability for any person who:

1. knowingly presents, or causes to be presented, to an officer or employee of the 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 Government; conspires to defraud the Government by getting a false or fraudulent claim allowed or paid;

   . . . .

    

7. knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.

31 U.S.C. 3729(a).

A. Definition of “Person”

1. Individuals With certain limited exceptions applicable to senior government officials, any individual can be held liable under the FCA.
2. Corporations Corporations can be held liable under the Act for the actions of their employees within the scope of their employment under the doctrine of respondeat superior. Grand Union Co. v. United States, 696 F.2d 888, 891 (11^th Cir. 1983); United States v. Ridglea State Bank, 357 F.2d 495, 500 (5^th Cir. 1966). Benefit to the corporation is not required. American Society of Mechanical Engineers v. Hydrolevel Corp., 456 U.S. 556, reh’g denied, 458 U.S. 1116 (1982); United States v. O’Connell, 890 F.2d 563, 568 (1^st Cir. 1989); but see United States v. Hill, 676 F. Supp. 1158, 1179 (N.D. Fla. 1987).
3. States There is a division in authority on the question of whether States can be held liable under the False Claims Act when the Government declines intervention in a case. Courts of Appeal have historically held that States can be held liable under the Act. See United States ex rel. Rodgers v. Arkansas, 154 F.3d 865, 868 (8th Cir. 1998) (suit not barred); United States ex rel. Stevens v. Vermont Agency of Natural Resources, 162 F.3d 195, 201-03 (2d Cir. 1998) (same); United States ex rel. Fine v. Chevron, U.S.A., Inc., 39 F.3d 957, 963 (9th Cir. 1994), vacated, 72 F.3d 740 (9th Cir. 1995) (same). The Fifth Circuit Court of Appeals, however, has recently held to the contrary. U.S. ex rel. Foulds v. Texas Tech University et al. 1999 WL 170139 (5^th Cir. March 29, 1999) (hold state’s immunity under the 11^thamendment not abrogated by FCA, because statute does not provide for relators to act as deputies of the United States or surrogates of responsible federal officers). The conflict should be resolved shortly, for the Supreme Court recently granted certiorari on this issue in Vermont Agency of Natural Resources v. United States, No. 98-1828 (U.S.).

B. Knowledge Requirement

“Knowing” and “knowingly” are defined by the Act to mean that a person:

1. has actual knowledge that a statement or claim is false;
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 the information,

31 U.S.C. § 3729(b). No proof of specific intent to defraud is required. Id.; See also United States ex rel. Wang v. FMC Corp., 975 F.2d 1412, 1420 (9^th Cir. 1992).

Proof of Government knowledge is not a defense to liability under the False Claims Act, but may be relevant to whether the defendant acted “knowingly.” United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416 (9th Cir. 1991).

C.What is a Claim?

The False Claims Act creates liability for both claims for payment and so-called “reverse false claims” to avoid an obligation to pay the Government.

1. Affirmative False ClaimsThe Act defines claims against the Government to include “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.” 31 U.S.C. § 3729(c).The foregoing language has properly been interpreted to cover virtually any claim for payment or transfer of Government money or property, such as an invoice, progress payment request, loan application, or other bill requesting payment that is submitted to the federal government.See e.g. United States v. Bornstein, 423 U.S. 303 (1976) (invoice); United States v. Neifert-White Co., 390 U.S. 228 (1968) (loan application).It also has been interpreted to cover a wide variety of indirect claims, including:
   1. Claims submitted by subcontractors on Government contracts to prime contractors. United States v. Bornstein, 423 U.S. 303 (1976).
   2. Claims submitted to private fiscal intermediaries (e.g. Medicare claims). Peterson v. Weinberger, 508 F.2d 45 (5^th Cir.), cert. denied, 423 U.S. 830 (1975).
   3. Claims submitted to Government Corporations. Rainwater v. United States, 356 U.S. 590, 592 (1958).
   4. Claims submitted to state programs that receive funding from the Federal Government (e.g., Medicaid). United States ex rel. Davis v. Long’s Drugs, Inc., 411 F. Supp. 1144, 1146-47 (S.D. Cal. 1976).
   5. Claims submitted to financial institutions for federally guaranteed loans (e.g., loans guaranteed by the SBA, VA or HUD). See United States v. First National Bank of Cicero, 957 F.2d 1362 (7th Cir. 1992)(SBA loan).

   The Act does not, however, apply to claims, records or statements made under the Internal Revenue Code of 1986. 31 U.S.C. § 3729(e).

2. “Reverse False Claims”

The Act covers false claims made to “to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(7). The meaning of this language has been the subject of conflicting opinions in recent years. Numerous district courts had construed the provision broadly to permit actions based on false statements made to avoid potential or contingent obligations, such as fines or penalties. See e.g. United States ex rel. Terry J. Wilkins v. State of Ohio, et al., 885 F. Supp. 1055, 1064 (S.D. Ohio 1995); Earl O. Pickens v. Kanawha River Towing, 916 F. Supp. 702 (S.D. Ohio 1996). Several courts of appeal, however, have interpreted the provision more narrowly in recent times. See United States v. Q International Courier, Inc., et al., 131 F.3d 770 (8^th Cir. 1997) (Government must show it was owed “a specific, legal obligation at the time that the alleged false record or statement was made, used, or caused to be made or used . . . defendant must have had a present duty to pay money or property that was created by a statute, regulation, contract, judgment, or acknowledgment of indebtedness”); United States v. Pemco Aeroplex, Inc., 166 F.3d 1311 (11^th Cir. 1999) (citing Q International); American Textile Manufacturers Institute, Inc. v. The Limited, Inc., et al., 190 F.3d 729 (6th Cir. 1999) (concurring with Q International).

D. What is a False Statement?

False statements can be found in any communications with the government that ultimately provide a basis for a claim to be paid or approved. Examples of false statements include false representations regarding goods or services allegedly provided, false certifications regarding performance on a contract, or false progress reports.

E. Standard of Proof

“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.” 31 U.S.C. § 3731(c).

F. Statute of Limitations

The Act bars suits filed:

1. more than 6 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.”

31 U.S.C. § 3731(c).

According to the majority of courts, in cases brought by the United States, the “official of the United States charged with responsibility to act in the circumstances” is an official within the Department of Justice. See United States v. Incorporated Village of Island Park, 791 F. Supp. 354 (E.D.N.Y. 1992); Kreindler & Kreindler, 777 F. Supp. 195 (N.D.N.Y. 1991), aff’d on other grounds, 985 F.2d 1148 (2d Cir. 1993).

The tolling provision has also been found to apply to qui tam actions, but the relator has been treated as the “official” in such cases for purposes of determining when the Government gained knowledge of the alleged fraud. United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211 (9^th Cir. 1996).

G. Service of Process

The False Claims Act provides for nationwide service of process. 31 U.S.C. 3731(a).

II. DAMAGES

A. Treble Damages and Penalties

A person who violates the False Claims Act will be liable for “a civil penalty of not less than $5,000 and not more than $ 10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person . . . .” 31 U.S.C. § 3729(a).

B. Single Damages

The measure of single damages (subject to trebling under the Act) is generally the amount of additional money the United States had to pay as a result of the false statement or claim. United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943); United States v. Woodbury, 359 F.2d 370, 379 (9^th Cir. 1966). The precise method of determining the amount of the Government’s overpayment varies depending on the type of case.

C. Penalties

The FCA provides for the mandatory award of penalties of between $5,000 and $10,000 per false claim. 31 U.S.C. § 3729(a). While damages are not necessarily required for penalties to be awarded, United States v. Cherokee Implement Company, 216 F. Supp. 374, 375 (D. Iowa 1963), large penalty awards may be limited by the Double Jeopardy Clause in cases where the defendant has already had a prior criminal conviction. United States v. Halper, 490 U.S. 435 (1989). Penalties may also be potentially limited by the Excessive Fines Clause. United States ex rel. Smith v. Gilbert Realty Co., 840 F.2d Supp. 71 (E.D. Mich. 1993).

D. Voluntary Disclosure

A defendant’s exposure to damages under the Act may be limited to double damages plus costs under the following circumstances:

1. 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;
2. such person fully cooperated with any Government investigation of such violation; and
3. 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;

31 U.S.C. § 3729(a).

III. QUI TAM PROVISIONS

A. Who Can File A Qui Tam?

The False Claims Act permits actions to be filed under the Act by either the United States Attorney General or by private citizens. Actions brought by private persons (referred to as “relators”) are brought “for the person and for the United States Government” but are “brought in the name of the Government.” 31 U.S.C. § 3730(b)(2).

The only persons expressly precluded from filing a qui tam under the Act are “former or present member[s] of the armed forces” who bring suit against a member of the armed forces based a claim “arising out of such person’s service in the armed forces.” 31 U.S.C. § 3730(e)(1).

In practice, courts have frequently also barred suits by government employees on public disclosure grounds. See e.g. United States ex rel. Fine v. Chevron, U.S.A., Inc., 72 F.2d 740 (9^th Cir. 1995), cert. denied, 116 S.Ct. 1877 (1996). No court, however, has accepted the argument that government employees per se can never be relators. United States ex rel. Williams v. NEC Corp., 931 F.2d 1493, 1500-01 (11th Cir. 1991); United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1419-20 (9th Cir. 1991); United States ex rel. LeBlanc v. Raytheon Co., 913 F.2d 17, 20 (1st Cir. 1990); United States ex rel. Givler v. Smith, 760 F. Supp. 72, 75 (E.D. Pa. 1991); United States v. CAC-Ramsay, Inc., 744 F. Supp. 1158, 1161 (S.D. Fla. 1990), aff’d, 963 F.2d 384 (11th Cir. 1992).

Suits by attorneys have also tended to be disfavored. See e.g. United States ex rel. Stinson v. Prudential Ins. Co., 944 F.2d 1149 (3^rd Cir. 1991) (attorney); United States ex rel. Kreindler & Kreindler v. United Technologies Corp., 985 F.2d 1148 (2d Cir. 1993), cert. denied, 508 U.S. 973 (1993) (same).

B. How to File a Qui Tam Action?

Relators must file both a complaint and a written disclosure statement under seal to begin a qui tam action. Both are served on the Government pursuant to the Federal Rules of Civil Procedure.

1. Complaint The complaint in a False Claims Act action is subject to review under Fed. R. Civ. P. 9(b), which provides that “in all averments of fraud or mistake, circumstances constituting fraud or mistake shall be stated with particularity.” See United States ex rel. Gold v. Morrison-Knudsen Co., 68 F.3d 1475 (2^nd Cir. 1995), cert. denied, 116 S.Ct. 1836 (1996). It is thus generally required that the complaint describe “the outline of the fraudulent scheme and facts identifying ‘who, what, when and where’ of the fraud.” United States ex rel. Robinson v. Northrop Corp., 824 F. Supp. 830, 832 (1993). Successful motions under Rule 9(b), however, normally only result in dismissal without prejudice, if leave to amend has not previously been granted. Id.
2. Written Disclosure Statement The disclosure statement consists of a “written disclosure of substantially all material evidence and information the person possesses.” 31 U.S.C. § 3730(b)(2). This generally means a detailed description of the parties, the fraud, applicable legal authority, and any relevant documents in the possession of the relator, along with a list of any relevant witnesses, and a list of relevant documents not in the relator’s possession. The basic objective is to provide the Government with as clear and complete a presentation of the facts as possible to facilitate an intervention decision by Government attorneys who are often burdened by numerous cases competing for their attention.Although disclosure statements may include work product, some courts have held that they are not protected by the work product doctrine or any other privilege. See e.g. United States ex rel. Burns. V. A.D. Roe Co., Inc., 904 F. Supp. 592 (W.D. 1995).
3. Seal Requirement The complaint in a qui tam action is filed under seal. 31 U.S.C. § 3730(b)(2). Service of the complaint on the defendant is prohibited “until the court so orders.” Id.The appropriate method for filing an action under seal can vary by district. In some districts, simply including a cover sheet that omits the names of the parties is sufficient. Other districts require that pleadings be submitted in a sealed manilla envelope. Yet others require that a motion to file under seal be submitted along with the complaint. Reference should be made to local rules on this point.Once the complaint is filed, maintaining the seal is important, for a breach of the seal may lead to dismissal of the complaint with prejudice. See United States ex rel. Erickson v. Amer. Institute of Bio. Sciences, 716 F. Supp. 908, 912 (E.D. Va 1989); United States ex rel. Pilon v. Martin Marietta Corp., 60 F.3d 995 (2nd Cir. 1995); but see United States ex rel. Lujan v. Hughes Aircraft, 67 F.3d 242 (9^th Cir. 1995) (reversing dismissal, directing district court to consider three factors: actual harm to government, nature of the violation, and whether the violation involved bad faith or willfulness).
4. Service of the Complaint The Act states that the complaint and disclosure statement “shall be served on the Government pursuant to Rule 4(d)(4) of the Federal Rules of Civil Procedure.” Service on the United States is no longer covered by this rule; Fed. R. Civ. P. 4(i) now governs. Rule 4(i) requires that the complaint and disclosure statement be delivered to the United States Attorney General and to the United States Attorney in the district where the case is filed. Service can be made on the United States Attorney General by registered or certified mail. Service can be made on the United States Attorney by hand service on the United States Attorney (or his or her official designee) or by registered or certified mail on the civil process clerk at the United States Attorney’s office. Sending the complaint by registered or certified mail to the United States Attorney is not sufficient.

C. Government’s Investigation and Intervention Decision

The Act provides that 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.” 31 U.S.C. § 3730(b)(2). During this period, the Government investigates the allegations in the complaint and disclosure statement.

“The Government may elect to intervene and proceed with the action within 60 days after it receives both the complaint and the material evidence and information.” Id. As a practical matter, however, the Government rarely makes intervention decisions within the original 60 days. The Government is permitted to request extensions of the 60 day period “for good cause shown,” id., and frequently does so. The length of extension sought varies by case and by district. In most jurisdictions, the Government’s first request is almost always granted, and subsequent requests are often granted as well. The Government normally seeks the relator’s consent when requesting an extension. It is generally in the relator’s interest to concur with such requests, for if the Government is forced to make an intervention decision before it is ready to do so, it is likely to decline intervention. Not surprisingly, in most cases Government participation in a case facilitates both litigation and settlement.

D. Litigating and Otherwise Resolving The Case

If the Government intervenes in the case, then it takes on “primary responsibility for prosecuting the action . . . .” 31 U.S.C. § 3730(c)(1). The relator may still participate in the action, id., but the Government may request the Court to place limits on the relator’s participation in the case. 31 U.S.C. § 3730(c)(2)(C). The Government may also settle the case, notwithstanding the objections of the relator, “if the court determines after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances.” 31 U.S.C. § 3730(c)(2)(B).

If the Government declines intervention in the case, the relator “shall have the right to conduct the action.” 31 U.S.C. § 3730(c)(3). The relator, however, does not then take on the powers and privileges of the Government. The relator litigates the case as if it were any other private lawsuit. See United States ex rel. Lamers v. City of Green Bay, Wis., 924 F. Supp. 96 (E.D. Wis. 1996). Moreover, the relator’s control of the case is not guaranteed; the court may always “permit the Government to intervene at a later date upon a showing of good cause.” 31 U.S.C. § 3730(c)(3).

E. Public Disclosure Bar & Original Source Exception

One of the most litigated provisions of the False Claims Act is its public disclosure bar. The provision reads as follows:

(4)(A) 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

.

31 U.S.C. § 3730(e). Some of the key issues of general relevance are reviewed briefly below. Individual cases, however, should be analyzed in the context of decisions that involve similar types of disclosures, which are not reviewed here.

1. What is a “Public” Disclosure?The courts have differed on who must have received information for it to have been publicly disclosed. See United States ex rel. Mathews v. Bank of Farmington, 166 F.3d 853 (7^th Cir. 1999) (information must be disclosed to either “a public official” whose duties extend to the claim in question or to the “public at large”); United States ex rel. Findley v. FPC-Boron Employees’ Club, 105 F.3d 675, 682-85 (D.C. Cir.), cert. denied, 118 S.Ct. 172 (1997) (discovery information not filed with the court is only theoretically available upon the public’s request); United States ex rel. Fine v. Advanced Sciences, Inc., 99 F.3d 1000 (10^th Cir. 1996) (public disclosure occurs “if the allegations are disclosed to any single member of the public not previously informed thereof”).
2. Disclosure of “Allegations or Transactions”In United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645 (D.C. Cir. 1994), the Court of Appeals for the District of Columbia Circuit established the following equation for determining whether a public disclosure consists of the “allegations or transactions” that form the basis of the FCA complaint:
   

   [I]f X + Y = Z, Z represents the allegation of fraud and X and Y represent its essential elements. In order to disclose the fraudulent transaction publicly, the combination of X and Y must be revealed, from which readers or listeners may infer Z, i.e., the conclusion that fraud has been committed. . . . [Q]ui tam actions are barred only when enough information exists in the public domain to expose the fraudulent transaction (the combination of X and Y), or the allegation of fraud (Z).

   Id. at 654. Other courts have since adopted this same framework. See United States ex rel. Rabushka v. Crane Co., 40 F.3d 1509, 1514 (8th Cir. 1994); United States ex rel. Dunleavy v. County of Delaware, 123 F.3d 734, 741 (3d Cir. 1997); Jones v. Horizon Healthcare Corp., 160 F.3d 326, 330 (6th Cir. 1998).

3. What Action is “Based Upon” a Public Disclosure?Courts have also reached varying decisions regarding the meaning of the phrase “based upon” in the Act. In United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1348 (4th Cir.), cert. denied, 513 U.S. 928 (1994), the Fourth Circuit held that “a relator’s action is ‘based upon’ a public disclosure of allegations only where the relator has actually derived from that disclosure the allegations upon which his qui tam action is based.” See also United States ex rel. v. Mathews v. Bank of Farmington, 166 F.3d 853 (7^th Cir. 1999) (same). Most of the other circuits to have considered the issue, however, have held that “based upon” means “supported by” or “substantially similar to,” so that the relator’s independent knowledge of the information is irrelevant. See United States ex rel. Biddle v. Board of Trustees of the Leland Stanford, Jr. Univ., 147 F.3d 821, 828 (9th Cir. 1998), cert. denied, ___ S. Ct. ___, 1999 WL 66673 (U.S. Apr. 19, 1999); 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 318, 324 (2d Cir. 1992). See also United States ex rel. Findley v. FPC-Boron Employees’ Club, 105 F.3d 675, 682-85 (D.C. Cir.), cert. denied, 118 S. Ct. 172 (1997) (holds that a qui tam action is based upon public disclosures if it relies on the same allegations or transactions as those in the public disclosure; rejects the Fourth Circuit’s approach “because it renders the ‘original source’ exception to the public disclosure bar largely superfluous”); Mistick PBT v. Housing Auth. of the City of Pittsburgh, et al., 186 F.3d 376 (3^rd Cir. 1999) (recognizing conflict between ordinary meaning of the phrase “based upon” and precept that a statute should be construed if possible so as not to render any of its terms superfluous, but electing to adhere to majority interpretation that “based upon” means “supported by”).
4. The “Original Source” ExceptionDecisions concerning the “original source” exception to the public disclosure bar are largely fact based. The statute reads in pertinent part as follows:
   

   (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.

   31 U.S.C. § 3730(e)(4).

   1. Direct KnowledgeWhile the law on this point is not unanimous, some courts have held the relator must have come by the information directly, that is, without any intervening agency or instrumentality. See e.g. United States ex rel. Stinson v. Prudential Ins., 944 F.2d 1149, 1160 (3rd Cir. 1991); United States ex rel. Precision Co. v. Koch Indus., Inc., 971 F.2d 548, 554 (10th Cir. 1992), cert. denied, 507 U.S. 951 (1993); United States ex rel. Barth v. Ridgedale Electric, Inc., 44 F.3d 699, 703 (8^th Cir. 1995).
   2. Independent KnowledgeSeveral Courts have required that the relator have obtained the “knowledge” through some source other than the public disclosure. Houck on Behalf of United States v. Folding Carton Admin., 881 F.2d 494, 505 (7^th Cir. 1989), cert. denied, 494 U.S. 1025 (1990);Wang v. FMC Corp., 975 F.2d 1412, 1417 (9th Cir. 1992); but see United States ex rel. Barajas v. Northrop Corp., 5 F.3d 407 (9^th Cir.), cert. denied, 114 S.Ct. 1543 (1994).
   3. Voluntarily Provided Information to GovernmentThe Act requires that the relator have “voluntarily provided the information to the Government before filing an action under this section which is based on the information.” 31 U.S.C. § 3730(e)(4). The courts have reached varying conclusions on when an individual has “voluntarily” provided information to the Government. See United States ex rel. Barth v. Ridgedale Electric, Inc., 44 F.3d 699, 704 (8^th Cir. 1995) (relator who only revealed information after a government investigator approached him deemed not an original source); but see United States ex rel. Pentagen Technologies Int’l Ltd., No. 94-CIV. 2925 (RLC), 1995 WL 693236 (S.D.N.Y. Nov. 22, 1995) (party disclosing information through deposition could still be original source).Some courts have additionally required that the relator have been the source of the publicly disclosed information. See Wang, 975 F.2d at 1418; United States ex rel. Dick v. Long Island Lighting Co., 912 F.2d 13, 16 (2d Cir. 1990). But the majority have not required such proof. See Stinson, 944 F.2d at 1160 (3d Cir.); U.S. ex rel. Siller v. Becton Dickinson, 21 F.3d 1339, 1355 (4th Cir.), cert. denied, 115 S.Ct. 16 (1994); Advanced Sciences, 99 F.3d at 1006-1007 (10th Cir.); United States ex rel. Mathews v. Bank of Farmington, 166 F.3d 853 (7^th Cir. 1999); see also United States ex rel. Findley v. FPC-Boron, 105 F.3d 675 (D.C. Cir. 1997) (rejecting requirement that the relator be the source of the entity making the public disclosure but requiring that the information have been voluntarily provided to the Government before the public disclosure).

F. Relator’s Share

1. Government Intervenes In Action – If the Government intervenes in a qui tam action, the relator is normally entitled to between 15% and 25% of the proceeds of the action or settlement, “depending upon the extent to which the person substantially contributed to the prosecution of the action.” 31 U.S.C. § 3730(d)(1). See United States v. General Electric, 808 F. Supp. 580 (S.D. Ohio 1992) and United States ex rel. Taxpayers Against Fraud and Walsh v. General Electric, 41 F.3d 1032, 1040 (6^th Cir. 1994) (22.5% awarded by district court, but case ultimately settled for 19%); United States ex rel. Merena v. SmithKline Beecham Corporation, 1998 U.S. Dist. LEXIS 5077 at *71 (E.D. Pa. Apr. 8, 1998) (17% of $42,000,000 awarded).If the court finds that the action is “based primarily on disclosures of specific information (other than information provided by the person bringing the action) relating to 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, the court may award such sums as it considers appropriate, but in no case more than 10 percent of the proceeds, taking into account the significance of the information and the role of the person bringing the action in advancing the case to litigation.” 31 U.S.C. § 3730(d). See United States v. CAC-Ramsay, Inc., 744 F. Supp. 1158 (S.D. Fla. 1990) (5% awarded).
2. Government Declines to Intervene – If the Government does not intervene in the case, the relator shall receive not less than 25 and not more than 30 percent of the proceeds of the action or settlement. 31 U.S.C. § 3730(d)(2). See United States ex rel. Pedicone v. Mazak Corp., 807 F. Supp. 1350 (S.D. Ohio 1992) (30% awarded).
3. Relator Plans or Initiates Fraud – If the court concludes that the relator “planned and initiated the violation of section 3729 upon which the action was brought,” the court may reduce the relator’s share under paragraphs (d)(1) and (d)(2) “to the extent the court considers appropriate.” 31 U.S.C. § 3730(d)(2);United States ex rel. Barajas v. Northrop, No. CV-87 7288-KN (Kx) (C.D. Cal. May 15, 1992) (wrongdoing relator, who made “small but meaningful contribution,” awarded 10.8%). If the relator “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 and shall not receive any share of the proceeds of the action.” Id.
4. Statistics – According to Department of Justice statistics, in qui tam cases resolved since the 1986 Amendments through November 1999, the average relator’s share has been approximately 16% in cases where the Government has intervened, and 26% in cases where the Government has declined to intervene (excluding the relator’s share in U.S. ex. rel. Boisvert v. FMC Inc.).

G. Attorney’s Fees and Costs

Whether the Government intervenes or not, if the qui tam action is successful, the relator “shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorney’s fees and costs.” 31 U.S.C. § 3730(d)(1)-(2).

“If the Government does not proceed with the action and the person bringing the action conducts the action, the court may award to the defendant its 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 purposes of harassment.” 31 U.S.C. § 3730(d)(1)-(2).

H. Protection for the Relator

The FCA protects employee-relators against any retaliation by employers “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 . . . .” 31 U.S.C. 3730(h). Circuit court decisions interpreting the scope of protected activity have produced differing results. See Neal v. Honeywell, 33 F.3d 869, 865-66 (7^th Cir. 1994) (holding that Section 3730(h) applies to intracorporate complaints of fraud); Robertson v. Bell Helicopter, Inc. 32 F.3d 948, 951 (5^th Cir. 1994), cert. denied, 115 S. Ct. 1110 (1995) (internal reporting of concerns about charges to the Government by a contractor employee is not protected activity where employee never used terms “illegal,” “unlawful,” or “qui tam action”); United States ex rel. Ramseyer v. Century Healthcare Corp., 90 F.3d 1514 (10^th Cir. 1996) (reports of non-compliance not sufficient if employee’s job was to report non-compliance).

If an employer is found to have retaliated against an employee in violation of the Act, the employee “shall be entitled to all relief necessary to make the employee whole.” 31 U.S.C. § 3730(h). The relief provided under the statutes includes “reinstatement with the same seniority status such employee would have had but for the discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys’ fees.” Id. Cases interpreting this provision have concluded that the damages available are limited to those forms of relief specified in the Act. See In re Visiting Nurse Association, 176 B.R. 748 (Bankr. Ed. Pa. 1995); Neal v. Honeywell, 995 F. Supp. 889 (N.D. Ill. 1998) (punitive damages not available). Additional forms of relief, such as punitive damages, however, may be available under state law in the jurisdiction where the suit is filed.

IV. COMMON FRAUD SCHEMES

A. DEFENSE

1. Cost Mischarging: Contractors often perform services for the government on a cost-plus basis, where they are paid for the cost of making a product plus an additional fee. It is inappropriate for a contractor to charge the government under the cost-plus contract for the costs it incurs while working on other contracts such as fixed-price government contracts or commercial contracts. False Claims Act cases are often predicated on the knowing misallocation of such costs.
2. Defective Pricing: The government often purchases products that can only be produced by a single company. In these cases, where competitive bidding is not available, the government must negotiate a price with the company based on the manufacturer’s costs of producing the product. The Truth in Negotiations Act (“TINA”), 10 U.S.C. § 2306(g) (1988), requires the company to truthfully disclose all relevant cost information and provide a certification to that effect to the government. Intentionally inflating costs in order to obtain a higher price from the government may constitute a violation of the False Claims Act.
3. Product Substitution: Government contracts often describe the exact specifications of the components that are to be used by contractors in manufacturing products for delivery to the government. In order to reduce their costs, manufacturers will sometimes substitute cheaper components for those they promised to deliver to the government. Such conduct may be actionable under the False Claims Act.
4. Defective Products: Because of the often critical uses it has for the products it purchases, the government frequently has stringent quality requirements. Government contracts often require that contractors employ particular manufacturing processes or that they test their products according to specific guidelines. In such cases, contractors are normally required to certify that they are delivering products that have been manufactured according to the specified standards. If they represent that they have met such standards, when they are aware that they have not, they may be liable for submitting false claims.

B. MEDICARE/MEDICAID

1. Billing for Services or Supplies Not Provided: One of the more blatant forms of health care fraud is billing for medical services or supplies that were never actually provided to patients. This form of fraud can be found in most sectors of the medical industry, from hospitals to nursing homes.
2. Upcoding: Health care providers often bill for their services by attributing a particular ICD-9 or CPT code to the particular service provided. In order to increase revenues, health care providers will sometimes assign codes that are associated with a higher level of service than the level of service actually provided. The knowing submission of such false claims is actionable under the False Claims Act.
3. Unbundling: Medicare regulations require that certain procedures (e.g., blood tests) be coded and billed together as one group, rather than broken out and billed separately. Health care providers will nonetheless sometimes break out the individual tests or services and bill them separately, thus increasing the payment by the government for the service. This conduct is not permitted and often a basis for suit under the False Claims Act.
4. Medical Necessity: Medicare/Medicaid regulations require that medical services billed to the government be medically necessary. Health care providers will sometimes falsely represent that certain medical services, supplies, or equipment are medically necessary in order to collect payment for services that would otherwise be ineligible for reimbursement. Numerous cases have been filed challenging fraudulent claims of medical necessity.
5. Fraudulent Cost Reports: Health care facilities are reimbursed by Medicare for certain overhead costs in addition to the reimbursements they receive for treating individual patients. The amount of such reimbursements is largely dependent on the costs incurred by the health care facility in preceding years for expenses such as personnel and capital improvements. If the health care facility overstates or improperly characterizes its expenses, it is able to inflate the amount of its reimbursement beyond that to which it is entitled. This is a growing field of liability under the Act.

C. EDUCATION

1. False Representations Regarding Student Qualifications: The Department of Education’s financial aid programs often require that students meet certain minimal academic standards in order to qualify for financial aid. Some post-secondary schools (e.g., trade schools) will falsify records relating to the qualifications of their students in order to assure that the students qualify for financial aid. When the students receive the financial aid, the money is normally then paid to the school for tuition or related expenses. The school is potentially liable for all financial aid improperly obtained in this manner.
2. False Representations Regarding Student Enrollment: A student is obviously only entitled to financial aid when he or she is enrolled in school. Some institutions, however, will continue to list a student as enrolled after he or she drops out in order to continue collecting financial aid. This again is a potential basis for suit under the Act.

D. HOUSING

1. False Representations Regarding Qualifications of Purchasers: The Department of Housing and Urban Development and the Department of Veterans Affairs both guarantee loans made to certain individuals (e.g., low income persons and veterans) for housing. Financial institutions therefore have an incentive to lend money to these individuals, since they can charge loan fees yet not bear the risk of loss normally associated with making a loan. In order to assure prudent lending practices under these circumstances, the government requires that the borrowers meet certain minimal qualifications. Some financial institutions, however, knowingly misrepresent the qualifications of borrowers in order to make loans that would otherwise not qualify. When the borrowers default, the government then has to pay on the guarantee.

E. ENVIRONMENTAL

1. False Environmental Compliance Certifications : A recent source of liability under the Act has been false certification by Government contractors of compliance with environmental statutes or regulations, such as the Clean Water Act or the Clean Air Act. The Government often requires certification of compliance with such statutes as a prerequisite to payment. Falsely claiming compliance can thus provide a basis for suit.
2. False Statements to Avoid Fines, Penalties, or Forfeitures:  The False Claims Act has been used successfully to prosecute parties not doing business with the government, who have made false statements to avoid payment of fines or penalties for environmental violations. Similar cases have been brought against private parties who have made false statements to avoid the payment of customs duties or forfeitures. The plaintiffs in these cases have argued that the defendants made false statements to reduce obligations that would otherwise be due the government. The often contingent nature of the alleged obligations, however, has resulted in mixed decisions in these cases. The law continues to evolve on the subject.

F. GENERIC SCHEMES

1. Bid-rigging: Bid-rigging occurs when companies bidding on a particular contract secretly agree in advance on how each of them will bid. The companies thus determine who the government will select and normally cause it to pay more than it would under competitive conditions. The companies then either share the extra profits or simply take turns as the winning bidder on successive contracts. The inflated claims for payment in such cases are normally actionable as false claims.
2. Bribery: Although such cases are not common, government employees occasionally are found to have accepted bribes, gratuities or other consideration for favoritism in the contracting process. Contractors who submit claims for payment pursuant to contracts procured by such fraud are normally subject to liability under the False Claims Act for at least the amount of the bribe and/or any increase in the contract price that resulted from the bribe.
3. False Progress Reports: Many government contracts call for payments to be made based on the progress of the contractor in completing the required work. Contractors will sometime make false representations regarding their progress in order to receive payments sooner rather than later. Such false representations, which result in the government losing interest on the pre-paid funds, can form the basis for liability under the Act.
4. Kickbacks: Whenever a company is entitled to reimbursement by the government for its costs, the possibility of kickbacks harming the government is present. The scheme typically works as follows: The company doing business with the government overpays a supplier and bills the government for the full amount it paid to the supplier. The company then has a separate arrangement with the supplier by which part of the money overpaid to the supplier is “kicked back” to the company or one of its representatives. The original claim to the government for the inflated amount is the false claim.