Federal False Claims Act Federal False Claims Act and and Qui Tam ActionsQui Tam Actions

Law Journal Press Webinar

By: Joel M. Androphy, Sarah Frazier

& Rachel Grier

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Qui Tam Qui Tam Actions: The BasicsActions: The Basics

A federal statute that permits private individuals a A federal statute that permits private individuals a monetary remedy for successfully bringing suits alleging monetary remedy for successfully bringing suits alleging frauds committed upon the federal government. frauds committed upon the federal government.

Without Without qui tamqui tam actions, many reports of wrongdoing actions, many reports of wrongdoing against the government would otherwise go unnoticedagainst the government would otherwise go unnoticed..

The economic incentives provided by The economic incentives provided by qui tamqui tam actions actions promote private enforcement of federal legislation.promote private enforcement of federal legislation.

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““Qui Tam”: What does it mean? Qui Tam”: What does it mean?

Qui tam pro domino rege quam pro se ipso in hoc parte Qui tam pro domino rege quam pro se ipso in hoc parte sequitursequitur– He who sues for the king as well as for himself.He who sues for the king as well as for himself.

It is a provision under the False Claims Act which allows It is a provision under the False Claims Act which allows for a private individual (or “relator”) with knowledge of for a private individual (or “relator”) with knowledge of past or present fraud committed against the U.S. past or present fraud committed against the U.S. government to a bring a suit on its behalf.government to a bring a suit on its behalf.

If the suit proves to be successful, the relator takes a If the suit proves to be successful, the relator takes a share of the recovered proceeds as a reward for share of the recovered proceeds as a reward for “blowing the whistle” on the fraudulent conduct.“blowing the whistle” on the fraudulent conduct.

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History of FCA History of FCA Qui TamQui Tam Actions Actions

““Lincoln’s Law”Lincoln’s Law”: Signed into law by Abraham Lincoln on : Signed into law by Abraham Lincoln on March 2, 1863 to combat fraud against the U.S. Army during the March 2, 1863 to combat fraud against the U.S. Army during the Civil War.Civil War.

The fraud came from both military personal and civilian The fraud came from both military personal and civilian contractors and tended to be unscrupulous.contractors and tended to be unscrupulous.

Qui TamQui Tam cases were only being pursued against government cases were only being pursued against government contractors who committed against the U.S. Army. After the war contractors who committed against the U.S. Army. After the war ended and the opportunities to commit fraud declined, very few ended and the opportunities to commit fraud declined, very few Qui TamQui Tam cases were filed. cases were filed.

Today the act applies to fraud committed by all governmental Today the act applies to fraud committed by all governmental contractors.contractors.

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What is a “Claim”?What is a “Claim”?

CLAIM: CLAIM: encompasses virtually all demands or requests that encompasses virtually all demands or requests that cause disbursement of federal funds. cause disbursement of federal funds.

– Any action by the claimant which has the purpose and effect Any action by the claimant which has the purpose and effect of causing the United States to pay out money it is not of causing the United States to pay out money it is not obligated to pay, or any action which intentionally deprives obligated to pay, or any action which intentionally deprives the United States of money it is lawfully due. the United States of money it is lawfully due.

– Each separate submission to the Government seeking Each separate submission to the Government seeking payment is a claim for purposes of the FCA, even if the payment is a claim for purposes of the FCA, even if the submissions are made pursuant to a single contract.submissions are made pursuant to a single contract.

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What Proof is Required

Witness Testimony of Illegal PracticesWitness Testimony of Illegal Practices

DocumentsDocuments– Paper trail/examples of claims for reimbursement (circuit split)Paper trail/examples of claims for reimbursement (circuit split)

– Internal corporate records, emails and correspondenceInternal corporate records, emails and correspondence

– Limits of whistleblower accessLimits of whistleblower access

Tape recordings, videos, PowerPoint presentationsTape recordings, videos, PowerPoint presentations

Expert testimonyExpert testimony

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Mens ReaMens Rea

FCA subjects requires the defendant to “knowingly” submitting FCA subjects requires the defendant to “knowingly” submitting or causing the submission of a false claim.or causing the submission of a false claim.

A claim is "knowingly" made ifA claim is "knowingly" made if: : – there is actual knowledge, orthere is actual knowledge, or– deliberate indifference to the truth or falsity, ordeliberate indifference to the truth or falsity, or– reckless disregard of the truth or falsity.reckless disregard of the truth or falsity.

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Types of ClaimsTypes of Claims

Direct False ClaimsDirect False Claims– An intentional false representation that causes the Government to pay more than it An intentional false representation that causes the Government to pay more than it

would have absent the misrepresentation would have absent the misrepresentation Ex. A physician submits claims to Medicare for surgeries he did not perform.Ex. A physician submits claims to Medicare for surgeries he did not perform.

Express False Certification ClaimsExpress False Certification Claims– Where a defendant expressly and specifically certifies compliance with a required Where a defendant expressly and specifically certifies compliance with a required

contract provision, statute, regulation, or governmental program contract provision, statute, regulation, or governmental program Ex. Healthcare provider submits a prior authorization form for a drug and certifies Ex. Healthcare provider submits a prior authorization form for a drug and certifies that the drug is medically necessary.that the drug is medically necessary.Conditions of payment versus participationConditions of payment versus participation

Implied False Certification ClaimsImplied False Certification Claims– Liability is imposed on the premise of contractual breach or implied responsibility, even Liability is imposed on the premise of contractual breach or implied responsibility, even

if the defendant doesn’t expressly certify complianceif the defendant doesn’t expressly certify complianceEx. Defendant submits accurate bill to the government for the construction of a Ex. Defendant submits accurate bill to the government for the construction of a building, but fails to adhere to a specific term requiring the disposal of waste to building, but fails to adhere to a specific term requiring the disposal of waste to be in accordance with the EPA—regardless of whether the defendant never be in accordance with the EPA—regardless of whether the defendant never expressly certified compliance with that term or whether there was any financial expressly certified compliance with that term or whether there was any financial loss to the Government.loss to the Government.Ex. Healthcare providers impliedly certify compliance with all laws applicable to Ex. Healthcare providers impliedly certify compliance with all laws applicable to Medicare such as the Anti-Kickback Statute. Medicare such as the Anti-Kickback Statute. Conditions of payment versus participationConditions of payment versus participation

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Common Theories of LiabilityCommon Theories of LiabilityFalse claims found when a government contractor:False claims found when a government contractor:

– [1] Presents a False Claim [1] Presents a False Claim knowingly presents or causes to be presented to the Government a fraudulent claim for knowingly presents or causes to be presented to the Government a fraudulent claim for payment or approvalpayment or approval

– [2] Uses a False Record[2] Uses a False RecordKnowingly makes, uses or causes to be made or used, a false record or statement to get a 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 Governmentfalse or fraudulent claim paid or approved by the GovernmentCurrent Issue: Current Issue: Allison Engine Co. v U.S. ex rel. Sanders Allison Engine Co. v U.S. ex rel. Sanders requiresrequires a showing that the defendant a showing that the defendant had specific intent of “getting ‘a false or fraudulent claim paid or approved by the had specific intent of “getting ‘a false or fraudulent claim paid or approved by the Government.’”Government.’”

– [3] Conspiracy[3] ConspiracyConspires to defraud the Government by getting a false or fraudulent claim allowed or paidConspires to defraud the Government by getting a false or fraudulent claim allowed or paidCurrent Issue: Under Current Issue: Under Allison Engine Co. v U.S. ex rel. Sanders, Allison Engine Co. v U.S. ex rel. Sanders, it is not enough to show that it is not enough to show that the conspirators agreed upon a fraud scheme.the conspirators agreed upon a fraud scheme. Allison Allison requiresrequires a showing that the conspirators a showing that the conspirators had specific intent of “getting ‘a false or fraudulent claim paid or approved by the had specific intent of “getting ‘a false or fraudulent claim paid or approved by the Government.’”Government.’”

– [4] Reverse False Claims[4] Reverse False ClaimsKnowingly makes, uses, or causes to be made or uses, a false record or statement to conceal, Knowingly makes, uses, or causes to be made or uses, a false record or statement to conceal, avoid, or decreases an obligation to or transmit money or property to the Governmentavoid, or decreases an obligation to or transmit money or property to the GovernmentCurrent Issue: The obligation must be a fixed obligation and cannot be potential or contingentCurrent Issue: The obligation must be a fixed obligation and cannot be potential or contingent

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Types of Cases Types of Cases

Healthcare FraudHealthcare Fraud– Fraudulent BillingFraudulent Billing– Anti-Kickback Statute violationsAnti-Kickback Statute violations– ““Best Price”Best Price”– ““Off-Label” marketingOff-Label” marketing– Defective Medical DevicesDefective Medical Devices

Defense FraudDefense Fraud– False ProductFalse Product– Mischarge Mischarge

Environmental FraudEnvironmental Fraud– Government contractor certifies compliance with EPA laws such as the Clean Water Government contractor certifies compliance with EPA laws such as the Clean Water

Act, the Clean Air Act, and the Resource Conservation Recovery Act.Act, the Clean Air Act, and the Resource Conservation Recovery Act.

Financial Services IndustryFinancial Services Industry– Liability arises from the use of fraudulent statements in loan applications to federal Liability arises from the use of fraudulent statements in loan applications to federal

agenciesagencies

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Types of Cases (continued) Types of Cases (continued)

Oil and GasOil and Gas– Defendant underpays royalty payments to the Government pursuant to Defendant underpays royalty payments to the Government pursuant to

an oil and gas leasean oil and gas lease

Scientific ResearchScientific Research– Involve the liability of hospitals and universities for providing false Involve the liability of hospitals and universities for providing false

information to obtain federal funding for researchinformation to obtain federal funding for research– If a hospital or university receives a grant from the Government to fund If a hospital or university receives a grant from the Government to fund

a research program, it could be liable under the FCA for failing to a research program, it could be liable under the FCA for failing to comply with conditions required to receive that grant.comply with conditions required to receive that grant.

Protection from RetaliationProtection from Retaliation

FCA protects any employee who is discriminated against by his or her employer because of lawful acts done by the employee in furtherance of an FCA claimDamages—all relief necessary to make employee whole, including:– 2 times amount of back pay + interest– Reinstatement with same seniority status– Special damages (including attorneys’ fees and

litigation cost)Statute of limitations for retaliation claim is the most analogous state law limitations period

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Jurisdiction and VenueJurisdiction and Venue

Jurisdiction and Venue– Suit may be brought in any judicial district in

which:The defendant can be found, resides or transacts business

Any FCA violation occurred

Court may exercise supplemental jurisdiction over related state law claims

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Statute of LimitationsStatute of Limitations

The statute of limitations for an FCA action bars a claim that is The statute of limitations for an FCA action bars a claim that is brought:brought:

– more than more than 6 years6 years after the date of which the violation occurred, or after the date of which the violation occurred, or

– More than More than 3 years3 years after the date when the facts material to the right after the date when the facts material to the right of action are known or should have been known by the official of of action are known or should have been known by the official of the United States charged with responsibility to act in the the United States charged with responsibility to act in the circumstances but in no event circumstances but in no event no more than 10 yearsno more than 10 years after the after the date on which the violation is committed,date on which the violation is committed,

whichever occurs last.whichever occurs last.

Current issues regarding relation back doctrineCurrent issues regarding relation back doctrine

Preparing a Disclosure StatementPreparing a Disclosure Statement

Under the FCA, a relator must serve the government with 2 types of Under the FCA, a relator must serve the government with 2 types of disclosures:disclosures:

▪ ▪ prior to suit to qualify as original sourceprior to suit to qualify as original source▪ ▪ at time of filing as required by statuteat time of filing as required by statute

The disclosure must contain all material evidence and information The disclosure must contain all material evidence and information the relator possessesthe relator possesses

There is no set requirements on how specific the statement should There is no set requirements on how specific the statement should bebe

A disclosure statement may or may not be protected work product.A disclosure statement may or may not be protected work product.

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Complaint ConsiderationsComplaint Considerations

Only the first to file can maintain an action for Only the first to file can maintain an action for any given set of “allegations or transactions”any given set of “allegations or transactions”

Federal Rule of Civil Procedure 9(b) issues Federal Rule of Civil Procedure 9(b) issues File complaint under sealFile complaint under sealDo not serve defendant with complaintDo not serve defendant with complaint60-day initial seal period60-day initial seal period

– Government usually requests an initial six-month extensionGovernment usually requests an initial six-month extension

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Public Disclosure BarPublic Disclosure Bar

A jurisdictional bar that bars any FCA action that is A jurisdictional bar that bars any FCA action that is based upon allegations that have already been based upon allegations that have already been publicly disclosed.publicly disclosed.

Public disclosures are limited to the allegations or Public disclosures are limited to the allegations or transactions of fraud made in a criminal, civil, or transactions of fraud made in a criminal, civil, or administrative hearing, in a congressional, administrative hearing, in a congressional, administrative, or General Accounting Office report, administrative, or General Accounting Office report, or from the news media.or from the news media.

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Public Disclosure Bar:Public Disclosure Bar:What Constitutes Public DisclosureWhat Constitutes Public DisclosureDiscoveryDiscovery

– Depends on the circuitDepends on the circuitSome circuits narrowly apply the bar and hold that only Some circuits narrowly apply the bar and hold that only discovery that is actually filed with the court is a public discovery that is actually filed with the court is a public disclosure.disclosure.Other circuits adopted a broad view and hold that all Other circuits adopted a broad view and hold that all discovery, whether filed or not, constitutes public disclosure.discovery, whether filed or not, constitutes public disclosure.

Freedom of Information Act RequestsFreedom of Information Act Requests– Circuit splitCircuit split

Amended ComplaintsAmended Complaints– Courts have held that amended complaints are subject to Courts have held that amended complaints are subject to

the public disclosure bar if the public disclosure occurs the public disclosure bar if the public disclosure occurs before the amended complaint.before the amended complaint.

– ““Relation Back” safety valveRelation Back” safety valve

““Original Source”Original Source”

If there is public disclosure, to qualify as If there is public disclosure, to qualify as an “original source” the relator must:an “original source” the relator must:

1.1. have “direct and independent knowledge of have “direct and independent knowledge of the information on which the allegations are the information on which the allegations are based” and based” and

2.2. “ “voluntarily provide the information to the voluntarily provide the information to the Government before filing an action” under Government before filing an action” under the FCA. the FCA. 31 U.S.C. § 3730(e)(4)(B).31 U.S.C. § 3730(e)(4)(B).

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Damages and ConsequencesDamages and Consequences

Up to three times the amount of damages Up to three times the amount of damages may be assessed against the defendantmay be assessed against the defendant

Defendant often required to sign a Defendant often required to sign a Corporate Integrity Agreement with OIGCorporate Integrity Agreement with OIG

Penalties ranging from $5,500 - $11,000 Penalties ranging from $5,500 - $11,000 per claimper claim

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Government InterventionGovernment Intervention

During the seal period, the government investigates and During the seal period, the government investigates and decides whether to intervene or notdecides whether to intervene or notConsequences of InterventionConsequences of Intervention– The government takes the lead in prosecuting the case with the The government takes the lead in prosecuting the case with the

relator remaining a party to the caserelator remaining a party to the case– Relator cannot interfere with the government’s prosecutionRelator cannot interfere with the government’s prosecution

Consequences of Non-InterventionConsequences of Non-Intervention– The relator bears the burden of litigating the caseThe relator bears the burden of litigating the case– The government can jump back in at a later dateThe government can jump back in at a later date– Any decisions about settlement or dismissal must be approved Any decisions about settlement or dismissal must be approved

by the governmentby the government– Relator cannot proceed Relator cannot proceed pro sepro se

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Relator RecoveryRelator Recovery

Government interventionGovernment intervention– 15% to 25% of the recovery15% to 25% of the recovery

Government does not interveneGovernment does not intervene– 25% to 30% of the recovery25% to 30% of the recovery

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What about State fraud? What about State fraud?

The Federal FCA only applies to fraud committed against the The Federal FCA only applies to fraud committed against the Federal Government, including federally-funded state programs.Federal Government, including federally-funded state programs.

21 states and the District of Columbia have already passed FCAs 21 states and the District of Columbia have already passed FCAs that are very similar to the federal version that allow for that are very similar to the federal version that allow for qui tamqui tam actions based on fraud committed on the state governmentactions based on fraud committed on the state government– Some of the states’ acts copy the language of the federal version Some of the states’ acts copy the language of the federal version

verbatimverbatim– Because of the Deficit Reduction Act, all states will soon have their own Because of the Deficit Reduction Act, all states will soon have their own

FCA that will be FCA that will be at leastat least as stringent as the federal version as stringent as the federal version

There are some differences between a few of the state FCAs and There are some differences between a few of the state FCAs and the Federal versionthe Federal version– Some states have increased the relator’s shareSome states have increased the relator’s share– Some only apply to MedicaidSome only apply to Medicaid– Some have additional prohibited conductSome have additional prohibited conduct

Key Issues: Qui Tam RelatorsKey Issues: Qui Tam Relators

1.1. Where to file/VenueWhere to file/Venue2.2. First to fileFirst to file3.3. No public disclosureNo public disclosure4.4. Original source statusOriginal source status5.5. Plead with detail & specificityPlead with detail & specificity6.6. Good documentationGood documentation7.7. Fraud not mismanagement/mistakesFraud not mismanagement/mistakes8.8. Criminal IssuesCriminal Issues9.9. Damages & PenaltiesDamages & Penalties10.10. RetaliationRetaliation

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Key Issues: Qui Tam DefenseKey Issues: Qui Tam Defense

1.1. Preventing lawsuitsPreventing lawsuits2.2. Investigating complaintsInvestigating complaints3.3. Intervention issues/dealing with government agenciesIntervention issues/dealing with government agencies4.4. Parallel issues: civil and criminalParallel issues: civil and criminal5.5. Motions to dismiss/summary judgmentMotions to dismiss/summary judgment6.6. Discovery/technical issuesDiscovery/technical issues7.7. Settlement issues/Corporate Integrity AgreementSettlement issues/Corporate Integrity Agreement8.8. Publicity issuesPublicity issues9.9. Retaliation defensesRetaliation defenses10.10. Releases on terminationReleases on termination

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Preventing FCA LawsuitsPreventing FCA Lawsuits

Never ignore legitimate complaintsNever ignore legitimate complaints

Follow corporate compliance programsFollow corporate compliance programs

Make sure employees feel comfortable Make sure employees feel comfortable with reporting criminal activitieswith reporting criminal activities

Releases & severance agreementsReleases & severance agreements

Investigating Cases Under SealInvestigating Cases Under Seal

Internal InvestigationsInternal Investigations

Conduct exit interviews for employees who Conduct exit interviews for employees who have repeatedly complained about corporate have repeatedly complained about corporate policypolicy

Be alert for current or former employees who Be alert for current or former employees who have received administrative subpoenashave received administrative subpoenas

Common Defense TacticsCommon Defense Tactics

Failure to state a claim under 12(b)(6)Failure to state a claim under 12(b)(6)

Failure to pled with specificity as required by 9(b)Failure to pled with specificity as required by 9(b)

Public disclosure barPublic disclosure bar

Mens Rea Mens Rea IssuesIssues

Express and implied certificationsExpress and implied certifications

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Federal False Claims Act and Federal False Claims Act and Qui Tam Qui Tam LitigationLitigation (Law Journal Press) (Law Journal Press)

By: Joel M. AndrophyBy: Joel M. Androphy

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