Lamson, Dugan and Murray, LLP, Attorneys at Law

The Expanding Reach—and Allure—of the False Claims Act: Part IV

Posted in In-House Counsel

The next series of posts are authored by Stacy Morris, a partner in LDM’s litigation department.  Mr. Morris has agreed to draw upon his experiences with the False Claims Act to provide information about the growing issues for businesses and individuals.

 By Stacy Morris

Under the FCA, a lawsuit can be brought directly by the Department of Justice (DOJ), or on the government’s behalf in what is referred to as a qui tam action.  The qui tam, or “whistleblower,” action allows a private citizen (“relator”) to initiate a FCA case by alerting the government to alleged abuses in the administration of government programs.  Once a citizen files a FCA claim, the DOJ may then either intervene and take over the case, or alternatively, may decline to intervene.   Federal regulations permit citizens assisting with a qui tam action to recover a portion of the proceeds from a judgment or settlement, depending upon whether the government has decided to step in.  If the government intervenes, the relator is entitled to an award of 15% to 25% of the total recovery, along with reasonable expenses and attorney fees.  If the government does not intervene and the relator moves forward alone, the relator stands to recover a bit more: 25% to 30% of a judgment or settlement.

At first glance, it appears that filing a whistleblower action is all gain and no risk.  But there are a few items in place intended to prevent people from filing FCA claims with unclean hands.  For instance, the court has discretion to reduce the share of any recovery if the relator “planned and initiated” the FCA violation.  In the event the relator is convicted of criminal charges stemming from the acts involved in the suit, the relator will not only be ineligible to recover any of the proceeds, but will also be dismissed from the suit.  A further disincentive for pursuing a meritless FCA claim lies in the potential award of attorney fees to a defendant.  So long as the government does not intervene in the case, the defendant successfully defeats the action, and it can be shown that the claim was “clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment, the defendant can recover attorney fees and costs against the relator.  Additionally, a public disclosure bar requires dismissal of suits where the allegations have already been disclosed in federal sources or the media, unless the Attorney General brings the suit or the relator is the original source of the information which is the subject of the claim. This provision is aimed at curbing parasitic lawsuits by opportunistic plaintiffs hoping to freeload off the work that someone else has already done. 

It would seem that these factors should be enough to dissuade those seeking to bring an FCA claim with ulterior motives, i.e. retaliation against a former employer or nemesis.  Nevertheless, barring the relator committing criminal acts or bringing a suit that is obviously frivolous, the FCA still leaves plenty of room for citizens to try and profit from alleged violations.

In the Verizon case cited in the initial post in this series, the government had intervened in the whistleblower case and ultimately obtained a $93 million settlement.  The court initially awarded the relator the statutory minimum of 15% of the settlement.  However, after a hearing on the matter, the court decided to raise that figure to 20% (up to approximately $19 million) in recognition of the efforts and resources that the relator had poured into the case. 

Cases like Verizon serve as powerful reminders of not only the broad reach of the FCA, but also of the built-in incentives designed to encourage people to bring alleged violations to light.   By promising a portion of the recovery to those willing to pursue such a cause of action, upstanding citizens, bounty hunters, and get-rich-quickers alike have a compelling reason to report any perceived abuses to authorities.  

Businesses would therefore do well to keep in mind that all transactions involving submissions to the government (as well as, in many cases, to private parties which in turn submit claims to the government for payment or reimbursement) are becoming increasingly subject to scrutiny from not just the government, but from private parties as well.  This also reinforces the importance of ensuring that there are adequate safeguards in place to verify the truth of all of the information that is submitted in conjunction with government-related programs.

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