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unlawful act

False Claims Act

The False Claims Act (also called the "Lincoln Law") is an American federal law which allows people who are not affiliated with the government to file actions against federal contractors claiming fraud against the government. The act of filing such actions is informally called "whistleblowing". Persons filing under the Act stand to receive a portion (usually about 15-25 percent) of any recovered damages.

The Act provides a legal tool to counteract fraudulent billings turned in to the Federal Government. Claims under the law have been filed by persons with insider knowledge of false claims which have typically involved health care, military, or other government spending programs.

History

The American Civil War (1861–1865) was marked by fraud on all levels in the Union north and the Confederate south. Some say the False Claims Act came about because of bad mules. During the Civil War, unscrupulous early day defense contractors sold the Union Army decrepit horses and mules in ill health, faulty rifles and ammunition, and rancid rations and provisions among other unscrupulous actions. The False Claims Act, passed by Congress on March 2, 1863, was an effort by the USA to respond to entrenched fraud where the official Justice Department was reticent to prosecute fraud cases. Importantly, a reward was offered in what is called the "qui tam" provision, which permits citizens to sue on behalf of the government and be paid a percentage of the recovery. In a qui tam action, the citizen filing suit is called a "relator".

Provisions

The Act establishes liability when any person or entity improperly receives from or avoids payment to the Federal government--tax fraud excepted. In summary, the Act prohibits:

  1. Knowingly presenting, or causing to be presented to the Government a false claim for payment;
  2. Knowingly making, using, or causing to be made or used, a false record or statement to get a false claim paid or approved by the government;
  3. Conspiring to defraud the Government by getting a false claim allowed or paid;
  4. Falsely certifying the type or amount of property to be used by the Government;
  5. Certifying receipt of property on a document without completely knowing that the information is true;
  6. Knowingly buying Government property from an unauthorized officer of the Government, and;
  7. Knowingly making, using, or causing to be made or used a false record to avoid, or decrease an obligation to pay or transmit property to the Government.

The most commonly used of these provisions are the first and second, prohibiting the presentation of false claims to the government and making false records to get a false claim paid. By far the most frequent cases involve situations in which a defendant--usually a corporation but on occasion an individual--overcharges the federal government for goods or services. Other typical cases entail failure to test a product as required by the rigorous government specifications or selling defective products.

The False Claims Act was amended in 1943 to, most notably, reduce the relator's share of the recovered proceeds. * The law was again amended in 1986. By that time, there was great concern that the national deficit had risen dangerously and President Ronald Reagan had declared that a vast amount of government spending was being misused through waste and fraud.

After the 1986 amendments strengthening the Act were passed (see below), the Act was used primarily against defense contractors. By the late 1990s, however, the focus had shifted to health care fraud, which now accounts for the majority of cases filed by whistleblowers and by the government.

Under the False Claims Act, the Department of Justice is authorized to pay rewards to those who report fraud against the federal government in an amount of between 15 and 30 percent of what it recovers based upon the whistleblower's report.

Certain claims are not actionable, including:

  1. certain actions against armed forces members, members of Congress, members of the judiciary, or senior executive branch officials;
  2. claims, records, or statements made under the Internal Revenue Code of 1986 which would include tax fraud;

There are unique procedural requirements in False Claims Act cases. For example:

  1. a complaint under the False Claims Act must be filed under seal;
  2. the complaint must be served on the government but must not be served on the defendant;
  3. the complaint must be buttressed by a comprehensive memorandum, not filed in court, but served on the government detailing the factual underpinnings of the complaint.

1986 changes

(False Claims Act Amendments of 1986 ()

  1. The elimination of the "government possession of information" bar against qui tam lawsuits;
  2. The establishment of defendant liability for "deliberate ignorance" and "reckless disregard" of the truth;
  3. Restoration of the "preponderance of the evidence" standard for all elements of the claim including damages;
  4. Imposition of treble damages and civil fines of $5,000 to $10,000 per false claim;
  5. Increased rewards for qui tam plaintiffs of between 15-30 percent of the funds recovered from the defendant;
  6. Defendant payment of the successful plaintiff's expenses and attorney's fees, and;
  7. Employment protection for whistleblowers including reinstatement with seniority status, special damages, and double back pay.

Practical application of the law

The False Claims Act has a detailed process for making a claim under the Act. Mere complaints to the government agency is insufficient to bring claims under the Act. A complaint (lawsuit) must be filed in U.S. District Court (federal court) in camera (under seal). After an investigation by the Department of Justice within 60 days, or frequently several months after an extension is granted, the Department of Justice decides whether it will pursue the case.

If the case is pursued, the amount of the reward is less than if the Department of Justice decides not to pursue the case and the plaintiff/relator continues the lawsuit himself. However, the success rate is higher in cases that the Department of Justice decides to pursue.

Technically, the government has several options in handing cases. These include:

  • 1) intervene in one or more counts of the pending qui tam action. This intervention expresses the Government’s intention to participate as a plaintiff in prosecuting that count of the complaint. Fewer than 25% of filed qui tam actions result in an intervention on any count by the Department of Justice.
  • 2) decline to intervene in one or all counts of the pending qui tam action. If the United States declines to intervene, the relator may prosecute the action on behalf of the United States, but the United States is not a party to the proceedings apart from its right to any recovery. This option is frequently used by relators and their attorneys.
  • 3) move to dismiss the relator’s complaint, either because there is no case, or the case conflicts with significant statutory or policy interests of the United States.

In practice, there are two other options for the Department of Justice:

  • 4) settle the pending qui tam action with the defendant prior to the intervention decision. This usually, but not always, results in a simultaneous intervention and settlement with the Department of Justice (and is included in the 25% intervention rate).
  • 5) advise the relator that the Department of Justice intends to decline intervention.

This usually, but not always, results in dismissal of the qui tam action. There is case law where claims may be prejudiced if disclosure of the alleged unlawful act has been reported in the press, if complaints were filed to an agency instead of filing a lawsuit, or if the person filing a claim under the act is not the first person to do so. Individual states in the U.S. have different laws regarding whistleblowing involving state governments.

State False Claims Acts

Several states have also created False Claims Act statutes to protect their state against fraud by including qui tam provisions, enabling them to recover money at the state level. Many of these laws mirror the federal False Claims Act and simply apply it to the state's jurisdiction. Michigan and Tennessee have specifically limited their False Claims Acts to merely protect their Medicaid systems

The California False Claims Act was enacted in 1987, but lay relatively dormant until the early 1990s, when public entities, frustrated by what they viewed as a barrage of unjustified and unmeritorious claims, began to employ the False Claims Act as a defensive measure. Recent developments in the California False Claims Act reduce the defenses contractors have to false claim prosecutions, by stripping away immunities that were believed to apply to certain classes of statements and claims. As a result, contractors can expect to see their payment claims answered by false claims accusations with increasing frequency.

See also

References

External links

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