Frequently Asked Questions About the Federal False-Claims Act (“FCA”), 31 U.S.C. 3729-33, as Amended

1. What is the False Claims Act?

The False-Claims Act (“FCA”), 31 U.S.C. ‘ 3729-33, as amended, provides for civil actions by the United States government in order to recover damages and civil penalties for false claims for payment. The qui tam provisions of the FCA, 31 U.S.C. ‘ 3730(b)-(h), authorize private citizens, acting as whistleblowers, and designated as relators, to initiate FCA actions in order to benefit the federal government and to share in any recoveries. Individuals and businesses that “knowingly” submit false claims or fraudulent documentation to the federal government can be liable for damages and civil penalties. The False Claims Act covers fraud involving any federally funded contract or program, with the exception of tax fraud. The two largest categories of federal funding programs represented in FCA actions are health care and defense industry fraud. However, any fraudulent request for payment to the federal government or its agents, or to states where the program at issue is partially funded by the federal government, can give rise to a FCA action. “A Brief Introduction to the Federal False Claims Act” is a good starting point for understanding the FCA. The actual text of the act is also a useful tool.

2. What are the types of false claims under the False Claims Act?

There are four principal types of false claims that the FCA seeks to foreclose. First, one may submit a claim to the government which, on its face, contains false or fraudulent information-the “classic” false claim. This is addressed in Section 3729(a)(1). An example would be billing Medicare for laboratory tests that were never actually performed.

Second, one may use a false document in order to get a false or fraudulent claim paid or approved. For example, if a defense contractor submits a written certification declaring that certain tests were performed on equipment manufactured for the Army, but in fact those tests were never performed, and the certification is relied upon as part of the payment process, then a violation of Section 3729(a)(2) has occurred. Frequently, counsel not familiar with the FCA will mix-up the two sections. The distinction between Sections 3729(a)(1) and (a)(2) of the FCA is well illustrated by Jana v. United States, 34 Fed. Cl. 447 (1995). There, the government’s counterclaim alleged that false progress payments had been submitted “substantiated by individual daily time cards” that were fraudulent. Id. at 448. The time cards were actionable under Section (a)(2). “The difference between ‘ 3729(a)(1) and ‘ 3729(a)(2) is that the former imposes liability for presenting a false claim, while the latter imposes liability for using a false record or statement to get a false claim paid.” Id. at 449.

Third, the FCA addresses conspiracies to engage in any of the acts forbidden by the Act in Section 3729(a)(3). Finally, Section 3729(a)(7), contains the so-called “reverse false claim” provision. The basic purpose of this provision is to address situations where an individual or entity has already received funds or material from the government that ought to be returned. An example would be a government contractor that falsely accounts for the value of government property in its possession to avoid having to compensate the government. See, e.g., United States v. PEMCO AEROPLEX, INC., 195 F.3d 1234 (11th Cir. 1999).

3. What are the components of an offense under the False Claims Act?

Under whatever section of the Act, the government or a qui tam plaintiff must prove the following: (1) that the defendant presented or caused to be presented to the United States government a claim for payment or approval, or a document to facilitate the payment of a false claim; (2) that the claim and/or document was false or fraudulent; and (3) that the defendant knew that the claim was false or fraudulent or acted with reckless disregard of the truth or falsity of the claim. If these elements are present, a violation of the FCA occurs even if the government never actually makes any payment or suffers a financial loss. The defendant does not have to act with a specific intent to defraud in order to be liable, as long as the submission was “knowing.”

4. What is the definition of “knowing” under the False Claims Act?

In 1986, the FCA was substantially amended to improve and enhance the government’s ability to recover federal funds lost through fraud. One important change was the clarified definition of “knowing” found at ‘ 3729(b). The amended Act now mandates that a person (including any health care provider or contractor) can be held liable if it submits or causes to be submitted1 a false or fraudulent claim or a false statement in support of a claim: a. with actual knowledge that it is false (‘ 3729(b)(1)); b. in deliberate ignorance of the truth or falsity of the information (‘ 3729(b)(2)); c. or in reckless disregard of the truth or falsity of the information (‘ 3729(b)(3)). Moreover, Congress clarified that no proof of specific intent to defraud is required. (‘ 3729(b)(3)). One of the most grievous mistakes counsel unfamiliar with the FCA make is to equate the scienter requirement of the FCA with criminal fraud statutes. Not only does the statute state on its face “no specific intent” is necessary, it offers three varying definitions of “knowing” which do determine the scienter requirement. The first definition, actual knowledge [‘3729(b)(1)], is entirely straightforward. If a false claim is submitted, or a false or fraudulent document submitted, and the submission is from a person who knows the document or claim is false or fraudulent, then a knowing submission has occurred. The next two definitions are somewhat more illusive.

A good illustration of acting in deliberate ignorance of the truth or falsity of information (section b(2)) is found where, for example, a physician practice does not properly supervise or train its billing staff, so that inappropriate claims are submitted. The practice cannot avoid liability by asserting that it relied upon the billers if it could have exercised appropriate supervision over them; the same is true of independent billing companies. This provision is sometimes said to deal with the “ostrich with its head in the sand” problem. Put simply, you cannot look the other way and thereby avoid FCA liability. The third definition, acting in “reckless disregard,” is very difficult to assess. Probably, this provision relates to negligence of a very high category. An example might be using a computer billing program for Medicare billing that has not been updated for five years to see, nonetheless, how many claims would be paid. The important point to bear in mind is that nobody quite knows what the second and third categories of “knowing” mean and how a court would interpret these provisions. Therefore, compliance officers, in particular, should act upon the assumption that careless or mistaken claims can serve as the basis for a FCA prosecution.

5. What constitutes a claim under section 3729(c) of the False Claims Act?

It is important to bear in mind that the definition of “claim” is broadly specified in the act: 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 required 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. (Emphasis added.) Therefore, false claims or fraudulent documents do not have to be submitted to the government directly, the provision covers virtually anything of value, and the Act follows the flow of government money or property. The safest rule of thumb is that if the money or property at issue originated with the government, the FCA will reach it. The definition of a claim does not depend on the manner in which funds are received from the government. A claim can be a direct request for funds or a request for a credit against accountability for advanced funds.

For example, a presentation of invoices or cancelled checks along with a certificate that the work was performed is a demand upon the government to fulfill its commitment to pay money, and thus, constitutes a claim under the False Claims Act. A claim also could be the result of reporting misinformation to the government which results in the government being insufficiently compensated, i.e., the FCA encompasses more than just payment by the government. Further, even if the claim is legitimate (i.e., payment for work actually and validly performed), it will still fall within the definition of a false claim if done pursuant to a fraudulently obtained contract. A claim does not have to be made directly by the party contracting with the government if the third party knows that the party will submit the claim to the government for payment. As such, falsifying information relied upon by the party making the claim with the knowledge that the party will use the information for payment may constitute a claim.

6. What are the potential damages and penalties for which a defendant can be liable?

Section 3729(a) contains the awesome penalty provisions of the FCA. As a starter, the government is entitled to three times the amount of its loss (also known as “single damages”). However, the more severe penalty provision is that addressing penalties: between $5,000 and $10,000 for each false claim submitted and/ or false document used to get a false claim approved for payment. In the health care fraud area, it should be noted that the civil penalties apply to each request to the Department of Health and Human Services for reimbursement, causing a defendant’s potential exposure to mount very quickly. As a result, for every 100 false claims a government contractor or health care provider submits, it can face liability of one million dollars or more in penalties alone.

Because of the large number of claims generated by health care providers, the penalty provisions of the Act play a more important role in defining total provider liability than does the treble damages provision. Generally speaking, for defense contractors, the opposite is true; the damages provision is predominant. The Department of Justice has authority to periodically increase the penalties under the Act in accordance with inflation and other factors.

Currently, penalties range from $5,5000-$11,000. To illustrate how the penalty/multiple damages provisions operate, in one case a claimant submitted 3,683 Medicare reimbursement claims and received $130,719. The court found that the defendants “acted in reckless disregard of the truth or falsity of the information they submitted on the form” and awarded three times the amount of damages ($130,719), or $394,157, and a civil penalty of $5,000 per claim (3,683 x $5,000), which totaled $18,415,000.

7. Is there a “voluntary disclosure” provision contained within the False Claims Act?

It is frequently overlooked that the FCA contains its own voluntary disclosure provision in ‘ 3729(a)(7)(A)-(C). Please note that all three provisions therein specified must be satisfied -an extremely difficult undertaking when negotiating with the Department of Justice. Compliance officers, in particular, should become conversant with this provision, which can result in some substantial benefit if properly invoked. Most importantly, in recognition of cooperation with the government, a court may assess “not less than 2 times the amount of damages which the Government sustains because of the act of the person.” Notice that this language suggests that no penalties will be assessed. In actuality, this section is never applied by courts; its real significance is in negotiations with DOJ where it can afford an effective argument for reducing ambitious government damage demands. It is important to remember that no voluntary disclosure to any government agency should be undertaken without thorough prior review by counsel.

8. Where are the Qui Tam or Whistleblower Provisions of the FCA located?

In 1986 the qui tam, or private citizen suit provisions of the False Claims Act, (found at 31 U.S.C. ‘ 3730) were substantially strengthened and liberalized to provide greater incentives for private individuals (designated as “relators”) to come forward and report fraud against the government. Any violation of the Act may be brought by a private person in the name of the United States (the cases are captioned U.S. ex rel. [relator] v. Defendant) on behalf of the government as a qui tam action. Particularly in the health care area, qui tam actions alleging fraud increasingly are becoming the predominant source of the government’s actions under the Act.2

9. How does a Relator File a Complaint?

Section 3730(b)(1) states the basic authority of a relator to act on behalf of the United States. Please note that the relator cannot dismiss an action on its own; the Attorney General must consent. Section 3730(b)(2) specifies the procedures that must be followed in terms of serving the government with the qui tam complaint. Briefly, the relator files a complaint under seal, serves the Attorney General and the appropriate U.S. Attorney, and in addition furnishes the government with a statement of material evidence in support of the complaint’s allegations of fraud. The government has an initial 60 days to investigate the allegations. However, pursuant to Section 3730(b)(3), the Department of Justice may (and almost always does) request extensions of time. Eventually, the government must either “intervene” and litigate the case, or “decline” to do so and let the relator pursue it. Section 3730(b)(4). Once a complaint has been filed, “no person other than the government may intervene or bring a related action based on the facts underlying the pending action (the so-called “first to file” rule). Section 3730(b) (5); see U.S. ex rel. Erickson v. Am. Inst. of Biological Sciences, 716 F. Supp. 908 (E.D. Va. 1989).

10. Who directs a Qui Tam action-the relator or the government?

The FCA addresses this issue specifically. The FCA directs that the government has “primary responsibility for prosecuting the action” [Section 3730(c)(1)], and it may limit the relator’s participation under appropriate circumstances. Section 3730(c) (2)(C). The government may dismiss an action without the consent of the relator as long as the relator can contest the issue in a hearing. Section 3730(c)(2)(A). Similarly, the government may settle the action with the defendant(s) even if the relator opposes the resolution, as long as the district court affords the opportunity for a hearing on the merits of the proposed settlement. Section 3730 (c)(2)(B). If the government declines participation, the relator may conduct the litigation on its own. Section 3730(b)(4)(B).

11. What financial incentives does the False Claims Act afford relators?

The relator is entitled to between 15 and 30 percent of the recovery/settlement/judgment, depending on whether the government intervenes and conducts the litigation and other factors (less than 15 percent under some circumstances). Section 3730(d)(1) & (2). However, there are some substantial statutory limitations on a relator’s potential recovery. If the relator participated in the underlying actions giving rise to the claim, the relator’s share may be reduced or eliminated in its entirety by the district court. Section 3730(d)(3). If the government declines participation, and the defendant is successful, it may be entitled to “reasonable attorneys’ fees and expenses” pursuant to Section 3730(d)(4). See related article specifically addressing this topic: “Recovering Attorney’s Fees and Expenses from Unsuccessful Relators in Qui Tam Cases Pursuant to Section 3730(D)(4) of the False Claims Act.”

12. Does the False Claims Act make provision for the award of fees to the relator?

A particularly critical element of Section 3730(d)(1) is that provision which specifies that the relator “shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’ fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.” (Emphasis added.) Unlike the relator’s recovery, which is deducted from the government’s total recovery, the relator’s expenses and costs are separately assessed against the defendant. A common mistake of inexperienced counsel is to either (a) assume that any such award is also subtracted from the settlement or judgment paid the government, or (b) assume that the issue of attorney’s fees is governed by the prevailing “American rule” which usually forecloses such an award. Consequently, no settlement agreement should be entered into with the government until the issue of how much the relator will be paid under this provision is determined. This is because awards under this provision can prove to be enormous; by contrast, defendants have maximum leverage when negotiating the underlying settlement and can take advantage of the government’s desire to settle to restrain overly ambitious relators seeking exorbitant compensation under this provision. Otherwise, a district judge will decide the relator’s “reasonable” expenses in a proceeding, which itself can prove exceedingly expensive to defend.

13. Are there statutory limitations in the FCA as to who can file a qui tam action?

Section 3730(e),”Certain Actions Barred,” is of crucial importance to defendants in qui tam actions. This is because Section 3730(e) contains jurisdictional provisions that limit the ability of potential relators to institute actions. For example, Section 3730(e)(3) forecloses any action that “is based upon allegations or transactions which are the subject of a civil suit or an administrative civil monetary penalty proceeding in which the Government is already a party.”

This provision is rather straightforward; this is not so for other components of the section. The most important jurisdictional bar relied upon by defendants to terminate qui tam litigation is found in Section 3730(e)(4)-the so-called “public disclosure bar.” The reported cases construing this section run into the hundreds; this is a stark tribute to its potent power to terminate qui tam suits in their tracks. This is because unless a relator can satisfy Section 3730 (e)(4), its action is jurisdictionally barred.

An extensive analysis of this section is beyond the scope of this essay; however, every unfortunate recipient of a qui tam complaint should initially direct their counsel to this provision. The best starting point to understand this concept is the language of Section (e)(4)(A) itself: 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. (Emphasis added.)

Simply put, if the allegations or transactions upon which the qui tam complaint is based have been publicly disclosed in judicial proceedings, government reports or audits/investigations, or in the media, a “public disclosure” has taken place. The intent of Congress here is explicit.

14. What is a public disclosure?

The qui tam provision of the FCA was enacted by Congress in an effort to financially reward individuals who come forward with information about fraud against the government. The legislative history of the FCA suggests the legislative purpose was to use the public disclosure jurisdictional bar to ensure that plaintiffs who have not significantly contributed to the exposure of the alleged fraud would not share in the bounty. United States ex rel. Devlin v. California, 84 F.3d 358, 362 (9th Cir.), cert. denied, 519 U.S. 949 (1996). The public disclosure bar and the original source exception, therefore, embody the legislative effort to strike a balance between encouraging whistleblowing and discouraging so-called parasitic suits. In order to qualify, a plaintiff “must be a true whistleblower.’ [A relator] is unable to pursue the suit and collect a percentage of the recovery if the case is based upon information that has previously been public or if the claim has already been filed by another.” United States ex rel. McKenzie v. Bellsouth Telecommunications, 123 F.3d 935, 939 (6th Cir. 1997) (quoting United States ex rel. Taxpayers Against Fraud v. General Elec., 41 F.3d 1032, 1035 (6th Cir. 1994)), cert. denied, 522 U.S. 1077 (1998).

Put differently, whistleblowers sound an alarm while “second toots” merely mimic allegations already exposed. Wang ex rel. United States v. FMC Corp., 975 F.2d 1412, 1419 (9th Cir. 1992) (“Qui tam suits are meant to encourage insiders privy to a fraud on the government to blow the whistle on the crime. In such a scheme, there is little point in rewarding a second toot.”). Relators must not be “opportunistic late-comers who add nothing to the exposure of the [alleged] fraud.” See United States ex rel. Rabushka v. Crane Co., 40 F.3d 1509, 1511 (8th Cir. 1994) (discussing the purpose of the FCA), cert. denied, 515 U.S. 1142 (1995). An allegation of fraud has been publicly disclosed when it is in the public domain. United States ex rel. Dick v. Long Island Lighting Co., 912 F.2d 13, 18 (2d Cir. 1990) (discussing the meaning of “public disclosure” in the context of the FCA).

Stated differently, “potential accessibility [of the information] by those not party to the fraud [is] the touchstone of public disclosure.” United States ex rel. Doe v. John Doe Corp., 960 F.2d 318, 322 (2d Cir. 1992) (citing United States ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1161 (3d Cir. 1991).

Additionally, where the allegations are not just potentially accessible to the public but were actually divulged to “strangers to the fraud,” the requirements of a public disclosure have been met. United States ex rel. Doe v. John Doe Corp., 960 F.2d at 322. When a relator’s complaint “merely echoes publicly disclosed, allegedly fraudulent transactions that already enable the government to adequately investigate the case and to make a decision whether to prosecute, the public disclosure bar applies.” United States ex rel. Findley v. FPC-Boron Employees’ Club, 105 F.3d 675, 688 (D.C. Cir.), cert. denied, 118 S. Ct. 172 (1997). In fact, the jurisdictional bar may apply even if the public disclosure and the qui tam complaint are not identical. Some courts have held that the public disclosure need only raise an inference of fraud. See United States ex rel. Springfield Terminal, 14 F.3d at 654. Other courts have required that the publicly disclosed allegations or transactions “encompass the essential element of the fraud alleged.” United States ex rel. Rabushka, 40 F.3d at 1514 .

Clearly, though, where the qui tam plaintiff’s complaint mirrors or “substantially repeat[s] what the public already knows,” the jurisdictional bar is triggered. See United States ex rel. Findley, 105 F.3d at 687. A qui tam plaintiff’s complaint is “based upon” a public disclosure if it merely repeats what the public already knows via the public disclosure. See United States ex rel. Biddle v. Board of Trustees of the Leland Stanford, Jr. Univ., 161 F.3d 533, 537-40 (9th Cir. 1998), cert. denied, 119 S. Ct. 1457 (1999); see also United States ex rel. Findley, 105 F.3d at 683 (finding that the purpose and legislative history of the FCA support a construction of “based upon” as requiring only that the qui tam plaintiff’s allegation parrot information in the public domain.)

A complaint is “based upon” a public disclosure even if the qui tam plaintiff did not derive his knowledge of the alleged fraud from the public disclosure. See 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 at 324; United States ex rel. Kreindler & Kreindler v. United Technologies Corp., 985 F.2d 1148, 1158 (2d Cir. 1993); Also see United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1348 (4th Cir.), cert. denied, 513 U.S. 928 (1994). In fact, several courts have held that a qui tam plaintiff’s complaint can be “based upon” a public disclosure of which the plaintiff had no knowledge. See United States ex rel. Findley, 105 F.3d at 683.

15. Who is an original source?

Once the complaint is challenged as being based upon publicly disclosed information (such as in a motion to dismiss under Fed R. Civ. P.12(b)(1)), the relator’s only device to survive is to demonstrate that she qualifies as an “original source, as defined in Section (e)(4)(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. (Emphasis added.)

The litigation interpreting the “original source” provision has, as can be surmised from the language of the pertinent section, involved several key concepts. What exactly constitutes direct knowledge? In other words, must the relator have actually been involved or had first-hand knowledge of the pertinent events, or even actually witnessed those events? Or will indirect knowledge (such as hearsay) suffice?

A related issue is whether the relator must have had direct knowledge of the information that was released into the public domain. See Findley, 105 F.3d at 690. A second hotly-debated issue is how one establishes “independent knowledge.” Interpretative case authority suggests that this term means (a) knowledge gained independently of the public disclosure, or (b) knowledge obtained independently of the government. If any of the relator’s knowledge is derived from information available in the public domain, does that trigger the entire issue of whether the relator is an original source?

In all the fuss over the original source provision, an important procedural element is often lost in the shuffle. Section (e)(4)(B) also mandates that a prospective relator must “voluntarily” disclose his information to the government before filing his complaint. In contrast to other elements of the original source provision, this requirement has undergone limited interpretation. Interesting issues nonetheless present themselves. What if the government contacts a potential relator before the relator has contacted the government? What is a public disclosure takes place prior to the relator contacting the government, which has by then derived some knowledge at least of the allegations from the public disclosure. If the prospective relator is a government employee, can he ever “voluntarily” disclose information?

Finally, one of the most intriguing issues is whether a relator’s status as an original source survives if despite meeting the direct and independent knowledge thresholds, he has no connection with the public disclosure that occurs. Put differently, must the relator be the “original source” of the information contained in the public disclosure? Some circuits have so held as indicated above. Once again, the best way to determine how courts have developed and dealt with this provision is to read a sampling of the pertinent cases. This is time well spent, since the two “hurdles” imposed by Section 3730(e)(4) can be the death knell of a qui tam action.

16. What is an effective method for analyzing public disclosure and original source issues?

District courts likely perform variants of the following analysis when Section (e)(4) is invoked:

1. Have relator’s allegations been publicly disclosed?

  1. What is a public disclosure [manner of disclosure]?
  2. Does the public disclosure sufficiently reveal a fraudulent transaction [substance of the disclosure]?

2. If so, is the relator’s suit based on publicly disclosed information?

  1. Some courts apply an “actually derived from” standard, i.e., is relator’s knowledge non-parasitic because the relator had knowledge of any prior public disclosure?
  2. Other courts hold that if the information contained in the allegations is consistent with the content of a prior public disclosure-even if relator’s knowledge was not derived from the disclosure, and the disclosure is merely coincidental-nonetheless, the suit is barred.

3. If there has been a public disclosure, is the relator an original source of that information? What is “direct and independent knowledge”?

  1. “But for” test-If the relator would not have had knowledge of fraud but for the public disclosure, then the relator is not the original source.
  2. b. Some courts require first-hand knowledge of the fraud.
  3. How extensive must knowledge be? In addition, some courts (e.g., Second and Ninth Circuits) also require that the relator be a source to the entity making the public disclosure or he cannot qualify as an “original source.” Given the imprecise parameters of Section (e)(4) and its devastating potential impact on a qui tam complaint, it is no wonder that the cases interpreting this provision have multiplied at a geometrical rate. The best way to become conversant with the multitude of Section (e)(4) issues is to dip into the cases from the appropriate jurisdiction. It will soon become evident why so much scholarly attention in law reviews and books has been devoted to this topic.

17. What is the Whistleblower Protection provision found in Section 3730(h)?

In addition to the significant penalties and multiple damages that may result from the underlying allegations of fraud, it is important from the employment law perspective to recognize that the FCA seeks to protect whistleblowers from retaliation by their employers. Section 3730(h) reads in pertinent part: Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of a [qui tam action], including investigation for, initiation of, testimony for, or assistance in a [qui tam] action filed or to be filed . . . , shall be entitled to all relief necessary to make the employee whole. Such relief shall include reinstatement … 2 times the amount of back pay, interest … compensation for any special damages … including litigation costs and reasonable attorneys’ fees …. An employee may bring an action in the appropriate district court of the United States for the relief provided in this subsection. (Emphasis added.)

Since this provision was inserted into the FCA in 1986 well over 100 reported actions have been litigated involving Section 3730(h). As a consequence, when faced with a suspected qui tam situation, counsel must give separate consideration to the client’s potential liability under Section 3730(h) as well as develop a defense to the parent FCA action. For a more complete discussion, see companion article, “Retaliatory Discrimination Actions Under the Whistleblower Protection Provision of the Federal False Claims Act, 31 U.S.C. ‘ 3730 (H).”

18. What provision does the False Claims Act make regarding subpoenas?

The important thing to note about Section 3731(a) is that it makes provision for nationwide service of subpoenas compelling the appearance of witnesses at trial or a hearing. As a result, the normal Rule 45 (b) limitations, foreclosing a witness from being served more than 100 miles from the location of the trial, are inoperative. While this provision assists the government, it is also available to defendants. It is unclear whether this provision applies to deposition notices. 19. Does the False Claims Act contain its own statute of limitations provisions? The FCA contains two provisions governing the statute of limitations; both are found in Section 3731(b).

The first provision, Section 3731(b)(1) provides for a straightforward sixyear period that begins to run when the “violation of section 3729 is committed.” That date could be the point in time when the false claim or false or fraudulent document is submitted to the government. But the government and relators frequently argue that the statute does not begin to run until payment on the claim is made. In the health care area, one could even argue that the statute does not begin to run for providers who submit cost reports until final settlement has occurred on the cost report. Section 3731(b)(2) provides an alternative basis for the statute of limitations. It forecloses any FCA action being brought: more than 3 years after the date when facts material to the right of the 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….(Emphasis added.) This provision raises several interesting issues.

First, who is the “official of the United States” referenced in the paragraph? Most courts have construed that to be either someone in the Civil Fraud Section of the Civil Division of Main Justice or an Assistant U.S. Attorney. Therefore, the case agent’s investigation does not cause the statute to begin to run. It is only when the investigative report is presented to the Department of Justice that the clock begins to tick.

The more interesting issue is whether relators can rely upon this alternative provision. Given the reference to “official of the United States,” it has been contended by some defendants that the provision applies only to the government, not relators. The legislative history appears to support this contention, and increasingly courts have construed the provision as being inapplicable to relators. See, e.g., United States ex rel. Capella v. Norden Systems, Inc., No. 3:94-cv-2063 (EBB), 2000 U.S. Dist LEXIS 13352 at *35 (D. Conn. August 24, 2000); United States ex rel. El Amin v. George Washington University, 26 F. Supp. 2d 162, 170-73 (D.D.C. 1998).

However, even if this alternative provision is applicable, it can only extend the statute period no more than ten years from the date of the violation. For further discussion of this important issue, see companion article, Defending False Claims Act/Qui Tam Actions: Properly Applying the FCA’s Statute of Limitations Provision, 31 U.S.C. ยง 3731(b).

20. What burden of proof must be satisfied in an action under the False Claims Act?

The FCA is not a criminal statute; it is controlled by the customary civil standard of proof. The burden of proof as to the elements of the cause of action and damages is by a preponderance of the evidence. Section 3731(c).

21. Is there a False Claims Act provision governing collateral estoppel?

It is important to recognize that the FCA contains a highly stringent provision regarding collateral estoppel. Section 3731 (d) reads: Notwithstanding any other provision of law, the Federal Rules of Criminal Procedure, or the Federal Rules of Evidence, a final judgment rendered in favor of the United States in any criminal proceeding charging fraud or false statements, whether upon a verdict after trial or upon a plea of guilty or nolo contendere, shall estop the defendant from denying the essential elements of the offense in any action which involves the same transaction as in the criminal proceeding and which is brought under subsection (a) or (b) of section 3730. (Emphasis added.)

Put succinctly, a negotiated plea, as well as a finding of guilt after trial, can foreclose the ability of a FCA defendant to defend the action if the prior criminal action involves “the same transaction.” This provision is one of the main reasons why it is so important that defendants facing both criminal and civil charges of fraud coordinate their defenses so that nothing resulting in the criminal proceeding forecloses their rights in a later civil proceeding. In the health care area, similar care needs to be taken relative to administrative proceedings, which may be impacted irretrievably by criminal pleas and civil settlement agreements.

22. Where may a False Claim Act complaint be filed?

Subsection 3732(a) is the basic venue provision of the FCA. It establishes venue in the usual locations, with one important twist. Venue is appropriate when “in the case of multiple defendants, any one defendant can be found, resides [or] transacts business.” Therefore, in a case where more than one defendant is named, venue is appropriate in a district where at least one of the defendants had contacts. This provision can impose a substantial burden upon a distant defendant who has no real contact with the pertinent judicial district in which an action is brought, since barring transfer under 28 U.S.C. ‘ 1404 (a), that is where the matter must be tried. It is important to bear in mind that Section 3732(a) is not a jurisdictional provision. United States ex rel. Thistlethwaite v. Dowty Woodville Polymer, 110 F.3d 861, 863 (2d Cir.1997). Frequently, relators will plead section 3732(a) as their jurisdictional prerequisite. This is incorrect and can serve as a basis for dismissal upon appropriate motion.

23. What are Civil Investigative Demands under the False Claims Act?

The 1986 amendments to the FCA equipped the Civil Division with a powerful investigative device patterned upon the Civil Investigative Demand authority long available to the Antitrust Division. Several dimensions of this authority bear particular notice. First, Civil Investigative Demands (“CIDs”) under Section 3733 can consist of (a) a request for the production of documents; (b) a demand for oral or deposition testimony; (c) service of interrogatories requiring written response; and (d) any combination of these devices. Consequently, the CID is a much more potent device than most administrative subpoenas, which usually are limited to requesting documents. Second, CIDs can be utilized until DOJ files a complaint or until it declines or enters a qui tam. Therefore, the government is in the enviable position of being able to conduct investigative discovery prior to any ability of the potential defendant to conduct its own discovery. Finally, one important way in which CIDs differ from administrative subpoenas is that Section 3733 imposes substantial limitations upon DOJ’s ability to disclose any of the information it gathers through their use. One helpful feature of Section 3733 is that its procedures, limitations, and bases for judicial challenge are all spelled out in precise detail. Therefore, when a CID is received, the first step should be a thorough review of Section 3733, which will dispose of most questions that may arise. The existing case authority interpreting Section 3733, while evolving, is not yet extensive. CIDs are discussed more fully in a companion article, “What are Civil Investigative Demands?”

24. How can a contractor protect itself from liability from a false claims action?

Government contractors, and particularly health care providers, should have established and implemented meaningful compliance programs. Compliance plans, and their components, are discussed in a companion article, “What Is a Healthcare Fraud Compliance Program and How Can a Provider Design and Implement One?”. Compliance plans are particularly important in discouraging qui tam actions. As discussed under question 6 above, under Section 3729(a) of the FCA, if a corporation becomes aware that information regarding a potential false claim has been submitted to the government, the corporation may decide voluntarily to disclose the facts that the government or relator may later claim forms the basis for a false claim action. A company also may want to conduct an internal investigation that focuses on the allegations of potential wrongdoing. In conducting this investigation, the company should obtain an unbiased, critical analysis from an outside source of what happened, who was involved, and how and why it happened. Document review and employee interviews are the main sources of this information. It is important to involve outside counsel at this stage, due to the sensitivity of the issues and the need to protect confidentiality.

25. What are some good sources for researching False Claims Act issues?

The “False Claims Act/Qui Tam” section of the Arent Fox web page has a number of useful articles discussing current developments under the FCA. New articles are added frequently to update this section. In addition, there are several outstanding reference books that can be consulted: 1. Jack T. Boese, Civil False Claims and Qui Tam Actions [second edition] 2. James Helmer, et al., False Claims Act: Whistleblower Litigation [third edition] (written from the relator’s perspective) 3. Robert Fabrikant, Paul Kalb, Mark D. Hopson, & Pamela Bucy, Health Care Fraud: Enforcement and Compliance Criminal, Civil and Administrative Law 4. Robert Salcido, False Claims Act and the Healthcare Industry (including supplementation volume) 1 The government is inclined to give a rather broad reading to the “caused to be submitted” language. Usually, the government contends, anyone who does anything that contributes to the eventual submission of a false claim has “caused” it to be submitted. The absence of interpretative case authority has allowed DOJ to assert its broad interpretation aggressively in negotiations. 2 The Supreme Court recently upheld the constitutionality of the qui tam provisions of the FCA. See companion article, “New Developments Under the False Claims Act.” 3 The limited legislative history pertaining to Section 3730(h) is found at 1986 U.S.C.C.A.N. 5266, 5299-5300 [the section was then designated as 31 U.S.C. 3734], which reprints S. Rep. No. 345, 99th Cong., 2d Sess. on The False Claims Act Amendments Act of 1986. The corresponding House Report is 99-660; pertinent discussion is found therein at 4, 23 & 32. Both the House and Senate reports on the 1986 amendments are reproduced as appendices D and E to JOHN T. BOESE, CIVIL FALSE CLAIMS AND QUI TAM ACTIONS (first and second editions, 1993 & 2000). A particularly complete discussion of the legislative history, including floor debates, is found in Childree v. UAP/GA AG Chem., Inc., 892 F. Supp. 1554, 1562-63 (N. D. Ga. 1995) (giving broad interpretation to legislative intent), aff’d in part, rev’d in part, vacated in part, 92 F.3d 1140 (11th Cir. 1996), cert. denied, 519 U.S. 1148 (1997).

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