The traditional name for cases which attempt to recover money defrauded from the king is “Qui Tam” litigation. Qui Tam is pronounced “kee tam” or “kway tam”) and is an abbreviation from the Latin “qui tam pro domino rege quam pro sic ipso in hoc parte sequitur” meaning “who as well for the king as for himself sues in this matter.”
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History of Qui Tam Laws in the United States
Qui tam legal actions can be traced back as far as 13th Century England where they were used by private citizens to gain access to the king’s court. The U.S. legal system, derived from the British system, allowed qui tam actions since the nation’s founding in 1776. They were rare.
During the Civil War, Congressional hearings investigated widespread instances of military contractor fraud including defective products, substitution of inferior material, and illegal price gouging. At the urging of Abraham Lincoln, a former practicing lawyer, Congress enacted the Civil False Claims Act in 1863 as a weapon to fight procurement fraud. This law has also been known as the “Lincoln Law” and the “Informer’s Act.”
The False Claims Act was designed to entice whistleblowers to come forward by offering them a share of the money recovered. Even though this Act was enacted to combat military contractor fraud, it was applicable to all government contractors, federal programs and any other instances involving the use of federal revenue. The Act allowed any person to act as a “private attorney general” and sue for recovery of the money taken. The named plaintiff on the action is the United States Government. The one filing the case is known as the “relator”. Because of legal obstacles, the 1863 Act was not very successful in combating fraud on the government.
During World War II, the law was amended to add even greater restrictions. In 1943, Congress amended the Act to eliminate cases where the Government had prior knowledge of the allegations. The award to the relator was reduced from 50% to a maximum of 25% if the government did not take over the case and a maximum of 10% if it did.
In 1986 during “Star Wars” military buildup, Congress became alarmed over rampant procurement fraud, inadequate efforts of regular law enforcement to control the fraud, and the obstacles making it difficult for whistleblowers to bring qui tam actions. Congress passed amendments to the Act increasing the whistleblower’s share of the recovery to a maximum of 30%, increasing the powers of relators in bringing qui tam lawsuits and increasing the damages and penalties that can be imposed on defendants. Even if the Government joined the lawsuit and has primary responsibility for prosecuting the action, the relator has the right to continue as a party to the action. Prior Government knowledge of the allegations does not prevent a relator from filing a qui tam action.
Qui tam actions increased dramatically as a result of the 1986 amendments and have been very beneficial to the government. The initial successes of the revitalized False Claims Act were against defense contractors, more and more actions are being filed that involve fraud on other governmental agencies such as Health and Human Services, Environment, Energy, Education, NASA, Agriculture and Transportation. U.S. recoveries for qui tam cases, as of the end of 2003, have totaled $7.8 billion. During the same period, relator payments have totaled $1.3 billion.
President Obama had worked on a FCA case and had a favorable opinion of the law. He backed “sentinel-friendly” amendments include in the 2009 Fraud Enforcement and Recovery Act (FERA). These changes reversed some of the court cases that had ruled against relators and modernized the act to match current government procurement practices. In 2010, the Patient Protection and Affordable Care Act made it easier for relators by limiting the definition of “public disclosure” and expanding the definition of “original source”. The Dodd-Frank Wall Street Reform and Consumer Protection Act extended the statute of limitations for whistleblowers to file FCA wrongful discharge claims to three years and expanded the list of those who are prohibited from retaliation. It also enacted a parallel reward regime for sentinels which is not limited to fraud on the government and does not require the whistleblower to file a legal action.
In fiscal 2012, federal and state FCA cases recovered over $9 billion for the governments.
Typical False Claims Act Cases
The type of cases filed as qui tam actions generally consist of false claims made to the Government for payment or approval of claims. These false claims can be generated through the submission of false records, statements or other representations made to the Government. The 1986 Amendment defines a “claim” as: “…any request or demand 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.”
The 1986 amendments do not cover false claims to the Government relating to tax returns. However other claims that reduce an obligation owed to the government are covered such a import fraud.
Mischarging: These actions involve filing false claims for goods or services that were not provided or delivered.
False Data: Fraudsters often submit false cost and pricing data to the government during the negotiation of a contract that subsequently results in an inflated contract price.
False Certifications: Another common type of case is product and service substitution and false certification of entitlement for benefits. Examples of product and service substitution are falsely certifying that a product meets specifications, false testing schemes such as falsely certifying that reliability testing was conducted and providing an inferior service or product. False certification of entitlement cases include falsely certifying information for FHA mortgage guarantees and price supports.
For more details see Legal Theories.
Employees: Since this whistleblower is concerned about keeping his or her job, a qui tam action is a last resort.
Former employees: If the former employee was fired, credibility is an issue. Competitors and Subcontractors: Qui tam actions have been filed when subcontractors or competitors of the main contractor learn of fraud on the government.
State and Local Governments: A number of qui tam actions have been filed by local and state governments against contractors and medical providers as a means of recovering state or local revenue lost as a result of the schemes. In Vermony Agency of Natural Resources v. Stevens, 529 U.S. 765 (2000), the Supreme Court surprised many legal experts by deciding that state agencies are exempt from the False Claims act because they are not “persons” as that term is used under the act. The reasoning would also seem to apply to other sovereigns like Indian Tribes. We are waiting to see if Congress will change this result.
Federal Employees: The courts are split on whether a federal employee has standing to be a relator. The Justice Department remains hostile toward this type of relator and believes these persons have a conflict of interest.
Outsiders: Public interest groups, corporations and other private organizations have attempted to be relators. The False Claims Act allows a relator to file a qui tam action even if a “public disclosure” was made prior to the action being filed as long as the relator meets the “original source” test – the relator had “direct and independent knowledge” of the information on which the allegations were based and the relator “voluntarily provided the information to the government” prior to filing the action. Defendants
Almost any person, corporate organization or government entity, including government employees, can be charged as a defendant. The exceptions include certain public officials such as members of Congress, judges and senior executive branch officials. Common defendants are government contractors and subcontractors, medical providers, Medicare & Medicaid fraud (including doctors, hospitals, HMOs, and clinics), and universities. State & local governments, Indian tribes, and other person who obtain government money through grant contract or otherwise but are sovereign powers are probably exempt under current law. See Vermont Agency of Natural Resources v. Stevens, 529 U.S. 765 (2000).
A qui tam relator files a complaint under seal in a U.S. District Court that has jurisdiction over the case. The relator must also file a written disclosure of substantially all material evidence and information the person possesses. The primary purpose for the written disclosure is to provide the government with enough information to properly investigate the claim in order to determine if it will join in the lawsuit. The disclosure will be probably be made public so it must be drafted with care.
The Department of Justice (DOJ) has 60 days after the complaint is filed to investigate the information disclosed and determine whether it will join in the lawsuit. The DOJ can, and often does, request the court grant extensions to give it more time to investigate. It is not unusual for a complaint to remain under seal for as long as two to three years before the DOJ makes a decision. The relator has the right to challenge extension requests and to have the seal lifted.
The DOJ will assign the case to an investigative agency that has jurisdiction over the allegations which conduct a preliminary investigation. This includes an interview of the relator and review of relator’s records. The investigators will interview corroborative witnesses and review government records. The investigation can also be expanded to include obtaining and reviewing the records of the defendant through the subpoena process.
The DOJ may elect to join in the lawsuit, decline to join, move to dismiss the action, or attempt to settle the action prior to a formal investigation. If the DOJ elects to join in the lawsuit, it controls the action and has the primary responsibility for prosecuting the case. The DOJ can limit the relator’s participation during the case.
If the DOJ declines to join the relator may investigate and prosecute the case. The DOJ will decline to join if it feels there is no merit to the complaint, there is a lack of resources, or for policy reasons.
In some cases, the U.S. Attorney will decide to open a criminal investigation based on the qui tam allegations. If that occurs, the civil qui tam case will be stayed until the completion of the criminal investigation.
Division of the Award
The relator’s share of the award is a minimum of 15 percent and a maximum of 30 percent. Total monetary recovery under the False Claims Act is the amount of the fraud times three (tripled). If the government takes over the case and wins and the relator was not involved in the fraud, the judge will award the relator between 15 and 25 percent depending on the value of the relator’s contribution to the case. If the government does not take over the case and the relator successfully prosecutes the case, the judge will award the relator between 25 and 30 percent of the proceeds. If the relator was involved in the wrongdoing, the court can reduce the relator’s share at its discretion depending on the circumstances. The court will dismiss the relator entirely if you are convicted of criminal conduct arising from the fraud. Attorney fees and costs are awarded if the relator wins the case.