Qui Tam Actions: What Every Company Receiving Federal Money Should Know
| Publication year | 1993 |
| Pages | 1235 |
1993, June, Pg. 1235. Qui Tam Actions: What Every Company Receiving Federal Money Should Know
Aqui tam action is a lawsuit that an individual, acting as a private attorney general, initiates to prosecute fraud under the civil False Claims Act ("FCA").(fn1) Such a lawsuit may be brought against any person receiving money from the federal government, including companies of all sizes, civilian and defense contractors, universities and health care providers. Although many qui tam lawsuits have been warranted, sometimes they are brought by an employee who lacks the "big picture" to assess properly the facts that he or she knows. Suspicion of fraud, well founded or not, combined with large potential recovery by the individuals and the attorneys bringing the qui tam lawsuits, have made such lawsuits big business.
A recent article in The Colorado Lawyer outlined the requirements for plaintiff's counsel in bringing a qui tam action.(fn2) This article provides suggestions for companies doing business with the federal government to minimize the potential for qui tam actions and the company's liability once a qui tam action has been filed.
A qui tam action under the FCA is an action for civil fraud against the United States. Because it is a civil action, the standards for recovery are significantly lower than for a criminal prosecution under the Criminal False Claims Act.(fn3) First, the burden of proof under the FCA is the preponderance of evidence, the lowest standard of proof. Second, to succeed under an FCA action, proof of specific intent to defraud is not required --- a plaintiff need not show that the company actually knew that it was acting in a false or fraudulent matter. Deliberate ignorance or reckless disregard is sufficient. Finally, the FCA allows actions to be brought up to 10 years after the alleged fraudulent activities occurred.
In 1986, Congress amended the FCA to eliminate certain restrictions on the use of qui tam actions and to increase the incentives to individuals, called "relators," who bring them. Congress took this action to counter the perceived massive amount of fraud in federal government contracts. As a consequence of the 1986 amendments, qui tam actions have skyrocketed from six cases a year with under $30 million in recoveries to more than 100 cases a year with over $300 million in recoveries.
qui tam actions can be very lucrative for relators and their attorneys. Relators may receive from 15 to 30 percent of any judgment or settlement, and their counsel may receive a contingent fee in addition to statutorily mandated attorney fees and costs. Fines and damages against defendant companies can easily run into the tens of millions of dollars, netting a healthy return to the relator and his or her attorney.(fn4)
Companies have limited defenses to qui tam actions. Most courts have upheld the constitutionality of the FCA. Many courts have disallowed counterclaims as being contrary to the legislative intent of the 1986 amendments. Finally, if the relator is able to convince the federal government to become involved in the litigation, the company must fight an adversary with nearly limitless resources. Not surprisingly, many companies find it more cost effective to settle a qui tam action than continue to fight it. Thus, actions to prevent qui tam suits may be the most important a company undertakes.
The best way to win a qui tam action is to prevent one from happening. Effective preventative action requires implementing oversight and compliance procedures to detect and eliminate problems when they occur and opening channels of communication between the company and its employees.
To minimize the potential for qui tam actions, an oversight and compliance program should include:
1) a written code of ethics, with ethics training for all employees;
2) frequent in-house reviews of company practices, policies and procedures;
3) formal internal and external audits;
4) timely notification to the government of suspected or possible violations of the law;
5) full cooperation with the government in a fraud investigation;
6) a means for employees to communicate misconduct within the company; and
7) a means of screening potential employees for any previous improper conduct.
Open communication between the company and its employees is also crucial. Key to such communication is employee criticism. Employees must feel that they are able to express their concerns to management. Indeed, it is imperative that the company allow employees an opportunity to be heard and give them a real sense that the company takes their concerns seriously. Employees also must know that they will not be punished for views potentially hostile to the company.
By the same token, the company must explain to its employees the reason and nature of any actions it takes with regard to the employees' concerns. Often, concerned employees have limited knowledge on a given issue, which may lead them to believe that there is ongoing improper activity at the company. Explaining the rationale of the company's actions to a concerned employee provides the employee with a sense of understanding and participation. It also limits the employee's suspicions of impropriety which, when coupled with alienation, may result in the employee pursuing a qui tam action.
Implementing the necessary policies, procedures and practices to accomplish these goals may seem "bureaucratic" and expensive, particularly for smaller companies. Smaller companies tend to believe that their employees are more of a "family," and management is more likely to have open communications with employees. Nevertheless, the cost of such actions is far less in the long run than the cost of dealing with a qui tam action and a significant judgment or settlement, suspension or debarment and damage to the company's reputation.
Notwithstanding an adequate compliance and oversight program and effective company/employee communication, the company may find that it has been involved in activity that could be considered false or fraudulent under the FCA. Aside from meeting any obligation that might exist under its ethics policies, addressing such a situation fully and timely is in the company's best interests because of the impact such actions might have in a qui tam context.
When a company becomes aware of a potential fraud, it is important to gather all relevant information. This allows the company to plan...
To continue reading
Request your trial