False claims.

• Jurisdiction: United States
• Author: Jenks, Sharon A.
• Date: 01 January 1997

1. INTRODUCTION

   1. 31 U.S.C. Sections 3729-3733

   2. 18 U.S.C. Section 287 II.ELEMENTS OF THE OFFENSE

   1. Presentation of a Claim

   2. False, Fictitious, or Fraudulent Claims

   3. Knowledge

   4. Materiality III. DEFENSES

   1. Intent-Based Defenses

   2. Double Jeopardy IV. ENFORCEMENT

   1. Penalties

   2. Sentencing

1. INTRODUCTION

   Congress enacted the first False Claims Act ("the Act") in 1863(1) in response to widespread procurement fraud in Civil War defense contracts.(2) In so acting, Congress sought to protect government funds and property from fraudulent claims.(3) Today, False Claims litigation involves alleged violations either of 31 U.S.C. [subsections] 3729-3733,(4) which impose civil liability, or of 18 U.S.C. [sections] 287,(5) which imposes criminal liability for violations.

   1. 31 U.S.C. Sections 3729-3733

      The most novel characteristic of False Claims law is the broad ability of private citizens to bring civil actions on behalf of the United States for violations of [sections] 3729(6) Such qui tam litigation was designed to enhance enforcement of the False Claims Act.(7) A qui tam plaintiff may recover a maximum of 25% of the proceeds in a case in which the government intervenes(8) and 25-30% in a case in which the government does not intervene.(9) Since a defendant may be liable for treble damages,(10) the potential recovery for a qui tam plaintiff can be considerable.(11)

   2. 18 U.S.C. Section 287

      Under [sections] 287 it is illegal to present a false, fictitious or fraudulent claim to the federal government.(12) The government has used [sections] 287 to prosecute a wide array of false claims, including fraudulent federal tax refunds,(13) Medicare and Medicaid fraud,(14) Social Security fraud,(15) government contract impropriety,(16) fraudulent claims for unperformed services under government programs,(17) and numerous other fraudulent claims submitted to the federal government.(18) Also, the government may simultaneously bring both [sections] 287 charges and false statement charges under [sections] 1001, if the defendant persists in his false claim.(19)

2. Elements of the Offense

   To establish a [sections] 287 violation, the prosecution must show that: (1) the defendant presented a claim against the United States or any agency or department of the United States; (2) the claim was false, fictitious, or fraudulent; and (3) the defendant knew the claim was false, fictitious, or fraudulent.(20) In the Fourth and Eighth Circuits, materiality has historically also been considered an essential element.(21)

   1. Presentation of a Claim

      The legislature and courts have broadly defined "presentation," "claim" and "department of agency." Although [sections] 287 does not explicitly define "claim,"(22) the False Claims Act does define it as any request or demand for money or property from the United States.(23) Furthermore, courts have construed the Act's coverage broadly.(24) In addition to requests for direct payment or reimbursement, a "reverse claim"--a claim filed to avoid or decrease payments to the government-- constitutes a "claim" under the Act.(25) A claim for credit is also within the Act.(26) The claim need not be honored nor successfully defraud the government.(27) To satisfy the presentation element, the government must show that the defendant physically presented the claim.(28)

      A United States "department or agency" includes not only specific government entities like the Department of Health and Human Services,(29) the Internal Revenue Service,(30) and the U.S. Army,(31) but also the legislature(32) and wholly-owned federal corporations.(33) However, the judiciary would probably not be considered a "department or agency."(34) The language in Title 18 suggests that the terms "department" and "agency" may include any institution in which the United States has a proprietary interest.(35) In addition, a claim against the federal government made through a third party constitutes a claim "upon or against the United States" for the purposes of the Act.(36) The claim may reach the federal government through a State or local government,(37) an insurance company,(38) a government contractor,(39) or an individual.(40)

   2. False, Fictitious, or Fraudulent Claims

      To find a violation of [sections] 287, a claim must be "false, fictitious, or fraudulent."(41) The courts have consistently treated "false, fictitious, or fraudulent" as three alternative bases for liability rather than requiring a claim, be false, fictitious and fraudulent.(42)

      Courts have applied the element of falsity to a wide variety of facts. Individuals have been convicted for submitting false claims such as having "supervised" medical procedures while out of the country,(43) submitting overinflated labor and equipment charges,(44) and falsely representing oneself as a licensed professional.(45) Courts generally look to the circumstances surrounding the presentation of a claim when determining falsity.(46)

   3. Knowledge

      In addition to the [sections] 287 requirement that a presented claim be false, fictitious, or fraudulent, it is necessary for a defendant to have tendered such a claim while "knowing" that it was illegitimate.(47) Courts are divided on the degree of intent necessary to constitute a "knowing" presentation of a false claim. The Second, Fourth, Ninth, and District of Columbia Circuits define the requisite state of mind as "knowledge of falsity."(48) The Seventh and Eighth circuits require a specific intent to deceive(49) but allow a jury to infer such intent when the defendant knew the claim was false.(50) In addition, several courts have held that knowledge can be inferred from the defendant's reckless disregard for the truth, as well as conscious avoidance of the truth.(51) A defendant's failure to learn proper claim procedures, leading to the submission of false claims, can satisfy the requirements of conscious avoidance.(52) The Ninth Circuit has held that inducing others to file false tax returns, regardless of whether the taxpayers knew they were false, satisfies the knowledge requirement of the statute.(53)

      Knowledge of the federal nature of the claim is not required. Both the Eighth and Tenth Circuits have held that ignorance of federal involvement in a program or project is not a defense to a [sections] 287 violation, when the defendant's intent was to present a false claim.(54)

   4. Materiality

      Most circuit courts have held that the materiality of the falsehood is not an essential element of a false claim offense.(55) The Fourth and Eighth circuits, however, have historically held that materiality is an essential element of a [sections] 287 violation.(56) The Eighth Circuit has held that the proper test for materiality of a false claim is whether the falsification would have a tendency to influence the decision of the government regarding the claim.(57)

3. Defenses

   1. Intent-Based Defenses

      Defendants regularly assert that their claims were not false. In the area of government contracts, defendants have unsuccessfully argued that their claim was not "false" where the contract led the defendant contractor to believe that payment was deserved.(58) Courts have also rejected arguments by contractors supplying lower than contract quality products that their invoices failed to represent the goods as being of any particular quality,(59) as well as arguments that construction bids were merely estimates presented to the government for negotiation purposes and did not constitute overinflated labor and equipment charges.(60)

      The Fifth Circuit, while following the rule that a mistake of law is not an adequate defense, recognizes good faith reliance on a third party's actions as an appropriate defense to a [sections] 287 charge.(61)

   2. Double Jeopardy

      The Double Jeopardy Clause(62) protects criminal defendants from being punished twice for the same crime. In 1989, the Supreme Court ruled that civil and criminal penalties for false claims violations could amount to a double jeopardy violation.(63) However, the Court narrowly limited its holding, setting forth the following rule to be applied on a case-by-case basis:

      Where a defendant previously has sustained a criminal penalty and the civil

      penalty sought in the subsequent proceeding bears no rational relation to the

      goal of compensating the Government for its loss, but rather appears to

      qualify as "punishment" in the plain meaning of the word, then the defendant

      is entitled to an accounting of the Government's damages and costs to

      determine if the penalty sought in fact constitutes a second punishment.(64)

      The Eleventh Circuit has interpreted Halper to dictate a two-part test for determining if there has been a double jeopardy violation. "The first question is whether the civil penalties concern the same conduct as the criminal proceedings .... The second question is whether the civil penalties rise to the level of criminal punishment 'because of the lack of rational relation to the Government's loss.' "(65) If the civil penalty is not punitive, the Double Jeopardy Clause is not implicated. In determining whether there is a rational relation between the civil penalty and the government's loss, the Eleventh Circuit has looked to the numerical ratio between the penalty and the loss.(66) When the government can show that the civil penalty is reasonable compensation for its loss, district courts have been reluctant to hold the penalties punitive.(67)

      Whether a qui tam civil suit implicates the Double Jeopardy clause is currently undecided. The Supreme Court has held that a civil suit between private parties does not implicate the Double Jeopardy Clause, but has left open the question of suits brought by private citizens on behalf of the government.(68)

4. ENFORCEMENT

   1. Penalties

      Current criminal and civil enforcement mechanisms reflect the intent of Congress to expand greatly the ability of government and private individuals to recover losses sustained as a result of fraud.(69) Three major enforcement...