False claims.

• Jurisdiction: United States
• Date: 22 March 2000
• Author: Hess, Joshua D.

1. INTRODUCTION

   Congress enacted the first False Claims Act ("the Act")(1) in 1863 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 of 31 U.S.C. [subsections] 3729-3731,(4) which establishes civil liability, or 18 U.S.C. [sections] 287,(5) which imposes criminal liability for violations. The Justice Department has been increasingly vigilant in recovering losses attributable to false claims.(6) While this Introduction briefly outlines both the civil and criminal false claims statutes, this Article focuses on criminal violations under 18 U.S.C. [sections] 287. Section I introduces the civil and criminal false claims statutes. Section II discusses the elements of a [sections] 287 offense, while Section III outlines the defenses available to a false claims allegation. Finally, Section IV addresses the enforcement mechanism of the criminal statute.

   1. 31 U.S.C. [subsections] 3729-3753

      In addition to criminal sanctions, the United States can pursue significant civil monetary damages from defendants who have submitted fraudulent claims to the government. The elements of the civil action are similar to those of a criminal offense and merely provide additional remedies to the government.(7) Civil damages are viewed as compensatory, not punitive,(8) and defendants who have had civil penalties levied against them for a fraudulent claim usually cannot assert that this precludes further criminal prosecution.(9) The most novel characteristic of false claims litigation is the broad ability of private citizens to bring civil actions on behalf of the United States for violations of [sections] 3729.(10) Congress designed such qui tam litigation to enhance enforcement of the False Claims Act.(11) A qui tam plaintiff, also known as a "relator," may recover a maximum of 25% of the proceeds in a case in which the government intervenes(12) and 25-30% in a case in which the government does not intervene.(13) Because a defendant may be liable for treble damages under the statute,(14) the potential recovery for a relator can be considerable.(15) Aside from rewarding qui tam plaintiffs a portion of the recovery, the Act provides relief for those qui tam relators (employees) who are "discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against" as a result of their reporting a false claim.(16)

      Courts cannot hear a qui tam action that is based upon information previously disclosed to the public, unless the relator is the "original source."(17) Thus, the threshold questions a court must address are whether the qui tam action is based on public disclosure and whether the particular relator is the original source.(18) Section 3730 describes three ways in which a public disclosure can occur: (1) in a civil, criminal, or administrative hearing; (2) in a congressional, administrative or GAO report, audit, or investigation; or (3) from the media.(19) If public disclosure has occurred, a relator may continue her suit only if she is an original source as defined by the statute.(20) Section 3730 defines an original source as "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."(21)

      Another possible bar to qui tam suits under this Act is if the defendant is a state or local government. Several circuits are in conflict regarding whether or not states can be sued under the False Claims Act by a qui tam relator. While the Fifth Circuit has found that states are not "persons" under the section, and are immune from qui tam suits in federal courts under the Eleventh Amendment,(22) the Second and Eighth Circuits have disagreed, holding that states are subject to such suits.(23) In United States ex rel. Stevens v. Vermont Agency of Natural Resources,(24) the Supreme Court has granted certiorari for the October 1999 term to resolve this conflict among the circuits. Last term in Alden v. Maine(25) and College Savings Bank v. Florida Pre-Paid Post-Secondary Tuition Program (and its companion case),(26) the Court held, inter alia, that subjecting a state to suit for damages under federal law fundamentally alters the federal-state balance, but it is unclear whether the Court is likely to grant state sovereign immunity from suits under [sections] 3730.

   2. 18 U.S.C. [sections] 287

      Under [sections] 287, it is illegal to present a false, fictitious, or fraudulent claim to the federal government.(27) The government has used [sections] 287 to prosecute a wide array of false claims,(28) including fraudulent federal tax refunds,(29) Medicare and Medicaid fraud,(30) Social Security fraud,(31) government contract impropriety,(32) fraudulent claims for unperformed services under government programs,(33) and numerous other fraudulent claims submitted to the federal government.(34) If the defendant persists in his false claim, the government may simultaneously bring both [sections] 287 charges and false statement charges under [sections] 1001.(35)

2. ELEMENTS OF THE OFFENSE

   The prosecution must prove three elements to establish a [sections] 287 violation: (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.(36) Additionally, the Fourth and Eighth Circuits consider materiality to be an essential element.(37)

   1. Presentation of a Claim

      The legislature and courts have defined "presentation," "claim," and "department or agency" broadly. To satisfy the presentation element the government must show that the defendant physically presented the claim to the government.(38) The claim need not be honored or successfully defraud the government.(39)

      Although [sections] 287 does not explicitly define "claim,"(40) the civil False Claims Act defines it as any request or demand for money or property from the United States.(41) Furthermore, courts have construed the Act's coverage broadly.(42) In addition to requests for direct payment or reimbursement, a "reverse claim"(43)--a claim filed to avoid or decrease payments to the government--and a claim for credit(44) both constitute "claims" under the Act.

      A United States "department or agency" includes not only specific government entities like the Department of Health and Human Services,(45) the Internal Revenue Service,(46) and the United States Army,(47) but wholly-owned federal corporations,(48) 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.(49) 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.(50) The claim may reach the federal government through a State or local government,(51) an insurance company,(52) a government contractor,(53) or an individual.(54) It is uncertain whether the judiciary or legislature falls within the scope of [sections] 287's "department or agency" requirement.(55)

   2. False, Fictitious, or Fraudulent Claims

      A claim that violates [sections] 287 must be "false, fictitious, or fraudulent."(56) Courts consistently have treated "false, fictitious, or fraudulent" as three alternative bases for liability rather than requiring that a claim be false, fictitious and fraudulent.(57) As to what the difference is between these three terms, one court has suggested, "A statement is `false' or `fictitious' if untrue when made, and then known to be untrue by the person making it or causing it to be made. A statement or representation is `fraudulent' if known to be untrue, and made or caused to be made with the intent to deceive the Government agency to whom submitted."(58)

      Courts have applied the falsity requirement to a wide variety of factual situations. Individuals have been convicted for submitting false claims involving "supervised" medical procedures while out of the country,(59) submitting over-inflated labor and equipment charges,(60) and falsely representing oneself as a licensed professional.(61) Thus, courts determine falsity by examining the circumstances surrounding the presentation of a claim.(62)

   3. Knowledge

      In addition to the [sections] 287 requirement that a defendant present a false claim, a defendant must have tendered such a claim while "knowing" it was illegitimate.(63) 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."(64) The Eighth Circuit, on the other hand, requires a specific intent to deceive,(65) but the court allows a jury to infer such intent when the defendant knew the claim was false.(66) Indeed, the Seventh Circuit illustrates this division, handing down a pair of recent decisions that strayed from that circuit's precedents and held that a specific intent to deceive is not an element of [sections] 287.(67) In United States v. Catton, the Seventh Circuit noted that [sections] 287 "does not explicitly require proof of willfulness," and the court opined that a "knowingly false claim might seem inherently willful."(68)

      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.(69) A defendant's failure to learn proper claim procedures, leading to the submission of false claims, can satisfy the requirements of conscious avoidance.(70) The Ninth Circuit held that inducing others to file...