False Claims Act suits should concern defense contractors.

• Author: Park, Daniel W.
• Position: Legal Viewpoint

During the past 15 years, the U.S. Department of Justice has collected more than $5.2 billion from False Claims Act cases, and the pace of recoveries is increasing.

Last year alone, the DOJ collected at least $1 billion in settlements. The hardest hit industries have been defense and healthcare.

In the jargon of the False Claims Act, private individuals who bring False Claims Act cases are known as qui tam plaintiffs or relators. For the public at large, these people are simply known as "whistleblowers."

A whistleblower can bring a lawsuit in the name of the government.

This means that almost any current employee, former employee or even business competitor can initiate a False Claims Act suit. If the whistleblower prevails, he or she receives a percentage of the government's total recovery. Because the False Claims Act's penalties can be severe, the incentive to bring a case is correspondingly great.

Of the False Claims Act cases that the DOJ has prosecuted to resolution (either settlement, judgment or dismissal), is has recovered money in about 97 percent of the cases.

Defense contractors need to be aware that a violation of the False Claims Act is easy to allege and difficult to defend. The False Claims Act prohibits "knowingly" presenting a false or fraudulent claim to the U.S. government and "knowingly" making a false record or statement to get a false claim paid.

Under the False Claims Act, "knowing" is defined as either actual knowledge, deliberate ignorance or reckless disregard for the truth of falsity of the claim. Thus, those who do business with the government can be held liable under the False Claims Act for claims that they did not even actually know were false.

The punishment can be severe. Those found liable under the False Claims Act must pay three times the actual damages sustained by the government as a result of the false claim. In addition, violators must pay a penalty between $5,500 and $11,000 for each false claim.

It is not always clear what constitutes a violation. For example, in some cases, courts take a strict view that any regulatory violation can make a claim false. In one case, a defendant was accused of not complying with the regulations in the federal Cost Accounting Standards. The defendant argued that its claims were not "false" because it had a reasonable, good-faith belief that it had complied with the Cost Accounting Standards. Although acknowledging that the Cost Accounting Standards were...