A. Introduction

• Library: South Carolina Damages (SCBar) (2009 Ed.)

A. Introduction

1. False Claims Act

The False Claims Act (hereinafter "the Act") is a civil statute designed to provide the United States with a claim against those persons and entities who have defrauded the government. In almost every lawsuit under the Act the greatest issue of contention is damages. When a qui tam lawsuit follows a criminal conviction or a voluntary disclosure this is particularly true. The Act is designed to have a significant financial impact on the wrongdoer. Yet, the damage and penalty provisions are considered too harsh by some and have been the subject of great debate among scholars, members of Congress, lobbyists, and corporate America.

The Act was originally enacted by Congress to combat fraud committed by defense contractors during the Civil War. The United States has been using the Act ever since this time to recover money lost due to fraud and other misconduct against the United States government and to impose civil penalties for violations of the nation's health, safety, and economic welfare laws.

There are numerous advantages to the government proceeding under the Act. Arguably, it provides better protection of taxpayers' money; there is a lower burden of proof than in criminal actions; it benefits federal program compliance through deterring future wrongdoing; and it fills a void between proceeding criminally and no enforcement action at all.

The Act imposes civil liability upon any person who:

(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government ...a false or fraudulent claim for payment or approval;
(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;
(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid;
(4) has possession, custody, or control of property or money used, or to be used, by the Government and, intended to defraud the Government or willfully to conceal the property, delivers, or causes to be delivered, less property than the amount for which the person receives a certificate or receipt;
(5) authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intended to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;
(6) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government . . . ; or
(7) knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.²

Thus, in the typical action under the Act, the government is required to prove: (1) that the defendant made a false statement or engaged in a fraudulent course of conduct; (2) that such action was taken with the requisite scienter; (3) that the false claim was material; and (4) that the false claim caused or could have caused, the government to incur expenses or to forfeit monies due.³

Specific intent to defraud is not a required element of proof under the Act. The element of "knowingly" is defined within the Act as: (1) having actual knowledge of the information; (2) acting in deliberate ignorance of the truth or falsity of the information; or (3) acting in reckless disregard of the truth or falsity of the information.⁴

In Allison Engine Co., Inc. v. United States, ex rel. Sanders,⁵the United States Supreme Court examined the issue of whether sections 3729(a)(2) and (a)(3) of the FCA require that a false claim be presented to a federal official as an element of liability. The Court concluded that they do not.⁶

However, the Supreme Court did conclude in Allison Engine that materiality is a requirement under sections 3729(a)(2) and (a)(3). The Court held that these sections require proof that the defendant intended that the false record or statement be material to the Government's decision to pay or approve the false claim. Prior to the Allison Engine decision, a number of lower courts had held that the FCA contained a separate materiality requirement. The majority of these courts held that the materiality requirement necessitates proof only that the defendant's false statement could have influenced the government's payment decision, not that it actually did so.⁷ Materiality has been defined as "whether the false statement has a natural tendency to influence agency action or is capable of influencing agency action."⁸ The Allison Engine decision did not address the standard for proving materiality.

The gravamen of the Act is the submission, not the payment, of a false claim. Yet, some courts have asserted that there is an additional element that the United States must have suffered some damage as a result of the false or fraudulent claim.⁹ However, there is no requirement that the government have suffered damages as a result of the fraud.¹⁰ The government may only bring actions under the Act for losses they have suffered, not those suffered by beneficiaries, private insurance companies, or the state portion of losses to the M edicaid program.

The statute of limitations under the Act is six years from when the claim was submitted, or three years from the date the fraud was discovered by a responsible government official, but in no event may the action be brought after ten years from when the claim was submitted.¹¹

Persons liable under the Act include individuals, corporations acting through agents within the scope of their employ, and partnerships. Under the Act, courts have held that the knowledge of an employee is imputed to the corporation.¹²

The Act includes claims which are not directly presented to the government, in that it makes one liable for causing a false claim to be submitted. For example, a subcontractor who submits a bill to its prime contractor who directly bills the government is liable if the subcontractor knows that the claim will be paid in whole or in part by the government.

An action under the Act can be brought in one of two ways- by the Attorney General of the United States or by a private person. The Attorney General has a duty under the Act to investigate all alleged violations of the Act. Title 31, section 3730(a) of the United States Code provides that:

[t]he Attorney General diligently shall investigate a violation under § 3729 of this title. If the Attorney General finds that a person violated or is violating section 3729, the Attorney General may bring a civil action under this section against that person.

An action brought by a private person is known as a qui tam lawsuit.

2. Qui Tam Provisions of the False Claims Act

"A qui tam relator is essentially a self appointed private attorney general, and his recovery is analogous to a lawyer's contingent fee."¹³ As a means to encourage private citizens to come forward with knowledge of frauds against the government Congress decided to give financial incentives to these individuals. Thus, the qui tam provisions of the Act offer a unique opportunity for ordinary citizens to work with law enforcement to help combat fraud against the government.

Under the Act, a private person, known as a "relator," may bring a civil action for a violation of section 3729 on behalf of the person and the government, and in the name of the government (ex rel).¹⁴ Statutes authorizing qui tam suits are older than the Republic.¹⁵ When a qui tam lawsuit is brought, the government may choose to intervene and pursue the action with the relator or to allow the relator to proceed without its intervention.

The relator's complaint is filed under seal with the court, and the government has 60 days from this date to determine whether it will intervene. Extensions of this time period to investigate may be obtained when "good cause" is shown.¹⁶ In a complex investigation, a defendant may be investigated for several years with the qui tam case under seal and not be aware that the suit is pending. Because many relators are employees of the defendant, they often have access to confidential records and information during this time period.

The relator is required to serve the government with a statement of "substantially all material evidence and information" regarding the allegations.¹⁷ The material disclosure statement is not filed with the court and is used by the government to assist it in its investigation of the relator's allegations.

The government has numerous methods available to it to investigate qui tam cases. Pursuant to title 31, section 3733 of the United States Code, the government may issue a Civil Investigative Demand (CID) to assist in its pre-intervention investigation. The CID permits the Attorney General to demand the production of documents for inspection and copying, answers to written interrogatories regarding the documents, and oral testimony from any individual suspected of having information relevant to an investigation under the Act. The government may also use search warrants, grand jury subpoenas, inspector general subpoenas, and/or HIPAA subpoenas to investigate alleged violations under the Act.

Once a claim under the Act has been filed, "no person other than the Government may intervene or bring a related action based on the facts underlying the pending action."¹⁸ The relator must be the original source of the information in the complaint and the information must not have been previously publicly disclosed.¹⁹

If the government declines to intervene after its initial investigation, it may seek to intervene at any time if facts later come to light causing it to reconsider its declination.²⁰ The government remains the real party in interest regardless of whether it intervenes in the qui tam lawsuit. "The relator has no personal stake in the damages sought-all of which by definition, were suffered by the government. The government, and not the...