Qui tam and the False Claims Act: criminal punishment in civil disguise: the qui tam provisions of the FCA are a serious threat to American industry, and they are subject to constitutional challenges on several grounds.

• Author: Askanase, Eric S.

SINCE the 1986 revisions to the federal False Claims Act (FCA), 31 U.S.C. [subsections] 3729-3733, the U.S. Department of Justice reports that more than $10 billion ha been awarded in civil verdicts under the act, and the pace is quickening. Just recently, the August 18 National Law Journal reported that Bayer Pharmaceuticals faced the largest ever Medicare fraud settlement when it agreed to pay $257 million stemming from an FCA suit over failure to report properly the pricing of two drugs, thereby depriving Medicare of rebates. No segment of the business world immune. The FCA is fast becoming a Congressional affront to both the U.S. Constitution and the independence of the executive branch. But as a result of recent FCA holdings by the U.S. Supreme Court and federal courts of appeals, the FCA is now more vulnerable than ever to a multi-faceted constitutional attack.

The False Claims Act and its 1986 amendments are intended as tools to curb fraud against the federal government, particularly the type of gross over-billings submitted by military contractors in the 1980s. (1) The act, first enacted during the Civil War in 1863, had the purpose of tacking exactly this sort of privateering against the Union Army. (2)

In 1863, the federal government had few resources to prosecute such fraud; the Attorney General's Office was in its infancy, and the Department of Justice was not yet formed. (3) The FCA was seen as a way to aid in rooting out false claims by encouraging private suits in exchange for a bounty. Through what is called its qui tam provision, the act is geared to encourage private citizens--in the name of the United States--to spend their own money pursuing those who would defraud the government. (4)

Qui tam, from the Latin qui tam pro domino rege, quam pro se ipso in hac parte sequitur, translates as "who as well for the king as for himself sues in this matter." A remedy brought to the American legal system from English common law, qui tam provisions authorize private individuals, who in an FCA qui tam action are called relators, to sue on the sovereign's or government's behalf and retain a portion of any judgment obtained, with the remainder going to the government.

The 1986 amendments to the FCA made many significant changes, especially to the qui tam provision. These changes have placed the FCA on a collision course with the Constitution. Challenges to the FCA have been upheld, overturned, and have re-arisen under the Article III standing requirements of "cases and controversies" and "injury in fact," and of Article II's "take care" and "appointments" clauses, the double jeopardy and due process clauses of the Fifth Amendment, and the excessive fines clause of the Eighth Amendment. But until now, the FCA miraculously has survived multiple blows. (5)

QUI TAM TODAY

Under the 1986 revisions, the mandatory civil penalties for a false claim against the government were raised to between $5,000 and $10,000 per claim, with the result that under Section 3729(a), were a hospital knowingly to over (or under) bill Medicare for 10 tests by $1 per test, that billing difference of $10 could result in civil fines of between $50,000 and $100,000, plus $30 for the trebled damages. Because of the civil monetary penalties inflation adjustment, the current civil FCA penalties are between $5,500 to $11,000, plus three times the amount of damages the government sustained from the fraud. (6) Rewards to a qui tam relator also were substantially increased by Section 3730(d) to between 15 and 20 percent in which the government intervenes and takes over the prosecution, and 25 to 30 percent in actions in which the government does not intervene. Moreover, an earlier restraint on parasitic actions was tempered, allowing relators to bring suits based on public information as long as they were the "original source" of that information, having volunteered that information to the government prior to filing their actions.

Some key changes in the FCA also took place regarding the relationship of the government to a relator. Before 1986, a qui tam relator's role in prosecution ended when the government intervened to take over the case. In order to remove a relator and take over the case, the government needed only to secure the written consent of the Attorney General and the court and their reasons for consenting. No actual grounds for dismissal are mentioned in the old statute.

The 1986 amendments in Section 3730, however, explicitly outline and ascribe rights to relators in a FCA qui tam action. Under the revised FCA, if the government declines to intervene in a qui tam suit brought by a private relator, the government may intervene at a later date only with the court's permission and after a showing of good cause. If the government can show that actions of discovery by the civil qui tam relator would interfere with a governmental investigation of a related criminal or civil matter, however, the government may stay discovery temporarily.

The most significant change in the government-relator status wrought by the 1986 amendments dealt with responsibilities of the relator to the government. In a suit in which the government chooses not to intervene, the relator still is said to bring the action "for the person and the United States government. The action shall be brought in the name of the government." At the government's request and expense, the relator may be required to provide copies of all filings and deposition transcripts. (7)

When the government chooses to intervene, the government-relator relationship is intertwined. While the FCA still provides that the government initially may remove the relator with the written consent and explanation of the court and the Attorney General, the government otherwise has 60 days to decide whether to intervene. If it does intervene, then Section 3730 specifically grants the relator the right to continue as a party to the action, subject to certain limitations.

While the government may dismiss the action over the objections of the relator, who still stands to get a percentage of any recovery, the relator must be notified of the intention to dismiss and given an opportunity for a hearing. The government also may settle the action over the objections of the relator if the court determines, after a hearing, that the settlement is "fair, adequate and reasonable under all the circumstances."

Additionally, during the government's suit, the relator is a full participant, restrained only on a showing by the government that the relator's participation would "interfere with or unduly delay the government's prosecution of the case, or could be repetitious, irrelevant, or for the purposes of harassment." In such instances, the government may limit the number of witnesses a relator may call, the length of testimony of those witnesses, the person's cross-examination of witnesses, or otherwise limit the relator's participation in the litigation. Barring these situations, the only other limitation on the relator in a suit in which the government intervenes is that his participation may not be for purposes of harassment or unduly burdening the defendant with expenses. Under such a showing by the defendant, the court may limit the relator's participation.

The 1986 amendments also liberalized the knowledge required for liability under the act. Gone is the simple pre-revision requirement that a person must "knowingly" submit or participate in a fraudulent claim against the government. In 1986, Section 3729 was amended to give definitional language that "knowingly" meant a person "has actual knowledge of the information," "acts in deliberate ignorance of the truth or falsity of that information" or "acts in reckless disregard of the truth or falsity of the information."

Finally, the FCA's burden of proof element was adjusted downwards to "preponderance of the evidence," making it much simpler for the government or a relator on behalf of the government to win an FCA action. (8) The significance of this change cannot be overstated, as it plays directly into the question of the act's constitutionality and its criminal nature as revised FCA.

CONSTITUTIONAL CHALLENGES

The long history of qui tam actions, their relation to both civil and criminal law and the recent changes in the FCA are important in understanding how courts recently have decided constitutional challenges for and against the act.

In Vermont Agency of Natural Resources v. United States ex rel. Stevens, (9) the U.S. Supreme Court raised sua sponte the issue of relator standing, asking the parties to file supplemental briefs on the question: "Does a private person have standing under Article III [of the U.S. Constitution] to litigate claims of fraud upon the government?" This issue had not been contested by either party to the suit. Surprising is that the Court held that a FCA relator does have standing under the jurisdictional requirements of Article III to sue on behalf of the government.

The question whether the FCA violates Article III standing, while determined in favor of the FCA by every circuit court of appeals that had reviewed it, had not yet been dispositively decided by the Supreme Court. (10) The Stevens decision removed one important argument that seemed to have been gaining support from the courts. (11)

The relator, Jonathan Stevens, sued the Vermont Agency of Natural Resources, his former employer, in an FCA action, alleging it had submitted false claims to the Environmental Protection Agency in connection with various federal grant programs to states. The United States declined to intervene, and the agency moved to dismiss, arguing that a state agency is not a "person" subject to liability under the FCA and that a qui tam action in federal court against a state is barred by the 11th Amendment. The Court first determined that a private relator does have standing to bring a suit under the FCA and then held that, despite Stevens's...