South Carolina BAR Journal
SC Lawyer, January 2011, #1.
What Your Construction Clients Should Know About The Recent Amendments to the False Claims Act
South Carolina LawyerJanuary 2011What Your Construction Clients Should Know About The Recent Amendments to the False Claims ActHenry P. Wall and Matthew H. Stabler practice with the firm of Bruner, Powell, Wall and Mullins, LLC in Columbia and devote much of their practice to construction litigation and public contract law.The Civil False Claims Act (FCA) is a dangerous and punitive law which affects all companies engaged in public construction funded in whole or part by the U.S. government. The Act contains what are commonly referred to as the "Qui Tam" provisions, which allow private individuals to bring suit on behalf of the United States as private attorney generals. See 31 U.S.C. §§ 3729-33 (2006). The statute originated to prevent recurring and chronic public fraud during the Lincoln Administration. The law allows the whistleblower to share in the recovery of the government's damages as a de facto bounty hunter. The plaintiff whistleblower is called a "Relator," and, if successful, he is entitled to a statutory share of any settlement or recovery even if the Relator engaged in wrongful activity. The theory of the statue is that "it takes a rogue to catch a rogue."
The statute remained relatively inactive in the U.S. Code for more than a century, rarely invoked until significant amendments in 1986 liberalized the requirements and elements of proof. The amendments effectively eliminated any requirement of specific fraudulent intent, 31 U.S.C. § 3729(b)(1)(B), and expanded liability for "false claims" submitted to the U.S. government, 31 U.S.C. § 3729(a)(1). Under the amendments, just about any written document, if submitted to the government in connection with the performance of a contract may be considered a "claim." 31 U.S.C. § 3729(b)(2). A claim may be "false" if: 1) an individual had actual knowledge of the correct information and failed to disclose it; 2) an individual acted in deliberate ignorance of the truth or falsity of the information submitted to the government, or 3) an individual acted in reckless disregard of the truth or falsity of the information submitted to the government. See 31 U.S.C. § 3729(b)(1)(A). The amendments established a simple preponderance of the evidence burden of proof, 31 U.S.C. § 3731(d), raised the civil penalties, 31 U.S.C. § 3729(a)(1), increased the civil damages to treble the amount of payments made in reliance upon a "false claim," id., and gave legally-protected status to a Relator's share: 15-25 percent with government intervention, 25-30 percent without government intervention, and provided for the recovery of attorney's fees, 31 U.S.C. §§ 3730(d)(1)-(2).
To be a Relator, a person must clear several hurdles. The Relator must be the "original source" of the information. 31 U.S.C. § 3730(e)(4)(A). "Original Source" is a term of art under the statute and developing case law. See 31 U.S.C. § 3730(e)(4)(B). A Relator cannot base his knowledge on information obtained in the public domain, nor can his knowledge depend upon second-hand information in which case he might be considered to be "parasitic;" he must have something called "direct and independent knowledge" of the false claim in order to assert the claim as a Relator. Id.
Once filed, a FCA claim goes through several progressions. First, the Relator must blow the whistle privately to government authorities This is usually done by making written disclosure to the U.S., usually in the form of an affidavit with all supporting information and exhibits.
See 31 U.S.C. § 3730(b)(2). Second, a complaint is filed under seal in Federal District Court. Id. The next stage of the process is critical--the U.S. Attorney and Attorney General investigate and determine whether or not to intervene. Id. The Relator hopes for intervention. After that decision is made, the cat is let out of the bag. The complaint is unsealed and served, and the action may proceed with or without intervention. If the government intervenes, the U.S. Attorney and Department of Justice generally assume primary responsibility for the case. If the government declines to intervene, the Relator and his counsel generally assume primary responsibility...