False Claim Legislation

The False Claims Act

The False Claims Act (FCA), 31 U.S.C. §§ 3729 – 3733 was enacted in 1863 by a Congress
concerned that suppliers of goods to the Union Army during the Civil War were defrauding the
Army. The False Claims Act provided that any person who knowingly submitted false claims to the government was liable for double the government’s damages plus a penalty of $2,000 for each false claim. Since then, the False Claims Act has been amended several times. In 1986, there were significant changes to the False Claims Act, including increasing damages from double damages to treble damages and raising the penalties from $2,000 to a range of $5,000 to $10,000. The False Claims Act has been amended three times since 1986. Over the life of the statute it has been interpreted on hundreds of occasions by federal courts (which sometimes issue conflicting interpretations of the statute).

Note: there is a full entry in this Encyclopedia about the Federal False Claims Act here.

Liability

The statute begins, in § 3729(a), by explaining the conduct that creates False Claims Act liability. In very general terms, §§ 3729(a)(1)(A) and (B) set forth False Claims Act liability for any person who knowingly submits a false claim to the government or causes another to submit a false claim to the government or knowingly makes a false record or statement to get a false claim paid by the government. Section 3729(a)(1)(G) is known as the reverse false claims section; it provides liability where one acts improperly – not to get money from the government, but to avoid having to pay money to the government. Section 3729(a)(1)(C) creates liability for those who conspire to violate the False Claims Act. Sections 3729(a)(1)(D), (E), and (F) are rarely invoked.

Damages and penalties

After listing the seven types of conduct that result in FCA liability, the statute provides that one
who is liable must pay a civil penalty of between $5,000 and $10,000 for each false claim (those
amounts are adjusted from time to time; the current amounts are $5,500 to $11,000) and treble
the amount of the government’s damages. Where a person who has violated the False Claims Act reports the violation to the government under certain conditions, the False Claims Act provides that the person shall beliable for not less than double damages.

The knowledge requirement

A person does not violate the False Claims Act by submitting a false claim to the government; to
violate the False Claims Act a person must have submitted, or caused the submission of, the false claim (or made a false statement or record) with knowledge of the falsity. In § 3729(b)(1), knowledge of false information is defined as being

• actual knowledge,
• deliberate ignorance of the truth or falsity of the information, or
• reckless disregard of the truth or falsity of the information.

Definition of a claim

The False Claims Act also defines what a claim is and says that it is a demand for money or property made directly to the Federal Government or to a contractor, grantee, or other recipient if the money is to spent on the government’s behalf and if the Federal Government provides any of the money demanded or if the Federal Government will reimburse the contractor or grantee.

Tax claims exclusion

In § 3729(d), the False Claims Act states that the statute does not apply to tax claims under the Internal Revenue Code.

The qui tam provisions

The FCA allows private persons to file suit for violations of the FCA on behalf of the
government. A suit filed by an individual on behalf of the government is known as a “qui tam”
action, and the person bringing the action is referred to as a “relator.”

Filing a qui tam complaint

The qui tam provisions begin at § 3730(b) of the False Claims Act; § 3730(b)(1) states that a person may file a qui tam action. Section 3730(b)(2) provides that a qui tam complaint must be filed with the court under seal. The complaint and a written disclosure of all the relevant information known to the relator must be served on the U.S. Attorney for the judicial district where the qui tam was filed and on the Attorney General of the United States.

Government investigation

The qui tam complaint is initially sealed for 60 days. The government is required to investigate
the allegations in the complaint; if the government cannot complete its investigation in 60 days,
it can seek extensions of the seal period while it continues its investigation. The government
must then notify the court that it is proceeding with the action (generally referred to as
“intervening” in the action) or declining to take over the action, in which case the relator can
proceed with the action.

Rights of the parties in a qui tam action

If the government intervenes in the qui tam action it has the primary responsibility for
prosecuting the action. § 3730(c)(1). It can dismiss the action, even over the objection of the
relator, so long as the court gives the relator an opportunity for a hearing (§ 3730(c)(2)(A)) and it
can settle the action even if the relator objects so long as the relator is given a hearing and the
court determines that the settlement is fair. § 3730(c)(2)(B). If a relator seeks to settle or dismiss
a qui tam action, it must obtain the consent of the government. § 3730(b)(1). When the case is
proceeding, the government (§ 3730(c)(2)(C)) and the defendant (§ 3730(c)(2)(D)) can ask the
court to limit the relator’s participation in the litigation.

Award to the relator

If the government intervenes in the qui tam action, the relator is entitled to receive between 15
and 25 percent of the amount recovered by the government through the qui tam action. If the
government declines to intervene in the action, the relator’s share is increased to 25 to 30
percent. Under certain circumstances, the relator’s share may be reduced to no more than ten
percent. If the relator planned and initiated the fraud, the court may reduce the award without
limitation.

The relator’s share is paid to the relator by the government out of the payment received by the government from the defendant. If a qui tam action is successful, the relator also is entitled to legal fees and other expenses of the action by the defendant. All of these provisions are in § 3730(d) of the False Claims Act.

The False Claims Act also provides that if the government chooses to obtain a recovery from the defendant in certain types of proceedings other than the relator’s FCA suit, this is known as an alternate remedy and the relator is entitled to the same share of the recovery as if the recovery was obtained through the relator’s False Claims Act suit. §3730(c)(5).

Statutory bars to qui tam actions

The False Claims Act provides several circumstances in which a relator cannot file or pursue a qui tam
action:

• The relator was convicted of criminal conduct arising from his or her role in the
  FCA violation. § 3730(d)(3).
• Another qui tam concerning the same conduct already has been filed (this is known as the “first to file bar”). §3730(b)(5).
• The government already is a party to a civil or administrative money proceeding concerning the same conduct. §3730(e)(3).
• The qui tam action is based upon information that has been disclosed to the public through any of several means: criminal, civil, or administrative hearings in which the government is a party, government hearings, audits, reports, or investigations, or through the news media (this is known as the “public disclosure bar.”) §3730(e)(4)(A). There is an exception to the public disclosure bar where the relator was the original source of the information.

False Claims—18 U.S.C. § 152(4)

Subsection (4) of Section 152 sets out the offense of filing a false bankruptcy claim. A “claim” is a document filed in a bankruptcy proceeding by a creditor of the debtor. It is sometimes also called a “proof of claim.” For the purposes of this section the nature of the claim is immaterial– i.e., the claim can be secured or unsecured, liquidated or unliquidated, disputed or undisputed. A “false” claim is one that is known by the creditor to be factually untrue at the time the claim is filed.

Subsection (4) provides:

“A person who…knowingly and fraudulently presents any false claim for proof against the estate of a debtor, or uses any such claim in any case under title 11, in a personal capacity or as or through an agent, proxy, or attorney;…shall be fined…, imprisoned…, or both.”

The elements of a false claim violation are:

• that bankruptcy proceedings had been commenced;
• that defendant presented or caused to be presented a proof of claim in the bankruptcy;
• that the proof of claim was false as to a material matter; and
• that the defendant knew the proof of claim was false and acted knowingly and fraudulently.

United States v. Overmyer, 867 F.2d 937, 949 (6th Cir.), cert. denied, 493 U.S. 813 (1989).

A claim can be asserted by a creditor whether or not it is reduced to judgment, whether the claim is liquidated, unliquidated, fixed, contingent, mature, unmatured, disputed, undisputed, legal, equitable, secured or unsecured. United States v. Connery, 867 F.2d 929, 934 (reh’g denied)(6th Cir. 1989), appeal after remand 911 F.2d 734 (1990).

Since the falsity of a claim, in most cases, is obvious, the key issue frequently becomes what was the defendant’s state of mind at the time of the filing of the claim. Good faith is a complete defense to this charge. The filing of a false claim is not a crime where there was a good faith belief in its accuracy. United States v. Connery, 867 F.2d 929, 934 (reh’g denied)(6th Cir. 1989), appeal after remand 911 F.2d 734 (1990).

“A proof of claim is not false merely because it may be inaccurate or erroneous in any or all respects. The claim may be asserted by a creditor in good faith even though the moneys being sought are thereafter successfully disputed by the debtor or disallowed by the Bankruptcy Court. Instead, a proof of claim is false if the statements contained therein are intentionally inaccurate and submitted without any good faith basis for the claim and are not the result of some mistake or clerical error or inadvertent omission.”

The false claims act and its impact on medical practices

Vogel RL wrote:

“A lawsuit under the federal False Claims Act can threaten the survival of a medical practice. The Act prohibits a range of misconduct involving the submission of false claims to the government, as well as the knowing and improper retention of overpayments of government funds. Violations of the Act result in liability for treble damages and civil penalties of as much as $11,000 per violation. Although the Act imposes liability only on persons who act “knowingly,” the “knowing” requirement is met if the person acts with deliberate ignorance or reckless disregard of the circumstances. The Act contains a “qui tam provision under which a whistleblower, acting on behalf of the government, may file suit to enforce the Act’s terms, and if the lawsuit is successful, can receive a substantial percentage of the government’s recovery.”

The False Claims Act: Statute of Limitations

This is popular topic. For additional information, please read the entry on statute of limitations in this U.S. legal encyclopedia.

The False Claims Act: Healthcare

This is popular topic. For additional information, please read the entry on statute of limitations in this U.S. legal encyclopedia.

The False Claims Act: Penalties

This is popular topic. For additional information, please read the entry on statute of limitations in this U.S. legal encyclopedia.

The False Claims Act: whistleblower

This is popular topic. For additional information, please read the entry on whistleblower protection in this U.S. legal encyclopedia.

The False Claims Act: Qui Tam

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The False Claims to United States Citizenship

This is popular topic. For additional information, please read the entry on statute of limitations in this U.S. legal encyclopedia. There is also more information on citizenship immigration reform and citizenship waiver, related to false claims, in this legal encyclopedia.