The premier and original whistleblower law is the federal False Claims Act (FCA), 31 U.S.C. §§ 3729, et seq. Sometimes known as “Lincoln’s Law,” it was enacted during the Civil War to counter widespread fraud by contractors supplying the military. More recently, it has been amended to enhance the Government’s ability to recover money for losses caused to it by fraud. The False Claims Act is the Government’s primary weapon for combatting fraud.
A key feature of the law is the qui tam (or whistleblower) provision under which an individual or entity (known as a “relator”) with knowledge of fraud against the Government may file a lawsuit under seal on behalf of the United States. If the case is successful, the relator can share in the Government’s monetary recovery and recover attorney’s fees and costs from the defendant. Congress hoped that creating these monetary incentives, along with provisions protecting whistleblowers from reprisal or retaliation would encourage whistleblowers to come forward and also would incentivize private lawyers to commit legal resources to representing whistleblowers in prosecuting fraud on the Government’s behalf.
The FCA has been highly successful as a public-private partnership: as of the end of 2018, Government recoveries have exceeded $59 billion following 1986 amendments that strengthened the False Claims Act, with rewards to whistleblowers totaling billions of dollars.
The FCA is written broadly, with the aim of reaching all types of fraud that might result in financial loss to the United States. It identifies seven violations, any of which is a violation of the False Claims Act.
The United States may recover up to three times the damages caused to the Government by the fraud plus a sizeable civil penalty for each violation. While the False Claims Act references a penalty of between $5,000 and $10,000, it is indexed to inflation; by June 2020, False Claims Act penalties ranged from $11,665 to $23,331 per violation.
A requirement of all fraud law (and contracts and torts for that matter), is that the subject of the the fraud be material. The purpose of the materiality requirement is to ensure that the “thing” that someone was defrauded about is important enough to justify legal action. It is the same with the False Claims Act. The materiality requirement ensures that the False Claims Act applies only when the false or fraudulent conduct, was important enough that it would have influenced a government decision.
Since 2009, the False Claims Act has defined the term material as
having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.
31 U.S.C. § 3729(b)(4). In Universal Health Servs., Inc. v. United States ex rel Escobar, the Supreme Court held that that definition applied to all actions under the False Claims Act.
The Supreme Court went on to identify factors that were relevant, but not dispositive to materiality:
In the aftermath of Escobar, defendants have tried to argue that courts should dismiss False Claims Act cases on materiality grounds. For the most part, they argue that lack of evidence that the government refused to pay when it learned of identical fraud is a requirement for whistleblowers and the government. Escobar said no such thing and for the most part, courts have rejected these claims in favor of a holistic approach to determining whether fraud is material.
While the False Claims Act is an anti-fraud law that requires a “knowing” violation, it does not require proof that the fraudster had a specific intent to defraud the Government. Rather, the False Claims Act provides that the terms ‘knowing’ and ‘knowingly’ simply mean that a person:
At the heart of several provisions of the False Claims Act is whether there is a false or fraudulent claim to the Government for payment. The law defines “claim” broadly as “any request or demand, whether under a contract or otherwise, for money or property and whether or not the United States has title to the money or property, that— (i) is presented to an officer, employee, or agent of the United States; or (ii) is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government’s behalf or to advance a Government program or interest, and if the United States Government— (I) provides or has provided any portion of the money or property requested or demanded; or (II) will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.” 31 U.S.C. § 3729(b)(2).
There is also what is known as the “reverse false claim” provision, which is where a person underpays or fails to pay back what they are obligated to pay the Government. The term “obligation” is defined generally in the False Claims Act as “an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.” 31 U.S.C. § 3729(b)(3). In the health care context, the term “obligation” includes overpayments that have been retained for more than 60 days after they were identified as overpayments.
A whistleblower may be barred from bringing or maintaining a qui tam complaint under certain circumstances. The two most important restrictions are known as the “first to file rule” and the “public disclosure bar.”
The whistleblower’s share of the Government’s monetary recovery depends on several factors. The most important is whether the Government intervened in and “took over” the relator’s FCA case or whether the Government declined to intervene and the relator chose to proceed on his or her own to prosecute the case. The general guidelines are as follows.
A losing defendant is required to pay the relator’s reasonable attorneys’ fees and costs. If a relator proceeds with a case after the United States has declined to intervene, and loses, the court may award attorneys’ fees and costs to the defendant if the court finds that the relator’s claim was “clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.”
The False Claims Act protects employees, contractors, or agents who are discharged, demoted, suspended, threatened, harassed, or discriminated against in any other way because of lawful acts taken to stop violations of the FCA. Liability for retaliation is not limited to one’s employer, but may extend to others. Wronged whistleblowers may recover reinstatement with the same seniority status they would have had but for the discrimination, two times the amount of back pay plus interest, and compensation for any special damages sustained such as emotional distress and attorney’s fees and costs. A retaliation case may be brought together with or separately from a FCA qui tam complaint.