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Qui Tam Actions - Whistleblowers

Dec 23, 2022

False claims submitted to the United States

The Federal False Claims Act (FCA), 31 U.S.C. §§ 3729 – 3733, is a federal statute that was originally ratified towards the end of the American Civil War in an attempt to curb defense contractor fraud that took place throughout the conflict. The FCA has been amended several times throughout its existence, but the essence of the act has stayed the same throughout – to ensure that fraud does not go without penalty. To understand the FCA and what it does, we must first understand its target.

 

The General Purpose of the Act

 

The qui tam provision of the False Claims Act is the primary statutory authority under which qui tam lawsuits are brought. The FCA imposes liability on anyone who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” to the federal government. This Act requires an individual or entity that violates this provision to possess an intentional knowledge of the falsity of the claim, otherwise known as the “mens rea” to submit the fraudulent claim.

 

Under the False Claims Act, qui tam (which translates as "in the name of the king") allows persons and entities with evidence of fraud against federal programs or contracts to sue the wrongdoer on behalf of the United States Government. Similar to sheriffs in the wild west deputizing citizens, the qui tam provision allowed private citizens to intervene with observed or suspected corruption within their workplace.

 

Over the years, government agencies have developed substantially and are much more efficient in launching these probes themselves, causing qui tam statutes to be less frequent, but they still played their role. In 1987, during the height of the Cold War, the government brought 341 False Claim Act actions, with only 30 being qui tam suits filed by realtors.


In 2009, Congress broadened the False Claims Act by passing the Fraud Enforcement and Recovery Act (FERA) amendments, leading to a resurgence in qui tam filings, with roughly 600-800 new qui tam cases coming forward annually. 


Persons who bring forward these actions, often called “whistleblowers” by the general population, are known as “relators” by the legal community. A whistleblower is an individual, usually an employee of a company/government agency, that discloses information to either the public or a higher authority about any wrongdoing within the organization, be it corruption, false claims, etc. These individuals can be either internal to the organization or external - usually consisting of media, higher government officials, or the police.

 

To summarize, the FCA allows whistleblowers to take action and report fraud to help the government recover funds, and in return, the law sets rewards and protections for whistleblowers as an incentive. In a qui tam action, a relator brings an action against a person or company on the government's behalf if the elements required for such an action exist.

 

The Elements Necessary for a Relator to File a Qui Tam Action

 

For a qui tam action to be initiated, the relator must file the complaint in the United States District Court. This complaint must be filed in camera and must remain under seal for at least 60 days. During these 60 days, all information that is found within the complaint must be kept confidential from all other parties, even the defendant. The relator must also serve a copy of the complaint, as well as a written disclosure statement that details all pertinent information that the relator has, upon the United States Government.

 

           Once this is completed, the United States is granted a mandatory 60-day period to investigate the allegations of the relator and determine whether to intervene in the lawsuit and bear the obligation of the litigation. The 60-day period is not a set determinant, as it can be extended upon a showing of "good cause," which tends to be granted more copiously.

 

 The Option of the Government to Intervene

 

After this investigatory period takes place, the government has three options that it may decide to take. It may (1) intervene in the case, (2) decline to intervene, or (3) move to dismiss the case.

 

(1)  Intervene in the case

If the government decides to intervene in the case in question, it assumes primary responsibility for the litigation of the suit, with the relator remaining a party to the action. The United States retains the option to restrict the relator’s role upon a showing of undue delay or another similar manner. This means that the relator may perform certain functions within a trial, but the United States maintains the right to restrict the scope or length of whatever function it grants to the relator. When the government intervenes in a qui tam action, the relator is typically entitled to between 15-25% of the proceeds recovered via the action, as well as reasonable expenditures garnered and attorney’s fees.

 

(2)  Decline to intervene

The government also may decline to intervene in the action, leaving the relator with the heavy lifting of the suit. If the government declines to intervene, the relator retains the right to conduct the action on their own, where they will have the primary responsibility for the litigation. Despite the relator carrying the primary responsibility, the United States still retains a substantial amount of leverage to influence the suit.

 

Although not a formal party to the suit, the United States still has the authority to require both parties to provide copies of all pleadings that were filed in the present action upon its request, as well as copies of all depositions transcripts. Despite the United States initially declining to join the suit, the court may, “without limiting the status and rights of the person initiating the action,” allow the United States to intervene in a qui tam action upon a showing of “good cause.” Lastly, some courts have permitted the United States to veto a proposed settlement despite electing to not intervene in the case initially.

 

(3)  Move to dismiss the case

Finally, the government has the option to move to dismiss the qui tam lawsuit. The FCA provides that the government maintains the option to dismiss a qui tam claim despite the objections of the relator so long as the relator has been informed by the government of the filing of the motion to dismiss and the court has afforded the relator with an opportunity for a hearing on the motion. The FCA is silent on the nature of the hearing required, the government’s burden in seeking a dismissal (if any burden even exists), and what a court must consider in evaluating the motion in question. There is much perplexity within the legal system about which standard applies, often with different Circuit Courts providing different standards.

 

“Valid Government Purpose” Standard. The Ninth and Tenth Circuits apply a stringent standard, sometimes referred to as the Sequoia Orange standard. This standard employs a multi-step analysis. The first step would have the government identify a “valid government purpose” for the dismissal. After this, the government would need to establish that there is a “rational relation” between dismissal and achievement of the identified purpose. If the government can meet this burden, then the burden shifts to the relator, who would need to demonstrate that the “dismissal is fraudulent, arbitrary and capricious, or illegal.”

 

“Unfettered Right to Dismiss” Standard. The DC Circuit Court has held that under § 3730(c)(2)(A), the government has an “unfettered right to dismiss an action.” Under this standard, the relator is afforded the hearing only to provide a formal attempt to convince the government to not end the case. While this standard is much more lenient in favor of the government, the DC Circuit did leave the possibility to deny a government motion to dismiss at their discretion upon a showing of “fraud on the court.”

 

Federal Rules of Civil Procedure Standard. The Third and Seventh Circuits offer another position – this one rooted in the Federal Rules of Civil Procedure (FRCP) 41. The courts have held that where the government seeks dismissal before the defendant has answered the complaint, the relator is allowed a prospect for a hearing, and a judicial inquiry is not required. FRCP 41(a)(1). When the government decides to seek dismissal after the defendant has responded, the hearing could “serve to air what terms of dismissal are ‘proper.’” FRCP 41(a)(2).

 

Potential awards to the Relator

 

A defendant that is found liable under the False Claims Act will be liable under § 3729 to pay treble damages, a statutorily enacted penalty ranging from $5,000 to $10,000, the government’s litigation costs, and the relator’s expenses, costs, and attorneys’ fees. The court may reduce its damages award if the defendant makes a prompt disclosure and provided full cooperation, but it cannot lower damages to less than double the damages incurred.

 

     § 3730(h) holds a defendant liable for retaliation towards a relator and requires the defendant to pay the whistleblower's attorney's fees, the costs of litigation, and double the amount of “back pay, interest on back pay, and compensation for special damages sustained as a consequence” of the retaliation.

 

           When the False Claims Acts action triumphs, relators are eligible to a share in the takings of up to 30%. If the government did not participate in the litigation, then the relators are entitled to a finder’s fee that ranges from 15%-25%, which can be reduced to no more than 10% when their claim was based on what is primarily public information. In some scenarios, the relator can be entitled to attorney’s fees, expenses, and costs of litigation, but may be denied any award if they were a participant in the underlying fraud.

 

           If the defendant succeeds in a False Claims Act action, the court may award the defendant their attorneys' fees and expenses if it concludes that the action was brought in a frivolous manner or for harassment. The appropriate test for determining whether attorneys’ fees and expenses should be awarded is similar to most federal fee-shifting analyses. Courts tend to only award defendant attorneys' fees and expenses in situations where the allegations are meritless, without foundation, or when there was no factual support or reasonable chance that could leave room for success.

 

     Overall, qui tam actions provide a means to penalize entities that violate the Federal False Claims Act, incentivize individuals with knowledge of corrupt behavior to come forward, and provide a means for the government to dispel inefficiencies in its financial system and free up the availability of funds for areas where finances are more pressing.

 

An Example of Qui Tam in the Courts

 

One example of a qui tam action would Little v. Shell Expl. & Prod. Co., 690 F.3d 282 (5th Cir. 2012), which demonstrates the broad range of individuals that can bring suit underneath the qui tam umbrella. In this Fifth Circuit case, we see two relators file two qui tam suits against Shell in the Western District of Oklahoma (later to be transferred to the Southern District of Texas, finding its way into the scope of the Firth Circuit). Id. at *284. The two relators alleged that Shell had defrauded the U.S. Department of the Interior on the upside of $19 million. Id. They claimed that from 2001 to 2005, Shell intentionally divested the United States of royalties by taking unsanctioned deductions for expenditures to gather and stockpile oil on twelve of its offshore drilling platforms. Id.

 

At the time of the filing, the relators were both high-ranking officials in the Minerals Management Services (MMS). Id. The allegations against Shell came to light during the course of the official duties of the two relators, with this information being relayed to the MMS before the filing of the two qui tam actions. Id. It is undisputed that neither MMS nor any other federal agency ever pursued action against Shell with this information. Id.

 

Several years later, the two relators filed suit in the Oklahoma District Court, but the court ordered the case be transferred from Oklahoma to the Southern District of Texas, where the parties’ were consolidated. Id. at *285. The district court granted summary judgment to Shell, to which the relators appealed. Id. In this action, the United States urged, via an amicus curiae brief, that the court construe the False Claims Act to bar suits by government employees who discover transgressions under the scope of their official duties. Id.

 

In this action, the Fifth Circuit looked to existing case law to determine that a qui tam relator is suing as a partial assignee of the United States Government for damages. Id. The government attempted to argue that the employee-relators might not be able to retain litigation awards, as the only case law that existed at the time made no indication of federal employees being able to keep rewards from qui tam suits. Id. The Fifth Circuit rejected this contention, holding that the inquiry focuses on whether the injury in question can be redressed through litigation rather than on what the plaintiff may ultimately recover. Id. at *286.

 

The court notes that a “person” may bring suit, which seems to suggest that any person may bring a qui tam action regardless of their position. Id. The court explains that whenever a provision is definite and the statutory scheme is articulate and constant, there is no need for further examination as to the meaning of the statute. Id.

 

The Fifth Circuit then examines the context of the whole statute, which in this case, would be the five major parts of § 3730. Id. at *287. The court points to the presence of particular limiting provisions as informative in nature. Id. When Congress provides explicit exceptions in a statute, it does not trail that the courts can create others not specifically stated. Id. Taking everything into account, the Fifth Circuit held that "private persons" include filers of suits who are not the Attorney General, meaning that the “private persons” provision is interpreted on a broad standard. Id. at *289.

 

Little v. Shell Expl. & Prod. Co. demonstrates that the qui tam action can be sought by an expansive classification of persons, not just individuals that would constitute a "whistleblower." Private persons are entitled to undertake a qui tam action, so long as they have access to the necessary information and the requisite elements for a claim are present. So long as the individual bringing the action files suit and the government intervenes, the qui tam action should make its way through the court system with ease. 


Written by Raynold Kinslow


www.craigpanterlaw.com


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