A. Introduction

A. Introduction

1. False Claims Act

The False Claims Act (hereinafter "the Act") is a civil statute designed to provide the United States with a claim against those persons and entities who have defrauded the government. In almost every lawsuit under the Act the greatest issue of contention is damages. When a lawsuit under the Act follows a criminal conviction or a voluntary disclosure, this is particularly true. The Act is designed to have a significant financial impact on the wrongdoer. Yet, the damage and penalty provisions are considered too harsh by some and have been the subject of great debate among scholars, members of Congress, lobbyists, and corporate America.

The Act was originally enacted by Congress to combat fraud committed by defense contractors during the Civil War. The United States has been using the Act ever since this time to recover money lost due to fraud and other misconduct against the United States government and to impose civil penalties for violations of the nation's health, safety, and economic welfare laws.

There are numerous advantages to the government proceeding under the Act. Arguably, it provides better protection of taxpayers' money; there is a lower burden of proof than in criminal actions; it benefits federal program compliance through deterring future wrongdoing; and it fills a void between proceeding criminally and no enforcement action at all.

The Act imposes civil liability upon any person who:

(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;
(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim;
(C) conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G);
(D) has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property;
(E) is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;
(F) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property; or
(G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.²

Thus, in the typical action under the Act, the government is required to prove: (1) that the defendant made a false statement or engaged in fraudulent course of conduct; (2) that such action was taken with the requisite scienter; (3) that the false claim was material; and (4) that the action resulted in a claim to the Government.³

Specific intent to defraud is not a required element of proof under the Act. The element of "knowingly" is defined within the Act as: (1) having actual knowledge of the information; (2) acting in deliberate ignorance of the truth or falsity of the information; or (3) acting in reckless disregard of the truth or falsity of the information.⁴

In the recent case of Universal Health Services, Inc. v. United States ex rel. Escobar, the United States Supreme Court held that a defendant can have "actual knowledge" that a condition is material without the Government expressly calling it a condition of payment.⁵

In Allison Engine Co., Inc. v. United States ex rel. Sanders,⁶ the United States Supreme Court examined the issue of whether sections 3729(a)(2) (now 3729(a)(1) (B)) and (a)(3) (now (a)(1)(C)) of the FCA require that a false claim be presented to a federal official as an element of liability, which was explicitly required under section 3729(a)(1). The Court concluded that they do not.⁷ The 2009 amendment left that element out of section 3729(a)(1)(A), thereby removing it from the statute altogether.⁸

The Supreme Court in Allison Engine also concluded that materiality is a requirement under sections 3729(a)(2) (now (a)(1)(B)) and (a)(3) (now (a)(1)(C)). The Court held that these sections require proof that the defendant intended that the false record or statement be material to the Government's decision to pay or approve the false claim. The 2009 amendment codified this decision, now explicitly requiring that a false record or statement be material to a false or fraudulent claim.⁹Furthermore, the Act now officially defines "material" as "having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property."¹⁰ Prior to the Allison Engine decision, several lower courts had held that the FCA contained a separate materiality requirement. Most of these courts held that the materiality requirement necessitates proof only that the defendant's false statement could have influenced the government's payment decision, not that it actually did so.¹¹

The Supreme Court in Escobar described materiality in this way:

In sum, when evaluating materiality under the False Claims Act, the Government's decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive. Likewise, proof of materiality can include, but is not necessarily limited to, evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement. Conversely, if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. Or, if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.¹²

The Supreme Court further held that it does not adopt "such an extraordinarily expansive view of liability" under the FCA as the Government's assertion that any statutory, regulatory, or contractual violation is material so long as the defendant knows that the Government would be entitled to refuse payment were it aware of the violation.¹³

Furthermore, the Supreme Court held that the theory of implied false certification can be a basis for liability when two conditions are met: "first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant's failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths."¹⁴

The gravamen of the Act is the submission, not the payment, of a false claim.¹⁵ Yet, some courts have asserted that there is an additional element that the United States must have suffered some damage as a result of the false or fraudulent claim.¹⁶ However, there is no express requirement that the government have suffered damages as a result of the fraud.¹⁷ The government may only bring actions under the Act for losses they have suffered, not those suffered by beneficiaries, private insurance companies, or the state portion of losses to the Medicaid program.

The statute of limitations under the Act is six years from when the violation of section 3729 is committed, or three years from the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances (whichever occurs last), but in no event may the action be brought after ten years from when the violation is committed.¹⁸

Persons liable under the Act include individuals, corporations acting through agents within the scope of their employ, and partnerships. Under the Act, courts have held that the knowledge of an employee is imputed to the corporation.¹⁹

The Act includes claims which are not directly presented to the government, in that it makes one liable for causing a false claim to be submitted. For example, a subcontractor who submits a bill to its prime contractor who directly bills the government is liable if the subcontractor knows that the claim will be paid in whole or in part by the government.

An action under the Act can be brought in one of two ways-by the Attorney General of the United States or by a private person. The Attorney General has a duty under the Act to investigate all alleged violations of the Act. Title 31, section 3730(a) of the United States Code provides that:

[t]he Attorney General diligently shall investigate a violation under section 3729. If the Attorney General finds that a person has violated or is violating section 3729, the Attorney General may bring a civil action under this section against the person.

An action brought by a private person is known as a qui tam lawsuit.

2. Qui Tam Provisions of the False Claims Act

"A qui tam relator is essentially a self-appointed private attorney general, and his recovery is analogous to a lawyer's contingent fee."²⁰ To encourage private citizens to come forward with knowledge of frauds against the government, Congress decided to give financial incentives to these individuals. Thus, the qui tam provisions of the Act offer a unique opportunity for ordinary citizens to work with law enforcement to help combat fraud against the government.

Under the Act, a private person, known as a "relator," may bring a civil action for a violation of section 3729 on behalf of the person and the government, and in the name of the government (ex rel.)²¹ Statutes authorizing qui tam suits are older than the Republic.²² When a...