This article is the first in a series of four primers on the key legal regimes incentivizing and protecting whistleblowers who report fraud: the False Claims Act (FCA) and the Securities Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and Internal Revenue Service (IRS) whistleblower programs. Both the FCA and IRS whistleblower program have been in place since the mid-1800s, but have recently experienced a resurgence after undergoing significant amendments. The SEC and CFTC whistleblower programs, on the other hand, were created only in 2010 through the Dodd-Frank Wall Street Reform and Consumer Protection Act.
On balance, the FCA and three core whistleblower programs provide avenues through which individuals can report fraud occurring across a wide swath of industries. The number of whistleblower-initiated cases filed under the FCA and tips submitted to the whistleblower programs have reached unprecedented heights in recent years, as the public becomes more aware of the rewards and protections provided by the law. It has therefore become imperative for attorneys, potential whistleblowers and potential defendants to become familiar with the applicable laws, their backgrounds, causes of action, available damages and protections against retaliation. This four-part series combines perspectives from whistleblower and defense counsel to provide measured insight into each of the four main whistleblower regimes. In this first part, we discuss the FCA.
Background and Legislative History
The False Claims Act (FCA) is among the most potent weapons for fighting fraud and government waste. Enacted in 1863, the original purpose behind the FCA was for the Government to obtain redress for procurement fraud being committed on the Union Army during the Civil War, see speech, Deputy Associate Attorney General Stephen Cox Delivers Remarks at the 2019 Advanced Forum on False Claims and Qui Tam Enforcement (Jan. 28. 2019). At that time, the FCA was used to seek recoveries from contractors who committed blatant fraud upon the government, such as selling it sawdust (rather than gunpowder) or rotting ships (deceptively coated with fresh paint). Congress amended the FCA in 1986 to increase the incentives for whistleblowers to file lawsuits and the statute has been extended to various other industries.
In fiscal year 2018 alone, the Department of Justice (DOJ) used the FCA to recover more than $2.8 billion, bringing total FCA recoveries since the 1986 amendments to more than $59 billion. Recently the FCA has been the tool of choice for attacking fraud in the health care sector. Of the nearly $3 billion recovered in fiscal year 2018, $2.5 billion involved health care defendants-such as drug and medical device manufacturers, managed care providers, hospitals, pharmacies, hospice organizations, laboratories and physicians. To be sure, however, the government also made significant FCA recoveries in other sectors, including military equipment manufacturing and finance. Notable recoveries included a $645 million settlement with a pharmaceutical manufacturer for improperly repackaging and distributing cancer drugs and a $149.5 million settlement with an independent outside auditor for an originator engaged in a long-running mortgage fraud scheme involving loans insured by the Federal Housing Authority.
It goes without saying that the types of fraud committed today are far more difficult to detect then they were when the FCA was first enacted. As a result, FCA cases have become increasingly dependent on whistleblowers. Indeed, roughly 75 percent of the $2.8 billion in FCA recoveries came by way of lawsuits filed by whistleblowers. And, in just fiscal year 2018 alone, whistleblowers filed 645 new FCA cases.
Establishing False Claims and Obtaining Whistleblower Awards
Any person or company who knowingly presents a false or fraudulent claim for payment or approval to the government, causes another to do so, or makes a false record or statement to get such a claim paid may be subject to civil liability under the FCA. Conversely, under the reverse false claims section of the FCA, corporations or individuals may also be held civilly liable for knowingly avoiding obligations to remit payments due and owing the government.
Private citizens may bring FCA actions “in the name of the government.” Whistleblowers who bring such claims are called “relators” and those suits are known as qui tam actions. The government may intervene to take over relators’ qui tam action, but relators “shall have the right to conduct the action” if not.
If successful, damages for FCA violations include civil penalties of between $11,463 and $22,927 (adjusted yearly for inflation) for each false claim plus three times the amount of the government’s damages. A relator in a successful qui tam action is entitled to share in any recovery by the government. If the government intervenes in a matter and successfully prosecutes or settles the case, relators are entitled to between 15 percent and 25 percent of the government’s recovery. And if the government declines to intervene and a relator successfully prosecutes the case on their own, the relator is entitled to between 25 and 30 percent of any sums they obtain on the government’s behalf. Regardless of whether the government chooses to intervene, if successful, the FCA mandates that defendants also pay relators’ reasonable legal fees, expenses and costs incurred in connection with the action.
Protections Against Retaliation
The FCA strictly prohibits retaliation against whistleblowers due to their pursuit of FCA claims. Section 3730(h) specifically provides a cause of action for any employee, contractor or agent who is terminated or suffers an otherwise adverse action because of lawful acts performed on behalf of themselves or others in furtherance of an FCA action, including investigation for, initiation of, provision of testimony in, or assistance in an actual or potential action. If successful on such a claim, that individual may obtain all relief necessary to make them whole, including reinstatement with the same seniority status; two times the amount of back pay; interest on the back pay; and compensation for any special damages sustained as a result of the discrimination such as litigation costs and reasonable attorney fees.
In light of the prevalence of government funds in today’s economy, the reach of the FCA is unparalleled as compared to its counterparts. It should come as no surprise then that the FCA is also among the most rapidly evolving areas of law, with a bevy of “circuit” and intra-circuit splits on a range of legal issues. Suffice to say, the FCA leaves a lot of room for lawyering, and it is imperative that FCA lawyers and their clients keep up to speed as the law continues to develop.
Zac Arbitman is a senior associate and trial attorney at Youman & Caputo, where he represents whistleblowers in claims brought under state and federal False Claims Acts, various state whistleblower statutes, and the IRS, SEC and CFTC whistleblower programs. He also dedicates a significant portion of his practice to representing catastrophic injury victims in cases involving medical malpractice, motor vehicle accidents, workplace injuries, premises liability and products liability. He can be reached at email@example.com