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The False Claims Act

The federal False Claims Act, 31 U.S.C. §§3729-3733, permits a person with knowledge of fraud against the United States Government, referred to as the "qui tam plaintiff," to file a lawsuit on behalf of the Government against the person or business that committed the fraud (the defendant). If the action is successful the qui tam plaintiff is rewarded with a percentage of the recovery.

After the "qui tam lawsuit" has been filed, but before the defendant is notified of the lawsuit, the qui tam plaintiff must notify the U.S Department of Justice, and provide it with all available information about the fraud. The Justice Department then has the option of intervening and taking over prosecution of the lawsuit from the qui tam plaintiff. If the Justice Department decides not to intervene, the qui tam plaintiff may pursue the lawsuit on behalf of the Government.

The Act provides that if the fraud is proven, the defendant in a qui tam action is generally liable for three times the damages sustained by the Government because of the fraud. In addition, the defendant is liable for an additional $5,000 to $10,000 for each false claim it made to the Government.

The qui tam plaintiff's share of the damages recovered depends on whether the Justice Department intervenes and takes over the case. If the Justice Department takes over, the qui tam plaintiff is entitled to between 15% and 25% of the recovery. If the Justice Department does not intervene, and the qui tam plaintiff pursues the action individually, the qui tam plaintiff is entitled to between 25% and 30% of the recovery. In some cases the qui tam plaintiff's share can amount to many millions of dollars.

Why did Congress enact the False Claims Act?

In introducing amendments to the False Claims Act in 1985, Senator Charles Grassley explained the purpose behind the Act:

The government needs help -- lots of help -- to adequately protect the Treasury against growing and increasingly sophisticated fraud ... Part of the solution -- something I consider essential to any meaningful improvements in cutting down fraud -- is the establishment of a solid partnership between public law enforcers and public taxpayers. The Federal government has a big job on its hands as it attempts to ensure the integrity of the nearly $1 trillion we spend each year on various programs and procurement. That job is simply too big if government officials are working alone.

Thus, the False Claims Act is aimed at establishing a law enforcement "partnership" between federal law enforcement officials and private citizens who learn of fraud against the Government.

Who Can be a "Qui Tam" Plaintiff?

If the fraud has not previously been publicly disclosed, any person may bring a qui tam action regardless of whether he or she has "direct" or first-hand knowledge of the fraud. Thus, where there has been no public disclosure, an employee that learns from a colleague of fraud by his or her employer at work may bring a qui tam action, even if the qui tam plaintiff personally has no first-hand knowledge.

If the fraud has already been publicly disclosed, a person may still bring a qui tam action if he or she has direct knowledge of the fraud, independent of the publicly disclosed information. Thus, if an employee personally observes or uncovers fraud by his or her employer, or another person or company, the employee may bring a qui tam action even if the information has already been publicly disclosed.

What constitutes public disclosure? Obviously, information is publicly disclosed if it is printed or broadcast in the news media. However, public disclosure may also occur if the information has been disclosed in another criminal or civil lawsuit or in a Government Accounting Office report or hearing, even if the general public does not have access to the information.

Anyone who has knowledge of fraud against the Government should seek legal advice to determine whether he or she qualifies to bring a qui tam action.

What Types of Fraud Qualify?

We all have some understanding of the nature of fraud. When a person deliberately uses a misrepresentation or other deceitful means to obtain something to which he or she is not otherwise entitled, that person has committed fraud. However, under the False Claims Act, fraud has a much wider and more inclusive meaning.

Under the Act, the defendant need not have actually known that the information it provided to the Government was false. It is sufficient that the defendant supplied the information to the Government either: (i) in "deliberate ignorance" of the truth or falsity of the information; or (ii) in "reckless disregard" of the truth or falsity of the information.

In other words, the Act is not limited solely to those who intentionally misrepresent facts in order to obtain payments or other benefits from the Government; it also covers reckless conduct. Thus, if a defendant should have known that its representations to the Government were not true or accurate, but did not bother to check, such recklessness may constitute a violation of the Act. Likewise, if a defendant deliberately ignores information which may reveal the falsity of the information submitted to the Government, such "deliberate ignorance" may constitute a violation of the Act.

The legal term for fraudulent conduct which is reckless, as opposed to intentional, is "constructive fraud." The False Claims Act makes no distinction between intentional fraud and constructive fraud in any respect; both are illegal. Thus, whether the fraud is intentional or constructive, the same penalties may be assessed against the wrongdoer and the same reward is payable to the qui tam plaintiff.

The Act also permits recovery from those who "cause" misrepresentations to be made to the federal Government by others. In other words, a person may violate the law even if he or she does not actually submit the false information to the Government, but instead creates or provides false information that is then submitted to the Government by another.


The following example of this type of fraud is taken from an actual case.

The Government contracted with an Indiana company, Model Engineering, to purchase radio kit sets for the U.S. Army. Model Engineering subcontracted with a New Jersey company, United Labs, to supply it with electron tubes which were required as components of the radio kits. United States v. Bornstein (1976) 423 U.S. 303.

The Government contract with Model Engineering called for the electron tubes to be of a certain specification. However, United Labs supplied electron tubes of inferior quality, and affixed false markings to them. United Labs also certified that the tubes conformed with the required specifications. As a result, Model Engineering unknowingly supplied the Government with radio kits which contained electron tubes that failed to meet the Government specifications.

A federal court in New Jersey found that United Labs violated the False Claims Act by causing Model Engineering to submit false claims to the Government. The court specifically stated:

It is immaterial that [United Labs] did not deal directly with the Government. That they were one step removed from direct contact with the [Government] does not vitiate or diminish their liability.

The False Claims Act has been used to successfully recover for fraud against the Government in many areas, including defense procurement fraud, Medicare/Medicaid fraud and fraud against HUD by builders of federally subsidized housing. In fact, claims may arise in virtually every area in which federal Government money is spent, such as education, welfare, social security and purchases by any federal government department or agency.

What Protection is There for a Qui Tam Plaintiff Who Brings an Action Against His or Her Employer?

The False Claims Act provides protection to employees who are retaliated against by an employer because of the employee's participation in a qui tam action. The protection is available to any employee who is fired, demoted, threatened, harassed or otherwise discriminated against by his or her employer because the employee investigates, files or participates in a qui tam action.

This "whistleblower" protection includes reinstatement and damages of double the amount of lost wages if the employee is fired, and any other damages sustained if the employee is otherwise discriminated against.

How Can a Qui Tam Plaintiff Afford a Lawyer?

If the qui tam plaintiff has the financial resources, he or she can simply hire a lawyer and pay that lawyer's hourly fees for all the time the lawyer spends on the case. However, an experienced lawyer may charge anywhere between $150 and $400 per hour. Thus, the cost of pursuing a qui tam action can quickly amount to tens of thousands of dollars. Moreover, the cost will be greater if the Justice Department does not intervene and the qui tam plaintiff must pursue the case to completion, especially if the defendant hires a large law firm to defend the action.

Consequently, the qui tam plaintiff may want to hire a law firm that will take the case in return for a "contingency fee." Under this arrangement, the law firm will not charge the qui tam plaintiff any legal fees unless the qui tam plaintiff recovers damages from the defendant, whether through settlement or a verdict. If the qui tam plaintiff does recover, the law firm will take a percentage of the qui tam plaintiff's share of the recovery as its legal fees.


The False Claims Act provides for an individual who has knowledge of a fraud against the United States to file a lawsuit on behalf of the Government as a Qui Tam Plaintiff.

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