With the help of ordinary citizens and employees, the Department of Justice ("DOJ") is gunning for companies that cheat the government. The DOJ then shares the booty with the individual who brought the fraud to light. The False Claims Act, referred to in the old days as "Lincoln's Law", was enacted in 1863 and continues today as the government's primary litigation tool for recovering losses resulting from fraud. This article describes the steps involved in bringing a whistleblower claim and the hard-earned remedies available to the whistleblower for their help to our government.
What is a false claim?
Generally a False Claim is any fraudulent attempt to gain taxpayer funds. The term "claim" means any request or demand, whether under a contract or otherwise, for money or property that is presented to an officer, employee, or agent of the United States. The types of fraud are as varied and far spanning as a deceitful human mind can imagine. Schemes to defraud the government include pharmaceuticals; Medicare; military equipment; and the commodities sold to assorted government agencies— among many others.
False Claims Act anti-retaliation protection for employees
Employees who blow the whistle on their employers are protected from retaliation under the False Claims Act. To invoke protection, the whistleblower must engage in protected activity. Protected activity equates to the employee, having a reasonable belief of fraud, investigates the fraud, and is discharged for reporting the employer's fraud. Whistleblower employees who are retaliated against may recover make-whole remedies, including double the employee's loss of back-pay, reinstatement, attorney fees and interest.
The reinstatement remedy is often a concern raised by my clients. After all, who would want to go back to work for a company that engaged in fraud and then retaliated against them for reporting it? This would be the antithesis of a good employment relationship founded on trust and honesty. Point well taken, but the employer must be held to the fire and forced to compensate the whistleblower in lieu of reinstatement.
Whistleblower employees are also protected from constructive discharge, which is a situation where the employer creates intolerable working conditions, forcing the employee to quit. For example, even if the employer refrains from telling the whistleblower "you're fired!" management may make the workplace a living hell by imposing impossible tasks, aggressive behavior, harassing statements, and exclusionary tactics. An employee who quits under such intolerable conditions may recover for retaliatory discharge.
The Whistleblower complaint process
A whistleblower may file a formal Complaint in any federal court where the defendant can be found. It is important for the whistleblower's attorney to pick the forum most favorable to the case. The Complaint filing deadline is 6 years from the date that the whistleblower learned of the fraud. In retaliation cases, the whistleblower must file the Complaint within 3 years of the retaliation.
The Complaint must describe the specific facts, including dates and the detailed events of fraud. The Complaint is filed under seal by the clerk of court and served on the DOJ. The whistleblower then serves the DOJ with a Disclosure Statement, which contains substantially all material evidence and information in the possession of the whistleblower. The Disclosure Statement must contain the following categories of information:
� Legal theories (keep separate)
� Copies/location of documents
This information is designed to assist the DOJ's investigation. In addition, a US Attorney may ask to interview the whistleblower and the whistleblower's attorney personally for purposes of clarifying facts and assessing the whistleblower's credibility. This is an opportunity for the whistleblower to explain details of the case to the US Attorney who will later decide whether to recommend spending the government's resources to intervene and take over prosecution of the case. The defendant is not served for at least 60 days while the DOJ investigates the merits of the Complaint.
The DOJ has a 60-day deadline to decide whether to intervene in the whistleblower's case but may seek numerous extensions before intervening. The reason for these extensions is that the DOJ needs time to investigate what are usually complex factual patterns and intricate legal issues. The government remains a party in interest even after declining to intervene. The government intervenes in only 20% of FCA cases.
If the DOJ does intervene, it may limit the whistleblower's involvement in the litigation; pressure the whistleblower to settle the suit; and negotiate the lowest share possible to the whistleblower. The whistleblower's personal attorney will engage in what is often intense negotiation with the US Attorney over these important matters.
What constitutes a knowing intent to defraud?
Under the False Claims Act, the term "knowing intent to defraud" means that a person has actual knowledge of the information; acts in deliberate ignorance of the truth or falsity of the information; or acts in reckless disregard of the truth or falsity of the information. Proof of specific intent to defraud is not required. An example of "recklessly disregarding the truth" would be a manager allowing invoices to go out to the government, knowing there is an overcharge inherent to the billing system, but failing to check the invoices manually for accuracy.
Substantial remedies available to the government and whistleblower
Under the False Claims Act, the government may recover triple the amount of its actual damages, e.g., $10M damages = $30M remedies. (The award may be reduced to double damages if the defrauding party cooperates with the government.) In addition, penalties of $5,500 to $11,000 per violation may be ordered.
DOJ Sharing Guidelines
The following are several items that the DOJ will consider for a possible increase in the percentage shared with the whistleblower:
� The whistleblower reported the fraud promptly.
� When he learned of the fraud, the whistleblower tried to stop the fraud or reported it to a supervisor or the government.
� The suit filing, or the ensuing investigation, caused the offender to halt the fraudulent practices.
� The complaint warned the government of a significant safety issue.
� The complaint exposed a nationwide practice.
� The whistleblower provided extensive, first-hand details of the fraud to the government.
� The government had no knowledge of the fraud.
� The whistleblower provided substantial assistance during the investigation and/or pretrial phases of the case.
� At his deposition and/or trial, the whistleblower was an excellent, credible witness.
� The whistleblower's counsel provided substantial assistance to the government.
� The whistleblower and his counsel supported and cooperated with the government during the entire proceeding.
� The case went to trial.
� The FCA recovery was relatively small.
� The filing of the complaint had a substantial adverse impact on the whistleblower.
The following are several items that the DOJ will consider for a possible decrease in the percentage shared with the whistleblower:
� The whistleblower participated in the fraud.
� The whistleblower substantially delayed in reporting the fraud or filing the complaint.
� The whistleblower, or whistleblower's counsel, violated FCA procedures: (a) complaint served on defendant or not filed under seal; (b) the whistleblower publicized the case while it was under seal; (c) statement of material facts and evidence not provided.
� The whistleblower had little knowledge of the fraud or only suspicions.
� The whistleblower's knowledge was based primarily on public information.
� The whistleblower learned of the fraud in the course of his government employment.
� The government already knew of the fraud.
� The whistleblower, or whistleblower's counsel, did not provide any help after filing the complaint, hampered the government's efforts in developing the case, or unreasonably opposed the government's positions in litigation.
� The case required a substantial effort by the government to develop the facts to win the lawsuit.
� The case settled shortly after the complaint was filed or with little need for discovery.
� The FCA recovery was relatively large.
The average whistleblower award is 16% when intervention occurs and only 20% when there is no intervention. In my view, any citizen or employee who has the hutzpah to stand up against their employer to fight fraud deserves every penny of the whistleblower award. As taxpayers we all pay the price for fraud against the government, so the bounty paid to the whistleblower is an important and well-earned incentive. Through the whistleblower program we recover billions of dollars from dishonest corporations and give it back to its rightful owners— U.S. citizens.