Terms and Statutory Basis
Affordable Care Act
The ACA brought with it an expansion of the FCA, targeted at expanding whistleblower options and strengthening the government's ability to assist relators. Enacted on March 23, 2010, the ACA made the following changes to the FCA:
- The Public Disclosure Bar is now no longer jurisdictional.
- The government may now permit a relator's suit to proceed even when it would otherwise be barred by the Public Disclosure Bar.
- Limited triggering of the Public Disclosure Bar to disclosures in federal proceedings where the government or agent is a party, or a federal report, hearing, audit, or investigation where such non-federal governmental proceedings and reports previously could trigger the bar (and left intact triggering of the bar by disclosures in the news media).
- The Original Source Exception to the Public Disclosure Bar is now expanded to include instances where the relator "materially adds to the publicly disclosed allegations," even if the knowledge was not directly obtained by the relator.
The ACA also modified the Anti-Kickback Statute (42 U.S.C. § 1320a-7b) to make it clear that
- a violation of that statute can create FCA liability, and
- wrongful retention of overpayment from Medicare or Medicaid does constitute an "obligation" that may trigger reverse false claim liability.
The Anti-Kickback Statute (AKS) prohibits any person from knowingly and willfully paying remuneration (e.g., a thing of value) to any person with the intent to induce that person to purchase, prescribe, recommend, or refer a person for the furnishing of items or services payable under a Federal health care program. 42 U.S.C. § 1320a-7b(b). Some cases have interpreted this statute to cover any arrangement in which one purpose of the remuneration was to obtain money for the referral of services or to induce further referrals. See, e.g., United States v. Kats, 871 F.2d 105 (9th Cir. 1989); United States v. Gerber, 760 F.2d 68 (3d Cir. 1985), cert. denied, 474 U.S. 988 (1985); United States ex rel. Nevyas v. Allergan, no. 2:09-cv-00432 (E.D. Pa.), n.1, ¶5 (citing Greber, 760 F.2d at 69). The AKS consists of five elements:
- No "remuneration, in cash or in kind"
- May be solicited, offered, accepted or received, directly or indirectly
- Knowingly[iii] and willfully[iv]
- To induce[v] orders or induce a healthcare provider to order or arrange for the order of a pharmaceutical product
- For which payment may be made, in whole or in part, under a Federal health care benefit program (e.g., Medicare or Medicaid)
Conduct that otherwise would violate the AKS does not do so if it falls within a "safe harbor" or statutory exception.
Violations of the AKS may trigger FCA liability; the AKS provides that "a claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of [the FCA]." 42 U.S.C. § 1320a-7b(g). Some courts have relied on this provision to hold that AKS violations are inherently material under the FCA. See, e.g., United States ex rel. Capshaw v. White, 2018 WL 6068806 (N.D. Tex. Nov. 20, 2018). Violation of the AKS can also expose an individual or entity to criminal penalties, civil penalties, or administrative sanctions (e.g., "program exclusion" from Federal health care programs).
[iii] "Knowingly" means that the act was done voluntarily and intelligently and not because of ignorance or misunderstanding.
[iv] "Willful[ly]" means that the act was done voluntarily and intentionally and with the specific intent that the elements of the offense be undertaken, that is with bad purpose either to disobey or disregard the law, and not because of some mistake. A person need not have actual knowledge of the precise federal statute at issue or specific intent to violate that particular law. A person acts willfully if he acts unjustifiably and wrongly while knowing that his actions are unjustifiable and wrong.
[v] "Induce" in this context means to undertake to gain influence over the judgment of the physician making a decision regarding the prescription and order of drugs.
On January 25, 2018, Rachel Brand (Associate Attorney General) issued a memo forbidding enforcement authorities from basing fraud enforcement on mere agency guidance that does not have the force and effect of law. This memo cautions that noncompliance with agency guidance should not be considered presumptive or conclusive evidence establishing a violation of the underlying statute or regulation. Agency guidance may still be used to establish that a defendant was on notice of a preferred interpretation of a statute or regulation, however.
The Brand Memo is a helpful tool for FCA defendants to argue against allegations of materiality based on non-binding agency guidance.
DOJ issued new formal guidance on May 7, 2019, regarding cooperation credit for defendants in False Claims Act investigations and Principal Deputy Associate Attorney General McCusker Murray spoke about the new guidance on May 20, 2019, to a group of lawyers and compliance professional. Under the policy, entities and individuals may earn cooperation credit by voluntarily disclosing misconduct unknown to the government, cooperating in an ongoing investigation, or undertaking remedial measures in response to a violation. To earn maximum credit, an entity or individual should take all three steps. However, an entity or individual may earn partial cooperation credit so long as the entity or individual "meaningfully assisted the government's investigation."
Cooperation credit is not given for disclosing information as required by law or that is under imminent threat of discovery or investigation. Other creditable cooperation includes the following activities:
- Identifying individuals substantially involved in the misconduct (consistent with Yates Memo/Rosenstein Remarks)
- Disclosing relevant facts and identifying opportunities for the government to obtain relevant evidence
- Preserving, collecting, and disclosing relevant documents beyond existing business practices or legal requirements
- Identifying individuals who are aware of relevant information or conduct
- Making an entity's officers and employees who possess relevant information available for interviews or depositions
- Disclosing relevant facts gathered during the entity's independent investigation and providing timely updates
- Providing facts relevant to a third party's potential misconduct
- Providing information in native format and facilitating review and evaluation of that information
- Admitting liability or accepting responsibility for wrongdoing
- Assisting in the determination or recovery of the losses caused by the entity's misconduct
In assessing the value of voluntary disclosure and other cooperation, DOJ attorneys consider: the timeliness of the assistance; the truthfulness, completeness, and reliability of any information or testimony provided; the nature and extent of the assistance; and the significance and usefulness of the cooperation to the government.
DOJ attorneys will also consider whether, in response to the FCA violation, an entity has taken "appropriate remedial actions," such as:
- Demonstrating a thorough analysis of the root cause and appropriate remediation
- Implementing or improving an effective compliance system
- Appropriately disciplining or replacing those identified as responsible for the misconduct, including those who directly participated in the misconduct or failed to supervise when the misconduct occurred
- Completing additional steps to demonstrate the seriousness of the misconduct, acceptance of responsibility, and implementation of preventative measures
The amount of credit given is highly discretionary. Cooperation credit most often takes the form of a reduction in the penalties or damages multiple sought by DOJ. According to Murray, the Guidance allows DOJ to "provide a substantial discount," all the way "down to the government's single damages, plus lost interest, costs of investigation, and, in a qui tam case, the share going to the whistleblower." In addition, a company with a robust compliance program hypothetically may avoid an FCA settlement altogether if the company follows its program, its program identifies potential problems, and the company addresses them in a timely manner. Murray explained that DOJ "will take into account the nature and effectiveness of a company's compliance program in evaluating whether the violation of law was committed knowingly and therefore whether the False Claims Act is the appropriate remedy in the first instance."
Damages and Penalties
Damages under the FCA are measured by calculating the actual damages to the government and then tripling that amount. In cases where the defendant voluntarily furnished to the government all information relating to the fraud within 30 days of learning that information (without knowing that the government was already investigating), damages may be reduced to only twice the amount of actual damages. The amount to be tripled or doubled is typically calculated by determining the "benefit of the bargain" to the government, similar to a breach of contract damages calculation. See United States ex rel. Bornstein, 423 U.S. 303 (1976). However, there is disagreement as to whether the benefits should be subtracted before or after the loss is multiplied. Compare United States v. Anchor Mortg. Corp., 711 F.3d 745 (7th Cir. 2013) (trebling after subtracting benefit); United States v. Eghbal, 548 F.3d 1281, 1285 (9th Cir. 2008) (trebling before subtracting benefit).
In addition to the damages described above, the FCA also provides for a penalty assessed on each individual false claim. These penalties range as follows:
- $5,500-$11,000 for conduct on or prior to November 1, 2015
- $10,957-$21,916 for conduct after November 1, 2015 where the penalty was assessed between November 2, 2015 and January 29, 2018
- $11,181-$22,363 for conduct after November 1, 2015 where the penalty was assessed between January 30, 2018 and June 19, 2020
- $11,665-$23,331 for conduct after November 1, 2015 where the penalty was assessed between June 20, 2020 and December 13, 2021
- $11,803-$23,607 for conduct after November 1, 2015 where the penalty was assessed between December 14, 2021 and May 9, 2022
- $12,573-$25,076 for conduct after November 1, 2015 where the penalty was assessed after May 9, 2022
- $13,508-$27, 018 for conduct after November 1, 2015 where the penalty was assessed after January 30, 2023
- $13,946-$27,894 for conduct after November 1, 2015 where the penalty was assessed after February 12, 2024
Certain types of claims are easy to quantify, for example when the claims are made on individual invoices, although some courts have held that each false line item on an invoice qualifies as a separate false claim. Compare United States v. Krizek, 111 F.3d 934, 940 (D.C. Cir. 1997) (holding each invoice constitutes a "claim") with United States ex rel. Koch v. Koch Indus., Inc., 57 F. Supp. 2d 1122, 1127 (N.D. Okla. 1999) (holding each fraudulent lease listed on the invoice constitutes a "claim"). Others, particularly in reverse false claim cases, are difficult, and courts have differed on how to count these claims. Compare United States ex rel. Koch v. Koch Indus., Inc., 57 F. Supp. 2d 1122 (N.D. Okla. 1999) (monthly aggregation of flared gas counted as multiple false claims for underpaid royalties on each individual lease); United States ex rel. Maxwell v. Kerr-McGee Oil & Gas Corp., No. 04-cv-01224, 2010 WL 3730894 (D. Col. Sept. 16, 2010) (monthly aggregation of flared gas counted as single false claim for underpaid royalties).
Defendants may also be liable for a Relator's costs of litigation and attorneys' fees. Damages may be difficult to calculate in cases where the government suffered no direct harm from the false claim (for example, when the claims were made for a grant to provide services to third parties but not to the government). However, even in cases with zero damages, the defendant is still liable for penalties on each individual claim made. See United States ex rel. Harman v. Trinity Industries, Inc., 872 F.3d 645, 652 (5th Cir. 2017).
Universal Health Services, Inc. v. United States ex rel. Escobar (colloquially referred to as "Escobar") is a landmark FCA Supreme Court holding issued in 2016. 136 S. Ct. 1989 (2016). With that case, the Court legitimized the theory of liability known as "implied false certification" and provided key guidance on the materiality requirement for FCA liability.
The fact pattern underlying this case is tragic. A teenage girl and beneficiary of the Massachusetts Medicaid program was treated for bipolar disorder at a mental health facility, and prescribed a certain medication as part of that treatment. Due to complications from the medication, the young woman passed away during a seizure. Her mother and step-father then brought a qui tam against Universal Health Services, which owned and operated the facility at which their daughter had been treated. They alleged that the personnel in charge of their daughter's care were neither licensed nor authorized to provide that care, and that in fact the defendant had been operating entire facilities in violation of Massachusetts Medicaid regulations regarding licensing and supervision, rendering Universal Health's claims for payment false. The district court dismissed the case, finding that implied certification claims must allege that the violated regulations are expressly characterized as a "condition of payment," which relators here had not done. The First Circuit reversed, holding that the regulations provided conclusive evidence that compliance was material to payment. The Supreme Court affirmed the First Circuit, and proceeded to iron out the legal theories as follows:
The legal wrinkles of this case began with identifying what was actually "false" about any of the claims submitted by Universal Health. The reimbursement claims submitted to the government contained no express false statements affirming that the licensing and supervision regulations had been satisfied. Therefore, these allegations could only carry forward under the theory that Universal Health had impliedly certified its compliance with those regulations each time it submitted a reimbursement claim. Until this point, a circuit split had existed over whether the theory of implied certification was legitimate at all, or if it was legitimate, when it could give rise to liability. The Supreme Court held definitively in Escobar that the implied certification theory of FCA liability is valid.
The Court's holding on implied certification was unfortunately not a model of clarity. The Court held that implied certification could be a basis for liability "at least" in certain circumstances where two conditions were met: (1) the claim for payment makes specific representations about the goods or services provided, and (2) the claimant knowingly fails to disclose its noncompliance with a material statutory, regulatory, or contractual requirement, such that the specific representations made are "misleading half-truths." However, the Court did not explore whether an implied certification case could be made out without satisfying these two criteria, an issue that is currently working its way through the circuits and may find itself back on the Court's docket before too much longer. For more information on this brewing circuit split, see Implied False Certification.
The other key holding in Escobar has to do with the materiality requirement of the FCA. Although materiality is defined in the statute, it has been inconsistently applied across circuits. In Escobar, the Court characterized the materiality requirement as "rigorous," emphasizing the government's actual or likely behavior as particularly relevant to the analysis (as opposed to its possible or merely permissible behavior, the standard according to some circuits prior to Escobar and often urged by relators and often the government). Escobar instructed that the government's continued payments in spite of knowledge of the alleged non-compliance both in the case at bar and in the "mine run" of cases provides "very strong evidence" of the immateriality of that conduct. As with the holding on implied false certification, the Court's guidance on materiality has been hotly contested since publication. For a description of that developing split, see Materiality.
The False Claims Act (FCA) defines a false claim as a false or fraudulent request for payment. A false claim violates the FCA if it is presented to an officer, employee, or agent of the United States government, or, alternatively, if it is presented to a contractor, grantee, or other recipient of federal funds, if the funds were to be used for a government program or interest, and if a portion of the funds were provided or would be provided by the United States government.
Generally speaking, a false claim violates the FCA when it demands payment out of federal funds. Courts, however, have considered precisely when a false claim is considered to be presented to the government or to affect funds provided by the government. See, e.g., United States ex rel. Adams v. Aurora Loan Servs., Inc., 813 F.3d 1259 (9th Cir. 2016) (Fannie Mae and Freddie Mac not officers, employees, or agents of the United States); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2014) (Amtrak employees not officers or employees of government under FCA). The results have not always been consistent. Compare United States ex rel. Shupe v. Cisco Sys., Inc., 759 F.3d 379 (5th Cir. 2014) (Universal Service Fund does not constitute government funds under the FCA), with United States ex rel. Health v. Wisconsin Bell Inc., No. 08-0724 (E.D. Wis. July 1, 2015) (Universal Service Fund constitutes government funds).
The FCA imposes liability for making, using, or causing to be made or used a false record or statement material to a false claim. Importantly, a false statement alone is not enough to give rise to FCA liability; the false statement must be material to a false claim. United States v. Southland Mgmt. Corp., 326 F.3d 669, 675 (5th Cir.2003) (en banc) ("Although § 3729(a)(2) prohibits the submission of a false record or statement, it does so only when the submission of the record or statement was done in an attempt to get a false claim paid. There is no liability under [the FCA] for a false statement unless it is used to get a false claim paid.").
The 2009 amendments to the FCA enacted as part of the Fraud Enforcement and Recovery Act (FERA) reversed the Supreme Court's decision in Allison Engine v. United States ex rel. Sanders, 553 U.S. 662 (2008), and relaxed the standard for false statement liability. Whereas before 2009, the FCA required that a false statement was made "to get" a false claim paid, now, the false statement must only have "a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." See also our discussion of materiality.
Although there is no question that falsity is a necessary element under the FCA, it is not defined in the text of the statute and instead has been developed by case law. Some courts have held that liability can be based on a claim that is either factually or "legally" false. A factually false claim is one that facially misrepresents facts material to the request for payment – for example, by stating that a service was provided when in fact it was not. See United States ex rel. Conner v. Salina Reg'l Health Ctr., Inc., 543 F.3d 1211 (10th Cir. 2008) (to prove factual falsity, plaintiff "must generally show that the government payee has submitted 'an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided'").
The concept of "legal" falsity, which is closely related to the concept of false certification, has been the subject of much debate among courts and commentators. A claim is considered legally false if it is accurate on its face, but misrepresents or fails to disclose some fact that affects the legitimacy of the request for payment. For example, an express false certification occurs where the claimant expressly falsely states that it complied with a specific statutory, regulatory, or contractual requirement. In its landmark decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), the Supreme Court held that "implied" false certification is also a viable FCA theory, at least where a defendant makes specific representations about the goods or services provided in submitting a claim, but fails to disclose its violation of statutory, regulatory, or contractual requirements, resulting in misleading "half-truths" about its compliance with such requirements. The Court did not reach the question of whether implied false certification is a viable theory if the defendant makes no representations at all. Circuit courts have reached different conclusions on that question in the wake of Escobar. Compare United States ex rel. Rose v. Stephens, No. 17-1511, 2018 WL 4038194 (9th Cir. Aug. 24, 2018) (holding that Escobar's two-part standard is mandatory), with United States ex rel. Badr v. Triple Canopy, 857 F.3d 174 (4th Cir. 2017) (finding falsity despite absence of any representations on invoices).
Other courts (at least before Escobar endorsed implied false certification) had considered concepts of factual vs. legal falsity or express vs. implied false certification judicially created standards, and instead analyzed the textual elements of the statute itself. See, e.g., United States ex rel. Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 385–86, (1st Cir. 2011) (declining to employ these categories because they "may do more to obscure than clarify the issues before us" and instead considering whether the alleged misrepresentations were material to Medicare's payment decisions).
Fraud Enforcement and Recovery Act of 2009 (FERA)
The Fraud Enforcement and Recovery Act of 2009 (FERA), which was enacted to strengthen federal anti-fraud laws in general, made several significant changes to the FCA.
- 31 U.S.C. § 3729: FERA eliminated the "presentment" requirement so that the FCA now imposes liability for any false claim for money or property that affects federal funds, even if that claim was not presented to the government. FERA also codified the materiality standard and clarified that no specific intent to defraud is required.
- 31 U.S.C. § 3730: FERA granted protection to relators against retaliation for lawful acts taken in furtherance of the FCA.
- 31 U.S.C. § 3731: FERA inserted a new subsection that: (1) allows the government to file its own complaint-in intervention when it intervenes in a qui tam suit to add additional claims; and (2) provides that the complaint-in-intervention will relate back to the filing date of the original complaint if the claims arise from the same conduct.
- 31 U.S.C. § 3732: FERA added a provision stating that where state or local governments are named as co-plaintiffs with the United States, those governmental entities or a relator may serve the complaint, any other pleadings, or written disclosures of substantially all material evidence in support of the complaint on local law enforcement authorities authorized to investigate and prosecute on behalf of the state or local government.
- 31 U.S.C. § 3733: FERA clarified that the Attorney General may act through a designee in determining whether to bring suit or intervene in a qui tam action.FERA also made it easier for the government to share information with relators and other agencies.
The "First-to-File Bar" operates to prevent multiple Relators from filing FCA lawsuits based on the same underlying facts. It was created to prevent "parasitic" Relators seeking to pile on a new suit in addition to already-pending lawsuits in an effort to get their own whistleblower bounties. This bar only applies to cases that are currently "pending," meaning that if one lawsuit is terminated (regardless of whether it is terminated on the merits or for procedural defect), another lawsuit may then be filed based on the same facts. Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S. Ct. 1970 (2015). There is a live debate right now concerning whether complaints barred under first-to-file must be dismissed and re-filed once the first case is disposed of, or whether disposal of the first case means that a later-filed case can be cured of its bar through the filing of an amended complaint. Compare United States ex rel. Wood v. Allergan, Inc., No. 17-2191-cv, 2018 WL 3763731 (2d Cir. Aug. 9, 2018) (amending a barred complaint could not cure the bar even if first-filed suit no longer pending) with United States ex rel. Gadbois v. PharMerica Corp., 809 F.3d 1 (1st Cir. 2015) (supplementation or amendment of complaint could cure the bar). The answer to this question is particularly important where the statute of limitations has run and filing a new action would push the allegations out of statute, and we expect this widening circuit split to work its way to the Supreme Court sooner rather than later.
The question of to what extent the underlying facts in the two suits must be the "same" has not been definitively decided, but courts generally agree that the allegations do not have to be identical in order to be barred. See, e.g., United States ex rel. LaCorte v. SmithKline Beecham Clinical Labs, 149 F.3d 227 (3d Cir. 1998) (barred if the "essential facts" are the same, even if details are different); United States ex rel. Hampton v. Columbia/HCA Healthcare Corp., 318 F.3d 214 (D.C. Cir. 2003) ("same material elements" test used).
A difficulty for private litigants (both Relators and defendants) is that they may not know or have any way of knowing whether other lawsuits are pending under seal based on the same underlying facts. As such, it is essentially the government's burden to track and monitor similar cases, and to notify the court or parties when similar cases may have triggered the bar.
Fraudulent Inducement is a theory of FCA liability premised on the idea that claims can be "false" even if completely factually accurate, if those claims are submitted under a contract, grant, or other benefit that was obtained through fraud. The seminal case on this theory is United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943), in which a government contract was obtained through bid rigging, thus rendering the contractor's claims made on that contract false. The damages awarded in a fraudulent inducement case can be as high as the full value of the contract. Compare United States ex rel. Longhi v. United States, 575 F.3d 458 (5th Cir. 2009) (three times the full value of contract awarded as damages) with United States ex rel. Landis v. Tailwind Sports Corp., No. 10-cv-976, 2018 WL 4007652 (D.D.C. Aug. 22, 2018) (rejecting proposal to measure damages as full value of fraudulently induced sponsorship because sponsoring agency received value).
The generally accepted elements of Fraudulent Inducement are as follows:
- A false statement or fraudulent course of conduct occurred
- That statement or conduct was made with the requisite scienter
- The statement or conduct was material to the government
- The statement or conduct caused the government to pay or to forfeit money.
Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 (4th Cir. 1999)
Government Motions to Dismiss
On January 10, 2018, Michael Granston (then Director, Commercial Litigation Branch, Fraud Section, Civil Division, Department of Justice) issued an internal memo to all DOJ attorneys handling FCA cases titled "Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A)." In that memo, Granston noted that while the FCA contains a statutory basis for the government to dismiss meritless qui tams, that option is used only "sparingly." Granston proceeded to encourage government attorneys to consider moving for dismissal when appropriate, and provided a non-exhaustive list of factors for DOJ attorneys to use as the basis for such dismissal, including:
- curbing meritless qui tams,
- preventing parasitic or opportunistic qui tams,
- preventing interference with agency policies and programs,
- controlling litigation brought on behalf of the United States,
- safeguarding classified information and national security interests,
- preserving government resources, and
- addressing egregious procedural errors.
Since the issuance of the Granston Memo, DOJ has somewhat more frequently used its statutory authority under Section 3730(c)(2)(A) to dismiss meritless qui tam cases. This resulted in a circuit split on the proper standard for granting (c)(2)(A) motions to dismiss.
This circuit split was resolved by the Supreme Court in U.S. ex rel. Polansky v. Executive Health Resources Inc., 143 S. Ct. 1720 (2023). In a 8-1 decision, the Supreme Court found that:
(1) The government has authority, with good cause shown, to intervene and move to dismiss a qui tam at any point in the litigation even when it initially declined to intervene; and
(2) Courts should apply the Federal Rule of Civil Procedure 41(a) voluntary dismissal standard when evaluating government dismissal motions, and the government should be afforded “substantial deference.”
Implied False Certification
Implied false certification is a theory of FCA liability under which a claimant is considered to have certified compliance with material statutory, regulatory, or contractual requirements in submitting a claim, even though the claim does not expressly certify compliance with those requirements.
Prior to 2016, lower courts had disagreed about whether implied false certification was a viable theory of liability under the FCA. In its landmark decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), the Supreme Court resolved that issue, holding that implied false certification is a viable FCA theory, at least where a defendant makes specific representations about the goods or services provided in submitting a claim, but fails to disclose its violation of statutory, regulatory, or contractual requirements, resulting in misleading "half-truths" about its compliance with such requirements. The Court did not reach the question of whether implied false certification is a viable theory if the defendant makes no representations at all. Circuit courts have reached different conclusions on that question in the wake of Escobar. Compare United States ex rel. Rose v. Stephens, No. 17-1511, 2018 WL 4038194 (9th Cir. Aug. 24, 2018) (holding that Escobar's two-part standard is mandatory), with United States ex rel. Badr v. Triple Canopy, 857 F.3d 174 (4th Cir. 2017) (finding falsity despite absence of any representations on invoices).
When an FCA lawsuit is filed by a relator, that case is filed under seal while the government has an opportunity to investigate the allegations. When that investigation concludes, the government must decide whether it will litigate the relator's allegations, in whole or in part. If the government chooses to do so, this is called "intervention." The government may also intervene for purposes of dismissal.
If the government chooses to intervene and pursue litigation, it will file its own complaint, which typically have some similarity to the relator's allegations (a "complaint-in-intervention"). This complaint may include additional causes of action that the relator did not have standing to bring in the first instance, such as breach of contract or common law fraud. The relator then must yield litigation of the case to the government. Any relator claims as to which the government does not intervene may be litigated by the relator. Whether the government intervenes or not impacts the amount of the bounty, or share, that the relator may receive if the case results in a liability finding.
The FCA requires that the claimant have knowledge of the falsity of the claim or statement, and defines knowledge as (1) actual knowledge, (2) deliberate ignorance as to the truth or falsity of the information, or (3) recklessness regarding the truth or falsity of the information. Specific intent to defraud is not required. The Supreme Court made clear its view that the FCA's knowledge requirement is rigorous and that strict enforcement of this requirement in implied false certification cases should address concerns about fair notice and open-ended liability. Universal Health Services Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2002 (2016).
The Supreme Court held that when determining whether a defendant acted with the requisite scienter, the FCA’s scienter element refers to defendant’s knowledge and subjective beliefs when the defendant submitted the false claim, not to what an objectively reasonable person may have known or believed. See U.S. ex rel. Schutte v. SuperValu Inc., 143 S. Ct. 1391 (2023).
In general, courts have held that the FCA does not permit liability under the so-called "collective knowledge" doctrine – that is, where no single employee has sufficient knowledge to commit a violation, but the entity is deemed to have knowledge when the knowledge of its employees is aggregated. See United States v. Science Applications Int'l Corp., 626 F.3d 1257 (D.C. Cir. 2010) (rejecting collective knowledge doctrine under FCA as "inconsistent with the Act's language, structure, and purpose").
Under the FCA, a false statement or claim must be material to payment. The FCA defines the term "material" as "having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." Prior to 2016, courts had interpreted this language to impose a relatively low bar to prove materiality, requiring only that a false claim could have affected the government's payment decision. In its landmark decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), the Supreme Court made clear that the FCA imposes a "rigorous" materiality requirement. Escobar held that materiality looks to the government's actual or likely behavior in deciding whether to pay claims, both in the current case and in the "mine run of cases" involving allegations of similar conduct. Whether the government made compliance with a particular statute, regulation, or contract term a condition of payment remains relevant to the materiality inquiry, but it is not, as many courts held pre-Escobar, dispositive of materiality.Precisely how Escobar's materiality standard should be applied is perhaps the most heavily litigated issue under the FCA. Some circuit courts post-Escobar have focused on the government's actual conduct in paying claims, finding a lack of materiality where the government failed to take steps to refuse or recoup payment despite alleged noncompliance with a statutory, regulatory, or contractual requirement. See United States ex rel. Nelson v. Sanford-Brown, Ltd., 840 F.3d 445 (7th Cir. 2016) (finding materiality lacking where federal agencies had "examined [the defendant] multiple times over and concluded that neither administrative penalties nor termination was warranted"); United States ex rel. McBride v. Halliburton Co., 848 F.3d 1027 (D.C. Cir. 2017) (holding that focus must be on "what actually occurred," including that Defense Contract Audit Agency had investigated relator's allegations and chose not to disallow or challenge contractor's requests for payment). By contrast, other circuit courts have focused more on a totality-of-the-circumstances approach to materiality, under which the government's actual conduct is but one factor to consider. See United States ex rel. Escobar v. Universal Health Servs., Inc., 842 F.3d 103 (1st Cir. 2016) (adopting "holistic approach" to materiality and finding materiality where compliance with regulations was condition of payment, requirements at issue were central to regulatory scheme, and there was no basis to conclude that government paid claims despite actual knowledge of alleged violations); United States ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890 (9th Cir. 2017) (materiality adequately pled because relators alleged more than "the mere possibility that the government would be entitled to refuse payment if it were aware of the violations;" left for trial questions about whether the government actually continued to pay with knowledge of allegations). These divergent decisions may cause the Supreme Court to take up its next FCA case in United States ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890 (9th Cir. 2017), where there is a cert petition pending and the Court called for the views of the Solicitor General in April 2018.
Original Source Exception
The "Original Source Exception" allows relators to avoid the Public Disclosure Bar in certain narrow scenarios where the relator qualifies as the original source of the information. An "original source" is defined in the statute as an individual who either:
- Voluntarily disclosed the information on which allegations or transactions are based prior to the public disclosure; or
- Has knowledge that is both independent of and "materially adds" to the publicly disclosed allegations voluntarily provided that information to the government before filing an FCA lawsuit.
The phrase "materially adds" was added in 2010 with the Affordable Care Act amendments, which expanded this exception to make it easier for relators to bring suit. It has been interpreted by various courts without a single definition emerging. See, e.g., United States ex rel. Advocates for Basic Legal Equality, Inc. v. U.S. Bank, .A., 816 F.3d 428 (6th Cir. 2016) (material addition must be "of such a nature that knowledge of the item would affect a person's decision-making, is significant, or is essential"); United States ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294 (3d Cir. 2016) (material addition supplies the "who, what, when, where and how" of the fraud); United States ex rel. Paulos v. Stryker Corp., 762 F.3d 688 (8th Cir. 2014) (material addition is anything that "materially contributes anything of import" to the public's knowledge).
Public Disclosure Bar
The "Public Disclosure Bar" operates to prevent relators from filing lawsuits based on information that is already in the public sphere. The animating principle behind this bar is that the relator should bring something new to the government when he or she files an FCA case, not just an amalgamation of information available to the government already. Although it was originally a jurisdictional bar, the Affordable Care Act amendments in 2010 changed this such that the bar is no longer jurisdictional, and can actually be waived by the government. Public disclosures are defined in the statute to encompass:
- Disclosures in federal criminal, civil, or administrative hearing in which the government or its agent is a party.
- Disclosures in congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation.
- Disclosures made in news media.
Relators may be excepted from the Public Disclosure Bar if they qualify as the Original Source of the information.
"Qui tam" is short for the phrase "qui tam pro domino rege quam pro se ipso in hac parte sequiter," which translates to "he who sues in this matter for the king as well as for himself." Originally a creation of Roman law, qui tam suits were a significant feature of English law, and have been carried into the United States legal system, including in the FCA. A qui tam case brought by a relator and captioned as "United States ex rel. [Doe]."
A relator is an individual or entity that files a qui tam action under the FCA on behalf of the United States government and ultimately is entitled to share in the government's resulting recovery, if any. The amount the relator can recover depends in large part on whether the government decides to intervene. Other factors also can affect the relator's share of the recovery, including the relator's contribution to the case and whether the relator participated in the misconduct giving rise to the suit. If the government intervenes, the relator will receive between 15 and 25 percent of the total amount recovered. If the government declines to intervene, the relator will receive between 25 and 30 percent of the total recovery. In both intervened and non-intervened cases, the relator is also entitled to recover his or her reasonable attorneys' fees and expenses. Even a relator who was involved in the wrongful conduct stands to receive his or her share. A relator is only barred from recovery if criminally convicted of the conduct giving rise to the claim. Relators are most often current or former employees of the entity against which suit is brought, but can be virtually anyone, including a competitor or state or local government.
Because a relator brings suit on behalf of the United States, he or she cannot assert personal claims. A relator can, however, bring a claim under the FCA's retaliation provision, alleging that he or she was discharged, demoted, suspended, threatened, harassed, or otherwise discriminated against in the terms and conditions of employment because of the relator's lawful acts taken in furtherance of the FCA.
The FCA provides a cause of action to any employee, contractor, or agent who is discharged, demoted, suspended, threatened, harassed, or otherwise discriminated against in the terms and conditions of employment because of lawful acts done in furtherance of the FCA or other efforts to stop a FCA violation. Relief under the FCA's anti-retaliation provision can include reinstatement, double back pay, interest on back pay, and compensation for special damages, including litigation costs and attorneys' fees. There is also a separate three-year statute of limitations for actions brought under the FCA's anti-retaliation provision.
Heavily litigated issues under this provision include determining what constitutes protected conduct and the appropriate causation standard. In 2010, a year after FERA, Congress expanded the definition of protected conduct to include both acts done in furtherance of the FCA and other efforts to stop a FCA violation. Courts have since held that under this definition, protected conduct can include simply reporting suspected misconduct to internal supervisors; an individual is not required to file a qui tam complaint or report suspected misconduct to the government in order to have a viable retaliation claim (if other requirements are met). See Halasa v. ITT Educ. Servs., Inc., 690 F.3d 844 (7th Cir. 2012). With respect to causation, most courts have held that the "because of" language in the FCA requires "but for" causation. See DiFiore v. CSL Behring, LLC, 879 F.3d 71 (3d Cir. 2018); United States ex rel. King v. Solvay Pharm., Inc., 871 F.3d 818 (5th Cir. 2017).
Reverse False Claim
A reverse false claim occurs when the defendant fraudulently avoids or reduces an obligation to pay the government. Such claims contrast against classic false claims, where the defendant fraudulently obtains funds from the government. The statute describes two scenarios that may give rise to reverse false claims:
- Knowingly making, using, or causing 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 concealing or knowingly and improperly avoiding or decreasing an obligation to pay or transmit money or property to the government
For example, court have found reverse false claims act liability where a company knowingly fails to pay full royalties owed to the federal government on oil or gas extracted from a federal lease. See United States ex rel. Koch v. Koch Indus., Inc., 57 F. Supp. 2d 1122 (N.D. Okla. 1999) (recognizing an "indirect reverse false claim" where a company attempted to reduce its obligation to pay money to various Native American tribes and the federal government by understating its royalty obligations to the Department of the Interior). In another instance, the government argued that reverse false claim liability should attach to attestations of compliance with Medicare regulations made after the initial submission of false Medicare claims, based on the theory that the defendant was obligated to disclose the noncompliance after the fact and provide the government with a refund, which it did not do. United States ex rel. Poehling v. UnitedHealth Grp., Inc., No. CV-16-08697, 2018 WL 1363487 (C.D. Cal. Feb. 12, 2018) (dismissing those allegations for lack of materiality).
Courts fairly uniformly have held that a failure to pay obligations that are merely "contingent" but not "definite" do not give rise to reverse false claim liability. See, e.g., United States ex rel. Schneider v. JP Morgan Chase Bank, 878 F.3d 309 (D.C. Cir. 2018)
Federal Rule of Civil Procedure 9(b) requires that a complaint alleging fraud state with particularity the circumstances constituting fraud. Courts have interpreted this rule to require more detailed pleading than the "notice pleading" required by Federal Rule of Civil Procedure 8. A complaint subject to Rule 9(b) must identify the who, what, when, where, and how of the alleged fraud.
Although courts have uniformly held that FCA complaints must satisfy Rule 9(b), there is a disagreement about precisely what must be pled with particularity under that rule. For example, courts have disagreed about whether Rule 9(b) requires a relator to identify specific invoices submitted to the government, or whether the relator need only provide sufficiently reliable information to suggest that false claims were submitted. Compare United States ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451 (4th Cir. 2014) (relator must allege that specific false claims were submitted to the government) and United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1302 (11th Cir. 2002) (must allege actual improper claims), with United States ex rel. Prather v. Brookdale Senior Living Communities, 838 F.3d 750 (6th Cir. 2016) (Rule 9(b) satisfied where relator with "personal billing-related knowledge" pleads specific facts that give rise to a "strong inference" that a claim was submitted) and United States ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163 (10th Cir. 2010) (Rule 9(b) standard met where plaintiff alleges fraudulent scheme and provides basis for reasonable inference that false claim was submitted to government). Some courts have also relaxed Rule 9(b)'s particularity requirement where the information necessary to plead fraud with particularly is uniquely within the control of the defendant. See, e.g., United States ex rel. Willard v. Humana Health Plan of Tex., Inc., 336 F.3d 375 (5th Cir. 2003) (Rule 9(b) particularity requirement relaxed where information is "peculiarly within the perpetrator's knowledge); United States ex rel. Bledsoe v. Community Health Sys., Inc., 501 F.3d 493 (6th Cir. 2007) (same). One recent decision has relaxed Rule(b) where the relator pled both that the information necessary to identify an actual false claim was uniquely within the defendant's knowledge and specific facts creating a strong inference that a claim was actually submitted. See United States ex rel. Chorches v. Am. Med. Response, Inc., 865 F.3d 71 (2d Cir. 2017).
When a relator files an FCA lawsuit, the statute requires that filing to be made under seal. Such lawsuits remain under seal for a period of 60 days under the statute, during which time the government must investigate and decide whether or not it will intervene in the matter. In practice, however, the sealing period is almost always extended beyond the 60 days. The government can, and virtually always does, apply to the court for additional time in which to conduct its investigation, resulting in cases remaining under seal for many months or even years after they were filed. The seal ostensibly serves dual purposes: first, to protect the integrity of the government's investigation and sources, and second, to protect the reputation of the defendant while the government conducts its investigation. Only after the government has made an intervention decision is the complaint unsealed and served on the defendant. Although the defendant typically does not know of an FCA lawsuit filed under seal, that filing nevertheless halts the running of the statute of limitations.
When an FCA lawsuit is filed directly by the government without a Relator, there is no sealing period. Such lawsuits must be filed on the public docket in the first instance.
Statute of Limitations
The statute of limitations for the FCA is the longer of either:
- Six years from the date of the violation; or
- Three years from the date that the "responsible" government official knew or should have known the material facts. (Relators also may invoke this alternative three years provision and are only required to file suit within three years of when the government learns of the alleged fraud, regardless of when the relator discovers it.)
But, the FCA has an absolute statute of repose ten years, meaning that an FCA case cannot be filed more than ten years after the violation occurred.
The statute of limitations stops running once an FCA lawsuit has been filed, and there is no practical limit to the amount of time that a qui tam case can be under seal. Furthermore, if the government intervenes in that lawsuit, it may add other causes of action for which the Relator has no standing (for example, common law fraud) that could relate back to the filing date of the FCA complaint. Thus, defendants may (and often do) find themselves defending against a timely filed FCA lawsuit long after they believed the statute of limitations to have already run.
Yates Memo/Rosenstein Remarks
On September 9, 2015, then-Deputy Attorney General Sally Yates issued guidance to all DOJ attorneys, which intended to enhance and energize FCA enforcement against individual defendants across both criminal and civil segments of the Department. The guidance included the following policy shifts:
- Cooperation credit for corporations is contingent on the corporation providing all relevant facts about the individual personnel involved in the misconduct, with sufficiency of such cooperation to be judged solely by DOJ.
- FCA investigations should focus on individuals (not just corporate defendants) at all stages of the investigation.
- Civil and criminal investigations should collaborate to the full extent allowed by law.
- Corporate resolution should not protect individuals from civil or criminal liability except in extraordinary circumstances. Individual's ability to pay should no longer be the deciding factor in determining whether or not to bring suit against the individual.
On November 29, 2018, then-Deputy Attorney General Rod Rosenstein gave remarks, which announced revisions of Yates' previous guidance. The objectives of these revisions were to provide DOJ attorneys more flexibility and efficiency in conducting investigations and negotiating their resolutions. The remarks included the following modifications to the policy:
- Cooperation credit is now contingent only upon the corporation identifying individuals "substantially involved in or responsible for"; criminal conduct, not employees "who were not likely to be prosecuted." Thus, companies may still receive credit for making good-faith efforts to identify those involved in the criminal conduct, even if a company is unable to identify all relevant low-level personnel.
- Partial cooperation credit should be available when a company "meaningfully assist[s]" in the government's investigation.
- In corporate resolutions, DOJ attorneys may negotiate civil releases for individuals who do not warrant additional investigation.