The Qui Tam Provision of the Federal False Claims Act

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The Qui Tam Provision of
the Federal False Claims Act

by Gregory C. Smith

This article examines the qui tam provision of the federal False Claims Act (31 U.S.C. §§ 3729-3733, the "Act") and how it encourages the filing of lawsuits by private individuals who have knowledge of fraud committed against or false claims submitted to the United States Government by government contractors.

Background of the Act

The Act was enacted in 1863 during the Civil War to deter fraud by contractors who were supplying the Union Army. It provided a civil cause of action and sanctions of double damages and penalties of $2,000 per false claim for those found to have defrauded the Government. Because the Government was preoccupied with the war effort, Congress included a qui tam provision to encourage private citizens to initiate actions under the Act.

The phrase qui tam is a shortened version of the Latin phrase "qui tam pro domino rege quam pro se ipso in hac parte sequitur," which means "he who brings the action for the king as well as for himself." Under the Act, a person bringing a qui tam action is referred to as a "relator."

During the 50 years following passage of the Act, very few cases were filed under the qui tam provisions. In the 1930s, with the onset of the New Deal and the dramatic growth of the federal government, the numbers of qui tam actions increased at a proportionate rate. However, many of these suits merely parroted the allegations which appeared in criminal actions brought by federal prosecutors. These actions, known as "parasitic" suits, were disfavored by the Government because, under the Act, the relator was entitled to share in the recovery by the Government when it had provided no information not already known to the Government.

In 1943, Congress amended the Act to eliminate parasitic cases by providing that a qui tam suit was barred and would be dismissed if the Government had knowledge of the relator's allegations prior to the filing of the suit. However, while accomplishing its objective, the amendment's language also resulted in the dismissal of many non-parasitic cases. For example, a number of reported opinions dealt with cases in which the qui tam relator was the original source of the allegations in his complaint but, unfortunately, had disclosed the allegations to the Government prior to filing the qui tam suit. These cases were generally dismissed by the courts because the Government had knowledge of the allegations, albeit from the relator, prior to the case being filed.

The 1986 Amendments

The 1943 amendment in combination with various judicial interpretations unfavorable to the qui tam relator, significantly reduced the number of qui tam actions being filed. This fact, coupled with widespread media coverage throughout the 1970s and 80s of rampant government fraud, caused Congress, in 1986, to enact revisions to enhance the provisions of both the Act and its qui tam provision.

The 1986 Amendments had the desired effect of substantially strengthening the Act and its enforcement. The 1943 bar regarding information in the possession of the Government was eliminated and replaced with language that permits such cases to be brought so long as the relator is an "independent source" of the allegations in a complaint. The Amendments also clarified the level of intent necessary to establish a violation. Since the Amendments, it is not necessary that a defendant be proven to have intentionally defrauded the Government. Rather, it is sufficient to establish that the defendant acted with "reckless disregard" for the truth of the information in its claim or in "deliberate ignorance" of the information provided. The Amendments also clarified that the burden of proof is the same as that in a typical civil action, i.e., the "preponderance of the evidence," and not the higher burden of "clear and convincing evidence," as some courts had ruled. While these amendments may sound like minor technicalities, they dramatically enhance a relator's ability to successfully prosecute a case under the Act.

The 1986 Amendments also significantly increased the penalties. From the enactment of the Act in 1863, until 1986, the Act provided for the recovery of double damages and $2,000 per false claim. The penalties were increased in 1986 to treble damages and a per claim assessment of between $5,000 and $10,000 to be determined by the Court. Under the 1986 Amendments, a Government contractor submitting 100 false claims and overbilling the Government by $100,000, may be liable for as much as $1,300,000.

Equally significant were the changes to the qui tam provision. These changes evidenced Congress' intent to expand upon the rights of qui tam relators to encourage the filing of more private actions under the Act. Prior to 1986, the Act provided that a successful qui tam relator was entitled to up to 25% of the proceeds to the Government in an action prosecuted by the relator. The 1986 Amendments changed the relator's percentage to not less than 25% nor more than 30%. Moreover, under the Amendments, the successful relator is now entitled to recover his attorneys' fees, as well as his costs and expenses.

In the example mentioned above, where a judgment is entered against the contractor for $1.3 million, the relator can receive up to $390,000 of the judgment, plus he can recover his attorneys' fees, costs and expenses related to his prosecution of the case.

The 1986 Amendments also contained a whistle blower provision which protects an employee from retaliation by his employer in the event the employee becomes involved in the filing or investigation of an action under the Act against his employer. In the event an employer retaliates, the Act provides for the employee's reinstatement, double the back pay plus interest, and any "special damages."

The 1986 Amendments appear to have accomplished the objective Congress intended. Both the number of qui tam actions filed and the amounts recovered have increased dramatically. In 1987, 33 qui tam cases were filed across the country and $200,000 was recovered by the Government. In 2000, 366 qui tam cases were filed and the Government recovered $1.2 billion dollars. This represents nearly a 10,000 fold increase in recoveries. In total, the Government has recovered in excess of $4.0 billion since 1986. Relators have recovered in excess of $625 million over the same period.

This Article is published for general information, not to provide specific legal advice. The application of any matter discussed in this article to anyone's particular situation requires knowledge and analysis of the specific facts involved.