False Claims Act

“We will continue to use the False Claims Act and all other civil legal tools at our disposal to address contractors that seek to avoid their disclosure obligations when selling products to the United States government.” -- DOJ Press Release (June 2, 2011) (emphasis added)

Overview

The False Claims Act, also known as the Lincoln Law is a Federal Law that imposes a liability of persons and companies who defraud the government.

Wikepedia has an extensive write-up, providing the history, changes, examples, State False Claims acts, and covers this subject in detail. The link to wikipedia site is: [1].

GovCwiki, captures highlights on this page and others areas not captured on Wikipedia.

What is a "Claim?"

The FCA defines a "claim" as any request or demand for money or property that is:

• Presented to an officer or employee of the United States;

OR,

• Made to a contractor, grantee or other recipient, if the Government paid for or is obliged to reimburse the claim to the contractor, grantee or other recipient (e.g. a subcontractor submits an invoice to a prime contractor that holds a federal contract).

NOTE: a claim is not a false claim unless it is false and that falsehood is material.

• Emcompasses virtually all demands or requests for money that are made to a Government agent, a contractor or a grantee, provided the Government has provided some portion of the money sought.

• Any action by the Contractor that has the purpose and effect of causing the Government or a recipient of Government funds to pay out money it is not obligated to pay, or any action that knowningly deprives the Government of money it is lawfully due.

• Each separate submission that seeks payment from the Government or a recipient of Government funds is a claim for purposes of the FCA, even if each submission is under the same contract.

Types of False Claims

Direct False Claims

A knowlingly false representation that causes the Government or a recipient of Government funds to pay more than it would have absent the misrepresentation. For example, a contractor submits invoices to DoD for services that were not actually performed.

Express False Certification Claims

Where a Contractor expressely and specifically certifies compliance with a required contract provision, statute, or Governmental Program. For example, a contractor falsely certifies to the NRO that organizational conflicts of interest exists with respect to a proposed Government contract.

Implied False Certification Claims

Liability is imposed on the premise of contractual breach or implied responsibility, even if the Contractor doesn't certify compliance. For example: A contractor submits an accurate bill for construction, but fails to adhere to a specific contract term requiring waste disposal per EPA regulations.

Fraud-In-The-Inducement

False representations made by a contractor to induce the Government to enter into a contract that it would not have entered into absent the misrepresentation.

Knowingly - What does this mean?

The FCA requires the defendant to "knowingly" submit or cause to submit a false claim.

The False Claims Act ("FCA") provides, in pertinent part, that: (a) Any person who:

• Knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval;

• Knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;

• Conspires to defraud the Government by getting a false or fraudulent claim paid or approved by the Government;

• Knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government,is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person .

The terms "knowing" and "knowingly" mean that a person, with respect to information;

• (1) has actual knowledge of the information;
• (2) acts in deliberate ignorance of the truth or falsity of the information; or
• (3) acts in reckless disregard of the truth or falsity of the information, and no proof of specific intent to defraud is required.

Note: Reckless disregard includes the failure of a Contractor to have adequate systems or training in place to ensure contract (regulation) compliance.

Areas/Theories of Liability

False Claim

When a contractor knownling submits a false claim to the Government or a recipient of Government funds, like another contractor, or causes another to submit a false claim.

Individual Knowledge or Deliberate Ignorance

31 U.S.C. § 3729. While the False Claims Act imposes liability only when the claimant acts “knowingly,” it does not require that the person submitting the claim have actual knowledge that the claim is false. A person who acts in reckless disregard or in deliberate ignorance of the truth or falsity of the information, also can be found liable under the Act. 31 U.S.C. 3729(b). The False Claims Act imposes liability on any person who submits a claim to the federal government that he or she knows (or should know) is false. An example may be a physician who submits a bill to Medicare for medical services she knows she has not provided.

False Records

The False Claims Act also imposes liability on an individual who may knowingly submit a false record in order to obtain payment from the government. An example of this may include a government contractor who submits records that he knows (or should know) is false and that indicate compliance with certain contractual or regulatory requirements.

Reverse False Claims and False Reports

The third area of liability includes those instances in which someone may obtain money from the federal government to which he may not be entitled, and then uses false statements or records in order to retain the money. An example of this so-called “reverse false claim” may include a hospital who obtains interim payments from Medicare throughout the year, and then knowingly files a false cost report at the end of the year in order to avoid making a refund to the Medicare program.

Conspiracy

When a contractor conspires to do any of the following (1) submit a false claim, (2) make a false statement, or (3) submit a reverse false claim.

FCA Liability: Materiality

To be material, a falsity must either:

• Have an "natural tendency to influence" OR,

• Be "capable of influencing"

The Payment or Receipt of Money or Property.

Such as:

• The "Government relied upon" the false information in deciding to pay the claim, OR

• The falsity had the "potential to influence" the Government's payment decision.

4 Elements of a False Claim

1. The Contractor submits (or causes to be submitted) a "claim" for payment.
2. The Contractor's claim is false or fraudulent; and
3. The Contractor knew that the claim was false or fraudulent; and
4. The falsehood was material to the decision to pay the claim - i.e., it was "capable of influencing" the payment.

Qui Tam Relators

In addition to its substantive provisions, the FCA provides that private parties may bring an action on behalf of the United States. 31 U.S.C. 3730 (b). These private parties, known as “qui tam relators,” may share in a percentage of the proceeds from an FCA action or settlement. Section 3730(d)(1) of the FCA provides, with some exceptions, that a qui tam relator, when the Government has intervened in the lawsuit, shall receive at least 15 percent but not more than 25 percent of the proceeds of the FCA action depending upon the extent to which the relator substantially contributed to the prosecution of the action. When the Government does not intervene, section 3730(d)(2) provides that the relator shall receive an amount that the court decides is reasonable and shall be not less than 25 percent and not more than 30 percent. The FCA provides protection to qui tam relators who are discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of their employment as a result of their furtherance of an action under the FCA. 31 U.S.C. 3730(h). Remedies include reinstatement with comparable seniority as the qui tam relator would have had but for the discrimination, two times the amount of any back pay, interest on any back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys’ fees.

Court Cases - DOD

United States v. United Technologies Corp. (S.D. Ohio 2012)

• Sixth Circuit decided in 2011: False statements in BAFO created FCA liability because they induced USAF to enter into contract
• On remand: Court finds USAF relied on false statements in finding pricing fair and reasonable, mistakenly paid/unjustly enriched contractor
• Not a TINA case – ASBCA earlier found that BAFO was not cost or pricing data

Hooper v. Lockheed Martin Corp. (9th Cir. 2012)

• False estimates/fraudulent underbidding to secure cost-type contract can violate the FCA
• Government knowledge/approval concerning testing procedures and use of open source software negated FCA claim.

Note: Claimed Negated because company disclosed...Disclosure is "KEY"

United States ex rel. Becker v. Tools & Metals, Inc. (N.D. Tex., settled March 2012) -- $15.9M

Allegations:

• Prime failed to investigate/report allegations that sub falsified price of tools under a master agreement; fraudulent overcharges resulted
• Sub charged prime on CPPC basis
• Prime conducted ineffective audits of sub
• Prime did not properly update manufacturing overhead rates despite knowledge of inflated sub charges

Ultralife Corporation (W.D.N.Y. June 2011)($2.7M)

Allegations:

• Battery manufacturer passed along defective pricing data relating to material cost reductions

US of America, ex rel Kurt Bunk and Daniel Heuser, Plaintiffs/Realtors, v. Birkart Gobistics GmbH & CO.

U-S-ex-rel-Bunk-v-Birkart-Globalistics.pdf

File:U-S-ex-rel-Bunk-v-Birkart-Globalistics.pdf

Court Cases - Non-DoD

United States ex rel. Thomas v. Siemens AG (E.D. Pa. 2010)

Offeror failed to disclose greater discounts given to commercial customer (GPO)

United States ex rel. Kapuscinski v. Network Appliance, Inc. (D.D.C., settled April 2009) -- $128M

Allegations:

• Contractor pledged that it would comply with PRC by increasing GSA discounts whenever it increased discounts to any commercial customer
• PRC triggered, but discounts/repricing not provided to GSA

See Also

Forfeiture of Fraudulent Claims Act 28 USC $$2514