WHAT IS THE FALSE CLAIMS ACT? WHAT IS A QUI TAM ACTION? WHAT IS A RELATOR’S PURPOSE?

Posted on April 28, 2018April 27, 2020 by Edward Garber

What is the False Claims Act? What is a qui tam action? What is a relator’s purpose?

If you have asked these questions, the Eleventh Circuit in U.S. ex rel Hunt v. Cochise Consultancy, Inc., 2018 WL 1736788, *3-5 (11th Cir. 2018) (internal quotations and citations omitted) did such a wonderful job summarizing the high points of the False Claims Act, particularly a qui tam action, that it is worth repeating. I just added the headings for purposes of convenience.

History Behind False Claims Act (FCA)

The FCA [False Claims Act] was enacted in 1863 to stop[] the massive frauds perpetrated by large contractors during the Civil War. These contractors billed the United States for nonexistent or worthless goods, charges exorbitant prices for goods delivered, and generally robbed in purchasing the necessities of war.

Enforcement Mechanisms of the False Claims Act

Section 3730 [31 USC s. 3730] of the FCA sets forth three different enforcement mechanisms for a violation of the Act. Section 3730(a) provides that the Attorney General may sue a violator in a civil lawsuit. Section 3730(b) allows a private plaintiff, known as a relator, to bring a qui tam action in the name of the United States against a violator. Section 3730(h) creates a private right of action for an individual whose employer retaliated against him for assisting an FCA investigation or proceeding.

Qui Tam Action – Section 3730(b)

In qui tam action, the relator pursues the government’s claim against the defendant, and asserts the injury in fact suffered by the government. In bringing a qui tam action, the relator in effect, sue[es] as a partial assignee of the United States.

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Special procedures apply when a relator brings an FCA action; these procedures afford the government the opportunity to intervene and assume primary control over the litigation. A relator who initiates an FCA action must file her complaint under seal and serve it only on the Unites States. While the lawsuit remains under seal, the United States has the opportunity to investigate and decide whether to intervene as a party. During this period, the United States may serve a civil investigative demand upon any person believed to be in possession of documents or information relevant to an investigation of false claims, requiring that person to produce documents, answer interrogatories, or give oral testimony. In addition, the United States may meet with the relator and her attorney, giving the government an opportunity to ask questions to assess the strengths and weaknesses of the case and the relator a chance to assist the government’s investigation.

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If the United States decides to intervene, the government acquires primary responsibility for prosecuting the action, although the relator remains a party. In contrast, if the United States declines to intervene, the relator may proceed with the action alone on behalf of the government, but the United States is not a party to the action.

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Although the United States is not a party to the non-intervened case, it nevertheless retains a significant role in the litigation. The government may request to be served with copies of all pleadings and deposition transcripts, seek to stay discovery if it would interfere with the Government’s investigation or prosecution of a criminal or civil matter arising out of the same facts, and veto a relator’s decision to voluntarily dismiss the action. Additionally, the court may permit the government to intervene later upon a showing of good cause.

Recovery in a Qui Tam Action

Any recovery obtained from a defendant in an FCA qui tam action belongs to the United States, regardless of whether the government has intervened. The relator is entitled to a portion of the recovery, however. Because the relator receives a shares of the government’s proceeds, he is essentially a self-appointed private attorney general, and his recovery is analogous to a lawyer’s contingent fee. By allowing a relator to bring a qui tam action and share in the government’s recovery, the FCA creates an economic incentive to encourage citizens to come forward with knowledge of frauds against the government.

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The size of the relator’s share depends upon whether the United States intervenes. In an intervened case, the relator is usually entitled to between 15 and 25 percent of the proceeds, as well as reasonable expenses, attorney’s fees, and costs. In an non-intervened case, the relator’s share is usually greater: between 25 and 30 percent of the proceeds, as well as reasonable expenses, attorney’s fees, and costs.

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Even though the relator receives a smaller share in an intervened case, relators generally try to persuade the United States to intervene because the government’s intervention makes it far more likely that there will be a recovery. When the United States elects to intervene, about 90 percent of the time the case generates a recovery, either through settlement or a final judgment. But only about 10 percent of non-intervened cases results in recovery. Indeed, when the government declines to intervene, more than 50 percent of the time the relator decides not to proceed and voluntarily dismisses the action.

If you have questions regarding a False Claims Act / qui tam action, make sure to consult counsel that understands the nuances of such actions including any legal hurdles and challenges. The False Claims Act is contained in 31 USC s. 3729 – s. 3733 and there is a plethora of law setting forth a relator’s requirements. This discussion provides merely a high level summary of a complex legal scheme.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

VIOLATION OF DAVIS BACON ACT COULD SUPPORT FALSE CLAIMS ACT VIOLATION

Posted on September 26, 2015November 8, 2024 by Edward Garber

The Davis Bacon Act is a prevailing wage federal statute that applies to contractors and subcontractors performing work on federally assisted or federally funded projects in excess of $2,000 for the construction, alteration, or repair, including painting and decorating, of a public project. 40 U.S.C. s. 3142. Contractors and subcontractors performing work on Davis Bacon projects must pay mechanics or laborers minimum wages / prevailing wages based on the class of labor and project determined for the locale of the project per a wage determination published by the United States Department of Labor. 40 U.S.C. s. 3142. These rates must be certified through weekly certified payroll. For more information on the Davis Bacon Act, check out the United States Department of Labor’s website. You can also check out wage determinations or prevailing wage rates to get an understanding of prevailing wage rates for the class of project and labor based on the locale of the project.

Over the last few years, there have been federal decisions supporting the argument that a violation of the Davis Bacon Act can form the basis for a violation of the False Claims Act otherwise known as a qui tam action.

For instance, in United States ex rel. Brian K. Smith v. Clark/Smoot/Russell, 796 F.3d 424 (4^th Cir. 2015), a relator (private person) brought a qui tam action (violation of False Claim Act) against his employer, in particular, for failing to pay him locally prevailing wage rates as set forth by the Department of Labor. The Fourth Circuit reversed the dismissal of this claim by the trial court finding that a violation of Davis Bacon could support a violation of False Claims Act action.

Here, the relator alleged that he was a labor or mechanic that worked on federal construction projects governed by the Davis Bacon Act. The relator claimed he was paid based on an improper, lower-paying labor classification and was never paid or provided fringe benefits required for his labor classification. He lodged a complaint with the Department of Labor’s Wage and Hour Division that concluded he was not properly being paid. Thereafter, he was temporarily reassigned to a non-Davis Bacon project, meaning there was no prevailing wage rates and he could be justifiably paid at a lower wage rate. The reassignment also resulted in a substantially longer commute. He was then assigned to another federal project, but while it was a Davis Bacon project, he was only given limited hours to work. Based on these facts, the relator filed a qui tam action (violation of False Claims Act) stating (1) the submission of false Davis Bacon certified payroll constituted a false claim because he was not paid prevailing wages based on any applicable Davis Bacon wage schedule / wage determination and (2) his reassignment and reduction in work hours violated the whistleblower (anti-retaliatory) provision of the False Claims Act because they were retaliatory in nature based on his complaint to the Department of Labor.

This case shows the dynamics of a project governed by Davis Bacon. You need to know the prevailing wages inclusive of fringe benefits for labor classes. Also, you know to understand that a wage determination for a project showing the prevailing wages is probably not going to touch upon every class of labor that a construction contract requires. You need to recognize this and inquire as to the prevailing wage you think should apply so that the public agency can get a project-specific wage determination from the Wage and Hour Division of the Department of Labor. What you do not want, however, is to have to deal with a violation of Davis Bacon or a potential qui tam action under the False Claims Act for violating the prevailing wage requirements of Davis Bacon.

FALSE CLAIMS ACT–PROVING A FALSE CLAIM OR STATEMENT SUBMITTED TO THE GOVERNMENT

Posted on September 15, 2013November 8, 2024 by Edward Garber

The False Claims Act, without going into all of its intricacies, allows a private person (referred to as a relator) to file an action for the benefit of the government against a person/entity that violated the Act and submitted a false claim or false statement to the government. This action is known as a qui tam action when the private person–relator–files an action for the benefit of the government. When this occurs, the qui tam action is initially filed under seal and the government has the opportunity to determine if it wants to intervene and take over the prosecution of the action. A violation of the False Claims Act can subject the offending party to a civil penalty plus three times the amount of the government’s damages. See 31 USCA s. 3279 et seq.

The benefit to the relator is that it is entitled to receive a percentage range of the amount the government recovers in the action based on whether the government took over the prosecution of the action or elected not to intervene. The relator is also generally entitled to its attorneys’ fees and costs.

Thee Middle District of Florida case, Prime v. Post, Buckley, Schuh, & Jernigan, Inc., 2013 WL 4506357 (M.D.Fla. 2013), is a recent case discussing the False Claims Act. In this case, the United States Army Corps of Engineers (“USACOE”) entered into a fixed-price indefinite delivery/indefinite quantity architect-engineering contract with a joint venture design professional firm (the “Firm”). The USACOE entered into the contract for the Firm to provide architectural and engineering services relating to everglades restoration work. The contract between the USACOE and the Firm included specific daily labor rates that the Firm was to charge for various personnel / labor (i.e., project manager, engineering technician, etc). The USACOE would give the Firm specific design professional tasks which would be negotiated into fixed price task orders (i.e, the specific task would be performed for a lump sum amount). The fixed price for the tasks would be determined by the type of labor used to complete the task times the number of man-hours. The price was then negotiated which included a component for profit for the Firm. Upon the completion of a task, the Firm would send an invoice to the USACOE for payment which was never questioned by the USACOE.

However, because the tasks were negotiated on a lump sum basis, USACOE representatives acknowledged that if it cost more for the Firm to complete the task, then the Firm was responsible for the overrun. Conversely, if the Firm could perform the work cost effectively by using lower cost labor to complete the tasks, then the Firm would keep the profit. This is the essence of a lump sum contract with the objective being to maximize the profitability by performing the work more cost effectively then negotiated. In other words, the actual costs to perform the work become irrelevant because the parties already negotiated a lump sum amount.

The plaintiff in this action was a former high-ranking employee of one of the design professional entities that formed the Firm. He was heavily involved in the negotiation of the contract and served on the management committee of the Firm for performing the work. At some point early on, plaintiff learned that the Firm’s profits were over 30% (and he felt that the profits should have been in the range of 8-10%). He learned the profits were greater because the Firm was using lower cost labor than the rates set forth in the contract. Yet, plaintiff, nearly seven years after the contract was executed, decided to discuss this issue with his boss. This issue was internally looked into and the Firm determined that it did nothing wrong. Shortly thereafter, plaintiff’s position with his design professional firm changed (a demotion) and his bonus and salary were reduced. Plaintiff was ultimately laid off due to lack of work.

Following plaintiff’s lay-off, he (as the relator) initiated this qui tam action under the False Claims Act for the benefit of the government. He argued that the Firm violated the Act by falsely impliedly certifying in in its invoices to the government by using cheaper labor and not disclosing true profits. (He also argued that he was terminated in violation of the Act although this portion of the case will not be discussed in detail other than that the plaintiff failed to prove he was retaliated against or terminated in violation of the whistleblower portion of the Act). The Firm argued that the task orders were fixed price task orders and they were entitled to keep any profit no different then they’d be liable for eating any losses.

To prove a claim under the False Claims Act, the plaintiff must establish the defendant made a false claim or statement. Prime, 2013 WL at *7. The Middle District explained:

“There are two categories of false claims under the FCA: a factually false claim and a legally false claim. A claim is factually false when the claimant misrepresents what goods or services that it provided to the Government and a claim is legally false when the claimant knowingly falsely certifies that it has complied with a statute or regulation the compliance with which is a condition for Government payment.

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There is a further division of categories of claims as the courts have recognized that there are two types of false certifications, express and implied. Under the ‘express false certification’ theory, an entity is liable under the FCA [False Claims Act] for falsely certifying that it is in compliance with regulations which are prerequisites to Government payment in connection with the claim for payment of federal funds. There is a more expansive version of the express false certification theory called ‘implied false certification’ liability which attaches when a claimant seeks and makes a claim for payment from the Government without disclosing that it violated regulations that affected its eligibility for payment. Thus, an implied false certification theory of liability is premised on the notion that the act of submitting a claim for reimbursement itself implies compliance with governing federal rules that are a precondition to payment.”

Prime, 2013 WL at *7-8 quoting U.S. ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295, 305 (3d Cir. 2011).

The Middle District held that the plaintiff in this case failed to prove the “false” requirement and granted summary judgment for the Firm because the plaintiff failed to prove how the Firm violated the contract or federal law when the task orders were for fixed prices. The Court noted: “Here, the man-day labor rates in the Contract were set at fixed rates. Therefore, the Government knew, or should have known, that Defendants would reap the benefits of any cost savings, just as they would suffer the consequences of any cost increases.”