Qui Tam: Funny Word, Serious Cause of Action
Qui tam pro domino rege quam pro si ipso in hac parte sequitur
"Who sues on behalf of the King as well as for himself"
History of Qui Tam Actions
Qui tam actions date back to the fourteenth century as a product of the British crown’s desire and need to enforce its laws. Without an organized police force or structure of government agencies and inspectors, the British government recruited citizens to help the government enforce laws, offering a reward for persons willing to do so. The tradition of qui tam actions continued in the Anglo-American system. The First Continental Congress enacted several statutes containing qui tam provisions. Such laws were not widely used and did not become overtly necessary until the Civil War. In 1863, the False Claims Act (FCA) was first enacted to combat fraud and price-gouging in war procurement contracts. Enacted at President Lincoln’s urging, the FCA has been referred to as the “Lincoln Law” or “Informers Act.” FCA actions are now commonly referred to as “whistle-blower” actions and are governed by The False Claims Act at 31 U.S.C. § 3729, et seq.
To discover and prevent such frauds on the United States, the FCA provides an incentive to private citizens to notify the government of fraudulent actions. Private persons, referred to as relators, may bring civil actions for violations of 31 U.S.C § 3729. If the relator is successful in the action he can recover up to thirty percent of the proceeds in addition to reasonable attorneys’ fees, expenses and costs. Given, the incentive it provides, the FCA has consistently tried to balance overwhelming the courts with frivolous lawsuits with the government’s interests in protecting itself and uncovering frauds against it. The 1863 version of the Act discouraged frivolous lawsuits by requiring qui tam plaintiffs bear their own costs, yet it allowed relators to bring actions based on information generally available to the public or already known to the government. As a result, one could exert minimal efforts, obtain public information, file an action and gain an undeserved portion of the proceeds. Qui tam actions exploded during World War II due to the significant increase in government contracts. Opportunists awaited the filing of criminal indictments and then brought qui tam actions against them. One case made its way to the United States Supreme Court in 1943. The Court allowed a qui tam action to proceed where it was brought based on the indictment and guilty plea of the defendants – all information of public record. The case sparked a public debate and, less than one year later the FCA was amended to prohibit qui tam actions brought based on information publically available or already in possession of the government.
After the restriction of claims under the FCA, during the 1980s military build-up the government found a renewed need for citizens to report fraud. As a result, in 1986 the FCA was amended to encourage whistle-blowing but to discourage purely opportunistic relators. The 1986 amendments repealed the jurisdictional bar for actions based on information “already in possession of the government” and first enacted the “original source” rule. Under the new provisions a relator can bring a suit based on information already in possession of the government or information previously publicly disclosed so long as he is the original source of the publicly disclosed information. “Original source” is defined as an individual who either prior to a public disclosure has voluntarily disclosed to the Government the information on which allegations or transactions in the claim are based or, who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information the information to the Government before filing an action.
The FCA Today
In 2010 the Affordable Care Act (ACA) added new limitations to the public disclosure provision and expanded the original source exception. Instead of a threshold jurisdictional bar, the 2010 amendment requires dismissal of a claim if brought based on publicly available information. The ACA also narrowed the definition of “based on” to mean “substantially the same.” Dismissal is only required if the allegations in a qui tam action are “substantially the same” as publicly disclosed allegations or transactions. Prior to this amendment several Circuits, including the Sixth Circuit, instituted a blanket prohibition against actions if any part of the allegations were “based upon” publicly disclosed information. The 2010 amendment obviously supersedes this line of cases but the preceding cases have not yet been overruled.
While 31 U.S.C. § 3730 governs qui tam actions, 31 U.S.C. § 3729 defines “false claims” and delineates the fraudulent conduct which can give rise to an action under the FCA. Since 1986 qui tam actions and government recoveries have increased. Since 2000, the government has recovered an average of more than $1.2 billion per year. An explosive area of growth in FCA actions is healthcare. From 1987 through 2011 sixty-nine percent of dollars recovered were healthcare dollars. Two-thirds of the top 100 qui tam settlements were paid by healthcare entities. Examples of common qui tam cases include: mischarging the government for services rendered, making claims to Medicare for medical services that were not rendered, using a physician identifier to bill Medicare for a service actually provided by a physician assistant or ARNP, billing Medicare for procedures that are not medically necessary, falsely certifying federal programs were complied with in order to receive government benefits, submission of false cost reports, and “reverse actions” such as not paying the government amounts owed to it.
Before filing an action it is important to thoroughly investigate the fraudulent actions as well as any publicly disclosed information. Your complaint must allege specific information, is subject to dismissal both by the Court and the government, and your case is heavily scrutinized every step of the way. In addition, your client’s involvement and knowledge are heavily considered when the Court is determining his recovery and statutory attorney’s fees. Qui tam actions are brought in federal district court by the filing of a complaint brought in the name of the United States versus the parties perpetrating the fraud(s). The complaint must be pled with particularity under F.R.C.P. 9(b). The allegations must include facts as to time, place, and substance of the fraud, the reliance, the fraudulent scheme or intent, and the resulting injury. The Sixth Circuit upheld a dismissal of an action where the relator did not identify any allegedly false claims or submission to the government. While you can plead fraud ‘upon information and belief’ you must state the facts upon which the belief is based. In addition to being pled with particularity, the complaint must be accompanied by a written disclosure of substantially all material evidence and information known to the relator. The complaint must be filed in camera and remain under seal for at least sixty days. At any time during the sixty days, the government, upon a showing of good cause, may move the court for an extension of the time under which the complaint must remain sealed. However, the government must notify the court within the sixty days whether or not it will intervene and proceed with the action. If the government intervenes in the action it becomes primarily responsible for prosecuting the action. The relator has the right to remain as a party to the action but limitations can be placed on the relator’s involvement if such relief is sought by the government and granted by the court. Additionally, the government has the ability to dismiss or settle the action with the defendant(s) and may do so over the objection of the relator. However, the dismissal of the action requires the relator be notified and the court must provide the relator with an opportunity to be heard. The hearing is the relator’s opportunity to convince the government not to dismiss, as the choice to voluntarily dismiss belongs to the government. The settlement of a qui tam action is scrutinized more heavily by the courts and if the relator objects to the settlement the court must hear the matter and make a determination the settlement is fair, adequate, and reasonable under the circumstances.
If the government chooses not to intervene in the action, the relator may proceed with the action on his own. If the government requests, and at its expense, the relator must serve it with copies of all pleadings and deposition transcripts. If the government later chooses to intervene, the court may allow it upon a good cause showing, but without limiting the status and rights of the relator. If the government does not intervene in the action, the relator assumes both a greater risk and greater reward. The relator’s chances of success drop without the government’s intervention but, if the relator is successful he is entitled to between 25% and 30% of the proceeds from the action. He is also entitled to reasonable attorneys’ fees and costs. In contrast, a relator in a successful action where the government intervenes is entitled to between 10% and 25% of the proceeds of the claim. The relator’s recovery depends upon the extent to which the relator substantially contributed to the prosecution of the action at every stage of the litigation.
The FCA also provides for statutory attorneys fees, expenses, and costs. The three categories of recovery are distinct and separate and the relator is entitled to submit accountings of each category to the court. The same standard of reasonableness applies to each category. It is important to keep a detailed log of the work you perform, even if working on a contingent basis. When petitioning the court for your attorneys’ fees you must show the number of hours “reasonably expended” on the case by submitting a detailed log of the hours you put in and a description of the work you performed. It is the role of the court to make an accurate and equitable award and the government is entitled to review the relator’s applications for fees, costs, and expenses. The fee application and log need not be so detailed as to account for every minute or the precise work completed, but it has to be sufficiently detailed to permit the District Court to independently determine whether the hours and work are justified. Attorneys’ fees can be reduced for a number of reasons. For example, if the relator brings multiple claims under the Act the attorneys’ fees may be reduced if only a portion of the claims are ultimately successful. Finally, the fee arrangement in a qui tam case can pose many ethical considerations. Some District Courts have held the percentage contracted for in a contingency fee agreement is not a cap to the attorneys’ fees the relator can recover under the Act. If fees above the amount of the contingency percentage are reasonable, they may be awarded by the court.
Because qui tam actions, like many tort claims, have been characterized as “jackpot” actions, there continues to be a debate on balancing the government’s interests in ending frauds and recovering taxpayer dollars on one side with the incentives private citizens require to bring actions on the other. Some believe relator actions are solely financially driven while others believe relators are simply interested in stopping frauds – the majority of cases likely lie in the middle. Some suggest the solution for separating the two is a cap on relator awards or a prohibition against qui tam actions where the relator did not take advantage of other reporting mechanisms. But, until Congress decides to amend the FCA, relators are entitled to whatever recovery is “reasonable” as determined by the court.
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