Guard against False Claims Act exposure Featured

11:41am EDT December 20, 2004
Any government contractor, health care provider or other organization that submits claims for payment to the United States (or any of its agencies) must be aware of the possibility that one of its own employees -- from its general counsel down to its janitor -- is capable of blowing the whistle under the federal False Claims Act (FCA), 31 U.S.C. §§ 3729 et seq., purporting to reveal fraud by the organization in conjunction with its submission of claims to the government.

The organization's contractors, subcontractors and vendors also employ potential whistleblowers, who can receive up to 30 percent of a recovery by exposing the organization to damages and penalties that could drive it out of business.

Civil FCA (or qui tam) actions are filed under seal, meaning that the defendant is not served with the complaint. While under seal, the U.S. government investigates the allegations of the whistleblower (sometimes called a relator) to determine whether it believes the allegations have merit, and thus, whether it will actively participate in the prosecution of the lawsuit.

Even though the specific allegation is not revealed until the government concludes its initial investigation (which can take several years), the organization may grow to suspect that it is the subject of a qui tam suit. Suspicion may arise if it receives government-issued subpoenas, government agents seek to interview its employees or those of its contractors, or if the government obtains and executes search warrants with respect to the organization's offices.

An organization that believes it is a defendant in a sealed FCA action must resist the urge to fire the suspected whistleblower. The FCA contains an anti-retaliation provision, under which the relator can hold the employer liable for taking an adverse employment action against him or her as a result of whistleblowing activities.

At the same time, the organization cannot afford the risk of continuing to employ the suspected relator in his or her normal capacity, particularly if the work gives the individual access to documents, financial records or other materials that might be used in building a case against the employer.

While the FCA is a civil statute, allegations of false claims submitted to the government implicate the possibility of criminal exposure. Commonly known as the Criminal False Claims Act, 18 U.S.C. § 287 provides that anyone who knowingly makes or presents a "false, fictitious or fraudulent" claim upon or against the government is subject to five years of imprisonment and a fine.

Similarly, under 18 U.S.C. § 286, anyone entering into any agreement, combination or conspiracy to defraud the government by "obtaining or aiding to obtain" payment of any false or fraudulent claim is subject to a separate criminal penalty of 10 years' imprisonment and a fine. The broad languageexposes any defendant "aiding" the presentment of false claims to criminal liability.

Finally, 18 U.S.C. § 1001 assigns criminal liability to a defendant who knowingly and willfully "falsifies, conceals or covers up ... a material fact," "makes any materially false, fictitious or fraudulent statement or representation" or "makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry ... "

The criminal penalties posed by § 1001 (under which Martha Stewart was convicted) continue to loom as a threat even after an investigation is underway. Accordingly, a qui tam defendant responding to civil FCA discovery requests, engaging in settlement discussions with the government or agreeing to be interviewed in conjunction with a qui tam investigation must be aware of the risks of criminal liability.

In defending FCA cases, acquiring legal counsel as soon as suspicions arise is critical to prevent massive liability to the government, to protect against retaliation claims by relators who stand to gain millions of dollars and to minimize exposure to criminal penalties for submitting false claims.

Legal defenses exist to dispose of baseless claims early in the litigation, and seeking counsel as early as possible can limit or eliminate further liability.

Michael J. Bronson is an attorney in the Cincinnati office of Vorys, Sater, Seymour and Pease LLP, where he practices in the litigation group. Reach him at mjbronson@vssp.com or (513) 723-4492. Glenn V. Whitaker is an attorney in the Cincinnati office and practices in the area of general litigation with emphasis on the representation of individuals and corporations in complex civil litigation and criminal proceedings. Reach him at gvwhitaker@vssp.com or (513) 723-4608.