United States: False Claims Act Retaliation In 2021

A corporate whistleblower can create more financial, organizational, and reputational damage to an employer by using the federal False Claims Act (FCA), 31 U.S.C. § 3729-33, than by using any other "whistleblower" law. While the FCA contains no requirement that the whistleblower be an employee to create the damage, most FCA whistleblowers are employees, and almost all of them bring the problem to their management or human resources department before they suffer an adverse employment action. Management often does not hear the whistle blowing when the damage is still avoidable.

Take the case of the pharmaceutical representative who reported to his management in 2010 that illegal kickbacks were tainting the sale of some of the company's blockbuster drugs. Management declined to act on his report and discouraged him from further reporting. Ten years later, the United States Department of Justice announced that the whistleblower lawsuit the pharmaceutical representative filed in 2011 resulted in a $678 million FCA illegal kickback settlement¹. For his reporting, evidence gathering (including wearing a wire for the government investigators against his managers) and 10 years of patience, the whistleblower received more than $100 million.

High-dollar, meritorious cases are not the only ones that present problems for employers. Many human resources managers and in-house attorneys have experienced the marginal performer with a bad attitude and a distrust for authority who claims fraud just before the manager presents a performance improvement plan. In the pharmaceutical or healthcare industries, managing such employees can be time-consuming, disruptive and expensive. If employees manage to convince a lawyer that their claims of fraud are meritorious, the problems multiply. The courts dismiss dozens of FCA cases every year, but the expense and disruption to the defendants in these cases is significant.

Employment lawyers should understand the basics of the FCA, from the fraud provisions that define the structure of the statute to the nuances of the whistleblower protection provisions.

I. A Brief History Lesson: How The Government's Principal Weapon Against Procurement And Program Fraud Became A Whistleblower Protection Statute

A. 1863: Congress Passed The False Claims Act

Congress passed the FCA,² now codified at 31 U.S.C. § 3729-33, in 1863 to deter and punish unscrupulous sellers of shoddy or nonconforming goods to the Union Army.³ Congress intended the law to be both remedial and punitive.⁴ The statute originally provided that a person who submitted a false claim to the United States or any of its agencies was liable for two times the amount of the damage to the government and an additional civil penalty of $2,000 per false claim submitted.⁵ The 1863 enactment contained a qui tam⁶ provision that authorized any citizen to file an action in the name of the government against a person who had submitted false or fraudulent claims to the government and it provided a reward to the citizen in the form of a percentage of the government's recovery from the case.⁷ The theory behind the legislation was that "one of the least expensive and most effective means of preventing frauds on the treasury is to make the perpetrators of them liable to actions by private persons acting, if you please, under the strong stimulus of personal ill will or the hope of gain."⁸

Originally, the relator-the individual bringing the action-could not participate in the litigation if the government intervened, although the relator's share of the recovery was 50 percent of the government's recovery regardless of whether the relator or the government ultimately pursued the case. The 1863 statute did not contain protection for the relator/whistleblower who, although highly valued by Congress, was then considered "the informer." It was many years before the more glamorous appellation "whistleblower" came into use.

B. 1943: Supreme Court Decided United States ex rel. Marcus v. Hess

Not much FCA litigation occurred between the Civil War and World War II, which saw a predictable upturn in military procurement fraud claims. The Supreme Court decided United States ex rel. Marcus v. Hess⁹ during the war, holding that the government could not prevent a relator from recovering his share of a civil judgment in a qui tam case, even though the relator did nothing more than convert the United States Attorney's criminal indictment of the defendant into a civil fraud complaint. This ploy was available to Mr. Marcus because the original statute did not require that the relator be an original source of the information about the fraud, and the Department of Justice at the time was not diligent in pursuing the civil remedies available to it. The possibility of a private citizen capitalizing on the hard work of the DOJ was not considered desirable, and Congress amended the FCA to prevent a relator from bringing a qui tam action based on information already known to the public. This principle is now known as the "public disclosure bar," and it is a hotly litigated issue in the FCA field today. There was still no whistleblower protection in the statute.

C. 1986: Congress Amended The FCA During Reagan's Military Buildup

Congress made significant amendments to the FCA in 1986 following the Reagan administration's military buildup, which had in Congress's view attracted more fraud than the government could discover and pursue on its own.¹⁰ Members of Congress described numerous examples of contractor abuse during hearings on the reform amendments. These abuses included contractor payments of $7,622 for a coffee pot, $435 for a hammer, and $640 for a toilet seat.¹¹ The principal changes included:

• The government's recovery was increased from two times to three times the loss resulting from the fraud;
• The amount of the civil penalty per claim increased from $2,000 to $10,000;
• The intent requirement was softened so that the government need not prove specific intent to defraud; the government can now establish liability through (1) actual knowledge of the falsity of a claim submitted, (2) deliberate indifference to whether the claim was false, or (3) reckless disregard for whether the claim was false;
• The six-year statute of limitations was expanded to the longer of six years from the date the false claim was submitted or three years from the date the government learned of the fraud, but in no case longer than 10 years from the date the false claim was submitted;
• Congress conferred party status in the litigation to the relator regardless of whether the government intervened to control the lawsuit; and
• Congress for the first time provided the relator and persons working with the relator protection against retaliation in employment, thereby recognizing implicitly that the great majority of relators are employees of the government contractors they sue.¹²

Footnotes

1 Gretchen Morgenson, It was his dream job. He never thought he'd be bribing doctors and wearing a wire for the feds, nbcnews.com, July 7, 2020.

2 President Abraham Lincoln signed the FCA, popularly referred to at the time as the "Lincoln Law." See 132 Cong. Rec. H6479 (Sept. 9, 1986) (statement of Rep. Glickman); see also 89 Cong. Rec. S10,741 (Dec. 16, 1943) (statement of Sen. Langer).

3 See False Claims Act, Pub. L. No. 37-88, ch. 67 § 3, 12 Stat. 696, 698 (1863) (current version at 31 U.S.C. §§ 3729-3733).

4 Cook County, Ill. v. U.S. ex rel. Chandler, 538 U.S. 119 (2003).

5 See False Claims Act § 3, 12 Stat. at 698.

6 Qui tam is a shortened form of the Latin "qui tam pro domino rege quam pro se ipso in hac parte sequitur," or he "who sues on our Lord the King's behalf as well as his own." Rockwell Intern. Corp. v. United States, 549 U.S. 457 n.2 (2007)

7 See False Claims Act § 6, 12 Stat. at 698.

8 United States v. Griswold, 24 F. 361, 366 (D. Ore. 1885) aff'd 30 F. 762 (1987).

9 See United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943).

10 See False Claims Amendments Act of 1986, Pub. L. No. 99-562, 100 Stat. 3153 (1986); S. REP. 99-345, 2, 1986 U.S.C.C.A.N. 5266, 5266.

11 Dean A. Calloway & Dan M. Silverboard, The Georgia Taxpayer Protection and False Claims Act, 65 Mercer L. Rev. 1, 17 n.12 (2013).

12 Pub. L. No. 99-562, 100 Stat. 3153 (1986) (current version at 31 U.S.C. §§ 3729-3733).

To read the full article click here