Qui Tam Litigation

Qui Tam Litigation

Qui Tam (“He who sues on behalf of the king as well as for himself“) is a provision of the Federal Civil False Claims Act that allows a private citizen to file a suit in the name of the U.S. Government charging fraud by government contractors and other entities who receive or use government funds, and share in any money recovered

Qui tam has been, and continues to be, a very effective and successful tool in combating government procurement and program fraud. Bolstered by amendments passed by Congress in 1986, this law has armed private citizens, who have independent and direct knowledge of fraud, with a weapon to prosecute government contractors, and others who are defrauding the Government, and share in the recovery.

What is Qui Tam:

Qui tam (Black’s Law Dictionary pronunciation: kwày tæm) is an abbreviation from the Latin “qui tam pro domino rege quam pro sic ipso in hoc parte sequitur” meaning “who as well for the king as for himself sues in this matter.”

Black’s Law Dictionary defines a qui tam action as “an action brought by an informer, under a statute which establishes a penalty for the commission or omission of a certain act, and provides that the same shall be recoverable in a civil action, part of the penalty to go to any person who will bring such action and the remainder to the state or some other institution.”

Qui tam is a provision of the Federal Civil False Claims Act that allows private citizens to file a lawsuit in the name of the U.S. Government charging fraud by government contractors and others who receive or use government funds, and share in any money recovered.

This unique law was enacted by Congress in order to effectively identify and prosecute government procurement and program fraud and recover revenue lost as a result of the fraud.

The qui tam provision has had the effect of privatizing government legal remedies by allowing private citizens to act as “private attorneys general” in the effort to prosecute government procurement and program fraud. Although most of the early successes in qui tam actions have been against defense contractors, more and more actions are being filed that involve other governmental agencies such as Health and Human Services, Environment, Energy, Education, NASA, Agriculture and Transportation. U.S. recoveries for qui tam cases, as of the end of 2003, has totaled $7.8 billion.  During the same period, relator shares, as a result of the recoveries, has totaled $1.3 billion.

In 1986, the U.S. Congress amended the qui tam provisions of the U.S. False Claims act in a way to make it more probable that a private citizen could file and win a qui tam suit. This move to amend the complaint was driven by the proliferation of news stories of companies defrauding the federal government, especially in the area of national defense. Some of the improvements included the trebling of damages, expanding the role of the qui tam relator, guaranteeing the relator a set percentage of the money that the government recovers, and the whistleblower protection clause.

By trebling the damages of the amount of fraud discovered, the qui tam relator was in a better position to convince others, especially attorneys, that it was worth the costs involved to bring a suit. One million dollars of fraud discovered could mean three million dollars back to the U.S. Treasury and a higher percentage of money to the relator. The trebling of damages also encourages companies who have defrauded the government to settle the case rather than to risk the trebling of damages found by a jury.

The role of the qui tam relator was expanded by the 1986 amendment because, before, the relator did not have the right to play a role once the government intervened in the case. Although the government has the primary role if they intervene in the case, the relator “shall have the right to continue as a party to the action.” This clause gives you and your attorney the right to watch the Justice Department’s handling of the case before settlement and allows you to go to the judge if you believe that the case is not being handled well or not in your best interests.

Before the 1986 amendment, the court could arbitrarily set the percentage of award for the qui tam relator. The 1986 amendment guaranteed a minimum of 15 percent of the recovery and a maximum of 30 percent. That was another help for the relator in finding an attorney willing to commit the time and money into a case.

The whistleblower protection clause is one of the strongest protection clauses in federal law. It not only protects the relator but anyone who investigates, initiates, testifies in furtherance of, or assists in a case. In Section 3730(h), whistleblowers who have proven harassment are entitled to “all necessary relief necessary to make the employee whole” including “reinstatement with the same seniority status… two times the amount of back pay, interest on any back pay, and compensation for any special damages.” This clause not only helps the relator keep their job if they are still employed while the case is proceeding, but also makes a company think twice about harassing any employees who cooperate with exposing the fraud. Unfortunately, this clause does not help subcontractors and independent contractors who want to cooperate with the investigation.

The effect of the 1986 amendment has dramatically changed the way that attorneys view whistleblowers. Before the False Claims Act was amended, attorneys had very little financial incentive to help whistleblowers and most legal help for whistleblowers consisted of attorneys helping whistleblowers protect their rights pro bono (for free) or through long, painful and personal wrongful discharge suits. The amended qui tam provisions changed that by showing attorneys that they could share in the recovery as a reward for fronting costs and taking risks on potentially complicated litigation. The good news is that whistleblowers’ complaints are now seen as valuable to both the government and the attorneys. The bad news is that, as in any profession, there are attorneys that are willing to take unfair advantage of the whistleblower and the whistleblower must be careful to make informed decisions about obtaining legal help.

Type of Case:

The type of cases filed as qui tam actions generally revolve around false claims that are either directly or indirectly presented to the Government for “payment or approval.” These false claims can be generated through the submission of false records, statements or other representations made to the Government.

The 1986 Amendment defines a “claim” as:

“…any request or demand which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded, or if the government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.”

Although the 1986 amendment covers a wide variety of fraudulent conduct under its definition of a false claim, the amendment does not cover false claims to the Government relating to tax returns.

Also unique to the 1986 amendment was the inclusion of what is known as “the reverse false claim” that covers fraudulent conduct of using a false record to reduce or decrease an obligation owed to the Government. An example would be a company falsely classifying certain products imported into the U.S. in order to avoid paying higher tariff amounts.

There are several general types of cases filed as qui tam actions. One is the mischarging case which is the most common type of case filed. Mischarging cases generally involve filing false claims for goods or services that were not provided or delivered. A common mischarging scenario is employee labor charged to a government contract not worked on. Other common mischarging schemes are claims made to the Government for medical services not rendered or for services performed by an attending physician when the service was actually performed by a nurse or other provider that should have been billed at a lower rate.

Another type of case is the false negotiation or defective pricing case that involves the submission of false cost and pricing data to the Government. This scheme, which takes on many forms, involves the submission of false costs or pricing data to the Government during the negotiation of a contract that subsequently results in an inflated contract price.

Other common types of cases involve product and service substitution and false certification of entitlement for benefits. Examples of product and service substitution are falsely certifying that a product meets specifications, false testing schemes such as falsely certifying that reliability testing was conducted and providing an inferior service or product. Examples of false certification of entitlement cases are falsely certifying information for FHA mortgage guarantees and price supports.

Who can file:

Under the qui tam provision of the False Claims Act, the relator (plaintiff) files an action on behalf of the U.S. Government. The Act allows a wide variety of people and entities to file a qui tam action. The more common types of relators are as follows:

Employees: An employee who blows the whistle on his or her employer is one of the most common types of relators. Experience has shown that employees normally file qui tam actions against their employers as a last resort after repeated attempts to resolve the issues internally (very often through so-called internal “hotlines”) have met with negative results. An important provision of the 1986 amendment protects employees who file an action, or assists in furthering an action, against job retaliation by the employer.

Former employees: This is another common type of whistleblower who files a qui tam action. A former employee files a qui tam action based on his or her direct knowledge of fraud on the part of their former employer. In many cases, the former employee was terminated or quit under duress as a result of trying to blow the whistle internally.

Competitors and Subcontractors: Another type of relator is the competitor of the company being charged or an employee of the competitor who has direct knowledge of the fraud being committed. Also, companies or persons who subcontract with a government contractor have filed qui tam actions against the contractor.

State and Local Governments: The 1986 Amendments gave state and local governments the power to be relators in qui tam actions. Since then, there have been a number of qui tam actions filed by local and state governments against contractors and medical providers as a means of recovering state or local revenue lost as a result of the schemes.

Federal Employees: A much maligned group are former and current federal employees who file qui tam actions. The Act, as amended in 1986, does not exclude federal employees from being a relator. However, when a federal employee does file a qui tam action, it results in considerable controversy and numerous court challenges as to whether the employee, due to his or her responsibilities, are obligated to disclose the fraud. The courts have been mixed on whether a federal employee has standing under The Act and the Justice Department remains hostile toward this type of relator.  Concerns have been raised as to whether a federal employee filing an action presents a type of conflict of interest.

Other types of qui tam relators have included public interest groups, corporations and other private organizations. However, organizations as relators have raised questions as to whether they can meet the “public disclosure” provision of the law. Some courts have dismissed organizations as relators for not being able to meet that provision.

The Act also allows a relator to file a qui tam action even if a “public disclosure” was made prior to the action being filed as long as the relator meets the “original source” test – the relator had “direct and independent knowledge” of the information on which the allegations were based and the relator “voluntarily provided the information to the government” prior to filing the action.

Who is Charged:

According to the 1986 Amendment to the False Claims Act, almost any person, corporate organization or government entity can be charged as a defendant. The only exceptions are certain public officials such as members of Congress, judges and senior executive branch officials. Generally, government employees can also be charged.

Some of the more common defendants in qui tam actions are:

Government Contractors and Subcontractors: The most common defendant in qui tam actions. Subcontractors can be charged if they cause a false claim to be presented to the Government through a contractor.

Medical Providers: Another common defendant in qui tam actions involving Medicare/Medicaid fraud. Includes doctors, hospitals, HMOs, and clinics.

Private Universities: Private universities have been charged as defendants in qui tam actions that involves their handling of federal grants and research and development money.

State and Local Government Agencies and Officials: Because they are recipients of large amounts of federal money, state and local entities can be defendants in qui tam actions. This also includes state run universities and colleges.

In general, any organization or person who uses federal money can be charged as a defendant in a qui tam action

How does Qui Tam work:

Filing: A qui tam relator files a complaint, under seal, in a U.S. District Court that has jurisdiction over the case. Along with the complaint, the relator must also file a “written disclosure of substantially all material evidence and information the person possesses.” The primary purpose for the written disclosure is to provide the Government with enough information to properly investigate the claim in order to determine if it will join in the lawsuit.

Government Role after Filing: Once a complaint and written disclosure is filed under seal, the Department of Justice (DOJ) has 60 days to investigate the information disclosed and determine whether it will join in the lawsuit. The DOJ can, and often does, request the court grant extensions to give it more time to investigate. It is not unusual for a complaint to remain under seal for as long as two to three years before the DOJ makes a decision. However, a relator does have the right to challenge extension requests and to have the seal lifted.

Once a complaint is filed, the DOJ will assign the case to an investigative agency that has jurisdiction over the allegations. During the period of time the complaint is under seal, the Government investigators will conduct a preliminary investigation based on the information disclosed by the relator. This usually includes a comprehensive interview of the relator and review of relator’s records if any exists. It also will include interview of any corroborative witnesses, review of appropriate government records and interviews of government officials. The investigation can also be expanded to include obtaining and reviewing the records of the defendant through the subpoena process. Once the preliminary investigation is completed, the results are analyzed by the DOJ in order to determine whether it will join in the lawsuit.

While under seal, the DOJ has a number of options in making its decision. It can elect to join in the lawsuit, decline to join, move to dismiss the action, or attempt to settle the action prior to a formal investigation. Under the statute, if the DOJ elects to join in the lawsuit, it controls the action and has the primary responsibility for prosecuting the case. The DOJ, under the circumstances, can limit the relator’s participation during the case. If the DOJ declines to join, it pulls out of the investigation, but the relator is entitled to investigate and prosecute the case. The DOJ can also dismiss the complaint, but rarely does so. Instead, the DOJ will usually just decline to join if it feels there is no merit to the complaint, there is a lack of resources, or for political reasons, that allows the relator the option of continuing with the case on his or her own.

In most cases, the DOJ will involve civil and criminal resources from the U.S. Attorney’s office within the area where the case was filed. In some cases, the U.S. Attorney will decide to open a criminal investigation based on the qui tam allegations. If that occurs, the civil qui tam case will be stayed until the completion of the criminal investigation.

Relator’s Role if Government Declines: If the DOJ declines to join in a qui tam action, the relator has the right to investigate and prosecute the case. However, the statute gives the Government the right to intervene in the action at a later date if it feels there is a good reason to do so. The relator, if pursuing the case, has full discovery rights (court approved access to contractor and government records and sworn testimony of witnesses) as provided under the Federal Rules of Civil Procedure. If the Government does not join and the relator is successful in pursuing the case, the relator, generally, will receive a larger percentage of the award.

Relator’s Share of the Award: The 1986 Amendment to the False Claims Act increased the relator’s share of the award in qui tam actions. Prior to 1986, relators were not guaranteed any more than 10 percent of the award. The 1986 Amendment raised the relator’s share to a minimum of 15 percent and a maximum of 30 percent.

The size of the relator’s share of the award depends on several factors:

  • If the Government joins, and successfully prosecutes the case, and the relator was not involved in the wrongdoing, the relator can receive between 15 and 25 percent depending on the extent of the relator’s contribution to the case.
  • If the Government does not join and the relator successfully prosecutes the case, the relator will receive between 25 and 30 percent of the proceeds.
  • If it is determined the relator was involved in the wrongdoing, the court can reduce the relator’s share at its discretion depending on the circumstances of the relator’s involvement. The court will dismiss a relator out of an action and deny receipt of any share of an award if the relator is convicted of criminal conduct arising from the wrongdoing alleged in the lawsuit.

In addition to receiving a percentage of the award, the False Claims Act also provides that the relator, if successful, will be reimbursed for expenses incurred, including attorneys fees and costs.

Historical Overview:

Qui tam actions have been used as far back as the 13th Century in England where they were popular as a way by private citizens to gain access to royal courts. In the U.S., qui tam actions have been around since 1776, although seldom used until 1986. In 1863, during the Civil War, Congressional hearings disclosed widespread instances of military contractor fraud that included defective products, substitution of inferior material, and illegal price gouging of the Union Army. At the urging of Abraham Lincoln, Congress enacted the Civil False Claims Act, including the qui tam provision, as a weapon to fight procurement fraud. This law has also been known as the “Lincoln Law” and the “Informer’s Act.”

The False Claims Act, as enacted in 1863, was designed to entice whistleblowers to come forward by offering them a share of the money recovered. Even though this Act was enacted to combat military contractor fraud, it was applicable to all government contractors, federal programs and any other instances involving the use of federal revenue.

Between 1863 and 1986, very few people took advantage of the law primarily because of many difficult obstacles built into the Act that whistleblowers had to overcome in order to be successful and many judicial rulings making it difficult to enforce the law. Also, a problem for anyone who desired to file a lawsuit under the 1863 Act, was the provision that all relators (plaintiffs) had to bear all the costs of the lawsuit and the Government could takeover the suit at any time, at its discretion. However, if a relator was successful, the 1863 Act allowed him or her to recover a maximum of 50% of any amount recovered.

In 1943, Congress amended the Act which provided that if the Government had prior knowledge of the allegations, the relator had no jurisdiction over the lawsuit even if the relator had independent and direct knowledge of the allegations. Also, the 1943 amendments reduced the award to the relator from 50% to a maximum of 25% if the Government did not take over the case and a maximum of 10% if it did.

In 1986, again as a result of serious concern over rampant procurement fraud, inadequate efforts of regular law enforcement to control the fraud, and the obstacles making it difficult for whistleblowers to bring qui tam actions, Congress passed amendments to the Act increasing the whistleblower’s share of the recovery to a maximum of 30%, increasing the powers of relators in bringing qui tam lawsuits and increasing the damages and penalties that can be imposed on defendants. Important to relators, the 1986 amendment provides that even if the Government joins the lawsuit and has “primary responsibility for prosecuting the action,” the relator “shall have the right to continue as a party to the action.” Also, prior Government knowledge of the allegations does not automatically prevent a relator from filing a qui tam action.

As a result of the 1986 amendments, qui tam actions have increased dramatically and have been the most effective and successful means of combating procurement and program fraud. Since 1986, qui tam recoveries have exceeded $1 billion with most of the successes involving fraud in Defense and Health Care programs.

Wage & Hour

One of the oldest federal employment laws is the Fair Labor Standards Act (FLSA), the Depression-era law that sets forth certain minimum wage and overtime standards applicable to virtually all U.S. employers. Although the FLSA covers a number of different areas, including child labor laws, there are two key provisions of the FLSA that impact just about every employee who works for a wage in this country: (1) the minimum wage provision (the federal minimum wage is currently $6.55 per hour, although in a few states, unfortunately not Georgia, the minimum wage is higher); and (2) the overtime provision.

Overtime

The overtime law states that all employees who are not exempt from the FLSA must be paid at a rate of one and one half times their regular rate of pay for all hours worked in excess of 40 hours in any workweek. Although this sounds like a simple rule, it’s far from simple. In fact, the overtime laws are incredibly complex, and there are a number of arcane rules and broad exemptions that employers often rely on in an attempt to avoid their obligation to pay overtime. As a result, unpaid overtime is one of the most frequent sources of employee complaints, and overtime class action cases are probably the fastest growing type of employment litigation in our federal court system.

The most important issue in overtime law is whether or not the law applies to the type of work you do—whether or not you are exempt. Exemptions are rules that state that if you make more than a certain amount of money per week, and if you perform a certain type of “white collar” work, then you are exempt from the overtime laws, and your employer need not pay you time and a half no matter how many hours you work in a week. If, however, the exemptions do not apply to you, then you are considered non-exempt, and your employer must pay you time and a half for every hour you work more than 40 in any workweek.

There are three principal exemptions under the FLSA:

  • Executive
  • Administrative
  • Professional

In order for your employer to establish that your work falls under one of these exemptions, thereby disqualifying you from overtime, your employer must prove that you are paid on a salary basis in an amount not less than $455 per week and that your principal duties are executive, administrative, or professional in nature.

Salary basis test

The salary basis test means that you must be paid a real salary to be exempt—that typically means that you receive a fixed and predetermined sum of money each pay period that does not vary with the amount of hours you work, or the quality of your work. If your compensation varies with the amount of hours you work (in other words, you punch a time card or fill in time sheets), then you are a non-exempt hourly employee and entitled to overtime. Even if you are paid on what appears to be a salary basis, but your employer docks your pay for short term absences or problems with your work, then you are not paid on a salary basis and you are probably non-exempt and eligible for overtime.

It’s critical to remember in these cases is that the title or label of your job does not matter; it is the nature of your work that determines whether or not you are exempt. Don’t be fooled by some companies’ practice of giving hourly employees titles that sound like they are exempt, such as assistant manager. If you don’t perform true managerial functions, then no matter what your job title says, you will still be entitled to overtime.

Duties test

As mentioned above, if you perform typical white-collar duties, then you may be an exempt employee. There are three principle white-collar exemptions: (1) executive; (2) administrative; and (3) professional. There are also a number of miscellaneous exemptions.

Executive Exemption

In order for your employer to prove that your duties are primarily executive in nature, your employer must demonstrate three separate facts:  (1) that your primary duty consists of either managing your employer’s business, or a specific department of the business; (2) that you customarily and regularly direct the work of at least two full-time employees: and (3) you must have the authority to hire or fire other employees, or have significant input into hiring, firing, and other important employment decisions.  Typically, the jobs that that qualify for this exemption are executive level positions, high-level managers, and other individuals who manage and control some important aspect of the company’s business.

Administrative Exemption

In order for your employer to prove that your duties are primarily administrative in nature, your employer must demonstrate two separate facts:  (1) your primary duty must be the performance of office or non-manual work directly related to the management or general business operations of your company; and (2) your primary duty involves the exercise of discretion and independent judgment with respect to important company business.

Professional Exemption

In order for your employer to prove that your duties are primarily professional in nature, your employer must demonstrate all of the following: (1) your primary duty must involve work that requires advanced knowledge, such as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment; (2) the advanced knowledge must be in a field of science or learning; and  (3) the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction—in other words an advanced degree.  There is also a related creative professional exemption.  This exemption applies if your primary duty involves artistic or creative work.

In addition to these three exemptions, the two other common exemptions are for outside salespeople and certain computer employees.

Computer Employee Exemption

To be subject to the computer employee exemption, you must be paid on salary basis of not less than $455 per week; you must be employed as a computer systems analyst, programmer, software engineer or skilled worker in the computer field; and your primary duties must consist of software, hardware or system consulting, design, development, documentation, analysis, creation, testing or modification or a combination of these skills.

Outside Sales Exemption

To be subject to the outside sales employee exemption, your primary duty must be making sales or obtaining orders or contracts, and you must be customarily and regularly engaged away from your workplace.

Rights and Remedies

The FLSA is one of the most employee-friendly of the federal labor laws, and it sets minimum standards applicable to all covered employees that cannot be reduced or waived.  In other words, if you are non-exempt, then your employer must pay you overtime, and it cannot ask you to take a lesser amount or get you to waive your rights to overtime in any way.  However, state laws and collective bargaining agreements can impose greater duties on employers than the FLSA, and in a few states the minimum wage is higher than the federal minimum.

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