How the False Claims Act Works

The False Claims Act (“FCA”) permits individuals to file lawsuits on the government’s behalf in order to recover damages that have accrued to the government. The individual who files the lawsuit on behalf of the government is known as a “relator”.

Lawsuits filed by relators are known as “qui tam” lawsuits under the FCA.The relator is legally “standing in the shoes of the government” when the he or she files the lawsuit. Thus the relator does not have to be personally injured by the fraud in order to file the lawsuit. The FCA does require, however, that the relator has knowledge that the defendants have engaged in a fraud against the federal government.

"The preparation and service of the Disclosure Statement is the most critical aspect of filing a qui tam lawsuit and it is what distinguishes qui tam lawsuits from all other types of litigation."

Because of the knowledge requirement, relators are often employees or former employees of companies that commit fraud. But the law does not require a relator to have been employed by the wrongdoer. Relators are often patients, competitors, or even relatives of employees or former employees. Thus the relator does not need to have personal knowledge of the fraud to file a False Claims Act case. The lawsuit can be based on information the relator learned from a friend, a relative, a competitor, etc.

The relator initiates the qui tam lawsuit by filing a Complaint in a United States Federal District Court. The lawsuit must be filed “under seal”, meaning it is not disclosed to anyone except the government prosecutors and the Court. Most importantly, the defendants charged with committing fraud are not told about the lawsuit.

The seal provides the government time to investigate the fraud allegations without the wrongdoers knowing about the existence of the qui tam lawsuit. The seal remains in place for 60 days, giving the government time to decide whether it wants to pursue the case. Seals are routinely extended by the Court at the request of the government for up to two years, and often longer, while the government investigates the claim.

At the same time the relator files the Complaint under seal, the Relator must also serve on the government a “Disclosure Statement”. The Disclosure Statement is served both upon the local United States Attorneys Office and the Department of Justice in Washington DC, but it is not filed with the Court.

The preparation and service of the Disclosure Statement is the most critical aspect of filing a qui tam lawsuit and it is what distinguishes qui tam lawsuits from all other types of litigation. It is the document that will have the greatest impact on the likelihood of success of your case.

To understand the importance of the Disclosure Statement, one must first understand howthe Complaint should be prepared. Applicable federal pleading rules require only that Complaints put the defendants “on notice” of the allegations against them. The Courts do require a heightened standard of specificity for Complaints, such as qui tam complaints, that allege fraudulent conduct by the defendants. But the general axiom of law is that a Complaint should not set forth the evidence that supports the allegations in the Complaint. The evidence in support of the claim is developed and produced during the course of the discovery process that takes place in a lawsuit. The evidence is ultimately presented at trial by the parties.

In qui tam lawsuits, however, the Relator does set forth the evidence in support of his or her claims at the outset of the case in the form of the Disclosure Statement. This document should present a compelling narrative of the fraudulent schemes and the evidence (including documents and witnesses) the Relator possesses in order to support the claim. This document should be very much akin to what many prosecutors refer to as a Prosecution Memorandum that is prepared before US Attorney’s Offices decide to present an indictment to a grand jury in a criminal case.

"The timing of a lawsuit can be critical.
The first person to file a case under the False Claims Act for a particular fraud preempts all other cases."

Thus the Disclosure Statement should provide a blueprint for the government’s investigation of the fraud. It is important that your attorney be familiar with what evidence is required to prove a fraud in the courtroom so that he or she can make the best decisions as to how to structure the disclosure statement and what to include in disclosure statement.

During the investigative phase of the case, the relator and their counsel must be prepared to cooperate with government agents and prosecutors, who may need the relator and their counsel to review documents, assist in subpoena preparation, assist in to preparing affidavits for search warrants, or assistance in providing information necessary to identify and locate relevant witnesses.

Once the investigation is complete, the government will make a decision as to whether it wishes to join, or “intervene” in the case. If the government believes the suit has merit, the government will join in the case. The defendants will be notified of the existence of the qui tam case and the case could be resolved prior to being unsealed, if negotiations are successful. If negotiations are unsuccessful, the case will be unsealed and the government and qui tam relator will proceed as co-counsel against the defendant in the civil suit.

If the government declines to intervene, the relator may go forward with the lawsuit. But the chances of a lawsuit succeeding are much greater with the government’s participation. Once the case is unsealed, it is treated by the Court like any other civil litigation.

The timing of a lawsuit can be critical. The first person to file a case under the False Claims Act for a particular fraud preempts all other cases. So if you plan to bring a case, it is important to do so before another whistleblower beats you to the courthouse. Potential whistleblowers also should keep in mind that the False Claims Act has a statute of limitations that may be as short as six years.

The law stipulates that a liable defendant pay three times the government’s losses plus $5,500 to $11,000 for each false claim. When settling a case, the government often agrees to forego the civil penalties and accepts two to three times the amount of damages suffered by the government. The defendant also must pay the fees and the case-related expenses of the whistleblower’s attorney.

Under the False Claims Act, whistleblowers are entitled to 15 percent to 30 percent of whatever amount the government recovers as a result of their qui tam lawsuits. The amount varies, depending on whether the government intervened in the qui tam case and other factors.