Qui tam and reverse false claims

The Federal False Claims Act (“FFCA”) first emerged in the Civil War era to prevent fraud against the federal government and later expanded, from its not so humble beginnings, to one of the most powerful tools for civil whistleblowers. More specifically, the FFCA prohibits knowingly presenting or causing to be presented false or fraudulent claims, records, or statements to the federal government for payment.

The FFCA’s effectiveness hinges on the instrumental role of whistleblowers. Ordinarily, a plaintiff must demonstrate that he or she suffered some injury as a result of the defendant’s conduct in order to be entitled to a remedy, usually monetary in nature. However, under the FFCA, “Qui Tam” actions eliminate this requirement and permit a private person with knowledge of FFCA violations to bring a civil action against the wrongdoer on behalf of the federal government.

That plaintiff, referred to as the relator, is expressly protected from any retaliatory actions and may recover 15-30% of the civil penalties. The role of whistleblowers is rapidly on the rise and accounts for about 67% of all government false claim actions ever filed. [1]

The most obvious false claims involve an entity making a claim to the government with the aim of “deceiving the government into paying out monies it does not owe.” See United States ex rel. Bahrani v. ConAgra, Inc. 465 F.3d 1180, 1202-03. A not so obvious false claim is called the reverse false claim and involves “actions aimed at avoiding or concealing from the government obligations to pay monies that are owed.” Id.

Since the 1986 amendment to the FFCA, some cases have limited liability in reverse false claim actions. The trend following the 1986 amendment has been to limit liability to false statements made to avoid present, existing (rather than future, potential “obligations” to pay the government. See American Textile Mfrs. Inst. V. The Limited, Inc., 190 F.3d 729 (6^th Cir. 1999); United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013 (7^th Cir. 1999). 

While some cases attempt to limit liability, others have an expansive interpretation of the reverse false claim provisions. In Pickens v. Kanawha River Towing, 916 F. Supp. 702 (S.D. Ohio 1996), for example, the court held that potential liability existed where a barge towing company failed to report violation of the Clean Water Act in order to avoid paying fines owed to the government. The court concluded that since a vessel log was subject to review by the U.S. Coast Guard, a reverse false claim action could arise. Id. at 704.

Moreover, Congress has also made noteworthy efforts to significantly broaden the role of Qui Tam litigation. For example, the Fraud Enforcement and Recovery Act of 2009 (“FERA”), the Affordable Care Act (“ACA”), and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DF”) have reversed key decisions that limited FFCA liability and have made investigations and recoveries easier to effectuate. California followed suit and adopted Amendments to its own California Federal Claims Acts (“CFCA”) to expand potential liability, increase the penalties, and established more definite protection for employee relators.

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