General False Claims Act Information
Understanding the False Claims Act
The False Claims Act is strongly supported by Taxpayers Against Fraud and the Taxpayers Against Fraud Education Fund (collectively, “TAF”). Several years ago, TAF produced a video on incentivizing integrity. We think the video is one of the best ways to explain why the False Claims Act is so effective.
TAF’s website provides additional resources about the False Claims Act and the economic fraud reporting programs at the IRS, SEC and CFTC. Click here to check out the TAF website or contact any of Morgan Verkamp’s attorneys for information about the benefits of supporting the TAF organization.
Common False Claims Act words and phrases
False Claims Act cases involve some unique terminology. Here is a quick-reference guide to some of those words and phrases:
- Relator: A relator is the person who brings a False Claims Act case.
- Complaint: A complaint is the document that lays out all of the Relator’s allegations against the defendants. It is the document that will be filed with the court, served on the government, and eventually served on the defendants.
- Disclosure Statement: A written disclosure statement is a document that will be served on the government shortly after the complaint is filed. It contains additional details about the fraud scheme that were not included in the complaint, copies of all the evidence in the relator’s possession, and any other information that would be helpful for the government to know at the outset of its investigation. The disclosure statement is required by the False Claims Act in 31 U.S.C. § 3130(b)(2).
- Under Seal: “Under seal” is court-speak for “secret” or “confidential.” Usually, documents filed in cases are accessible to the public, but documents that are filed “under seal” are accessible only to the court and to any party that is given permission to access the documents. Under the False Claims Act, a newly filed case must be filed under seal and only the court, the government, and the relator’s attorneys are permitted to know about it until the court says otherwise. Click here to read more about what it specifically means for a False Claims Act complaint to be “under seal.”
- Relator Interview: Shortly after every False Claims Act case is filed, the government will schedule a meeting with the relator and relator’s counsel. The meeting will often be attended by representatives of the federal government, as well as representatives of state governments (if any) that are affected by the fraud alleged by the relator. The relator interview provides an opportunity for the government to ask questions about details of the case, get information to formulate a plan for the investigation, and evaluate the relator as a potential witness if the case goes to trial.
- Intervention Decision / Intervene / Decline: One of the most unique aspects of the False Claims Act is the “intervention decision.” The government will either decide to intervene in the case or decline to intervene. A decision to intervene essentially means that the government will take the lead in litigating the case. If the government declines to intervene, the relator may be able to still go forward with the case. Click here to read more about the intervention decision.
- Corporate Integrity Agreement: A Corporate Integrity Agreement (also known as a CIA) is an agreement between a defendant and the government that sets parameters for how the defendant will conduct itself in the years following the resolution of a False Claims Act case. The agreement typically requires a company to put in place a strict compliance program in order to ensure that the fraudulent conduct at issue does not happen again. If a company violates the terms of a CIA, it may face fines, face additional liability under the False Claims Act, or be excluded from participating in government healthcare programs.
- Exclusion: Companies or individuals determined to have engaged in fraudulent conduct may be prohibited from continuing to do business with the government, either for a designated period of time or, in particularly egregious cases, permanently. When this happens, the business or individual is said to have been “excluded.” Exclusion is most common in the context of healthcare or defense contracting fraud matters.
Materiality and the Supreme Court’s Escobar decision
One of the primary elements of False Claims Act liability is the “materiality” of a false record or statement made to get a claim paid by the United States. In layman’s terms, “materiality” traditionally meant, “does this kind of conduct matter to the government?” The False Claims Act was amended in 2009 to add specific materiality language to the statute, and this language largely codified the definition the courts had been using, namely, does the conduct have a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property from the government?
Where courts have sometimes parted ways is on the line to draw if the conduct did not violate an express statement or certification of the contractor in order to get paid, but instead violated an underlying condition of a contract or a statute. Where does the court look to determine whether the violation at issue was significant enough to cause a false or fraudulent claim for payment? Plainly, restricting False Claims Act liability to cases of facially false descriptions of goods or services on a claim or affirmative false certifications of compliance creates giant loopholes for false or fraudulent conduct which are concealed from the government. The need to carve room to impose liability under the False Claims Act for this kind of fraud led to the use of a label, called implied certification. This theory of liability is simply the expression of the basic principle that if the government defines its bargain in a manner that requires adherence to a statute or regulation, then compliance with that statute or regulation is implied by virtue of the contractor’s request for payment.
Over the years, courts have addressed the implied certification theory of liability in different ways, with some recognizing that rigid use of labels can get in the way of evaluating whether defendants have submitted or caused the submission of false or fraudulent claims. Indeed, in 2011, this issue was addressed by the First Circuit Court of Appeals in one of Morgan Verkamp’s cases, United States ex rel. Hutcheson v. Blackstone Medical. In that case, the First Circuit recognized, along with several other circuit courts of appeal that, whether called implied certification or anything else, the knowing submission of claims in violation of material conditions of the claimant’s eligibility for payment is patently within the False Claims Act.
Then, in 2015, the United States Supreme Court announced it would hear a case on appeal from the First Circuit Court of Appeals, Universal Health Services, Inc v. U.S. ex rel. Escobar. The two questions accepted by the Supreme Court had to do with the application of the implied certification theory of liability. Taxpayers Against Fraud Education Fund (TAFEF), an organization dedicated to protecting the False Claims Act and preserving anti-fraud legislation, filed a brief in support of the relators in the case, Julio Escobar and Carmen Correa. Morgan Verkamp was honored to be asked by TAFEF to represent the organization’s interests as counsel of record for the Escobar brief. Morgan Verkamp partners Jennifer Verkamp and Chandra Napora took the laboring oar on the TAFEF amicus curiae brief, which was filed March 3, 2016. In encouraging the Court to affirm the First Circuit’s opinion on behalf of TAFEF, Morgan Verkamp wrote:
Congress’ intent has been loud and clear each time it has chosen to “modernize’ the FCA: The FCA was never intended to allow corner-cutting contractors to hide under its skirt with robotic and narrow language. Rather, Congress intended to entrench the FCA as “the protector of all Government funds or property.” (Citation omitted.) Moreover, while “[t]his Court has never required that every permissible application of a statute be expressly referred to in its legislative history,”Moskal v. United States, 498 U.S. 103, 111 (1990), Congress has specifically and repeatedly recognized that claims premised on violations of underlying statutes and regulations are within the scope of the FCA.
The TAFEF brief – which can be found in its entirety here – discussed the courts that have supported an implied certification theory and how that theory is consistent with the purpose of the False Claims Act. It also advocated for the Supreme Court to adopt a materiality-driven analysis of which violations should give rise to a False Claims Act action, rather than adhere strictly to the characterization of a statute or regulation as a “condition of payment.” The TAFEF brief concluded,
Far from supporting extra-statutory limitations of the application of the False Claims Act, the rising level of fraud reinforces that liability should be construed consistent with “the ultimate touchstone,” the FCA’s purpose. The FCA was designed to protect the public fisc. Petitioner is not a 14 year old teenager mowing the grass in a manner that flagrantly violates the requests of his mother. Petitioner is a government healthcare contractor, who should be held to the material terms of its agreement with the United States, consistent with the statute, its history, and the seminal decisions of this Court.
In June 2016, the Supreme Court issued an 8-0 opinion in Escobar that held that implied certification can be a theory for FCA liability if the contractor fails to disclose its failure to comply with material statutory, regulatory or contractual requirements. Finding the theory to be valid, the Court went on to clarify that FCA liability does not turn on the language used in a statute or regulation, but whether the defendant knowingly violated a requirement that the defendant knew was material to the government’s payment decision. 136 S.Ct. 1989 (2016).
The Court then undertook a lengthy evaluation of how the materiality requirements should be imposed. Although the Court surely intended its opinion to bring clarification to the materiality process so as to encourage uniform application around the country, this has not been the result. Almost immediately after Escobar, courts began issuing opinions evaluating materiality in varying degrees of rigidity. The result is that, once again, some parts of the country have more flexible interpretations of the materiality standard, such that relators in certain jurisdictions are likely to fair better than others – at least until the Court addresses the issue again or Congress amends the False Claims Act to make a statutory correction.
Materiality is a rapidly and constantly changing issue that will assuredly be at the forefront of False Claims Act jurisprudence for the near future. Morgan Verkamp’s attorneys continue to refine their expertise on these issues, including by continuing to closely study, lecture, write and litigate about materiality issues. If you are considering bringing a False Claims Act case and want to discuss whether the defendant’s conduct was material to the government, or if you are a lawyer seeking co-counsel to litigate a case that includes an anticipated materiality challenge, click here to contact any of Morgan Verkamp’s experienced attorneys.