The Law Firm of Piacentile, Stefanowski & Malherbe LLP

History of the False Claims Act Since 1986 and Whistleblower Recoveries of Money Under the FCA

Qui Tam is a very old legal mechanism that allows a private citizen to sue on behalf of the government for an unlawful act committed against the government. Qui tam enforcement as we know it today came from England, where it served for centuries as the principal means of enforcing a wide range of statutes. Qui tam is short for a Latin phrase, “Qui tam pro domino rege quam pro se ipso in hac parte sequitur,” which translates to, “He who sues on behalf of the King, as well as for himself.” In certain instances, the people became empowered to sue on behalf of the crown and receive a reward for the recovery.

The first qui tam statutes were enacted by the English Parliament in the fourteenth century. It allowed enforcement of the legislative priorities of the king, especially in areas where and at times when such legislation “undermined local officials’ interests. For example, the Statute of York set uniform prices for certain consumer goods, and to ensure enforcement, the act provided that one-third of the forfeited merchandise “shall be delivered to the Party that sued the Offender, as the King’s Gift”.

In the United States, the first Congress authorized qui tam lawsuits in at least 10 of the first 18 statutes imposing Congress passed involving penalties. Over the next 100 years, subsequent Congresses have continued to support this approach of law enforcement by successfully passing further qui tam legislations. While whistleblower programs have proliferated in the 21st century, since the late 19th century, distinct qui tam legislations have become less common, largely because many traditional civil matters for which qui tam legal mechanisms existed became supplanted by the all-encompassing False Claims Act, also known as Lincoln's Law.

Congress enacted the False Claim Act (FCA) in 1863, midway through the Civil War, in response to the frauds perpetrated in connection with Union War Department's contracts. During the Civil War, unscrupulous contractors sold the Union Army, among other things, decrepit horses and mules in ill health, faulty rifles and ammunition, and rancid rations and provisions. The original FCA prohibited various acts designed to fraudulently obtain money from the government. Among other penalties, the legislation imposed a forfeiture of $2000 for each violation plus double the government’s actual damages. The provision for qui tam enforcement was designed to encourage participants in fraudulent schemes to bring the wrongdoing to light.

The law was substantially weakened in 1943 during World War II while the government rushed to sign large military procurement contracts. Abuses by informers lead to the Act's restriction and near-repeal. The final legislation enacted by Congress in 1943 reflected a compromise between the positions of those advocating the abolition of the qui tam provisions in the FCA and those in favor of their full retention.

The FCA ultimately retained the common informer provision in the Act, but with many restrictions. Rewards became much more difficult to receive after these changes to the FCA. It also deprived the courts of jurisdiction over any action based upon information or evidence already possessed by the government at the time the suit was filed, with few exceptions. The informer was also denied the assurance of a minimum fixated recovery, only a fair and reasonable compensation not to exceed 10% of the proceeds.

In the early 1980s, interest emerged in strengthening FCA's qui tam provision. The Department of Defense experienced a series of scandals that involved excessive prices paid for items procured from defense contractors which ultimately put pressure on Congress to amend the False Claim Act. In 1986, Congress drastically altered various FCA provisions. For example, the penalty was increased to a minimum of $5000 and a maximum of $10,000 for each violation, plus treble (triple) the damages suffered by the government. Congress also eliminated any requirement of showing specific intent to defraud the government, imposing liability based upon “reckless disregard of the truth or falsity” of the information provided, as well as allowing general intent to suffice for showing the defendant violated the FCA.

Under these amendments, the whistleblower-informer had the option of recovering attorneys' costs, expenses, and fees, as well as 15% to 25% of the proceeds of the litigation when the Justice Department intervenes as a party and 25% to 30% when does not. It was an encouraging force to whistleblowers with insider information to detect and punish fraudulent schemes and Congress believed that large rewards made to whistleblowers undertake the risk to expose fradus of all kinds.

In 2009, Congress further broadened the False Claims Act by passing the Fraud Enforcement and Recovery Act (FERA) amendments. This led to a second boom in qui tam filings, resulting in 600-800 new qui tam cases every year. FERA passed the most important changes to the FCA from the 1986 amendments and resolved many issues that were inconsistently addressed by the courts. In the FCA, Congress granted the DOJ the power to reject cases that the DOJ has no interest in pursuing, and over the past few years, the DOJ has increasingly used this tool to prioritize its resources and sometimes, unfortunately, to block whistleblowers' rights to pursue FCA cases on their own via the qui tam mechanism in the FCA.

In Fiscal Year 2018 alone, the Department of Justice used the FCA to recover more than $ 2.8 billion. Since 1986, the Justice Department has recovered upwards of $60 billion from cases filed under the False Claims Act. Currently, the FCA has become the preferred anti-fraud tool to fight fraud where government money is involved. With an average annual recovery exceeding $3.5 billion we can say the FCA has successfully used this tool to prioritize and protect the spending of public resources.