What is Required for a Whistle Blower to Bring a Federal Qui Tam Action?

A qui tam action is a whistleblower lawsuit brought by an individual as a “relator” on behalf of the United States Government (the “Government”). The lawsuit arises under the False Claims Act (31 U.S.C. § 3729) and seeks redress against companies and individuals who have submitted false or fraudulent claims for payment to a Government program. The most common types of qui tam claims arise in the healthcare and defense industries. These claims are unique in that the whistleblower brings the lawsuit “in the shoes” of the Government and receives compensation based on a sliding-scale percentage of the recovery.

This article summarizes a) the basic requirements for bringing a qui tam action; b) the whistleblower’s “original source” requirement; c) the requirement that the action remain “under seal” while the Government investigates and decides whether to intervene in the action; and d) the remedies and compensation available to the whistleblower.

A. The Requirements for Filing a qui tam Action

In basic form, the False Claims Act prohibits persons and companies who do business with the Government from doing any of the following:

• Presenting, or causing to be presented, a false or fraudulent claim for payment or approval;
• Making or using false records or statements in connection with a false or fraudulent claim;
• Making or using false records or statements in order to decrease or avoid an obligation to pay money to the Government; and
• Conspiring to do any of the above.

See 31 U.S.C. § 3729(a). The False Claims Act imposes a penalty on violators equal to three times the amount of damages sustained by the Government as a result of the improper conduct. Id.

Qui tam claims commonly arise in the healthcare industry. False or fraudulent claims submitted to the Medicare program include illegal kickbacks to referral sources, upcoding, unbundling, and lack of medical necessity for procedures. Another common type of qui tam claim arises in the defense-contractor industry. Defense contractors may use fraudulent tactics to submit false claims to the Government, including but not limited to product substitution, improper cost allocation, and cross-charging. Likewise, there are many additional types of fraud against the Government that may give rise to a qui tam claim, including false claims made to environmental programs, research programs, public works projects, and construction projects, among others.

B. The “Original Source” Requirement for a Whistleblower

The whistleblower or “relator” need not have been individually harmed by the Defendant’s wrongful conduct in order to bring a claim. Instead, the whistleblower has standing to bring the claim on behalf of the Government as a “private attorney general.”

This rule is limited where there has been a previous public disclosure of substantially the same allegations or transactions as the whistleblower’s claim. In that case, the whistleblower is subject to dismissal, unless he or she is “an original source of the information.” The Act defines “original source” as an individual who (1) “has knowledge that is independent of and materially adds” to the publicly disclosed information, and (2) has voluntarily disclosed the information to the Government “prior to the public disclosure.” See 31 U.S.C. § 3730(e)(4).

C. The Action Remains Filed “Under Seal” While the Government Investigates and Decides Whether to Intervene

The whistleblower’s qui tam complaint is initially filed “under seal” and remains secret while the U.S. Department of Justice (“DOJ”) investigates the claims on behalf of the Government. The complaint is served on the Office of the Attorney General and the U.S. Attorney’s Office in the district where the action is filed but is not served upon the defendant while the case is under seal.

The complaint and all other filings in the case remain under seal for a period of at least sixty days. At the conclusion of the sixty days, DOJ typically will file a motion with the district court to seek an extension of the seal period while the Government continues to investigate. It is not uncommon for DOJ to ask the court for multiple extensions of this deadline.

The Government investigation usually involves one or more law enforcement or government agencies. The investigation will often involve subpoenas being issued for documents, witness interviews, and consultations with in-house or outside experts.

At the conclusion of the Government’s investigation, DOJ must do one of the following:

1. Intervene in one or more counts of the pending qui tam action. The intervention shows the Government’s intention to participate as a plaintiff in prosecuting the qui tam complaint.
2. Decline to intervene in one or all counts of the pending qui tam action. If the Government declines to intervene, the relator may prosecute the action on behalf of the Government.
3. Move to dismiss the relator’s complaint, either because there is no case or the case conflicts with statutory or policy interests of the Government.

In practice, DOJ might also settle the pending qui tam action with the defendant before intervening. This often results in a simultaneous intervention by DOJ and settlement with the defendant. In contrast, DOJ may inform the whistleblower that it intends to decline intervention. The whistleblower then decides whether to pursue the case on his or her own or to voluntarily dismiss the action.

D. The Remedies and Compensation Available to the Whistleblower

The False Claims Act provides financial incentives for persons to report government fraud. If the Government intervenes in a case, whistleblowers are entitled to recover “at least 15 percent but not more than 25 percent” of the proceeds of the action. See 31 U.S.C. § 3730(d). If the Government does not intervene, the whistleblower is entitled to more – between 25 percent and 30 percent. Id. In either case, the Court has discretion to reduce a whistleblower award, if it finds that the whistleblower “planned and initiated” the wrongful conduct at issue. Id.

Notwithstanding the increased fee range for non-intervened cases, whistleblowers typically want the Government to intervene. This is so because the Government’s investigative resources and institutional expertise far outweigh those of the whistleblower alone.

E. Conclusion

The False Claims Act provides substantial incentives for whistleblowers to report fraud against the government. However, these claims are often complex and require knowledge of specialized statutes, federal procedure and federal regulations. Moreover, possibly the most critical component in bringing a qui tam action is the hiring of competent relators’ counsel who can present the claims to the Government in a credible manner to help tip the scale towards Government intervention – a major factor in resolving the case successfully.