by Stephen Kohn
The FCA provides employees with an effective tool to protect taxpayer dollars. Every employee who works for government contractors, or who has any knowledge of how government monies are acquired or spent, is a potential relator under the act. The law is designed to encourage, protect, and reward employees who risk their careers to “do the right thing.”
Should an employee with information about false claims against federal or state governments blow the whistle? Given the amounts at stake for the whistleblower, the benefits obtained by the taxpayers, and the public interest in holding government contractors fully accountable for how they obtain and spend government money, the question is almost rhetorical. Any employee who believes that he or she has information that the government is being ripped off—that contracts were illegally bid, that kickbacks were paid, that defective products were sold, or that the government was overcharged—should, at a minimum, obtain expert advice as to whether or not he or she may have an FCA case. There is too much at stake to ignore the benefits of this powerful law. No one should simply turn his or her back on a potential multimillion dollar reward, especially when applying for the reward serves overriding public interests.
Twelve Steps to Filing a Successful False Claims Act Case
A number of critical requirements are unique to the False Claims Act. All of the requirements and standards set forth in the law must be strictly followed, regardless of how frustrating these rules may be. Given how whistleblowing actually unfolds in the workplace, unfortunately, it is very easy for whistle-blowers to make mistakes. Attorneys defending FCA cases have aggressively jumped on numerous technical requirements, and with some success have convinced some courts to dismiss otherwise legitimate whistleblower cases. Despite Congress’s clear intent, given the high stakes in FCA cases, it is imperative that anyone filing a claim strives to conform to a narrow reading of the law. Otherwise he or she risks giving crooked contractors an excuse to throw the case out of court before a jury can hear the facts.
STEP 1: DON’T GO PUBLIC
Unlike almost every other whistleblower law, the FCA does not encourage whistleblowers to publicly disclose their allegations. The opposite is true. When an employee learns that his or her employer is ripping off the government, going to the press may actually prejudice the case. The FCA processes whistleblower claims in two categories. The first are cases for which there has been no “public disclosure.” That is the best category for employees. If there has been no public disclosure, almost any person can file a claim and qualify as a “relator,” as the term is used under the FCA. Relators do not have to be traditional whistle-blowers; they only have to be persons who have knowledge of the underlying fraud and report the fraud to the United States pursuant to the procedures set forth in the FCA. Corporations (including nonprofit public interest groups) have qualified for “relator” status under the FCA.
However, if there has been a “public disclosure,” the class of persons who can qualify for obtaining a reward under the FCA is limited. The rationale is simple: If the allegations of fraud are publicly available, anyone could simply read about the fraud in the newspaper and then file a FCA qui tam case. The law wants to encourage two types of people to step forward, file FCA cases, and qualify for rewards: First are persons who provide the government with information that is not publicly available. Second, even if some or all of the allegations are publicly available, the government still wants to encourage true “insiders” to step forward and provide the United States with first-hand knowledge about the frauds.
The “public disclosure” rule is counterintuitive to whistleblowing. The very term whistleblower indicates someone blowing a whistle—creating a loud, sharp sound in order to call attention to the wrongdoing. Whistleblowers are generally viewed as people who publicly expose wrongdoing in order to force change. But this assumption does not apply to the FCA. Rather than calling public attention to a problem, the goal of the law is to encourage whistleblowers to quietly inform the government of the misconduct, and permit time for the government to conduct a fair and impartial investigation, outside of the public spotlight often caused by a whistleblower disclosure.
The government wants to know what the whistleblower knows before the wrongdoers have an opportunity to hide their crime. If allegations are blasted in the news media, the targets of the fraud investigation can learn that there is a whistleblower on the jobsite, and can learn about the issues being investigated. The government loses not only the element of surprise, but it can also lose access to its most important source of information: the whistle-blower. Moreover, the information circulated in the press may aid wrongdoers in coaching or intimidating witnesses, hiding information, “spinning” the problem in a misleading manner, or engaging in an outright cover-up. But if there has been no “public disclosure,” there is a stronger possibility that whistleblower’s existence will remain confidential, permitting the government to conduct a more thorough investigation. The whistleblower can serve as an undercover informant while still working for the company and provide information on white collar crimes that is often impossible to detect without the assistance of employees willing to risk their careers in order to “do the right thing.” In fact, it is not uncommon for government agents to ask the whistleblower to “wear a wire” and secretly record conversations with those involved in the fraud.
What precisely is a public disclosure? This concept is hotly debated in the courts. To resolve some of this confusion, in 2010 Congress amended the FCA and redefined “public disclosure.” Currently, a “public disclosure” under the FCA is a disclosure of “allegations or transactions” in a “Federal criminal, civil, or administrative hearing” if the “Government or its agent” was a party to the proceeding. Public disclosures also include “allegations or transactions” disclosed “in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation” or disclosed in the “news media.”
STEP 2: TRY TO QUALIFY AS AN “ORIGINAL SOURCE”
As explained in step one, if the basis of your FCA claim was not “publicly disclosed,” almost every potential whistleblower will have standing to file an FCA claim and qualify for a reward. But if the basis for your claim was “publicly disclosed,” you will most likely have to demonstrate that you were an “original source” of the allegations that form the foundation of the FCA case.
Never assume that there was no “public disclosure.” Companies have become infamous for scouring the public record in an attempt to find any release of information that could possibly qualify as a “public disclosure” of the transactions or allegations that form the basis of an FCA case. Thus even if you are not aware of any public disclosure, it is best to prepare for such a defense. When drafting the initial complaint in the case, if possible, set forth the basis for your argument that you are an original source of the allegations.
The definition of an “original source” is as follows: “‘original source’ means an individual who either (i) prior to a public disclosure. . . has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (ii) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.”
In other words, if you file your FCA claim before there is a “public disclosure,” you are covered. If you file your claim after a “public disclosure,” you must demonstrate that you are a “true whistleblower,” i.e., that you were able to obtain knowledge of the underlying wrongdoing independent of any information that may have been published in the press or reported in a government report, and that your information “materially adds” to the information that is in the public domain. Additionally, you must provide this information to the United States prior to filing your FCA case.
In filing a qui tam, an employee must always strive to meet the definition of an origin
al source. Congress understood the original source to be the typical whistleblower—an employee with inside information about the fraud.
Word to the wise: If you have an FCA case, don’t run to the press, run to the Department of Justice.
STEP 3: CONFIDENTIALLY FILE ALLEGATIONS WITH THE GOVERNMENT
It is best practice to disclose allegations to government regulators prior to filing a formal False Claims Act case. Voluntarily providing information to the government before filing the formal complaint satisfies one of the requirements for qualifying as an “original source” whistleblower.
Providing information to the government before filing a formal FCA complaint is very easy. Many whistleblowers, without even understanding the law, contact government agencies before filing a qui tam. Employees often initiate contacts with government contracting officials or provide information on government sponsored “hotlines.” Every major government agency has an Office of Inspector General. That office has jurisdiction to accept and investigate allegations of contractor fraud and/or any form of procurement abuse. The website for contacting agency inspectors general is set forth in the Resources for Whistleblowers section at the end of the book.
STEP 4: FILE FIRST
Another unique provision in the law is the “first to file” rule. Only the person who files the claim first has the right to pursue the case and collect the reward. If an employee has information on potential false claims, it is imperative that he or she assemble the evidence and file the claim as quickly as possible. An informal disclosure to the government does not count. Additionally, if the government files a claim against the contractor before the whistleblower files his or her claim, the right to file the qui tam may also be barred. Whistleblowers cannot delay. Procrastination may prove fatal.
“The False Claims Act works. It works because it is an effective tool to fight fraud across the full spectrum of federal programs and initiatives. The FCA works because it provides powerful incentives for companies to do business the right way.”
Stuart Delery, Assistant U.S. Attorney General
STEP 5: CHOOSE THE VENUE
One of the most useful features of the False Claims Act is a very liberal venue rule. A party can file a lawsuit in any jurisdiction in which any of the named defendants “can be found, resides, transacts business, or in which any [false claim] occurred.” This often gives an employee a choice of districts in which she or he can file a claim. A claim should be filed in the venue that is most favorable for pursing the case, not necessarily in the judicial district where the company and/or the whistleblower resides. Some of the factors whistleblowers may weigh in deciding which jurisdiction to file a claim are: (a) where you or your lawyers reside (this can reduce litigation costs down the road); (b) the reputation of the local district court judges and U.S. Attorney’s Office; and (c) the FCA case law developed by the appeals court in the judicial circuit for which the claim is filed.
STEP 6: PREPARE A DETAILED “DISCLOSURE STATEMENT”
Most civil suits are initiated with the filing of a short, concise complaint that is filed in the local court. Not so with the FCA. The FCA requires that the whistleblower/relator file a detailed “disclosure statement” with the United States at the same time a complaint is served on the government. The rule is fairly simple: “A copy of the complaint and written disclosure of substantially all material evidence and information the person possesses shall be served on the Government pursuant to Rule 4(d)(4) of the Rules of Civil Procedure” (emphasis added). The disclosure statement is only filed with the United States government. It is not filed with the Court and it is not served on the defendants. The statement should be kept strictly confidential.
The disclosure statement requirement is consistent with other aspects of the FCA. Essentially all the evidence the whistleblower has to back up his or her allegations of misconduct should be contained in the statement. All documentary evidence that supports the claim should be copied and submitted along with the written statement. This requirement compels the whistle-blower to surrender the evidence of wrongdoing to the government as quickly as possible. It also permits the United States to commence its investigation in a timely manner.
Put your best foot forward when filing a disclosure statement. The statement constitutes a documentary record of the nature of your allegations and establishes the scope of your claims. The information set forth in the disclosure can and will play a critical role in determining whether the United States joins in your lawsuit.
STEP 7: FILE THE COMPLAINT “UNDER SEAL” AND KEEP IT CONFIDENTIAL
Unlike a normal lawsuit filed in court, a False Claims Act case must be filed “under seal.” Everything about the filing of the complaint is strictly confidential. The defendant is not informed that a lawsuit has been filed. The complaint is kept confidential and only provided to the Justice Department and the court. The whistleblower cannot tell anyone that he or she filed a complaint. The complaint is not “served” on any party, except the United States.
Until the court issues an order lifting the “seal,” no one else is provided with a copy of the complaint. When a case is initially filed, secrecy is key. If you tell the news media, the defendants, or anyone else for that matter that you filed the claim, you may lose your case and be subject to sanctions for violating a court-ordered confidentiality requirement.
The specific rule for filing a complaint consists of a two-part process: First, the complaint is filed with the Court. Second, the complaint and the disclosure statement are formally served on the United States.
As for the court filing: “The complaint shall be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders.” In other words, inform the clerk of the court that the complaint must be filed confidentially, and never serve the complaint on the defendant until the court officially lifts the seal and orders that service be completed.
As for the United States, as explained above, both “a copy of the complaint” and the “written disclosure” statement must be “served on the Government pursuant to Rule 4(d)(4) of the Rules of Civil Procedure.” This Rule of procedure mandates that the complaint and disclosure statement be served both upon the Attorney General of the United States in Washington, DC, and upon the United States Attorney for the judicial district in which the complaint is filed.
Eventually the complaint will be taken out of seal, and the parties can proceed in a manner consistent with other traditional lawsuits. But the initial complaint must be filed under seal. This rule is based on the theory that the United States needs time to review the complaint and the material filed by the whistleblower and to determine whether or not the government wants to “intervene” and take over the lawsuit. Filing under seal permits the government to investigate the whistleblower allegations before the company knows it is the target of a False Claims Act lawsuit.
Once the government concludes its investigation and determines whether or not to intervene, the court will take the case out of seal, the proceedings will become public, and the complaint must be served upon the defendants. But before this happens, you must honor and follow the rules mandating confidentiality of the FCA claims.
STEP 8: THE COMPLAINT FILED IN COURT MUST BE DETAILED
The FCA complaint should contain detailed factual statements setting forth the basis for the complaint. Courts view FCA cases in a manner similar to other fraud cases. Under Federal Rule of Civil Procedure 9(b), fraud cases are subjected to a “heightened pleading” standard. As one court explained, this rule is designed to protect those accused of committing fraud. It requires plaintiffs to “place the defendants on notice of the precise misconduct with which they are charged” in order to “safeguard defendants against spurious charges of immoral or fraudulent behavior.”
Courts uniformly have applied this 9(b) standard to FCA cases. Thus, unlike other federal court complaints, which merely require a “plain statement” of the factual basis fo
r the case, FCA cases, under the 9(b) standard, must contain specific information setting forth the grounds for the claim, including “precise information” upon which the FCA violations are based.
Beyond satisfying the technical procedural pleading rules for fraud cases, there are other very good reasons for making sure the complaint (and disclosure statement that is required to be filed with the government) are very detailed. First, because of the “first to file” rule, what happens if your complaint is vague on a key issue of fraud, but another whistleblower files a similar complaint, which provides specific detail of the wrongdoing? Whose complaint meets the “first to file” rule? This is a question every qui tam relator should seek to avoid ever having to answer. A properly detailed complaint should go a long way toward resolving such a dispute.
Second, under the Supreme Court’s ruling in the Rockwell International case, whistleblowers are only entitled to a reward for those frauds properly included within the scope of their complaint. If allegations are vaguely worded, and if the complaint lacks specificity on key issues, the qui tam relator risks having their claim denied under Rockwell.
Third, the more specificity contained in the complaint (and disclosure statement), the more credibility the whistleblower will have with the government investigators. This will also increase the chance that the government will intervene in the case.
STEP 9: KEEP INVESTIGATING THE CLAIM AFTER THE COMPLAINT IS FILED
After the FCA complaint is filed and the disclosure statement served, do not rest on your laurels. Whistleblowers can and should continue to investigate and collect additional information that backs up their claims. Sometimes this can be done by the employee working on his own (without ever disclosing the existence of the FCA claim to anyone) and sometimes this occurs in conjunction with the government investigation. For example, it is common for government investigators to obtain assistance from the relator after a case is filed. This can include anything from providing additional documents to government investigators all the way to wearing a “wire” while meeting at work with the managers responsible for the frauds.