When presenting a False Claims Act / Qui Tam action in the Federal Courts, whistleblowers need to be able to explain why the actions of the defendant are fraudulent or false, and subject to the federal statute authorizing the false claim action in Federal Court. Key perspectives which need to be reviewed include state of mind, falsity and importance or material impact of the false statement made by the defendant to the government.
1. State-of-Mind of the Party allegedly perpetrating the false statement or filing made to the United States.
Section 3729(b) supplies definitions that govern the scope of the seven proscriptions found in Section 3729(a)(1) and requires less than actual knowledge to establish the state of mind necessary for conviction. Thus, it defines the terms “knowing” and “knowingly” to make clear that the government need not show that the defendant acted with the intent to defraud.
2. Factual Allegations of the Falsity of the statement or filing made to the United States.
Legally false claims can be either expressly or implicitly false; they can either explicitly certify that they comply with all the material statutory, regulatory, and contractual prerequisites for payment,[1] or that they present a claim that implies compliance but fails to disclose violation of a statutory, regulatory, or contractual condition of payment.[2] A defendant may be liable under an implicit certification theory when “first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes the representations misleading half-truths.”
3. Importance, Relevance and Materiality of the Impact of the False Statement made to the United States.
Section 3729(b)(4) adopts the traditional definition of materiality: “the term ‘material’ means having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”[3] Materiality, like knowledge, cabins the Act’s falsity requirement. As the Supreme Court has explained, not every false statement is actionable; only those likely to induce an unwitting government payment or forbearance.[4] The parties asked the Supreme Court in Escobar whether for False Claims Act purposes a statement, true on its face, could be made false by omission. The Court held that “liability can attach when the defendant submits a claim for payment that makes specific representation about the goods or services provided but knowingly fails to disclose the defendant’s violation of a material statutory, regulatory, or contractual requirement.”[5]
A Whistleblower Relator who successfully proves a false claims act claim is entitled to a finder’s fee by the government, called “Damages” which can be as much a three times (triple) the amount of the amount lost by the United States Government agency or department, plus attorneys’ fees and costs.
A Federal District Court may order a defendant liable under Section 3729 to pay treble damages; a statutory penalty ranging from $5,000 to $10,000 (adjusted for inflation); the government’s litigation costs; and a relator’s expenses, attorneys’ fees, and costs.
Examples from prominent cases.
Two significant FCA settlements involving allegations that importers misrepresented countries of origin. In United States ex rel. Dickson v. Toyo Ink Manufacturing Co., 3:09-cv-00438 (W.D.N.C.), the relator alleged that a Japanese ink manufacturer falsely declared Japan and Mexico as the countries of origin for violet pigment in order to avoid antidumping duties applicable to China and India, the true sources of the product. According to the relator’s theory, a finishing process performed on the pigment in Japan and Mexico was insufficient to change the country of origin for customs purposes. In December 2012, Toyo agreed to a $45 million settlement, the largest as of that date for an FCA lawsuit based on a customs violation.
In November 2013, Basco Manufacturing Company paid $1.1 million to settle claims that it had transshipped aluminum extrusions manufactured in China through Malaysia, then falsely declared Malaysia to be the country of origin to avoid duty payments. United States ex rel. Valenti v. Tai Shan Golden Gain Aluminum, Ltd., 3:11-cv-00368 (M.D. Fl.).
In February 2022 the US Justice Department announced that the Justice Department’s False Claims Act Settlements and Judgments Exceed $5.6 Billion in Fiscal Year 2021 in civil cases alleging fraud and false claims against the government in the fiscal year ending Sept. 30, 2021 brining the total government recoveries under the False Claims Act to over $70 billion.