The False Claims Act - Whistleblower Attorneys – Patten, Wornom

Report
The False Claims Act
The federal False Claims Act as it Relates to Architects,
Engineers and other Design Professionals
My disclaimer
• The Virginia Department of Professional and
Occupational Regulations sets the standards for
continuing education for Architects and Engineers.
• You should evaluate the subject matter of this course
to determine if it will be beneficial to you and will
qualify for credit as outlined in the current
regulations. This evaluation should be done before
and at the end of the course.
Disclaimer 2
• Nothing in the presentation should be considered
legal advice that should be relied upon and this
presentation does not create an attorney-client
relationship.
• Before an such relationship can be established, I
must first be contacted so that a conflicts check can
be performed and I can get more specific
information.
Scott L. Reichle, P.E., Esq.
• Partner at the Law firm of Patten, Wornom, Hatten
and Diamonstein, Hampton Roads, VA
• Professional Engineer in VA since 1993
• Licensed to practice law since 1996
• Experience as a Field Engineer in the construction
industry, a design engineer and former Assistant
Professor at the Batten College of Engineering and
Technology at Old Dominion University
Contact Information
Scott L. Reichle
Patten, Wornom, Hatten and Diamonstein
12350 Jefferson Ave, Suite 300
Newport News, VA 23602
Sreich[email protected]
(757) 223-4536
Introduction to the False
Claims Act
• Also known as The FCA
• and “Lincoln Law”
• “Informer’s Act”
• “qui tam” statute
Qui Tam
• Qui tam pro domino rege quam pro se ipso in hac parte
sequitur
• “he who brings an action for the king as well as
himself ”
• Derived from English common law
Qui Tam (how do you say it?)
Qui
• Most say (including Justice Department): “kwee”
• Some others use the French pronunciation: “kee”
Tam
• Some pronounce such that it rhymes with “yam”
• Others pronounce like “tom”
Broad Strokes
• The person bringing the suit is generally called the
“whistleblower” or the “relator”
• The relator brings the suit “under seal”
• The information is turned over to the United Sates
Attorney’s Office and they investigate
• The US Attorney’s Office decides if they want to
intervene and take over the case
• Even the the US Attorney declines, the relator can
precede
A quick look at the numbers
• As of September, 2007, there were over 5800 cases
filed since the 1986 amendments to the FCA, and
the government intervened in approximately 20-25%
of the cases.
• In the cases that the government intervened, relators
were awarded almost $2 billion.
• Where they declined, relators were awarded about
$70 Million
Origins of the Act (in the US)
• In 1863, Congress enacted the US False Claims Act
in response to fraud resulting from civil war
• The 1862 court martial of Major Quartermaster
Justus McKinstry caught national attention
• He was found guilty of charges of self-dealing and
fraud
• President Lincoln accepted sentence and dismissed
him from the Army.
1863 Act
• As a result of these types of cases, Congress moved
forward to enact law to protect against government
fraud
• Original act included ability to proceed criminally
and civilly
• Included qui tam provisions
• Allowed for court martial of private citizens that
knowingly submitted false vouchers to the US
government
1943 Amendment
• WWII resulted in overhaul of the FCA
• There was debate of the source of the information of the
government fraud and the relator
• The relator did not need to be the original source of the
information, but the plaintiff had to base the suit on
information, evidence or sources that were not in the
possession of the government
• Attorney general was given a “first pass” on suits
• Weakened the act
1986 (the pendulum swings
back)
• Civil penalties increased to a minimum of $5,000 and a
maximum of $10,000 per act, PLUS THREE TIMES the
amount of damages sustained by the government because
of the fraud
• Fraud no longer required to be “knowing.” Now includes
violation if “deliberate ignorance of the truth or falsity”
or “reckless disregard.”
• A specific intent to defraud is not required
• Clarified that the burden of proof in the civil action was
preponderance of the evidence
1986 Amendments Continued
• Increased the incentives for qui tam plaintiffs
• 15% to 25% of the proceeds when the government
intervened in the action
• 25% to 30% of the proceeds if the government chose
not to intervene
• Costs and attorneys fees recoverable by plaintiff
2009 amendments
• Expanded scope of FCA to eliminate “presentment”
requirements
• Expanded “reverse false claims” related to
knowingly and falsely avoiding or decreasing an
obligation to pay money to the US
• Increased protection beyond employees to
contractors and agents
Overview of FCA provision
• Section 3729(a)(1) of the US Code imposes civil liability
on anyone who knowingly presents to an officer or
employee of the US Government or member of the
Armed Forces of US, a false claim or fraudulent claim for
payment or approval
• Section 3729(a)(2) imposes liability on anyone who
knowingly makes, uses, or causes to be made or used, a
false record or statement to get a false or fraudulent claim
paid or approved by the government
• Section 3729(a)(3) imposes liability on anyone who
conspires to defraud the government by getting a false
claim allowed or paid
What is a claim?
• “Any request or demand, whether under a contract
or otherwise, for money or property which is made
to a contractor, grantee or other recipient” if any
portion of it will be provided or reimbursed by the
United States government.
• Notice that it can be a violation of the FCA as long
as the loss can be tracked to the government
Damages and Awards
• If a qui tam suit is successful, the government may
recover:
• Actual damages, trebled
• Civil penalties between $5,500 and $11,000 for each
false claim
• The relator may recover up to 30%
• There are other causes of action that may be brought
by the government beyond the FCA
Common types of qui tam
actions
• “Mischarging” for goods and services (i.e. charging employee
labor to a government contract even though the employee did
not work on the project)
• Submitting false cost and pricing data to the government during
negotiations of a contract (“false negotiation”)
• Providing an inferior product or falsely certifying that the
product met the specifications or that reliability testing was
performed
• Completion of certification forms by someone other that party
authorized
• Billing for tests not performed
Statute of Limitations
• A qui tam action may not be brought after the later of:
a. More than 6 years after the date on which the false
claim is made;
b. More than 3 years after the date on when the facts
material to the right of action are known or reasonably
should have been known to the official of the US charged
with responsibility
c. But in no event, more than 10 years after the date on
which the violation occured
Claims That are Actionable
• Tax Fraud IS actionable, but under a separate
process where individuals who provide information
about tax law violations that involve tax, penalties,
and interest over $2M by individuals whose annual
gross income is over $200,000.
Claims that are Not
Actionable
• “Parasitic” suits- suits where allegations are already the
subject of a civil suit, administrative proceeding when the
government is already a party
• Allegations based on pending qui tam case - “first-to-file”
rule is applicable. If multiple actions filed, the relators
will sometimes agree not to move to dismiss each other
actions and consolidate
• Cases based on publicly disclosed allegations – cases
based on allegations that have been publicly disclosed are
barred unless the relator is an “original source” of those
allegations and provide the information to the
government prior to filing
Other Claims that are Not
Actionable
• Government mismanagement or waste is not
actionable so can not claim for ineptitude.
• Claims against states or state entities are generally
not actionable
• Claims against localities ARE generally actionable
• State universities are generally immune from qui tam
actions
Break and Questions
• Please text through any questions at this time
False Claims Act as it Applies
to Design Professionals
• Liability can result from the contract negotiations
• Can result from factual representations or
certifications known to be false
• Misrepresentations in grant proposals and grant
preparation or progress payments
• Contract Administration
Looking at Construction
Cases
• Construction cases can be of use to consider because
architects and engineers can often be involved in these
cases either through:
• The Bidding Process
• Construction Administration
• Design/Build
• Construction Management
• Certifications
Daewoo Engineering and
Construction v. United States
• Won contract for the construction of a 53 mile road
across the Pacific nation of Palau
• Awarded bid based on construction experience and low
bid (much lower than next highest bidder)
• Had difficulties with jungle construction, compaction of
soil and unprepared construction team.
• Submitted a certified claim for additional $65M claiming
unexpected adverse weather.
• Claim was denied and Deawoo filed suit
Daewoo continued
• The government brought a counterclaim under the FCA
and other statutes
• The court found the Daewoo intentionally underbid the
project with the intent of making up the money through
later claims (obtaining contract under false pretenses)
• Court found that Daewoo had forfeited its legitimate
claim of $13M
• Also had to pay $50M as a result of fraud
• Reserved judgment on 762 misrepresentations
Bid Rigging and Collusive
Bidding
• Collusion in the bidding process will often result in
FCA liability
• The US Attorney will often bring criminal action
first and then civil action (the defendant will then be
collaterally estopped from challenging liability)
• There is liability even if paid from both local and
federal funds
Examples of Bid Rigging
• US v. Cripps, individual had a scheme where he
falsely presented bids from several companies
• Performed the work himself but represented that it
was performed by the “low bidder”
• Kept money himself and gave “hush money”
to the “low bidder”
• Found criminally liable and then civilly liable
Examples of Bid Rigging
(example 2)
• Miller v. Holzmann, concerned the construction of a
US funded wastewater treatment plant in Egypt
• The scheme included manipulation of bids with
subcontracts awarded to losing bidders and bonuses
as a “loser” fee
• These fees were included in the contract price,
causing the government to pay more for the overall
project.
Example of Bid Rigging
(example 3 – kickback issues)
• United States v. Safe Environment Corp.
• An Amtrak Project Manager instructed contractor to
inflate its bid proposal for work on an asbestos
remediation project with a kickback “consultant
fee.”
• The contractor won the contract, and invoiced and
paid the consultant fee
• The contractor and its President found liable under
the FCA
Intentionally Underbidding
• Intentionally underbidding a project to get the job
MAY constitute a violation of the FCA
• It IS a violation of the FCA if the contractor
subsequently files claims to make “make-up” the loss
through fraudulent claims
• It is uncertain if you can be held liable under FCA
for fraudulently low bid without more
False Representations During
the Award Process
• Can be a violation of the FCA if the
misrepresentation if knowing and material.
• Can be considered fraud in the inducement
• One defense may be “government knowledge”
• Can apply in the case of grant applications
Representation of Compliance
with Minority-Owned
Enterprises
• US ex rel. King v. F.E. Moran, Inc.
• Charge that the contractor funneled almost $2M in
work to MBEs when work was not done by MBEs
but by contractor or other non MBE subs.
• Alleged the MBEs were just “storefronts” and did
not perform any of the work.
Substandard and NonCompliant Work
• One of the most typical types of FCA actions
• Cases do not always require an affirmative
representations that work complies with the contract
• The theory is that the presentation of the invoice
and acceptance of payment is an implied
representation that the appropriate standards have
been met.
Example of Failure to Follow
Standards
• Commercial Contractors, Inc. (CCI) v. United States
• The Army Corps of Engineers contracted with CCI to
build parts of flood control panel
• Contract required CCI to use concrete that met set
compressive strengths and CCI could not removed forms
until 80% strength reached as determined by
simultaneously poured test cylinders
• CCI had improperly heated test cylinders to accelerate
hardening
Other Possible FCA Actions
Against Design Professionals
• False applications for Loans and Grants
• False Certifications
• False Reports
• Design/Build and Construction Managers
False Certification Example
• United States ex. rel. Mistick PBT v. Housing
Authority of the City of Pittsburg
• Designer claimed product was appropriate for lead
encapsulation
• Relator claimed the designer knew the product was
inappropriate
• Dismissed on other grounds; the court did not reach
the issue of potential liability based on false
certification
State False Claims Actions
• Many states including Virginia have State False
Claims Acts
• Virginia is called the Virginia Fraud Against
Taxpayers Act, 8.01-216.1, et. Seq.
• Very similar to the Federal FCA, in terms of timing,
approach, damages
• Va. Attorney General investigates, etc.
Retaliation Claims
• The 1986 Amendment to the FCA included
provisions to protect employees against potential
retaliation
• Section 3730(h)
• Covers Employees, and now independent
contractors, agent, etc.
• The employer will generally include the corporation
and any “de facto” employer
Remedies Under 3730(h)
• Entitled to all such relief as is necessary to make the
claimant whole including
• Reinstatement at same seniority level
• Two times the amount of back pay
• Interest
• Special damages (i.e. emotional distress)
• Litigation costs and attorney’s fees
Ethics and False Claims Act
Violations
• DPOR has Rules of Professional Conduct
• 18VAC10-20-700. Public statements. A. The
professional shall be truthful in all professional
matters. The professional shall include all relevant
and pertinent information in professional reports,
statements, or testimony, which shall include the
date indicating when such information was current.
Ethics and the False Claims
Act (continued)
• A regulant who has direct knowledge or reason to
believe that any individual, or firm may have
violated or may currently be violating any of these
provisions, or the provisions of Chapters 1 through 4
of Title 54.1 or Chapters 7 and 13 of Title13.1 of the
Code of Virginia, as amended, shall immediately
inform the board in writing and shall cooperate in
furnishing any further information or assistance that
may be required by the board or any of its agents.

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