Guarding the Guardians: Accountability in Qui Tam Litigation Under the Civil False Claims Act

GUARDING THE GUARDIANS: ACCOUNTABILITY IN QUI TAM LITIGATION UNDER THE CIVIL FALSE CLAIMS ACT

Sean Elameto*

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* Major Sean Elameto currently serves in the U.S. Air Force Judge Advocate General’s Corps as a Commercial Law and Litigation Attorney. The author thanks Dean Jessica Tillipman and Professor Karen Thornton for providing invaluable insight and expert direction during the writing of this article. The author also thanks his wife Gretchen Elameto and his mother Rosario Elameto for their boundless inspiration and never-ending love and support. This paper was submitted in partial satisfaction of the requirements for the degree of Master of Laws in Government Contracts and Procurement Law at The George Washington University Law School. The views expressed in this article are solely those of the author and do not reflect the official policy or position of the United States Air Force, Department of Defense or U.S. Government.

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I. Introduction 1

II. The Eruption of Qui Tam Suits 7

A. Public Disclosure Bar and Original Source Exception 14

B. Weakening of FRCP 9(b) “Particularity” Requirement 18

C. Looking Ahead: An All-Purpose Anti-Fraud Statute 24

III. The Festering Qui Tam Controversy 25

IV. Government Attorney Accountability 32

A. The Government’s Role in Qui Tam Litigation 34

B. Measuring Before Managing 38

C. Forcing the Government’s Hand 48

D. Guiding Prosecutorial Discretion 56

V. Qui Tam Plaintiff Attorney Accountability 64

A. The Rise of the Qui Tam Bar 67

B. Private Securities Litigation Parallel 70

C. FRCP 23(g) and Beyond: A Model for Qualifying Plaintiff Attorneys 74

D. Amending § 3730(d)(4) to Include Plaintiff Attorneys 79

VI. Prohibiting Pro Se Litigation When the DOJ Declines Intervention 85

VII. Conclusion 90

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I.  Introduction

The Civil False Claims Act (“FCA”)[1] can levy devastating impacts on any company found to have violated its provisions.[2] For example, in December 2000, HCA-The Healthcare Company settled its FCA case with the federal government and forfeited $745 million,[3] and only three years later, it paid another $631 million as a result of another FCA action.[4] Under similar circumstances, in July 2006, Tenet Healthcare forked over a whopping $900 million to settle its FCA suit.[5] In January 2008, the federal government received $650 million from Merck[6]and a record $1 billion from Pfizer in September 2009.[7] One need only glance at this sampling of the gargantuan recoveries possible under the FCA to appreciate why it serves as the federal government’s “weapon of choice” for combating fraud.[8] With little doubt, government contractors must be well aware of the FCA’s existence and its extensive reach.

The FCA prohibits the knowing submission, or the causing of another person or entity to submit, false claims for payment of government funds.[9] It further prohibits a person from knowingly making, using, or causing to be made or used, false records or statements for payment or approval.[10] The FCA also empowers whistleblowers, known as relators, to file qui tam lawsuits on behalf of the government against those who defraud the government.[11] This controversial qui tam mechanism allows successful relators to receive between fifteen to thirty percent of the government’s total financial recovery,[12] a “bounty” that could easily amount to tens of millions of dollars.[13] The FCA authorizes the Department of Justice (“DOJ”) to intervene in a qui tam action, whereupon it assumes primary prosecutorial responsibility,[14] but the relator may proceed with an action whenever the DOJ elects not to intervene[15] or move for dismissal.[16]

Though the law has existed for nearly a hundred and fifty years, it did not become a high-paying public-private enforcement mechanism until after relatively recent amendments.[17] The recent amendments also stimulated a rapid growth of a private qui tam bar,[18] and, coupled with minimal judicial and regulatory policing, the amendments threw the floodgates wide open for qui tam lawsuits.[19] This article proposes modest measures for handling the perceived systemic problem of wasteful or abusive non-intervened qui tam litigation.[20] First, it suggests increasing transparency over key segments of the qui tam process as well as the DOJ’s intervention decisions to show the extent to which the DOJ’s choices correlate, if at all, with wasteful litigation.[21] Second, it advocates changes aimed at ensuring qui tam plaintiff attorney competence in pursuing qui tam actions beginning with a scheme similar to Federal Rule of Civil Procedure 23(g).[22] Third, it recommends exposing plaintiff attorneys to the penalties of 31 U.S.C. § 3730(d)(4) as they are in the best position to determine whether a case is or has become baseless.[23] Finally, the article suggests the elimination of pro se litigation when the government declines intervention to further reduce the possibility of wasteful litigation.[24]

Laying the foundation for a discussion of the FCA’s evolution, Section II provides a brief historical overview of the law and the initial rarity of its usage. It discusses the FCA’s progression up until its recent 2010 amendments, focusing on the major congressional amendments since 1986 and a few judicial interpretations that gave the FCA additional life, all of which helped invigorate the growing surge of FCA litigation. Section III lays out the chronic issue of how non-intervened qui tam cases, eighty-six percent of which ended in dismissals, have consistently made minor recoveries and yet continue to outnumber intervened cases four-to-one. Section IV presents the need for improved transparency over qui tam litigation, particularly the government’s intervention-related decision-making, to better diagnose and treat any systemic incongruities existing in the FCA’s current design. Sections V discusses proposed measures for ensuring the accountability of qui tam plaintiff attorneys, while Section VI argues for the prohibition of pro se litigation in cases where the government declines intervention.

II.  The Eruption of Qui Tam Suits

For sugar [the government] often got sand; for coffee, rye; for leather, something no better than brown paper; for sound horses and mules, spavined beasts and dying donkeys; and for serviceable muskets and pistols, the experimental failures of sanguine inventors, or the refuse of shops and foreign armories.[25]

The phrase “qui tam” derives from the Latin phrase “qui tam pro domino rege quam pro se ipso in hac parte sequitur,”[26] a mouthful which translates to “who sues on behalf of the King as well as for himself.”[27] A qui tam action is one filed on behalf of the government by a private citizen, known officially as a “relator” under the FCA.[28] At the urging of President Lincoln, and in response to the extensive fraud against the government by unscrupulous army contractors who sold the Union Army faulty war supplies during the Civil War, including broken rifles, rancid food, useless ammunition, and lame horses and mules, Congress enacted the False Claims Act in 1863, exploiting the effectiveness of relators to suppress such fraud.[29] The FCA provided both criminal and civil penalties and contained a qui tam provision that sought to enlist the resources of private citizens, often referred to as “private attorneys general,” to augment the government’s anti-fraud enforcement efforts.[30] As an incentive for exposing and prosecuting fraud perpetrated on the government, the FCA permitted whistleblowers to collect fifty percent of the damages.[31] Over time, however, Congress modified the FCA to respond to the perceived abuses of opportunistic or parasitic lawsuits.[32]

In an attempt to curb these suits, Congress blunted the FCA’s edge in 1943[33] by making a number of dramatic changes to the FCA.[34] After the 1943 amendments, qui tam actions under the FCA were rarely viable.[35] In addition, courts had interpreted the 1943 jurisdictional bar to preclude all qui tam actions involving information already known to the government, even when the qui tam relator was the source of that information.[36] Another setback was that the risk of whistleblowing became even riskier as individuals faced losing their employment and had no guarantee that they would be rewarded if they prevailed.[37] The 1943 version of the FCA included no right of action to protect against whistleblower retaliation.[38] Furthermore, if the government intervened in the case, relators lost all stake in the outcome of litigation that the government took over.[39] As a result, the number of cases from 1943 to 1986 brought under the FCA averaged about six a year.[40]

Government studies in the early to mid-1980s revealed the existence of widespread waste, if not fraud, including blatant and extreme cases involving $600 toilet seats, $748 pliers, and $7,000 coffeepots, a reality that contributed to Congress once again making sweeping amendments to the FCA.[41] Because most fraud was believed to have gone undetected,[42] Congress attempted to increase incentives,[43] while simultaneously eliminating disincentives, for potential whistleblowers to bring fraudulent activities to light.[44] Beginning in 1986, Congress made substantial amendments to the FCA with an eye towards encouraging more whistleblowers and relators to expose and prosecute those who defraud the government.[45] Congress eliminated the uncertainty of rewards given purely at the discretion of the courts, while adjusting the rewards to reflect relators’ contributions.[46] The amendments also created an important protection for whistleblowers – a new cause of action they could employ if their employer retaliated against them for lawful acts in furtherance of FCA proceedings.[47] The amendments also increased the FCA’s damages provision from double to treble, thus requiring those found to have defrauded the government to pay three times the actual government-incurred damages.[48] In addition, Congress fashioned several of these amendments specifically to overturn narrow judicial interpretations.[49] Thus, the 25-year span since 1986 has reflected significant congressional efforts to expand the qui tam mechanism as a means of combating fraud against the government.[50]

Congress made further significant amendments to the FCA through the Fraud Enforcement and Recovery Act (“FERA”) of 2009 endeavoring to overturn the Supreme Court’s decision in Allison Engine holding that a payment by the government requires more than a mere payment using government funds because to read otherwise “would expand the FCA well beyond its intended role” of dealing with fraud against the government and potentially turn the FCA into an “all-purpose anti-fraud statute” by making it applicable to any claim for government funds.[51] This modification, along with other provisions of the FERA amendments, expands the scope of the FCA and creates potential FCA liability for defendants who make false statements in relation to claims for payment submitted to recipients of federal funds, even if the false statements never made their way to or were relied upon by the federal government.[52]

E.  SOMETHING WRONG

B. 

A.  Public Disclosure Bar and Original Source Exception

Though the FCA provides powerful financial incentives for private citizens to file suits exposing fraud against the government,[53] the statute does, however, endeavor to discourage purely parasitic or opportunistic suits.[54] For instance, the FCA to contains a “public disclosure” jurisdictional bar,[55] which prohibits any person from bringing a qui tam action “based upon” public disclosures of allegations or transactions “in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government [Accountability] Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.”[56] The statute defined the “original source” exception to the public disclosure bar as a person who has “direct and independent knowledge” of the information comprising the substance of the allegations and has voluntarily provided this information to the government prior to filing an action based on such information.[57]

In Graham County Soil and Water Conservation District v. United States ex rel. Wilson, the Supreme Court broadened the scope of the “public disclosure” bar and provided defendants with a viable defense against qui tam lawsuits.[58] The Court held that the public disclosure bar applied both to disclosures made in state and local proceedings and those released in federal hearings, reports, audits, and investigations.[59] Only days before the Court issued its opinion, however, Congress enacted amendments to the statute through the 2010 Patient Protection and Affordable Care Act (“PPACA”).[60] These amendments expanded the ability of whistleblowers to bring qui tam suits by making clear that only disclosures in certain federal domains or in the news media meet the definition of “public disclosure” under the FCA.[61] Furthermore, the amendments modified the FCA so that it no longer required an “original source” to have “direct and independent knowledge,” requiring only a showing of “knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.”[62] Under this new original source definition, relators may now bring FCA claims even with secondhand information as long as they obtained the information through sources independent of any public disclosure.[63]

III.  SOMETHING WRONG

A. 

B.  Weakening of FRCP 9(b) “Particularity” Requirement

After the 1986 amendments, one of the biggest weapons contractors found useful in combating meritless suits centered on arguing that complaints lacked sufficient detail.[64] At the outset of the case, contractors often file motions to dismiss pursuant to Federal Rule of Civil Procedure (“FRCP”) 9(b), which mandates that complaints alleging common law fraud “state with particularity” the circumstances constituting fraud.[65] In many cases, relators are unable to prove the submission of a single fraudulent claim to the government.[66] In these cases, relators tend to identify shortcomings with business management, such as poor administration of billing, deficient internal control systems, problematic manufacturing processes, and a myriad of system-wide business practices, to support their position that the contractor most likely submitted false claims to the government as a result of such inadequacies.[67]

The majority of federal appeals courts apply a strict reading of the rule requiring FCA plaintiffs to point directly to an allegedly fraudulent claim in their complaint.[68] A number of appeals courts, however, have recently adopted a relaxed reading of the rule, accepting complaints that sufficiently allege fraudulent schemes, even if they do not allege any specific false claims.[69] These courts require only a link between the “fraudulent scheme” to the likelihood that the contractor submitted false claims.[70]

While this relaxed FRCP 9(b) pleading standard has made inroads for relators’ counsel in some courts, movement in Congress has been made in Congress toward amending the FCA to mandate such a standard.[71] Both House Bill 4854 and House Bill 1788, neither of which became law, proposed language that explicitly made FRCP 9(b) inapplicable to qui tam filings, stating that: