How do Qui Tam Lawsuits Work?

Statutory law gives those aware of fraud being perpetrated against federal, state and local governments the ability to do something about it. Most often these are employees within businesses and organizations who witnessed the corruption themselves, complained about it internally but nothing was done and who want to do the right thing.

The federal False Claims Act (FCA) allows the government and individuals to file lawsuits against anyone knowingly submitting or causing the submission of false or fraudulent claim for payment to the federal government. Those involved in fighting fraud and speaking up about it are commonly referred to as “whistleblowers.”

How you can help fight fraud

As part of the FCA and state laws, a person who knows about fraud being committed and who tried to stop it from happening can file a lawsuit, known as a “qui tam” legal action, which allows him or her to stand in the place of the government entity being cheated to try to end the fraud and recover damages. If the FCA lawsuit succeeds, the defendant may be ordered to pay three times the actual amount defrauded plus additional penalties for each fraudulent claim. 

Many companies and organization are engaged in fraud against government agencies. The amount at issue may be big or small, and the agency may be involved in just about any government activity. Normally the most serious fraud is perpetrated against federal agencies spending the most money, such as Health & Human Services (responsible for Medicare and Medicaid) and the Department of Defense. Because of the potential for large damage awards, the FCA is a powerful tool in fighting corrupt billing practices.

• The federal government obtained more than $4.7 billion in FCA settlements and judgments as a result of FCA cases just in fiscal year 2016, according to the Department of Justice (DOJ).
• Most of that money, $2.9 billion, is the result of qui tam lawsuits filed by individuals.
• Since fiscal year 2009, the average recovery each year is almost $4 billion

A qui tam legal action is more complicated than the average civil lawsuit

The person filing a qui tam legal action is the “relator.” Under the FCA, he or she has information showing the defendant knowingly submitted or caused the submission of false or fraudulent claims to the federal government. To be the basis of a lawsuit, this information can’t be publicly known. The FCA process for filing and pursuing this kind of case includes ...

• The complaint must be filed with a federal court under seal (records concerning the case are kept on a secret docket).
• Copies of the complaint are sent to the DOJ and the local U.S. Attorney.
• The complaint and related filings stay under seal for at least 60 days.
• The relator gives the DOJ a “disclosure statement” telling what evidence they have about the allegations.
• The Attorney General (or a DOJ attorney) needs to investigate the claims and decide whether to join the lawsuit. The DOJ gets involved in less than a quarter of qui tam cases. The DOJ may also try to negotiate a settlement before joining the case.
• After the complaint is unsealed, it’s served on the defendant.

How whistleblowers benefit from the FCA

A relator normally wants the DOJ involved, because the resources it can focus on a case are far greater than those of an individual. Its involvement helps support the legitimacy of the claim. If the case is successful, a relator may obtain 15% to 30% of the damages recovered; the rest goes to the affected government agency. If the DOJ is involved, what the relator receives is generally on the lower end of the scale.

The FCA also makes retaliation by an employer against a relator illegal. If this occurs, he or she may be awarded “all relief necessary to make the employee whole,” including job reinstatement, two times the amount of back pay lost, litigation costs and attorney’s fees.

Qui tam cases can be an effective way to punish a company or organization which has defrauded taxpayers and force it to pay back the money it made, plus potentially much more. The FCA exists to discourage those doing business with the government from illegally padding their profits. It also gives those who witness illegal acts an opportunity to make things right.