What is a False Claims Act case?

Both the United States and California have False Claims Acts, which allow employees to file actions on behalf of the government against employers who submit claims for payment that are false. In a recent example of the substantial payments that such lawsuits can lead to, a former Countrywide employee is set to receive $14.5 million based on his allegations that Countrywide inflated appraisals on government-insured loans. In what circumstances may such actions (also called qui tam actions) be brought?

The federal provisions, found in 31 U.S.C. sections 3729 through 3732, allow a private person to file an action in federal court on behalf of the United States against anyone who has presented a fraudulent claim for payment or approval. The action must remain under seal for 60 days, during which time the United States decides whether to take over the prosecution of the action, or to allow the private individual to pursue the claim. The statute provides for recovery of a civil penalty of $5,000 to $10,000 plus three times the actual damages, and reasonable attorney's fees and expenses. If the government prosecutes the action, the private individual receives up to 25 percent of the recovery. If the private person litigates the case alone, he or she receives up to 30 percent. The statute also bars retaliation against any employee who participates in a qui tam action.

The California provisions are similar. Under California Government Code section 12650 through 12656, a private person may file an action for false claims presented to the State or any political subdivision of the state. The action remains under seal for 60 days, to allow the appropriate government entity to take over the prosecution of the action. The remedies are similar.

Following are some examples of qui tam actions, which illustrate the broad range of activities encompassed by the statutes:

• The Department of Justice decided to intervene in a qui tam action by former employees of American Commercial College, who had alleged that their employer false certified that it had complied with a federal law barring colleges from obtaining more than 90 percent of their yearly tuition from federal student aid. (2/28/2012)
• Boeing agreed to pay $4.4 million to settle claims by a whistle blowing employee that the company billed the government for work on Chinook helicopters that it had already paid for. (1/20/2012)
• A Genentech employee received $5.7 million from a $20 million settlement based on allegations that the company encouraged off-label use of Rituxan. (12/2/2011)
• An Oracle employee was to receive $40 million under a settlement with the Department of Justice based on claims that Oracle did not provide complete information about discounts to other customers under a software licensing and technical support contract with the United States. (10/7/2011)
• A former GlaxoSmithKline employee got $96 million from a $750 million settlement of claims involving manufacturing flaws at a manufacturing plant in Puerto Rico. (9/22/2011)
• As a result of allegations of fraudulent Medicaid billings by one of its pharmacists, CVS Pharmacy agreed to pay the United States and 10 states (including California) $17.5 million. (4/15/2011)
• Two former University of Phoenix employees received $19 million from a settlement of claims that the school illegally paid admissions counselors based on the number of students they recruited. (12/15/2009)