The False Claims Act

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The False Claims Act

• The federal False Claims Act as it Relates to
  Architects, Engineers and other Design
  Professionals

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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.

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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.

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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

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Contact Information

• Scott L. Reichle
• Patten, Wornom, Hatten and Diamonstein
• 12350 Jefferson Ave, Suite 300
• Newport News, VA 23602
• Sreichle_at_pwhd.com
• [phone]

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Introduction to the False Claims Act

• Also known as The FCA
• and Lincoln Law
• Informers Act
• qui tam statute

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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

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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

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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 Attorneys Office and they investigate
• The US Attorneys Office decides if they want to
  intervene and take over the case
• Even the the US Attorney declines, the relator
  can precede

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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

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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.

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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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

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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

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Break and Questions

• Please text through any questions at this time

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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

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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

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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

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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

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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

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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

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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.

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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

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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

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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

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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.

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Substandard and Non-Compliant 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.

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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

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Other Possible FCA Actions Against Design
Professionals

• False applications for Loans and Grants
• False Certifications
• False Reports
• Design/Build and Construction Managers

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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

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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.

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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

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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 attorneys fees

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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.

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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.