This document summarizes the key aspects of the False Claims Act from the perspective of a relator initiating an FCA action. It begins with a brief history of the FCA and its origins during the Civil War. It then outlines the structure of an FCA case, brought as a partnership between private whistleblowers and the government. The rest of the document details the benefits and risks to the government and relators, who can be a relator, what constitutes a violation of the FCA, damages, and other procedural elements like the statute of limitations. It also provides numerous examples of FCA cases related to procurement fraud.

1. False Claims Act: Procurement
Fraud from the Relator’s Perspective
Presentation by Tony Mastando
November 13, 2014

2. Brief History of the FCA
 Signed by President Lincoln during the
height of the Civil War to stop rampant
profiteering against the federal
government and Union troops
 Evolution of the FCA to other types of
government programs
 Dismantled in 1943 but resurrected
under President Reagan in 1986 when
re-incentivized relators
2

3. Structure of an FCA Action
 Private right of action. Private/public
partnership at the government’s
option
 Cases may be initiated by
whistleblowers, and the government
has an opportunity to investigate and
intervene
 3-headed prosecution: Relator / DOJ-AUSA
/ Agency
3

4. Why Should the Government Want
Relators?
 Congress has long recognized that the
government, with limited resources, is
overmatched in the fight against fraud.
U.S. ex rel. Marcus v. Hess, 317 U.S.
537, 560 (1943) (Jackson, J.,
dissenting)
 Gather evidence and organize the case
 Bring potential fraud cases to the
government’s attention
 Jumpstart the government’s
investigation with insider’s knowledge
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5. Government As Lead Partner
 The government has unique tools to
investigate claims
 If the government formally joins the
litigation by intervening, it bears
primary responsibility for prosecuting
the action. 31 U.S.C. § 3730(c)(1)
 The government can also dismiss the
action or settle the lawsuit over the
whistleblower’s objection. 31 U.S.C. §
3730(c)(2)
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6. What’s the Benefit?
 The government may recover treble
damages and significant statutory
fines
 Whistleblowers may obtain a
percentage of the government’s
damages
 Protect the government fisc and
procurement processes
 Removal of unsafe or substandard
materiel
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7. What’s At Risk?
 Defendants
o Money
o Reputation
o Distraction
o Suspension & debarment
 Relators
o Reputation and relationships
o Employment
o Cost of defense for frivolous or vexatious
suits. 31 U.S.C. 3730(d)(4)
7

8. Who Can Be a Relator?
 “Any Person.” 31 U.S.C. § 3729(b)(1)
o Individuals
o Government entities
o Corporations
o Associations
o Not Pro Se
• See, e.g., U.S. ex rel. Mergent Servs. v. Flaherty,
540 F.3d 89, 93 (2d Cir. 2008); Stoner v. Santa
Clara City Office of Educ., 502 F.3d 1116, 1127
(9th Cir. 2007)
8

9. Actions Creating Liability?
 False Claims. 31 U.S.C. § 3729(a)(1)
 False Statements. 31 U.S.C. §
3729(a)(1)(B)
 Conspiracy. 31 U.S.C. § 3729(a)(1)(C)
 Reverse FCA. 31 U.S.C. § 3729(a)(1)(G)
9

10. What is a Violation of the FCA?
 Any person who knowingly submits a
false claim for payment to the
government
 Any person who knowingly makes a false
record or statement material to a false
claim
 Any person who causes another to submit
a false claim for payment to the
government (e.g., subcontractor)
 Any person who knowingly conceals or
avoids an obligation to pay money to the
government (“reverse false claims”)
 Persons who conspire to violate the Act 10

11. Definitions: Claim
 “Any request or demand, whether
under a contract or otherwise, for
money or property” that is “presented
to an officer, employee, or agent of
the United States” or to a contractor
working on a government program.
31 U.S.C. § 3129(b)(2)
11

12. Definitions: Material
 False Statements Material to A False
Claim: any person who knowingly
makes a false record or statement
material to a false claim.
§3729(a)(1)(B)
 Material means having a natural
tendency to influence, or be capable of
influencing, the payment or receipt of
money or property
12

13. Definitions: Knowingly
 Knowing and knowingly are defined as
o Actual knowledge of the information; or
o Deliberate ignorance of truth or falsity; or
o Reckless disregard of truth or falsity. 31
U.S.C. § 3729(b)(1)(A)
 Specific intent to defraud is not
required. 31 U.S.C. § 3729(b)(1)(B)
 Not a negligence standard
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14. Damages
 Treble damages
 Statutory penalties: a fine of $5,500 to
$11,000 for each and every false claim
 Relator’s attorneys’ fees and costs
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15. Relator’s Share of the Recovery
 If the government intervenes: 15-25%. 31
U.S.C. § 3730(d)(1)
 If government does not intervene: 25-
30%. 31 U.S.C. § 3730(d)(2)
 The relator’s share may be lowered if the
whistleblower planned and initiated the
fraud. 31 U.S.C. § 3730(d)(3)
 If the relator is convicted of criminal
conduct arising from his role in the fraud:
0% and dismissed from case. 31 U.S.C. §
3730(d)(3)
15

16. Statute of Limitations
 Six years from the date of violation; or
 Three years after the date when the
material facts were known, or
reasonably should have been known,
by the responsible government official
for a maximum of 10 years. 31 U.S.C.
§ 3731
 Wartime Suspension of Limitations Act,
see U.S. ex rel. Carter v. Halliburton
Co., 710 F.3d 171 (4th Cir. 2013)
(cert. granted)
16

17. Quirky
 First to File Rule
 Federal Rule 9(b)
 Public Disclosure Bar & the Original
Source Exception
17

18. First to File Rule
 “No other person other than the
Government may intervene or bring a
related action based on the facts
underlying the pending action.” 31
U.S.C. § 3730(b)(5)
 This encourages whistleblowers to
report fraud as soon as possible
 Practice Point: Relators may join
forces
 Practice Point2: Relators’ counsel join
forces
18

19. Rule 9(b) Particularity Requirement
 Who, what, where, when and how
 Heightened Pleading Standard
“Adequate basis for a reasonable
inference that false claims were
submitted.”
o Circuits: 1st, 5th, 7th, 9th , 10th and DC
 “Omniscient” Pleading Standard
“Pleading the details of an actual claim
submitted to the Government”
o Circuits: 4th, 6th, 8th, 11th
19

20. Public Disclosure Bar &
Original Source Exception
 Until recently, courts were barred from hearing cases
that were based on “public disclosures”
 Even if an FCA suit is based on facts that are publicly
available, the lawsuit can proceed if the relator can
demonstrate that she was the “original source” of the
information.
 “For purposes of this paragraph, "original source"
means an individual who either (i) prior to a public
disclosure under subsection (e)(4)(a), has voluntarily
disclosed to the Government the information on which
allegations or transactions in a claim are based, or (2)
who has knowledge that is independent of and
materially adds to the publicly disclosed allegations or
transactions, and who has voluntarily provided the
information to the Government before filing an action
under this section.“ 31 U.S.C. 3730(e)(4)(B)
20

21. Liability Related to Procurement Cases
 Failure to disclose conflict of interest. U.S. ex rel.
Davis v. District of Columbia, 679 F.3d 832 (D.C. Cir
2012)
 Collusive bidding. Murray & Sorrenson, Inc. v. United
States 207 F.2d 119 (1st Cir. 1953), cited in S. Report
No. 99-345.
 Conspiracy to defraud government. U.S. ex re.
Westrick v. Second Chance, 2010 West Law 623466
(D.D.C. 2010)
 “Defective pricing” in violation of the Truth in
Negotiations Act. U.S. ex rel. Campbell v. Lockheed
Martin, 282 F. Supp. 2d 1324 (M.D. Fal. 2003)
 Delivering defective transmission parts that cause two
Chinook helicopters to crash. “United States Settles
False Claims Act lawsuit for $7.2 million Allowed Claim
with Ohio Company” (DLJ Press Release March 7, 1997)
 Failure to adhere to the “quality assurance
requirements” required in contract. Varljen v.
Cleveland Gear Co., 250 F.3d 426 (6th Cir. 2001) 21

22. Procurement Related Cases
 Failure to comply with the reporting requirements of the
Vietnam Era Veterans Readjustment Act. United States ex rel.
Kirk v. Schindler Elevator Corp., 601 F.3d 94 (2nd Cir. 2010)
 Failure to meet quality requirements in sale of goods or
services to Government. United States v. Bornstein, et al.,
423 U.S. 303 (1976), cited in S. Report No. 99-345
 Failure to perform required testing. “U.S. Settles False Claims
Case Involving Teledyne for $500,000” (DOJ Press Release
December 6, 1994)
 False claims to federal agencies for travel reimbursements.
“PricewaterhouseCoopers, LLP to Pay U.S. $41.9 Million to
Settle False Claims Involving Claims for Travel” (DOJ Press
Release July 11, 2005)
 Knowing failure to perform a material requirement of
contract without disclosing the nonperformance. U.S. ex rel.
Fallon v. Accudyne Corp., 921 F. Supp. 611 (W.D. Wis. 1995)
22

23. Procurement Related Cases
 Falsely certifying compliance with Small Business
Administration minority contracting program. AB-Tech
Construction v. U.S., 31 Fed Cl. 429 (1994)
 Falsely certifying compliance with statute, regulation,
or contract term that is a “prerequisite to payment.”
U.S. ex rel. Mikes v. Straus, 274 F.3d 687 (2nd Cir.
2001)
 Falsely certifying that company paid “prevailing wage”
required under the David-Bacon Act. U.S. ex rel.
Plumbers and Steamfitters Local Union v. C.W. Roen
Construction Co., 183 F.3d 1088 (9th Cir. 1999)
 Falsely stating eligibility to participate in government
program. Alperstein v. United States, 291 F.2d 455 (5th
Cir. 1961), cited in S. Report No. 99-345
 Inflated cost estimates. U.S. v. General Dynamics, 19
F.3d 770 (2nd Cir. 1994)
23

24. Procurement Related Cases
 Misrepresenting costs of a subcontractor. Harrison v.
Westinghouse Savannah River Co., 176 F.3d 776 (4th Cir.
1999)
 Obtaining contract based on false information. U.S. ex rel.
Schwedt v. Planning Research Group, 59 F.3d 196 (D.C. Cir.
1995)
 Overcharging under a government contract. United States
ex rel. Green v. Northrop Corp., 59 F.3d 953 (9th Cir. 1995)
 “Reverse False Claim” for material misrepresentations to
avoid paying money owed to the government. United States
v. Bourseau, 531, F.3d 1159 (9th Cir. 2008)
 Sale of defective bullet-proof vests. “Canadian Firm Pay $4
Million to Settle Lawsuit in Connection with Sale of Defective
Bullet-Proof Vests (DOJ Press Release, February 12, 2010)
 Sale of defective or inferior products. Henry v. United States,
424 F.2d 677 (5th Cir. 1970), cited in S Report No. 99-345
24

25. Procurement Related Cases
 Selling office supplies to government agencies manufactured in
countries ineligible under the Trade Agreements Act. “Office Depot Pays
United States $4.75 Million to Resolve False Claims Act Allegations” (DOJ
Press Release, September 19, 2005)
 False Certification of Small Business Loan. “New York Small Business
Lender to Pay U.S. $26.3 Million to Resolve False Claims Act Allegations”
(DOJ Press Release, May 6, 2010)
 Steering contracts toward companies owned by themselves, their
spouses, and others, resulting in kickbacks and inflated contract prices.
“Dynamics Research Corporations to Pay $15 Million to Resolve
Allegations of Kickbacks and False Claims Related to Air Force Contracts”
(DOJ Press Release, August 13, 2009)
 Subcontractor causes a prime contractor to submit a false claim to the
government. United States ex rel. Drescher v. Highmark, Inc., 305 F.
Supp. 2d 451 (E.D. Pa. 2004)
 Submitting an “inventory sheet with false information” causing the
government to “undervalue the purchase price” paid by the company.
U.S. v. Pemco Aeroplex, Inc., 195 F.3d 1234 (11th Cir. 1999) (en banc)
 Submitting false progress reports stating that computer software was
compliant with contract requirements. United States ex rel. Schwedt v.
Planning Research Corp. 59 F.3d 196 (D.C. Cir 1995)
25

26. Thoughts/Observations
 There are a lot of these cases.
o DOJ 2013 Fraud Statistics, Civil Division:
http://www.justice.gov/sites/default/files/civil/leg
acy/2013/12/26/C-FRAUDS_FCA_Statistics.pdf
 Happens all over the country
 All involve a lie, not mere inadvertence
 Well-known companies
 Many involve companion statutes (TINA,
Anti-kickback, Fair Labor Standards Act,
Foreign Corrupt Practices Act, David-Bacon
Act, etc.)
 Most common: mischarging, false
certification, substandard product or service,
delivering fewer items than promised
26

27. POGO’s Top 10
 POGO's Federal Contractor Misconduct
Database of 100
(http://www.contractormisconduct.org)
27

28. Considering an FCA Case
 Federal money must be involved, or
state money if in a state with a mini-
FCA
 The company must have knowingly
submitted a false claim to the
government; mere waste or
mismanagement isn’t enough.
 Government employees – special
considerations
28

29. Evaluating a Potential Case
 Sizable
o Significant Dollars
o Fraudster’s ability to pay
o Safety issues
 Memorandum to counsel: explain the fraud,
documents, witnesses
 Credibility of potential relator
 Strategically selecting venue
29

30. Preparing and Filing FCA Complaint
 Informal discussions with affected Agency
and/or AUSA (optional)
 Disclosure Statement serve on local US
Attorney’s Office and the Attorney
General of the United States
 File in federal district court under seal
o Conceal the identity of relator?
 Do NOT serve the defendants
 Remains under seal for 60-days
 Typically the government requests (and
receives) 6-month extensions of the seal
30

31. During Investigation
 No disclosures
 Prepare the relator for interview
 Assist in the formulation of CIDs,
review of documents
 May want Relator to record
conversations
 Partial unsealing
o Other relators
o Defendants
31

32. Intervention Decision
 Four options
o Intervene in one or more counts
o Decline to intervene in one or more counts
o Move to dismiss the complaint
o Settle with the defendant prior to deciding
to intervene
 Unsealing of the complaint
 If intervene, DOJ amends complaint
32

33. Factors for Intervention
 Primary considerations
o Credibility of the relator
o How provable the intentional nature of the
fraud is
o The pervasiveness of the fraud and the
amount of damages
o Likelihood damages are collectable
 Secondary considerations
o Workload/expertise
o How well-developed the case is
33

34. Protection from Retaliation
 If an employee is fired, demoted, harassed, or otherwise
discriminated against for filing a False Claims Act suit
 A whistleblower must generally establish three elements
o (1) the employee engaged in a protected activity,
o (2) the employer knew that the employee engaged in a protected activity,
and
o (3) the employer terminated or otherwise discriminated against the
employee as a result of the protected activity
 Protected activity includes actions taken while an employee is
“collecting information about a possible fraud, before [the
employee] has put all the pieces of the puzzle together.” US ex
rel. Yesudian v. Howard Univ., 153 F.3d 731, 740 (D.C. Cir.
1998). Assembling the puzzle can include investigation by the
employee of false or fraudulent claims, but does not cover mere
dissatisfaction with his treatment on the job or mere
investigation of the employer’s violation of federal or state
regulations. See, e.g., Hoyte v. American National Red Cross,
518 F.3d 61, 67-70 (D.C. Cir. 2008). In order for an
investigation or activity to be “protected” it must have a nexus
to a potentially viable FCA violation – although threatened or
actual litigation is not required
34

35. Protection from Retaliation
 Private sector employees
o Reinstatement with seniority status
o Special damages (e.g., attorneys’ fees)
o Double back pay (plus interest). 31 U.S.C. §
3730(h)
o 3-year statute of limitations
 Government employees
o Civil Service Reform Act
o Whistleblower Protection Act of 1989 (WPA)
o Whistleblower Protection Enhancement Act of
2012 (WPEA)
o Office of Special Counsel
35

36. Legal Challenges Faced by Relators
 Counterclaims/countersuits
o Defamation
o Breach of Duty – loyalty, failure to report
o Conversion of company documents
o Violation of employment agreements
o Seeking costs
36

37. Increasing Relator’s Share
 DOJ Guidelines start at statutory minimum and increased by:
o Prompt reporting of fraud
o When learned of fraud, relator tried to stop or report to supervisor or
government
o The FCA case caused the fraud to stop
o Warned of a significant safety issue
o Exposed nationwide practice
o Relator provided extensive, firsthand details
o Government had no knowledge of fraud
o Relator provided substantial assistance during the investigation
o Relator was an excellent, credible witness at trial/deposition
o Relators counsel provided substantial assistance
o Cooperated during entire proceeding
o Case went to trial
o FCA recovery was small
o Filing of the complaint had a substantial adverse impact on the relator
37

38. Decreasing Relator’s Share
 DOJ Guidelines: after increase, then decrease by:
o Relator participated in fraud
o Substantial delay in reporting or filing
o Relator’s counsel violated procedures by (a) serving on defendant,
not under seal (b) publicized case while under seal; (c) statement of
material facts and evidence not provided
o Related had little knowledge or only suspicions of the fraud
o Relator’s knowledge based primarily on public information
o Relator learned of the fraud in the course of public employment
o Government already knew of the fraud
o Relator and counsel provided little help after filing complaint or
hampered government
o Case required substantial effort by government to develop the facts
o Case settled shortly after filing or with little discovery
o FCA recovery was large
 Burden on relator’s counsel to persuade the government
38

39. Questions?
39

40. Tony Mastando
tony@MastandoArtrip.com
www.mastandoartrip.com
Phone: (256) 532-2222
or (800) 434-7195
40