SOUTHEAST TEXAS RECORD

WASHINGTON (Legal Newsline) – Parties on both sides of False Claims Act cases tend to agree that the number of lawsuits and amount of money they redistribute to the U.S. government has significantly increased since the statute was amended in 1986.

Walter Olson, a senior fellow at the Cato Institute’s Center for Constitutional Studies in Washington, D.C., contends that Congress has been pressured not to rein in the anti-fraud law, but instead, find ways to widen its scope.

“In recent years, you’ve seen some pushback from the business community, but given the record of congressional expansion, they’ll be doing pretty well if they can just keep Congress from expanding it further,” said Olson, who also founded and still runs the popular blog Overlawyered.com.

Olson and other experts claim that excessive False Claims Act lawsuits will continue to cause trouble for businesses. They say when not interpreted properly, the law permits lawsuits that are expensive, time-consuming and often meritless.

The Department of Justice announced in December that it secured $3.8 billion in settlements and judgments from civil cases involving fraud against the government in 2013. According to the office, the amount represents the second largest annual recovery of its type in history and brings total recoveries under the False Claims Act to $17 billion since January 2009.

The DOJ also shows that its 2013 efforts recovered more than $3 billion for the fourth year in a row, surpassed only by last year’s nearly $5 billion in settlements and judgments.

Olson explains that the business community’s growing discontent over the False Claims Act includes concerns over incentives for whistleblowers. In many cases, the whistleblower either participated in the misconduct, or knew about the misconduct but failed to inform their company.

He adds that in worse cases, whistleblowers intentionally ignored misconduct so damages would pile up and result in a “better bounty.”

“These are all incentives that are at odds with the wish that employees be ethical and loyal to their employers, and are also sometimes at odds with the object of minimizing fraud,” Olson said.

He argues that the business community also questions the False Claims Act’s incentives for whistleblowers’ lawyers. Since these lawyers receive a portion of any recovery, they often focus their attention on cases that could lead to million- or billion-dollar settlements.

“Smaller cases may be egregious, but if there is not much money there, there would not be an interest,” he said. “Meanwhile, you have a great tendency to use it in cases where federal contractors are vulnerable to charges over very large transactions or billing practices involving lots and lots of money.”

David Douglass, a partner at Sheppard Mullin in Washington, D.C., represents health care providers and defense contractors in False Claims Act cases. When he considers the law’s impact on his clients, he points out that a primary problem has been its broad interpretation over the past 30 years.

“Years ago the Supreme Court said the False Claims Act is not an all-purpose fraud statute, but I think it’s coming dangerously close to being there, if it’s not there already,” he said.

Douglass explains that the statute was designed to curtail specific conduct, such as overbilling or presenting false claims to the government. However, he says, whistleblowers can now describe almost any practice as fraud to pull companies into lawsuits.

He adds that while the Department of Justice can dismiss False Claims Act lawsuits, it rarely exercises its power to do so. Under the law, the government can also refuse to intervene in cases – an action that allows businesses to move forward with just the whistleblower.

“The company has to defend its case even after the Department of Justice has decided it’s not meritorious,” he said. “It should exercise its power to dismiss cases more liberally, in appropriate cases or in cases where the public interest isn’t really affected.”

Douglass, who served as co-chairman of the American Bar Association’s National False Claims Act and Qui Tam Trial Institute in June, expects to see more False Claims Act cases litigated in the future. He says lawyers have learned how to better handle these cases, while companies have realized they can succeed against broad fraud claims.

“These cases can be very difficult to prove,” Douglass said. “That goes back to the notion that it’s easy to paint something as fraudulent, but it’s another thing to show it. Whistleblowers and the government haven’t done so well when forced to put their claims to the test.”

Joel Androphy, a partner at Berg & Androphy in Houston, represents whistleblowers in False Claims Act cases and believes they face their own problems with the Department of Justice. He says the government should be more aggressive in fighting fraud and show more respect for whistleblowers.

“The whistleblower is the one ultimately who suffers the issues of filing the lawsuit against a business in a community that he or she lives in, or an area that he or she has expertise in,” said Androphy, who also served as co-chairman of the ABA’s National False Claims Act and Qui Tam Trial Institute. “The whistleblower makes many sacrifices that the government doesn’t make, but the government doesn’t respect the rights of the whistleblower as they should.”

For example, Androphy says, the Department of Justice tries to cheat whistleblowers by turning qui tam lawsuits into criminal proceedings, and then refusing to share any of the recovery with them. He contends that whistleblowers also lack protection in third-party litigation, particularly when they are put in the position of trying to protect the seal in their qui tam lawsuit but respond to subpoenas in other matters.

Androphy argues that a larger problem stems from the government’s failure to staff False Claims Act cases. He explains that there are not enough prosecutors to help with the increasing number of lawsuits. When they do recruit new prosecutors, they often hire young lawyers who lack necessary experience.

“You’re dealing with a lot of young lawyers who have never seen a courtroom, never tried a case, and they’re supposed to make decisions about whether or not to go forward,” he said. “A lot of times they’ll turn cases down, not because they have no merit, but because they’re not attuned to how to litigate a case. What it does is compel the whistleblower to pursue it independently.”