The False Claims Act is Alive and Well

by David Cosgrove

The power of the False Claims Act (FCA) has been on full display, as of late. With some violation damages into the hundreds of millions, it’s no surprise the federal government recovered nearly $6 billion during fiscal year 2014 under its auspices. (“Justice Department Recovers Nearly $6 Billion from False Claims Act Cases in Fiscal Year 2014,” 11.20.14) So what is this Civil War relic?

According to the Department of Justice, “the False Claims Act is the government’s primary civil remedy to redress false claims for government funds and property under government contracts.” (“Justice Department Recovers…”) It allows the federal government to seek redress in the civil court arena against those it believes has defrauded it through deceptive agreements.

Enacted by Congress in 1863 to address suspected dishonest behavior perpetrated by suppliers of the Union Army, the FCA in its current form generally applies civil liability to, “any person who knowingly submits a false claim to the government or causes another to submit a false claim to the government or knowingly makes a false record or statement to get a false claim paid by the government.” §§ 3729(a)(1)(A) and (B). Additional offense also includes improper behavior for avoiding payment due to the government. §3729(a)(1)(G). (“The False Claims Act: A Primer,” Department of Justice, 4.22.11)

So what meets the requirements of “knowingly”? According to the FCA, to qualify, a person’s understanding must fall under at least one of three definitions: “(1) actual knowledge, (2) deliberate ignorance of the truth or falsity of the information, or (3) reckless disregard of the truth or falsity of the information.” § 3729(b)(1) (“The False Claims Act…”)

One such qualifying situation concluded late last month when Warner Chilcott agreed to plead guilty and pay $125 million to resolve criminal and FCA allegations against the subsidiary of his pharmaceutical manufacturer Warner Chilcott PLC, Warner Chilcott U.S. Sales LLC. According to the Department of Justice, “between 2009 and 2013, Warner Chilcott, through its employees acting at the direction of members of the company’s management team, knowingly and willfully paid remuneration to physicians in order to induce those physicians to prescribe Warner Chilcott drugs. Under the law, it is illegal to offer or pay remuneration to physicians to induce them to refer individuals to pharmacies for the dispensing of drugs for which payments are made whole or in part under a federal health care program.” (“Warner Chilcott Agrees to Plead Guilty to Felony Health Care Fraud Scheme and Pay $125 Million to Resolve Criminal Liability and False Claims Act Allegations,” Department of Justice, 10.29.15)

Another False Claims Act settled in October involved the trust of the late owner and president of One Financial Corporation, Layton P. Stuart. The complaint filed by the United States claimed Stuart and his aforementioned corporation violated the FCA, “by making false statements about the financial condition of One Financial and One Bank (a subsidiary) to induce the Department of the Treasury to invest Troubled Asset Relief Program (TARP) funds…” (“United States Settles False Claims Act Action Against Estate and Trust of Layton P. Stuart for $4 Million,” Department of Justice, 10.19.15). It was also alleged that Stuart knowingly made false statements about the intended use of TARP funds, as he had been committing fraud with the financial institution’s money through the diversion of millions of dollars into personal accounts.

Healthcare and finance were not the only settlements last month. Boeing, the world’s largest aerospace company, agreed to pay $18 million because it, “knowingly charged the United States for time its mechanics spent on extended breaks and lunch hours, and not on maintenance and repair work properly chargeable to the contracts.” The contracts were for the manufacturing of the C-17 Globemaster aircraft, one of the major troop and cargo transport methods utilized by the military throughout the world. (“Boeing Pays $18 Million in False Claims Act Allegations,” Department of Justice, 10.14.15)

With these being only a few of the cases settled in the month of October alone, it is not surprising the U.S. government was able to recover nearly $6 billion in 2014.