Qui Tam - False Claims Act

The False Claims Act (31 U.S.C. §§ 3729–3733, also called the "Lincoln Law") is an American federal law which allows people who are not affiliated with the government to file actions against federal contractors claiming fraud against the government. The act of filing such actions is informally called "whistleblowing." Persons filing under the Act stand to receive a portion (usually about 15-25 percent) of any recovered damages. The Act provides a legal tool to counteract fraudulent billings turned in to the Federal Government. Claims under the law have been filed by persons with insider knowledge of false claims which have typically involved health care, military, or other government spending programs.

The provision allows a private person, known as a "relator," to bring a lawsuit on behalf of the United States, where the private detective or other person has information that the named defendant has knowingly submitted or caused the submission of false or fraudulent claims to the United States. The relator need not have been personally harmed by the defendant's conduct; instead, the relator is recognized as receiving legal standing to sue by way of a "partial assignment" of the injury to the government caused by the alleged fraud. The information must not be public knowledge, unless the relator qualifies as an "original source."

The American Civil War (1861–1865) was marked by fraud on all levels, especially with regard to Union War Department contracts. Some say the False Claims Act came about because of bad mules. During the Civil War, unscrupulous early day defense contractors sold the Union Army decrepit horses and mules in ill health, faulty rifles and ammunition, and rancid rations and provisions among other unscrupulous actions. The False Claims Act, passed by Congress on March 2, 1863, was an effort by the government to respond to entrenched fraud where the official Justice Department was reluctant to prosecute fraud cases. Importantly, a reward was offered in what is called the "qui tam" provision, which permits citizens to sue on behalf of the government and be paid a percentage of the recovery.

The False Claims Act provides incentive to relators by granting them between 15% and 25% of any award or settlement amount. In addition, the statute provides an award of the relator's attorneys' fees, making qui tam actions a popular topic for the plaintiff's bar. An individual bringing suit pro se—that is, without the representation of a lawyer—may not bring a qui tam action under the False Claims Act (see, for example, United States ex Rel. Lu v. Ou, 368 F.3d 773 ).

Once a relator brings suit on behalf of the government, the Department of Justice, in conjunction with a U.S. Attorney for the district in which the suit was filed, have the option to intervene in the suit. If the government does intervene, it will notify the company or person being sued that a claim has been filed. Qui tam actions are filed under seal, which has to be partially lifted by the court to allow this type of disclosure. The seal prohibits the defendant from disclosing even the mere existence of the case to anyone, including its shareholders, a fact which may cause conflicts with the defendant's obligation under Securities & Exchange Commission or stock exchange regulations that require it to disclose lawsuits that could materially affect stock prices. The government may subsequently, without disclosing the identity of the plaintiff or any of the facts, begin taking discovery from the defendant.

If the government does not decide to participate in a qui tam action, the relator may proceed alone without the Department of Justice, though such cases historically have a much lower success rate. Relators who do prevail in such cases will get a higher relator's share, about 25% to 30%. It is conventionally thought that the government chooses legal matters it would prosecute because the government would only want to get involved in what it believes are winning cases.