History of the False Claims Act and “qui tam” whistleblower cases
The False Claims Act, also known as the “Lincoln Law,” was enacted during the Civil War to combat the fraud perpetrated by companies that sold supplies to the Union Army.
War profiteers were shipping boxes of sawdust instead of guns, for instance, and swindling the Union Army into purchasing the same cavalry horses several times. “You can sell anything to the government at almost any price you’ve got the guts to ask,” boasted one profiteer who made millions unloading moth-eaten blankets to the military.
President Abraham Lincoln strongly advocated passage of the False Claims Act. It contained “qui tam” provisions that allowed private citizens to sue, on the government’s behalf, companies and individuals that were defrauding the government. “Qui tam” is short for a Latin phrase, “qui tam pro domino rege quam pro se ipso in hac parte sequitur,” which roughly means “he who brings an action for the king as well as for himself.” Congress passed the False Claims Act on March 2, 1863.
The original False Claims Act assessed wrongdoers double damages and a $2,000 civil fine for each false claim submitted. Those who filed lawsuits, known as “relators,” were entitled to receive 50 percent of the amount the government recovered as a result of their cases.
The statute remained virtually unchanged until 1943 when Congress radically altered the qui tam provisions. The changes included a drastic cut in the relator’s reward, so there was less of an incentive for people to report fraud.
Another damaging change to the False Claims Act was a provision that prohibited qui tam lawsuits based on evidence or information already in the possession of the federal government. This provision effectively prevented whistleblowers from filing a qui tam lawsuit if any government employee had received a tip about the fraud or if any information about the fraud was contained in any government file, even if the government was not investigating the matter or trying to stop the fraud, and even if the whistleblower was the source of the government’s knowledge.
The 1943 amendments emasculated the False Claims Act, and it fell into almost complete disuse.
In the mid-1980s, Congress took another look at the False Claims Act, spurred by reports of widespread fraud against the government. Defense contractor practices were receiving the greatest media attention. In part, this was due to the vastly increased defense spending spurred by the Reagan administration’s response to the Cold War.
The public was reading a steady stream of stories describing outrageous billing practices, such as the Navy paying $435 for an ordinary claw hammer and $640 for a toilet seat. In 1985, the Department of Defense reported that 45 of the largest 100 defense contractors — including nine of the top 10 — were under investigation for multiple fraud offenses.
Government enforcement agencies, meanwhile, complained that their efforts to investigate and stop fraud were hamstrung by insufficient resources, a lack of adequate legal tools and the difficulty of getting individuals with knowledge of fraud to speak up for fear they would lose their jobs.
Frustrated with the government’s inability to respond effectively to outrageous charges and other improper billing behavior by government contractors, Congress decided to revise the False Claims Act to encourage more whistleblowers to come forward and to create incentives for private attorneys to use their own resources to investigate fraud. Congress sought to create a partnership between public institutions and private citizens in keeping with President Reagan’s promise of greater privatization of government functions and the use of market forces to enhance government services.
John R. Phillips, a founding partner of Phillips & Cohen LLP (now retired), worked closely with the two main sponsors of the False Claims Act amendments – Senator Charles Grassley, a Republican from Iowa, and Representative Howard Berman, a Democrat from California – to win wide bipartisan support for the amendments. President Reagan signed the bill into law on Oct. 27, 1986.
The amended False Claims Act provided that whistleblowers who brought successful cases were entitled to 15 percent to 30 percent of the government’s recovery, and their attorneys were guaranteed payment of their regular hourly fees by the defendant. Companies and other entities that defraud the government are liable for treble damages and a penalty for each false claim (currently $10,781 to $21,563). When Congress amended the False Claims Act, it also ensured that people who had provided information about fraud to the government could once again file a qui tam lawsuit.
In 2009 amendments to the False Claims Act were included as section 4 of the Fraud Enforcement and Recovery Act. These amendments clarified terms used in the original law that were not defined in the statute. Some court opinions had construed those terms in ways that did not always accord with congressional intent.
Amendments were made twice in 2010: as part of the Patient Protection and Affordable Care Act and as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 10104(j)(2) of the Patient Protection and Affordable Care Act amended 31 USC 3730(e). Section 1079A of the Dodd-Frank Wall Street Reform and Consumer Protection Act amended 31 USC 3730(h).
The False Claims Act has become the government’s most powerful weapon to fight fraud against the government. More than 9,200 qui tam cases have been filed since 1986. According to Taxpayers Against Fraud, a nonprofit group, the federal government and state governments have recovered more than $55 billion in civil settlements and related criminal fines as a result of qui tam lawsuits brought by whistleblowers.