Whistleblower: The False Claims Act and The Fraud Enforcement and Recovery Act of 2009 – Part I
In 2003, John Kopchinski was earning $125,000 a year selling the drug Bextra for Pfizer. He had a baby son, and his wife was pregnant with twins. The Gulf War veteran says that, “In the Army, I was expected to protect people at all costs.” At Pfizer, though, he was expected to sell Bextra, even though it raised the risk of heart attacks and strokes. After Kopchinski expressed his concerns about Bextra’s safety, Pfizer fired him. He eventually got a new job paying $40,000 a year.
Kopchinski hired attorney Erika Kelton of Phillips & Cohen. In 2005, Pfizer withdrew Bextra from the market. Now Pfizer is pleading guilty to felony charges of promoting Bextra for unapproved uses. Pfizer will pay penalties of $2.3 billion, and Kopchinski will get a $51.5 million share for filing the “qui tam” lawsuit under the False Claims Act (FCA) that helped the government collect these penalties. Kopchinski is one of five whistleblowers sharing in the settlement. He says that he does not expect his life to change much now, according to a news account of this settlement available from Reuters.
Crutial court decisions such as the one in the Pfizer case have assisted whistleblowers in coming forward. In 2008, there has been rapid legislative response in the enforcement arena. On May 20, 2009, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009 (FERA). This act authorizes substantial new funding to the Department of Justice and other federal enforcement agencies for the investigation and prosecution of offenses. FERA amends the False Claims Act (FCA) in a manner that may increase the exposure of every company that does business with the federal government and every person or entity that supplies goods or services that are reimbursed by federal government dollars.
The FCA provides for recovery of civil penalties and treble damages from any person who knowingly submits or causes the submission of false or fraudulent claims to the United States for money or property. Under the most commonly-enforced provisions of the statute, a person is liable for “knowingly” (1) presenting or causing the presentment of a claim for payment or approval; (2) making a “false record or statement to get a false or fraudulent claim paid or approved by the Government;” or (3) conspiring to defraud the government “by getting a false or fraudulent claim allowed or paid.” The FCA also penalizes so-called “reverse false claims, “ in which a person “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid or decrease an obligation to pay or transmit money or property to the Government.” The FCA defines “knowingly” as having “actual knowledge” of falsity or acting in “deliberate ignorance” or “reckless disregard” of the truth or falsity of the information. “No proof of specific intent to defraud is required.” 31 U.S.C. §3729(b).
The FCA’s qui tam provisions empower private individuals to file litigation in federal court on behalf of the government and to share in any subsequent recovery. The FCA’s qui tam provisions provide enormous incentives for qui tam Realtors (whistleblowers) to expose fraud against the government, awarding 15-30% of settlement or judgment proceeds to Realtors, who may also be entitled to reasonable attorney fees’ and costs, which may be substantial.
FCA civil damages and penalties can be severe. Defendants may be held liable for up to three times actual damages plus penalties between $5,500 and $11,000 per claim. Depending on the method in which the “claims” are calculated, civil penalties may far exceed the actual damages the government sustained.
FERA amends the definition of “claim” in a significant way. The new definition of “claim” is:
(A) any request or demand, whether under a contract or otherwise, for money or property and whether or not the United States has title to the money or property, that –(i) is presented to an officer, employee, or agent of the United States; or (ii) is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government’s behalf or to advance a Government program or interest, and if the United States Government –
(I) provides or has provided any portion of the money or property requested or demanded; or
(II) will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.
FCA liability may now be triggered by any false claim made to any recipient of federal money so long as the money is used to “advance a Government program or interest.” FCA realtors and the Department of Justice will now be able to push to give this provision the broadest possible interpretation.
The old FCA penalized a person who “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid or decrease an obligation to pay or transmit money or property to the Government.” 31 U.S.C §3729(a)(7). FERA now defines “obligation” to include the retention of any overpayment, which opens new avenues of exposure against federal contractors or grantees for knowingly retaining government “overpayments.”
In the past, the FCA afforded protection to “any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee.” 31 U.S.C. § 3730(h). FERA extends whistleblower protections beyond “employees” to a “contractor or agent” and no longer requires any prohibited retaliatory action be taken by an employer. The FERA now reads “any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment. 31 U.S.C. § 3730(h).
An FCA action must be brought within six years of the date on which a violation was committed, or within three years of the date on which the government knew or should have known that a violation was committed, and in no event more than 10 years after the date on which the violation was committed.