False Claims Act History

IS099S4MGFalse claims actions date to the 13th and 14th centuries, when law and order was not maintained by a police force or by government inspectors. Instead, the public was enlisted to police wrongdoing on behalf of the king.

Enlistment came via monetary incentive: turn in the wrongdoers, get paid a reward.

A whistleblower case is called a “qui tam,” short for “qui tam pro domino rege quam pro se ipso in hac parte sequitur.” Rough translation: He who brings an action for the king as well as for himself.

Today someone who files a qui tam case, called a Relator, is said to be “doing well while doing good.” In other words, the whistleblower does well for himself monetarily while doing good for the public by saving the government even more money and catching the bad guys.

1863: The original Lincoln Law

President Abraham Lincoln pushed the first federal whistleblower statute through Congress during the Civil War. The False Claims Act, which came to be called “Lincoln’s Law,’’ gave individuals cash incentive to report fraud against the Union.

Dishonest government contractors were making out like bandits during the war, including one who sold the Union moth-eaten blankets and reportedly said: “You can sell anything to the government, at almost any price you’ve got the guts to ask.’’

Crates that were supposed to contain muskets instead came filled with sawdust. Decrepit horses were sold to the cavalry. The soles of soldiers’ shoes were nothing but glued together wood chips, and their uniforms were made of “shoddy’’ that fell apart in the first rain.

In fact, the word “shoddy’’ was “first used with reference to those who made fortunes by army contracts at the time of the Civil War,’’ according to The Oxford English Dictionary, “it being alleged that the clothing supplied by the contractors consisted largely of shoddy.’’

“The world has seen its iron age, its golden age, and its brazen age,’’ the New York Herald editorialized. “This is the age of shoddy.’’

Before Congress passed the False Claims Act in 1863, only government officials could sue contractors said to be defrauding the government. The new law gave private citizens the right, as well. Wrongdoers could be assessed double damages, plus a $2,000 fine for each false claim submitted. The whistleblower’s reward: 50% of whatever the government recovered.

1943: Rise of the lobbyists, decline of the law

World War II blew open the door to fraud by military contractors.

Greedy people who wanted to profit from the False Claims Act but who had no inside information instead cribbed details the government included in criminal indictments and repackaged it into their own False Claims Act civil suits. Citing such “parasitic lawsuits,’’ lobbyists persuaded Congress to close the loophole. In the process, the law was crippled.

The 1943 changes reduced the Relator’s share from 50% to as little as zero and barred qui tam lawsuits “whenever it shall be made to appear that such suit was based upon evidence or information in the possession” of the government. Never mind if the government was not investigating and had no plans to investigate. Never mind if it was the Relator who brought the fraud to the government’s attention.

The False Claims Act fell into disuse.

1986: Those $640 toilet seats

First came the government reports: In 1980, the Department of Justice reported that fraud was eating up as much as 10% of the federal budget. In 1981, the General Accounting Office estimated the government was losing tens of billions of dollars to undetected fraud.

But what riled the public and spurred Congress to act were reports that the military paid $435 each for claw hammers, $640 each for toilet seats and $7,600 each for coffee makers.

The False Claims Act pendulum swung back as Congress restored teeth to the law: The statute of limitations was extended. The burden of proof was eased so defendants who acted with “deliberate ignorance” or “reckless disregard” could be found liable. Whistleblower protections were added to keep companies from retaliating against employees who came forward.

The Relator’s share of a recovery was bumped back up to as much as 30%. And Congress loosened the ban against bringing cases about which the government possessed information.  The revised act made companies that lose liable for triple damages, plus they have to pay the Relator’s attorney fees.

The False Claims Act was back in business.

Today: Back to Lincoln

Almost 150 years since President Lincoln got Congress to act against “shoddy,’’ the government and private whistleblowers use False Claims Act cases to combat fraud in Medicare and Medicaid, housing programs, defense contracting and other areas.

Congress continues to tweak the law. The 2009 Fraud Enforcement and Recovery Act overruled judicial decisions that had limited False Claim Actions. The 2010 Patient Protection and Affordable Care Act gave the Department of Justice more discretion over whether to bar a qui tam in which the information already has been publicly disclosed.

In the fiscal year ending September 30, 2014, the United States obtained a record $5.69 billion in settlements and judgments from civil cases involving false or fraudulent claims against the government.  This brings the five year total since January 2009 to $22.75 billion – more than half the recoveries since the inception of the modern False Claims Act in 1986.

It’s a vindication of sorts for a president who considered those whose fraud lines their pockets while putting soldiers in harm’s way to be the lowest of the low.  The Congressional House Committee under Lincoln echoed his sentiments, declaring:

Worse than traitors in arms are the men who pretend loyalty to the flag, feast and fatten on the misfortunes of the nation while patriotic blood is crimsoning the plains of the south and their countrymen are moldering in the dust.”