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What types of false claims are prohibited by the False Claims Act?

False Claims Prohibited by the False Claims Act

The False Claims Act permits whistleblowers, also known as qui tam relators to recover damages on behalf of the federal government in return for a contingency fee, also known as a relator share.  The statute prohibits “(A) knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment or approval; [and] (B) knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false record or statement material to a false or fraudulent claim.”  31 U.S.C. § 3279(a)(1)(A)–(B).  The elements of an FCA claim are as follows: “(1) the defendant submitted a claim to the government, (2) the claim was false, and (3) the defendant knew the claim was false.”  Pencheng Si v. Laogai Research Found., 71 F. Supp. 3d 73, 91 (D.D.C. 2014) (internal quotation marks omitted).

There are two types of falsity prohibited by the False Claims Act, express legal falsity and implied legal falsity.

Express Legal Falsity (Factually False Claim)

A claim of express falsity arises where a contractor fails to comply with the requirements for the goods or services that it agreed to provide the federal government.  A factually false claim is one that “is untrue on its face,” for example if it “include[s] ‘an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided.’”  United States v. Kellogg Brown & Root Servs., Inc., 800 F. Supp. 2d 143, 154 (D.D.C. 2011) (citing United States v. Sci. Applications Int’l Corp. (SAIC II), 626 F.3d 1257, 1266 (D.C. Cir.2010)).  Examples include billing for services that were never provided or charging the government for an armored vehicle but providing a vehicle that is not armored.

Legal Falsity (False Certification)

A false certification may be either express or implied:

  • Express false certification occurs when a claimant explicitly represents that he or she has complied with a statute, regulation, or contractual term, but in fact has not complied.
  • Implied false certification occurs when “the defendant submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant’s noncompliance with a statutory, regulatory, or contractual requirement,” and that “omission renders those representations misleading.”  Escobar, 136 S. Ct. at 1995.

A claim of implied certification arises where the claim for payment to the Government implicitly constitutes a certification of compliance with certain applicable regulations.  A government contractor’s non-compliance with a government regulation can violate the False Claims Act where there is a relevant connection to the contract at issue.  In 2016, the Supreme Court held in Escobar that an FCA complaint premised on implied certification must satisfy “two conditions”: “first, the claim . . . makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose non compliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”

Escobar also provides important guidance on materiality:

  • Materiality turns on the “effect on the likely or actual behavior of the recipient of the alleged misrepresentation.” Universal Health, 136 S. Ct. 1989 at 2002.
  • To plead materiality with the requisite particularity, a relator may draw inferences from various sources, including the Government’s history of declining to pay claims for failure to comply with the applicable regulation. See Universal Health, 136 S. Ct. at 2003 (noting that materiality may be premised on “evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement[s]”).
  • Materiality is absent at the pleading stage when the relator’s chronology suggests that the Government knew of the alleged fraud, yet paid the contractor anyway. See Universal Health, 136 S. Ct. at 2003-04 (“[I]f the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. Or, if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.”).

Fraud-In-The-Inducement or Promissory Fraud

The False Claims Act also prohibits fraud-in-the-inducement, i.e., where the contract or extension of government benefit was originally obtained through false statements or fraudulent conduct.

The Supreme Court recognized a fraud-in-the-inducement theory when it held in U.S. ex. rel. Marcus v. Hess, 317 U.S. 537 (1943) that contracts obtained under a collusive bidding scheme violated the FCA by defrauding the government and compelling it to pay more “than it would have been required to pay had there been free competition in the open market.”

To establish fraudulent inducement under the FCA, a relator must show that a false statement, omission, or misrepresentation “`caused’ or `induced’ the government to enter into a contract, such that but for the misrepresentations, the government would not have awarded the contract and would not have paid the claim.” United States ex rel. Thomas v. Siemens AG, 991 F. Supp. 2d 540, 569 (E.D. Pa. 2014).

A Grant Assurance is a Claim

A grant assurance in an application for federal funds or a grant progress report is a “claim” under the False Claims Act since representations made in the progress report trigger the payment of grant funds. See United States ex rel. Bauchwitz v. Holloman, 671 F.Supp.2d 674, 689 (E.D.Pa.2009).

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False Certification Theory of False Claims Act Liability

The false certification theory of liability assumes that “a false representation of compliance with a federal statute or regulation or a prescribed contractual term” in a claim to the government can, in some situations, render the claim fraudulent. United States v. Teva Pharm. USA, Inc., 13 Civ. 3702 (CM), 2019 WL 1245656, at *6 (S.D.N.Y. Feb. 27, 2019) (citation and internal quotation marks omitted); see also United States v. Villaspring Health Care Ctr., Inc.,No. 3:11-CV-43-DCR, 2011 WL 6337455, at *6 (E.D. Ky. Dec. 19, 2011). Under this theory, “[l]iability… can be found when a defendant violates its continuing duty to comply with the regulations on which payment is conditioned.” Villaspring, 2011 WL 6337455, at *6 (quoting United States ex rel. Augustine v. Century Health Serv., 289 F.3d 409, 415 (6th Cir. 2002)) (internal quotation marks omitted). The court in Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001)

identified two subcategories of false certifications, “express” and “implied.” Id. at 697-702. “Express certification” applies if a contractor must expressly certify compliance with a particular legal requirement at the same time that it submits that claim to the Government for payment. Id. at 698…. “Implied certification,” by contrast, is “based on the notion that the act of submitting a claim for reimbursement itself implies compliance with governing federal rules that are a precondition to payment.” [Id.] at 699. In an implied certification case, the contractor does not need to certify its compliance with the underlying condition explicitly each time it submits a claim for payment. In order to cabin the liability that could result from such a theory, the Mikes court concluded that the implied certification theory of FCA liability “appropriately applied only when the underlying statute or regulation upon which the plaintiff relies expressly states the provider must comply in order to be paid.” Id. at 700. This theory — called the “expressdesignation requirement” — operated like a default contract rule; the court relied on Congress to specify when compliance with certain statutes was a “condition to payment.” See Bishop [v. Wells Fargo & Co.], 870 F.3d [104, 106 (2d Cir. 2017)].

Teva, 2019 WL 1245656, at *6.  In 2016, the Supreme Court issued its opinion in Escobar, 136 S. Ct. Escobar addressed a disagreement among courts over implied false certification and clarified the appropriate standard. The Court held —

that False Claims Act liability for failing to disclose violations of legal requirements does not turn upon whether those requirements were expressly designated as conditions of payment. Defendants can be liable for violating requirements even if they were not expressly designated as conditions of payment. Conversely, even when a requirement is expressly designated a condition of payment, not every violation of such a requirement gives rise to liability. What matters is not the label the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.

Escobar, 136 S. Ct. at 1996 (emphasis added); see also Teva, 2019 WL 1245656, at *7 (discussing Escobar). Escobar provided guidance to False Claims Act plaintiffs on how to prove materiality, noting that “the Government’s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive,” and that “proof of materiality can include… evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement,” among other considerations. Escobar, 136 S. Ct. at 2003-04; see also Teva, 2019 WL 1245656, at *7 (discussing Escobar).

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Jason Zuckerman, Principal of Zuckerman Law, litigates whistleblower retaliation, qui tam, wrongful discharge, and other employment-related claims. He is rated 10 out of 10 by Avvo, was recognized by Washingtonian magazine as a “Top Whistleblower Lawyer” in 2015 and selected by his peers to be included in The Best Lawyers in America® and in SuperLawyers.