Who Can Sue and Be Sued Under the False Claims Act?

Can anyone sue or be sued under the False Claims Act?

No. Generally, only a “person” as defined under the Act can sue or be sued. Under the False Claims Act, the term “person” includes organizations of persons, such as corporations.

The types of relators are as follows:

Employees: An employee who blows the whistle on his or her employer is one of the most common types of relators. Experience has shown that employees normally file qui tam actions against their employers as a last resort after repeated attempts to resolve the issues internally have met with negative results (very often through so-called internal "hotlines"). An important provision of the 1986 amendment protects employees who file an action, or assist in furthering an action, against job retaliation by the employer.

Former employees: This is another common type of whistleblower who files a qui tam action. A former employee files a qui tam action based on his or her direct knowledge of fraud on the part of their former employer. In many cases, the former employee was terminated or quit under duress as a result of trying to blow the whistle internally.

Competitors and Subcontractors: Another type of relator is the competitor of the company being charged, or an employee of the competitor who has direct knowledge of the fraud being committed. Also, companies or persons who subcontract with a Government contractor have filed qui tam actions against the contractor.

State and Local Governments: The 1986 Amendments gave state and local governments the power to be relators in qui tam actions. Since then, a number of local and state governments have filed qui tam actions against contractors and medical providers as a means of recovering state or local revenue lost due to fraudulent schemes.

Federal Employees: A much maligned group are federal employees who file qui tam actions. The Act, as amended in 1986, does not exclude federal employees from being relators. However, when a federal employee does file a qui tam action, it can result in considerable controversy and numerous court challenges. Despite the court challenges, a recent federal appeals court decision upheld the right of a federal employee to be a relator in a qui tam action.
                        
Other types of qui tam relators have included public interest groups, unions, corporations and other private organizations. However, some corporate relators have raised questions as to whether they can meet the "public disclosure" provision of the law. Some courts have not allowed organizations or corporations to be False Claims Act relators.

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What kinds of defendants are sued under the False Claims Act?

In general, any organization or person who receives federal money can be charged as a defendant in a qui tam action. Some of the more common defendants in qui tam actions are:

Government Contractors and Subcontractors.
Medical Providers: Doctors, hospitals, chiropractors, psychologists, laboratories, home health agencies, durable medical goods providers, pharmacies, HMOs, and clinics.
Private Universities: Private universities that have federal contracts, grants, and research and development funds.
State and Local Government Agencies and Officials, including state colleges and universities.

Because they are recipients of large amounts of federal money, state and local entities have been defendants in qui tam actions. These agencies are now far less likely to be sued, as the Supreme Court has restricted qui tam cases against state agencies.

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Who cannot be sued under the False Claims Act?

Congress, the judiciary, or senior executive branch officials cannot be sued if the action is based on evidence or information known to the Government when the action is filed. Members of the armed forces are generally immune from suit.

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Can I sue the state government for cheating the federal government under the False Claims Act?

Probably not.  A Supreme Court decision, United States ex rel. Stevens v. Vermont, 579 U.S. 765 (2000), held that a state is not a "person" under the False Claims Act and, thus, many state agencies, universities, hospitals, and other state entities are now protected from qui tam actions. The United States’ Constitution, specifically the 11th Amendment's immunity provisions that protect states from lawsuits seeking money damages, may also protect state defendants from liability in qui tam actions.

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Can my local government be sued under the qui tam provisions of the False Claims Act?

Maybe yes, maybe no. Whether a particular state-chartered institution or local government entity can be sued depends on a complex inquiry into the particular laws of your state, as applied in the False Claims Act context. Also, this law is in flux and is rapidly changing.

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Can federal government employees bring a qui tam action under the False Claims Act?

Yes, but read on.

There is no absolute bar against Government employees or former employees from bringing a qui tam action under the False Claims Act. However, the Department of Justice does not support such actions and makes them very difficult to pursue. Judges also seem to dislike Government employee cases, especially when the False Claims Act violations came to the attention of the Government worker in the course of his regular job duties. Twisting other provisions of the False Claims Act to somehow apply, the courts have tended to dismiss the cases where the relator's Government job duties included investigating and reporting fraud.

If you are a federal Government employee and are considering filing a qui tam action, you should read these cases to get an idea of  how such whistleblowers have been treated by the courts:

United States ex rel. Williams v. NEC Corp., 931 F.2d 193 (11th Cir. 1991);
United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416 (9th Cir. 1991);
United States ex rel. Erickson v. American Institute of Biological Sciences, 716 F. Supp. 908 (E.D. Va. 1989).

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Is there a race to the courthouse where more than one person could file as a qui tam relator?

Yes, the False Claims Act has a “first to file” rule. Only one qui tam action can be brought based on the same facts. Thus, the first action filed bars others brought later that are based on the same facts. So there is, literally, a race to the courthouse. The first whistleblower wins the race and prevents later qui tam plaintiffs from being successful in bringing a lawsuit.

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Can multiple whistleblowers file separate cases?

No.  The “first to file” provision in the False Claims Act prohibits this from being a successful strategy. If several relators want to group together and file a single case, they can do so. If they file separate cases about the same facts, only the one considered to be filed first will be able to proceed. Unlike in other cases, where another plaintiff might be able to “invervene” in an existing case, only the Government can intervene in a qui tam action or bring a related action.

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Does the False Claims Act apply where a subcontractor actually made the false statements?

Yes. The Supreme Court's decision in United States v. Bornstein, 423 U.S. 303, 305 (1976), established conclusively that prime contractors cannot avoid False Claims Act liability where subcontractors cause them to make false statements or claims to the Government. The “prime contractor is responsible for assuring that all the work required by the entire contract is furnished, and cannot be relieved of this responsibility by subcontracting part of the work.”

The False Claims Act permits recovery against a subcontractor who causes a prime contractor to submit false claims to the Government.

Where a contractor is innocent, but its subcontractor is not, both are liable.  This protects the Government financially when a subcontractor's assets are modest and protects the Government where prime contractors do not adequately select nor monitor their subcontractors' performance.

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