Presentation on theme: "The False Claims Act The federal False Claims Act as it Relates to Architects, Engineers and other Design Professionals."— Presentation transcript:
1 The False Claims ActThe federal False Claims Act as it Relates to Architects, Engineers and other Design Professionals
2 My disclaimerThe Virginia Department of Professional and Occupational Regulations sets the standards for continuing education for Architects and Engineers.You should evaluate the subject matter of this course to determine if it will be beneficial to you and will qualify for credit as outlined in the current regulations. This evaluation should be done before and at the end of the course.I would suggest you print out and sign and keep the certification as well as the slides so you have documentation of what was covered in the event that you are audited.
3 Disclaimer 2Nothing in the presentation should be considered legal advice that should be relied upon and this presentation does not create an attorney-client relationship.Before an such relationship can be established, I must first be contacted so that a conflicts check can be performed and I can get more specific information.
4 Scott L. Reichle, P.E., Esq.Partner at the Law firm of Patten, Wornom, Hatten and Diamonstein, Hampton Roads, VAProfessional Engineer in VA since 1993Licensed to practice law since 1996Experience as a Field Engineer in the construction industry, a design engineer and former Assistant Professor at the Batten College of Engineering and Technology at Old Dominion University
5 Contact InformationScott L. ReichlePatten, Wornom, Hatten and Diamonstein12350 Jefferson Ave, Suite 300Newport News, VA 23602(757)
6 Introduction to the False Claims Act Also known as The FCAand “Lincoln Law”“Informer’s Act”“qui tam” statute
7 Qui Tam Qui tam pro domino rege quam pro se ipso in hac parte sequitur “he who brings an action for the king as well as himself”Derived from English common law
8 Qui Tam (how do you say it?) Most say (including Justice Department): “kwee”Some others use the French pronunciation: “kee”TamSome pronounce such that it rhymes with “yam”Others pronounce like “tom”
9 Broad StrokesThe person bringing the suit is generally called the “whistleblower” or the “relator”The relator brings the suit “under seal”The information is turned over to the United Sates Attorney’s Office and they investigateThe US Attorney’s Office decides if they want to intervene and take over the caseEven the the US Attorney declines, the relator can precede
10 A quick look at the numbers As of September, 2007, there were over 5800 cases filed since the 1986 amendments to the FCA, and the government intervened in approximately 20-25% of the cases.In the cases that the government intervened, relators were awarded almost $2 billion.Where they declined, relators were awarded about $70 Million-tells that better/worse if government intervenes-also misleading, because government sometimes declines and changes mind, Northrup Gruman settled in 2005 for approx $62M where 4 whistleblowers had litigated for 12 years
11 Origins of the Act (in the US) In 1863, Congress enacted the US False Claims Act in response to fraud resulting from civil warThe 1862 court martial of Major Quartermaster Justus McKinstry caught national attentionHe was found guilty of charges of self-dealing and fraudPresident Lincoln accepted sentence and dismissed him from the Army.Was charged with a large number of violations including purchasing horses for cavalry and then purchasing the same horses for artillary;Paying premiums for horses, paying for lame horses- all intending to profit-There was actually an architect that was working for Mckinstry, named Ogden that was accused of working under Mckinstry’s order in connection with a roofing contract on barracks. Henry Clapp accused of fraud and McKInstry threatened him with imprisonment and marched soldiers back and forth in front of him until he executed a sworn statement renouncing his charges against Ogden.
12 1863 ActAs a result of these types of cases, Congress moved forward to enact law to protect against government fraudOriginal act included ability to proceed criminally and civillyIncluded qui tam provisionsAllowed for court martial of private citizens that knowingly submitted false vouchers to the US government
13 1943 Amendment WWII resulted in overhaul of the FCA There was debate of the source of the information of the government fraud and the relatorThe relator did not need to be the original source of the information, but the plaintiff had to base the suit on information, evidence or sources that were not in the possession of the governmentAttorney general was given a “first pass” on suitsWeakened the act
14 1986 (the pendulum swings back) Civil penalties increased to a minimum of $5,000 and a maximum of $10,000 per act, PLUS THREE TIMES the amount of damages sustained by the government because of the fraudFraud no longer required to be “knowing.” Now includes violation if “deliberate ignorance of the truth or falsity” or “reckless disregard.”A specific intent to defraud is not requiredClarified that the burden of proof in the civil action was preponderance of the evidenceDiscuss 3 different burden of proofs: preponderance of the evidence, clear and convincing evidence, beyond a reasonable doubt
15 1986 Amendments ContinuedIncreased the incentives for qui tam plaintiffs15% to 25% of the proceeds when the government intervened in the action25% to 30% of the proceeds if the government chose not to interveneCosts and attorneys fees recoverable by plaintiffDiscuss some of these provisions in more detail shortly
16 2009 amendmentsExpanded scope of FCA to eliminate “presentment” requirementsExpanded “reverse false claims” related to knowingly and falsely avoiding or decreasing an obligation to pay money to the USIncreased protection beyond employees to contractors and agents
17 Overview of FCA provision Section 3729(a)(1) of the US Code imposes civil liability on anyone who knowingly presents to an officer or employee of the US Government or member of the Armed Forces of US, a false claim or fraudulent claim for payment or approvalSection 3729(a)(2) imposes liability on anyone who knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the governmentSection 3729(a)(3) imposes liability on anyone who conspires to defraud the government by getting a false claim allowed or paidThree different approaches – but all related
18 What is a claim?“Any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee or other recipient” if any portion of it will be provided or reimbursed by the United States government.Notice that it can be a violation of the FCA as long as the loss can be tracked to the government
19 Damages and AwardsIf a qui tam suit is successful, the government may recover:Actual damages, trebledCivil penalties between $5,500 and $11,000 for each false claimThe relator may recover up to 30%There are other causes of action that may be brought by the government beyond the FCA
20 Common types of qui tam actions “Mischarging” for goods and services (i.e. charging employee labor to a government contract even though the employee did not work on the project)Submitting false cost and pricing data to the government during negotiations of a contract (“false negotiation”)Providing an inferior product or falsely certifying that the product met the specifications or that reliability testing was performedCompletion of certification forms by someone other that party authorizedBilling for tests not performed
21 Statute of Limitations A qui tam action may not be brought after the later of:a. More than 6 years after the date on which the false claim is made;b. More than 3 years after the date on when the facts material to the right of action are known or reasonably should have been known to the official of the US charged with responsibilityc. But in no event, more than 10 years after the date on which the violation occured
22 Claims That are Actionable Tax Fraud IS actionable, but under a separate process where individuals who provide information about tax law violations that involve tax, penalties, and interest over $2M by individuals whose annual gross income is over $200,000.
23 Claims that are Not Actionable “Parasitic” suits- suits where allegations are already the subject of a civil suit, administrative proceeding when the government is already a partyAllegations based on pending qui tam case - “first-to-file” rule is applicable. If multiple actions filed, the relators will sometimes agree not to move to dismiss each other actions and consolidateCases based on publicly disclosed allegations – cases based on allegations that have been publicly disclosed are barred unless the relator is an “original source” of those allegations and provide the information to the government prior to filing
24 Other Claims that are Not Actionable Government mismanagement or waste is not actionable so can not claim for ineptitude.Claims against states or state entities are generally not actionableClaims against localities ARE generally actionableState universities are generally immune from qui tam actions
25 Break and QuestionsPlease text through any questions at this time
26 False Claims Act as it Applies to Design Professionals Liability can result from the contract negotiationsCan result from factual representations or certifications known to be falseMisrepresentations in grant proposals and grant preparation or progress paymentsContract Administration
27 Looking at Construction Cases Construction cases can be of use to consider because architects and engineers can often be involved in these cases either through:The Bidding ProcessConstruction AdministrationDesign/BuildConstruction ManagementCertifications
28 Daewoo Engineering and Construction v. United States Won contract for the construction of a 53 mile road across the Pacific nation of PalauAwarded bid based on construction experience and low bid (much lower than next highest bidder)Had difficulties with jungle construction, compaction of soil and unprepared construction team.Submitted a certified claim for additional $65M claiming unexpected adverse weather.Claim was denied and Deawoo filed suit
29 Daewoo continuedThe government brought a counterclaim under the FCA and other statutesThe court found the Daewoo intentionally underbid the project with the intent of making up the money through later claims (obtaining contract under false pretenses)Court found that Daewoo had forfeited its legitimate claim of $13MAlso had to pay $50M as a result of fraudReserved judgment on 762 misrepresentations
30 Bid Rigging and Collusive Bidding Collusion in the bidding process will often result in FCA liabilityThe US Attorney will often bring criminal action first and then civil action (the defendant will then be collaterally estopped from challenging liability)There is liability even if paid from both local and federal funds
31 Examples of Bid Rigging US v. Cripps, individual had a scheme where he falsely presented bids from several companiesPerformed the work himself but represented that it was performed by the “low bidder”Kept money himself and gave “hush money” to the “low bidder”Found criminally liable and then civilly liable
32 Examples of Bid Rigging (example 2) Miller v. Holzmann, concerned the construction of a US funded wastewater treatment plant in EgyptThe scheme included manipulation of bids with subcontracts awarded to losing bidders and bonuses as a “loser” feeThese fees were included in the contract price, causing the government to pay more for the overall project.
33 Example of Bid Rigging (example 3 – kickback issues) United States v. Safe Environment Corp.An Amtrak Project Manager instructed contractor to inflate its bid proposal for work on an asbestos remediation project with a kickback “consultant fee.”The contractor won the contract, and invoiced and paid the consultant feeThe contractor and its President found liable under the FCA
34 Intentionally Underbidding Intentionally underbidding a project to get the job MAY constitute a violation of the FCAIt IS a violation of the FCA if the contractor subsequently files claims to make “make-up” the loss through fraudulent claimsIt is uncertain if you can be held liable under FCA for fraudulently low bid without more
35 False Representations During the Award Process Can be a violation of the FCA if the misrepresentation if knowing and material.Can be considered fraud in the inducementOne defense may be “government knowledge”Can apply in the case of grant applications
36 Representation of Compliance with Minority-Owned Enterprises US ex rel. King v. F.E. Moran, Inc.Charge that the contractor funneled almost $2M in work to MBEs when work was not done by MBEs but by contractor or other non MBE subs.Alleged the MBEs were just “storefronts” and did not perform any of the work.
37 Substandard and Non-Compliant Work One of the most typical types of FCA actionsCases do not always require an affirmative representations that work complies with the contractThe theory is that the presentation of the invoice and acceptance of payment is an implied representation that the appropriate standards have been met.
38 Example of Failure to Follow Standards Commercial Contractors, Inc. (CCI) v. United StatesThe Army Corps of Engineers contracted with CCI to build parts of flood control panelContract required CCI to use concrete that met set compressive strengths and CCI could not removed forms until 80% strength reached as determined by simultaneously poured test cylindersCCI had improperly heated test cylinders to accelerate hardening
39 Other Possible FCA Actions Against Design Professionals False applications for Loans and GrantsFalse CertificationsFalse ReportsDesign/Build and Construction Managers
40 False Certification Example United States ex. rel. Mistick PBT v. Housing Authority of the City of PittsburgDesigner claimed product was appropriate for lead encapsulationRelator claimed the designer knew the product was inappropriateDismissed on other grounds; the court did not reach the issue of potential liability based on false certification
41 State False Claims Actions Many states including Virginia have State False Claims ActsVirginia is called the Virginia Fraud Against Taxpayers Act, , et. Seq.Very similar to the Federal FCA, in terms of timing, approach, damagesVa. Attorney General investigates, etc.
42 Retaliation ClaimsThe 1986 Amendment to the FCA included provisions to protect employees against potential retaliationSection 3730(h)Covers Employees, and now independent contractors, agent, etc.The employer will generally include the corporation and any “de facto” employer
43 Remedies Under 3730(h)Entitled to all such relief as is necessary to make the claimant whole includingReinstatement at same seniority levelTwo times the amount of back payInterestSpecial damages (i.e. emotional distress)Litigation costs and attorney’s fees
44 Ethics and False Claims Act Violations DPOR has Rules of Professional Conduct18VAC Public statements. A. The professional shall be truthful in all professional matters. The professional shall include all relevant and pertinent information in professional reports, statements, or testimony, which shall include the date indicating when such information was current.
45 Ethics and the False Claims Act (continued) A regulant who has direct knowledge or reason to believe that any individual, or firm may have violated or may currently be violating any of these provisions, or the provisions of Chapters 1 through 4 of Title 54.1 or Chapters 7 and 13 of Title13.1 of the Code of Virginia, as amended, shall immediately inform the board in writing and shall cooperate in furnishing any further information or assistance that may be required by the board or any of its agents.