EVEN THE KING NEEDS HELP

We pointed out a few times how it is good to be King.  But even the king needs help, sometimes.  For the U.S. Government, this occasionally comes in the form of the False Claims Act (FCA), a law that encourages whistleblowers to inform the government when fraud is committed against it.

FCA claims tend to increase in wartime, when employees or competitors think some companies are taking advantage of the situation in cases ranging from private security to water purification projects.  Indeed the Act dates back to the Civil War.  Yet the most common claims are more domestic, dealing with healthcare and pharmaceutical providers accused of fraud against Medicare or Medicaid.

The FCA encourages whistleblowers by giving them a cut of the government’s recovery.  When the topic is fraud against the United States, the recovery is sometimes sizeable, and so is the helpful individual’s share.  There are restrictions though.  The fraud being reported must not be already known to the Feds; and only the first one to report it will qualify for the whistleblower’s portion of the loot.

By the same token, the U.S. Supreme Court just gave some FCA whistleblowers a second chance.  If the first relator (as FCA claimants are called) brings a case that is dismissed before the issue of whether there indeed was fraud can be decided, the next one may bring a new case.

It is a big change – not too many FCA cases are dismissed undecided – but it is a change companies working for the government ought to keep in mind.  That is because not all FCA cases are taken over by the U.S. Attorney.  When the Feds turn down pursuing the case, the relator can prosecute it on its own. Defendant companies may be more tempted to settle in those circumstances, as the economics of the case changes.  The relator, now alone, might accept less than it would take to defend the case, let alone pay the full amount in case of a loss.

But now, such a settlement, which ends the case without it being decided on the merits, may open the door to a new case being filed.  Settlor Beware!