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False Claims Actions Based Upon Contracts Procured By Fraud

Contracts originally obtained by Fraud can be the basis for a False Claim action

The False Claims Act is intended to restore money to the Government that was taken from it by fraud.  With that purpose in mind, courts have found that the Act can apply to contracts or benefits that were originally obtained through a false statement or fraudulent conduct. United States ex rel. Hendow v University of Phoenix, 461 F.3d 1166  (9th Cir.2006), cert. den. 550 U.S. 903 (2007). In other words, false claims may exist because the contract was tainted from the beginning.  There can be liability for each claim submitted under a contract which was induced by fraud, even if the claims on their face are not false, United States v. Toyobo Co. Ltd., 811 F. Supp. 2d 37 (D.D.C. 2011). This means you can have a situation where the work was performed, but the claim is still false because the contract is based on a fraudulent statement.

Bid Rigging False Claims

There are various examples of this type of false claim. One is bid rigging. In this situation, the successful bidder wins a contract only because of an agreement with other bidders that they would bid a higher price.  Another example is a contract requiring the person or entity receiving the government benefit to agree, before the contract is awarded, to comply with applicable regulations, but the recipient knows it  has no intention to  and will not comply with the regulations, U.S. ex.rel Tyson v. Amerigroup Illinois, Inc., 488 F. Supp. 2d 719 (N. D. Ill. 2007). Yet another is the situation where the applicant established that it was eligible to receive a government benefit by making statements that it knew were false.

A Breach of Contract or Violation of a Regulation Alone do not Create a False Claim

There are additional requirements before a false claim will be found in these situations. A violation of a regulation, by itself, does not mean that there was fraud or that an action under the False Claims Act exists.  The statements that the party receiving the benefit will comply with the regulation must have been intentionally false when made.  It would not be a false claim if, in the beginning, the person intended to comply with the requirements of the contract, but later did not do so.  The false statement must also have been the cause of the government's providing the benefit. Further, the initial falsity must also be material to the government's decision to award the benefit.   It cannot relate to some minor aspect of the contract or benefit. The false statement  must also have a tendency to influence the government's  decision to award the contract or benefit, U.S. ex. rel. Longhi, v. United States, 575 F.3d 458 (5th Cir. 2009).

False Claims are not easy to Identify: Best to talk to Qui Tam Attorney

False claims resulting from promissory fraud or fraud in the inducement may not be easy to  identify.  It is advisable to consult with knowledgeable and experienced qui tam attorneys  who  are best able to determine  if a false claim of this type can properly be asserted .

Contact Us To Learn More

If you have discovered evidence of government fraud, contact an experienced False Claims Act attorney before blowing the whistle. You may be entitled to a substantial reward and the legal protections afforded to whistleblowers under state and federal laws. The attorneys of Berger & Montague are nationally recognized experts in Whistleblower/Qui Tam actions with over a decade of experience pursuing these complex fraud cases. For more information or to schedule your confidential consultation, use the form on this page or call us at 1-800-424-6690.

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For further reading:
What is the Federal False Claims Act
What is Qui Tam Litigation
The following statutes are the focus of virtually all successful False Claims Lawsuits
Whistleblowers, Qui Tam & False Claims Act Legal Blog

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