Institute for Legal Reform Considers Changes to the False Claims Act, Part III

Over the past several days, we have discussed the proposed changes to the federal False Claims Act, a statute highly-touted as one of the most successful pieces of legislation in American history. The first proposed change attacks the current treble damages calculation for companies found to be in violation of the FCA and proposes a less-harsh multiplier method of determining penalties. In essence, the Institute for Legal Reform (ILR) believes that the damages of a company choosing to come forward with its own fraud should be minimized to double damages as opposed to triple. Also, the ILR believes that a company found to be engaging in fraud at the taxpayers’ expense should only be exposed to one and one-half times the damages if the company self-reported and had a compliance management system in place.

Part two of the analysis explored the second proposed change: elimination of the qui tam plaintiff’s award in any case wherein the defendant already self-reported its misconduct to the government. The ILR relied on the language from a single, 14-year old Fifth Circuit case that asserted rewarding qui tam plaintiffs for coming forward is akin to essentially “purchasing” the information from the private plaintiff at the expense of the U.S. Treasury.

Institute for Legal Reform Encourages Incentives for Relators Who Come Forward Internally

In Part Three, we will look at the ILR’s third proposed change: incentivizing internal reporting. Also known as, allowing the company to clean up its mess before the government finds out.

 According to the language of the proposed change, an employer, contractor or any other individual with the legal duty to report misconduct must do so to an internal compliance manager before commencing a whistleblower lawsuit in federal court. The company then has at least 180 days to investigate the allegations and make adjustments, if necessary. From there, the company must self-disclose the misconduct to the proper government authorities. If the government decides to prosecute, the relator will be eligible for up to ten percent of the penalty amount if the relator contacts the DOJ to assert his role in exposing the fraud.

Moreover, according to the proposed rules, the relator is automatically barred and the claim must be dismissed if the relator files the lawsuit prior to the 180 days,  regardless of the eventual outcome of the case or whether a finding of fraud is made by the DOJ or other entity.

ILR Defends its Proposal With a Trivial Explanation of the ‘Benefits’ of the Internal Reporting Requirement

The ILR, seemingly concerned with providing companies adequate time to fix their frauds, believes this change is essential in order to advance two goals. First, this change would supposedly ensure that only “desirable” whistleblower lawsuits are filed. The ILR refers to its “reliable evidence” which suggests employees prefer to “report internally to their employers.” While the ILR also asserts that this change does not change the regularity, volume or frequency of qui tam reports, the DOJ will not be made aware of those cases which are adjusted “internally” prior to the relator’s 180-day cutoff point.

Fraud is Fraud, Period.

The ILR asserts a number of shallow, extremely business-friendly policy reasons for its desire to prohibit relators from filing claims prior to reporting internally. It speaks of “employee preference” and the need for “desirable” whistleblower lawsuits. Yet, employees reporting internally could not only face undue backlash or retaliation from their colleagues, but are left possibly exempt from a rightful monetary reward.