The False Claims Act

1. The False Claims Act The federal False Claims Act as it Relates to Architects, Engineers and other Design Professionals

2. My disclaimer • The 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.

3. Disclaimer 2 • Nothing 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, VA • Professional Engineer in VA since 1993 • Licensed to practice law since 1996 • Experience 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 Information Scott L. Reichle Patten, Wornom, Hatten and Diamonstein 12350 Jefferson Ave, Suite 300 Newport News, VA 23602 Sreichle@pwhd.com (757) 223-4536

6. Introduction to the False Claims Act • Also known as The FCA • and “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?) Qui • Most say (including Justice Department): “kwee” • Some others use the French pronunciation: “kee” Tam • Some pronounce such that it rhymes with “yam” • Others pronounce like “tom”

9. Broad Strokes • The 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 investigate • The US Attorney’s Office decides if they want to intervene and take over the case • Even 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

11. Origins of the Act (in the US) • In 1863, Congress enacted the US False Claims Act in response to fraud resulting from civil war • The 1862 court martial of Major Quartermaster Justus McKinstry caught national attention • He was found guilty of charges of self-dealing and fraud • President Lincoln accepted sentence and dismissed him from the Army.

12. 1863 Act • As a result of these types of cases, Congress moved forward to enact law to protect against government fraud • Original act included ability to proceed criminally and civilly • Included qui tam provisions • Allowed 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 relator • The 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 government • Attorney general was given a “first pass” on suits • Weakened 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 fraud • Fraud 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 required • Clarified that the burden of proof in the civil action was preponderance of the evidence

15. 1986 Amendments Continued • Increased the incentives for qui tam plaintiffs • 15% to 25% of the proceeds when the government intervened in the action • 25% to 30% of the proceeds if the government chose not to intervene • Costs and attorneys fees recoverable by plaintiff

16. 2009 amendments • Expanded scope of FCA to eliminate “presentment” requirements • Expanded “reverse false claims” related to knowingly and falsely avoiding or decreasing an obligation to pay money to the US • Increased 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 approval • Section 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 government • Section 3729(a)(3) imposes liability on anyone who conspires to defraud the government by getting a false claim allowed or paid

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 Awards • If a qui tam suit is successful, the government may recover: • Actual damages, trebled • Civil penalties between $5,500 and $11,000 for each false claim • The 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 performed • Completion of certification forms by someone other that party authorized • Billing 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 responsibility c. 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 party • Allegations 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 consolidate • Cases 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 actionable • Claims against localities ARE generally actionable • State universities are generally immune from qui tam actions

25. Break and Questions • Please text through any questions at this time

26. False Claims Act as it Applies to Design Professionals • Liability can result from the contract negotiations • Can result from factual representations or certifications known to be false • Misrepresentations in grant proposals and grant preparation or progress payments • Contract 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 Process • Construction Administration • Design/Build • Construction Management • Certifications

28. Daewoo Engineering and Construction v. United States • Won contract for the construction of a 53 mile road across the Pacific nation of Palau • Awarded 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 continued • The government brought a counterclaim under the FCA and other statutes • The 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 $13M • Also had to pay $50M as a result of fraud • Reserved judgment on 762 misrepresentations

30. Bid Rigging and Collusive Bidding • Collusion in the bidding process will often result in FCA liability • The 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 companies • Performed 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 Egypt • The scheme included manipulation of bids with subcontracts awarded to losing bidders and bonuses as a “loser” fee • These 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 fee • The 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 FCA • It IS a violation of the FCA if the contractor subsequently files claims to make “make-up” the loss through fraudulent claims • It 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 inducement • One 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 actions • Cases do not always require an affirmative representations that work complies with the contract • The 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 States • The Army Corps of Engineers contracted with CCI to build parts of flood control panel • Contract 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 cylinders • CCI had improperly heated test cylinders to accelerate hardening

39. Other Possible FCA Actions Against Design Professionals • False applications for Loans and Grants • False Certifications • False Reports • Design/Build and Construction Managers

40. False Certification Example • United States ex. rel. Mistick PBT v. Housing Authority of the City of Pittsburg • Designer claimed product was appropriate for lead encapsulation • Relator claimed the designer knew the product was inappropriate • Dismissed 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 Acts • Virginia is called the Virginia Fraud Against Taxpayers Act, 8.01-216.1, et. Seq. • Very similar to the Federal FCA, in terms of timing, approach, damages • Va. Attorney General investigates, etc.

42. Retaliation Claims • The 1986 Amendment to the FCA included provisions to protect employees against potential retaliation • Section 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 including • Reinstatement at same seniority level • Two times the amount of back pay • Interest • Special damages (i.e. emotional distress) • Litigation costs and attorney’s fees

44. Ethics and False Claims Act Violations • DPOR has Rules of Professional Conduct • 18VAC10-20-700. 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.