False Claims Act History
Also known as the “Lincoln Law,” the False Claims Act was first enacted under President Abraham Lincoln during the Civil War to combat fraud committed by businesses that were selling supplies to the Union Army. The statute fell into disuse for many years but was revived in the mid-1980’s because of widespread fraud concerning government contracts during the Cold War. President Reagan signed the bill into law on Oct. 27, 1986.
In 2009, President Obama strengthened the reach of the False Claims Act by amending the statute to include Section 4 of the Fraud Enforcement and Recovery Act and clarifying terms used in the original law that were not defined in the statute. The result of these amendments was the United States Department of Justice’s enhanced scrutiny of individuals who are involved in the corporate wrongdoing.
U.S. Attorneys Partner With Private Law Firms
While certainly not a new tool for the state and federal government, the False Claims Act has enjoyed a revival among government attorneys and plaintiff’s lawyers alike. With the nation’s increasing interest and concern with health care costs, in part because of the ongoing political debate over the Affordable Care Act, United States Attorneys and lawyers in their civil divisions around the country are forming partnerships with private law firms to bring cases aimed at combating fraud and recovering monetary penalties from businesses, health care providers, and individuals engaged in fraudulent practices.
Government Emphasizes Individual Accountability
In September of 2015, the United States Department of Justice announced updated policies to guide federal prosecutors reviewing cases of corporate fraud, whether the allegations involve the health care industry, the financial and banking sector, or government contracting. The government’s enhanced emphasis on individual accountability affects not only how the investigations proceed, but also how the cases against both corporations and individuals are resolved. The days of corporate entities securing deferred prosecution agreements or entering misdemeanor pleas to an array of benign criminal charges are effectively over. While an individual corporate executive will not always be held accountable for the conduct of the corporation, government lawyers will always be looking for the link between the actions of the entity and the ultimate responsibility of the executives.
Any lawyer handling corporate matters or serving as in-house counsel for a corporation must be aware of the additional scrutiny on their client, as well as the potential conflicts which can immediately develop when undertaking the representation of the corporate entity along with the members of the board or other executives. Directives dealing with the resolution of a qui tam case are of particular interest. For example, government lawyers can no longer offer protection from civil or criminal liability to individuals as part of a corporate resolution. Furthermore, government lawyers are no longer free to resolve corporate cases without a timely plan to resolve cases against the individual wrongdoers, as well. Corporate lawyers will now be faced with ethical questions, such as whether an inherent conflict exists, as early as the initial notification of an investigation.
Important Takeaway's for Corporate Counsels
In-house counsel will likely be among the first to learn of any false claims investigation. When that happens, familiarity with the compliance program, the conflicts created by the representation of multiple potential defendants, the selection of defense counsel, and an appreciation of the need to protect the whistleblower from retaliation are of paramount importance. Below are the details associated with each.
Develop & Implement a Robust Compliance Program
One of the most important considerations for corporate counsel will be developing and implementing a compliance program that is robust and effective, yet flexible enough to withstand the changing conditions in the marketplace, any alterations in the corporate structure, and a rigorous review by investigating agencies should the company find itself in that situation. When counsel receives notice of apparent misconduct, the compliance program should function more as a “self-policing” instrument, with the understanding that candid disclosure to the investigative agency and the Department of Justice is the only way to secure cooperation credit in any resolution for the company. A dilemma for corporate counsel therein arises when candid disclosure conflicts with the interests of the individual wrongdoers.
Protect The Whistleblower From Retaliation
While balancing the corporation’s interests and those of the executives and board members, counsel must also ensure that the company is not subjected to a retaliation claim by the whistleblower. For example, under both the Dodd–Frank Wall Act and the False Claims Act, a whistleblower claim of retaliation may, in addition to requiring reinstatement of the employee, expose the company to double back-pay, litigation costs, and attorney’s fees.
Carefully Consider Defense Counsel Selection
With the increased emphasis on false claims investigations and litigation, public-private partnerships are increasing as these types of cases have become more complex and expensive. Because of the very real likelihood of parallel criminal investigations and individual prosecutions, once protracted but profitable qui tam lawsuits have now become more likely to require active litigation, many times not resolving until right before or during trial. As a result, the government’s limited resources must often be supplemented by the financial and personnel resources found in a partnership with an experienced and litigation-ready plaintiff’s firm. As such, the decision of in-house counsel of whom to associate as defense counsel matters and bears detailed consideration at the outset of any case.
