Keeping track of False Claims Act’s qui tam cases

From the Winter 2011 issue of The News Media & The Law, page 33.

Each year, the U.S. Department of Justice announces sizable recoveries to the federal treasury through False Claims Act settlements and judgments. Government watchdog groups generally applaud the False Claims Act as a good-government measure that helps to protect the public coffers from fraud and abuse.

But these same groups are split on the role of secrecy in whistleblower lawsuits under the act, which remain under seal for months and sometimes years. Some groups want to change that practice.

The False Claims Act allows the federal government to recover monies from contractors who have knowingly submitted a false or fraudulent request for government funds. The act was first passed in the wake of reported government contract abuses during the Civil War. In recent years, most reported high-value cases have revolved around health care, although military contracting cases remain prevalent, too.

The latest annual recoveries under the act are substantial and continue to increase: $3 billion for the fiscal year 2010, $2.4 billion for 2009 and $1.34 billion in 2008. All told, the government recently estimated that it had recovered nearly $29 billion since Congress revised the False Claims Act in 1986. Some oversight groups think those recovery numbers are actually much higher.

The federal government can (and does) bring False Claims Act cases. But the majority of False Claims Act complaints are not initially filed by the federal government, but by private individuals who bring actions on behalf of the government. Such private actions are called qui tam cases. By statute, the government then has the option of intervening in the cases or declining to get involved. In practice, the government ultimately declines to intervene in the majority of cases.

There is a significant monetary incentive for private parties to bring qui tam cases. The law allows a private party to keep up to 25 percent of any amount the government recovers through the action, if the government accepts the case and assumes primary responsibility to litigate. If the government declines to intervene in the case, a private plaintiff is entitled to up to 30 percent of an award. Awards to qui tam plaintiffs total more than $3.2 billion since 1986, according to the Department of Justice.

Automatic sealing

Congress made significant modifications to the False Claims Act in 1986 in light of evidence suggesting that fraud against the government was steadily growing. One change was to mandate that qui tam claims be automatically placed under seal for 60 days, with no notice of the actions served on the defending parties until the court orders it.

During this 60-day sealing period, the law directs the government to review the private plaintiff’s evidence and evaluate whether to accept or decline to get involved in the case. But a provision in the False Claims Act also provides the government with the option of asking the court for an extension of the seal period in order to continue with its investigation. Courts can grant an extension “for good cause shown.” In fact, most qui tam cases are sealed far longer than 60 days.

A recent federal district court opinion pointed to the 1986 legislative history of the False Claims Act to explain the purpose of the sealing provisions. At the time, the Department of Justice told Congress that the public filing of false claims allegations “could potentially ‘tip off’ investigation targets” of criminal inquiries.

The Senate Judiciary Committee expressed some doubt that such interference would occur frequently, but also recognized the need for some coordination. Hence, the 60-day sealing period. The Senate report stated that the sealing period was “intended to allow the Government an adequate opportunity to fully evaluate the private enforcement suit and determine both if that suit involves matters the Government is already investigating and whether it is in the Government’s interest to intervene and take over the civil action.”

While the government is investigating a claim, a private plaintiff’s ability to talk about the case is somewhat limited. The extent of that limitation is subject to debate. But most parties appear to agree that, at a minimum, private plaintiffs jeopardize their rights to share in a recovery if they disclose the fact that a False Claim Act claim has been filed.

The number of qui tam cases under seal appears to be on the rise. In 2008, The Washington Post reported that more than 900 False Claims Act cases were in a “backlog” awaiting government action. In early 2011, the government listed the number of qui tam cases currently “under investigation” — awaiting the government’s decision on whether to intervene — at more than 1,300.

Most of the cases under investigation are “fully” under seal. However, the government reports that, in some cases, the seal has been partially lifted “to facilitate discussions and possible settlement with the defendants.” Some commentators have noted another consequence: The opportunity for the parties to negotiate without attracting negative publicity.

A 2009 study by the federal court’s education and research agency, the Federal Judicial Center, found that nearly half of the false claims actions filed in 2008 were under seal in late 2009, and that “15 percent of the cases filed early in the decade [were] still sealed late in 2009.”

More recent government figures estimate that, for qui tam cases filed in the last four years, the average length of time that a case remained under seal was 13 months. Because that length of time includes those cases in which the government declines to intervene, some experts believe that the average period is much longer for those cases in which the government ultimately does intervene.

Challenging the automatic sealing

Government oversight and civil liberties groups disagree on the need for, and use of, the sealing provisions in the False Claims Act.

Some groups assert that the sealing unconscionably restricts the public’s right to be informed of potential fraud.

“The False Claims Act is an important law,” the American Civil Liberties Union of Virginia’s Executive Director, Kent Willis, said last year. However, “the gag and seal provisions [in the False Claims Act] threaten to undermine the law’s viability.”

Willis made his comments in connection with a lawsuit, American Civil Liberties Union v. Holder, that challenges the constitutionality of the False Claims Act’s sealing provisions. The ACLU, the Government Accountability Project and OMB Watch argue that the False Claims Act sealing requirements deprive the public of the right to know about alleged abuses. They also argue that the sealing provisions chill whistle blowers’ ability to talk openly about potentially fraudulent activity.

“[T]he secrecy provision of the [False Claims Act] . . . prevent[s] whistle blowers from taking effective action where the alleged fraud may pose an ongoing threat to public health or safety,” the groups wrote in a court filing last year.

The Department of Justice defended the sealing provisions as necessary to the False Claim Act’s mission of rooting out fraud. “Congress designed these sealing provisions to afford the United States a minimum amount of time to adequately coordinate its investigation of fraud, without alerting potential defendants to the government’s suspicions,” the department said in court documents.

The Justice Department also disputes that the sealing requirements prevent the public from knowing about the fraud allegations.

While a qui tam case is under seal, a private party plaintiff “is free to speak about the facts underlying his allegations of fraud to anyone he wishes, including the press, the public, or even the defendant,” the Department of Justice said in court briefing. The only restriction, according to the department, is on disclosing “the existence of the qui tam action and, by logical extension, any related investigation.”

A U.S. District Court in Alexandria, Va., sided with the government in 2009, rejecting the groups’ challenge to the constitutionality of the False Claims Act’s sealing requirements. That ruling has been appealed to the U.S. Court of Appeals in Richmond (4th Cir.), which has yet to issue a decision.

Some oversight groups agree with the Department of Justice that the sealing provisions play an important role in ensuring the effectiveness of the False Claims Act. The Taxpayers Against Fraud, a non-profit organization that monitors the False Claims Act in practice and advises whistleblowers on the law’s use, calls the False Claims Act the “most important tool the U.S. Government has in the war against fraud.” The group opposes the efforts to strip the sealing provisions out of the False Claims Act, arguing that the sealing requirements serve important functions for both the government and the private party bringing the claim.

Patrick Burns, the communications director for Taxpayers Against Fraud, said the sealing provisions do not prevent the public from knowing about fraud. “There is no secrecy requirement in the False Claims Act,” Burns said. Whistleblowers are free to talk all they want about the underlying fraud; the only thing whistle blowers cannot do, in Burns’ opinion, is disclose the fact that they’ve filed a qui tam action. And even then, the only restriction is their ability to recover an award: “the government’s deal with a whistleblower is this: if you want an award, you agree to the seal,” Burns said.

If sealed . . . for how long?

The Congressional Record suggests that Congress did not envision that cases would commonly remain sealed for extended durations of time. The Senate’s report accompanying the 1986 amendment stated that the Judiciary Committee felt “that with the vast majority of cases, 60 days is an adequate amount of time to allow Government coordination, review and decision.”

The federal district court in Virginia that first ruled on the ACLU and other groups’ challenge made a similar observation. Although the court upheld the sealing provisions, it noted that the “lengthy delays in some [False Claims Act] cases [is] contrary to Congress’ intent when it added the seal provisions.”

Burns said he believes that the amount of time a case is sealed is justifiable given the complexity of the issues.

“The truth is that all [False Claims Act] claims take a long time to investigate,” Burns said. Evaluating a False Claims Act claim often requires gathering and applying a complex set of facts to novel legal theories, Burns explained, and understanding the entire picture can be time consuming. Still, Burns agrees with others that reducing the average duration of the seal would be a positive development.

Danielle Brian, Executive Director of the Project on Government Oversight, said she recognized that the government “does need time to look around and decide whether to get involved” in a qui tam action. But Brian questions the amount of time that cases remain under seal. “There needs to be a point where the courts no longer grant the extensions,” she said.

Sen. Charles Grassley, R-Iowa, a primary sponsor of the 1986 amendments to the False Claims Act, is monitoring the issue.

The 13-month figure for the average amount of time a False Claims Act case remains under seal was recently provided to Grassley in a joint letter from the Department of Justice and Department of Health and Human Services, in response to questions from the senator. A spokeswoman for Grassley said that he “has generally been concerned with cases that are [sealed] longer than the median average” of about 13 months.

Other questions remain about the sealing practice. For example, the government explained the practice of partially lifting the seal on qui tam cases as a means of facilitating “discussions and possible settlement with the defendants . . . without resort to often costly and lengthy litigation.”

But this practice also keeps the case out of the public eye. From an oversight perspective, this result is “the worst of all worlds,” says Brian. “Once you are telling the subject about the investigation, the whole world needs to know what’s going on,” she said.

It is also not clear why a number of qui tam cases remain under seal even after they are closed.

The 2009 Federal Judicial Center study found 48 qui tam actions filed in 2006 remained under seal in 2008 after being dismissed, although the report noted that 19 of these cases were unsealed by late 2009, “12 apparently as a result of [the study’s author] bringing them to the courts’ attention.” The study also found that of the False Claims Act actions filed between 2000 and 2003 that remained under seal in late 2009, 82 percent of them were marked as “closed” on the official dockets.

Taxpayers Against Fraud’s Burns did not know why these cases remained sealed. But he said that safety and security of the whistleblowers — particularly those that may be involved in war zones — was a real concern in some False Claims Act cases.

Burns also urged placing these numbers in context. “Numerators need denominators,” he said. Given the thousands of False Claims Act cases that have been filed, Burns views the percentage of cases that remain sealed after closing as minimal.