As a lawyer who represents whistleblowers, I have been appalled at some very unfair criticism levied at False Claims Act cases. Using statistics such as the ones cited by David Krok in a recent article in the American Bar Association's Public Contract Law Journal. In the article, Does Private Enforcement Attract Excessive Litigation? Evidence from the False Claims Act, Krok gathered statistics about how few whistleblower cases succeed if the Government chooses not to get involved in the case. Critics of the False Claim Act have seized upon statistics such as these to argue that most whistleblower suits must be frivolous because they do not succeed. I have been writing a series of legal blog entries about why the criticism is unfair and unfounded.
How the False Claims Act system works: FCA cases are called qui tam cases, because they are initially filed by a private citizen, called a relator, on behalf of the Government. After an investigation period, the Government can elect to intervene in the case, and take it over, or it can refuse to intervene. In the latter case, the relator is allowed to proceed with the case on his own, but without the assistance of the Government. The whistleblower gets a minimally higher percentage of the amount recovered in the case if he proceeds on his own without the Government.
The Critics are Wrong. The critique levied at relators bringing cases fundamentally misunderstands how FCA cases work.
First, on average fewer than 500 False Claims Act cases are filed in the entire United States in a given year, hardly a figure that suggests a wild gold rush by relators.
Second, the critics are missing the point. The real issue is that enormous obstacles face a relator who wants to prosecute the case on his or her own. Unless the courts adjust some draconian rulings made in recent years, or Congress steps in to make new rules, the relator has a difficult time succeeding in these cases.
Third, the statute does not incentivize the relator appropriately. If the Government intervenes in the case, the relator gets 15-25% of the proceeds recovered by the Government. And if the relator prosecutes the case on his or her own, the relator receives only minimally more than he would have gotten if the Government had taken over the case: 25-30% of what the Government collects.
Fourth, the risk of going forward falls heavily on the relator's lawyer. Seldom is the relator able to fund the litigation on his or her own. After all, for the most part the relator is a former employee of the corporation that is being sued - a former employee because he was fired when he tried to get his employer to do the right thing. Instead, the relators' counsel generally must fund the litigation, hiring expensive experts to explain the case to the jury. Given that the return is only minimally higher, many relators have a difficult time finding lawyers who will assume the risk of going forward.
Fifth, often the reason the Government refused to intervene had to do with the amount of damages, not the merits of the case. If the Government's investigation reveals that the damages are not particularly large, the Government may make a financial decision not to go forward with the case. In a very large percentage of the cases of which I am aware, the Government confirmed the fraud, but determined that the damages did not justify the expenditures. In these cases, the Government essentially determines that if the fraud is under a certain level, it is "free" to the defendant, because the cost to the Government of recovering the money is too high. Of course, if the dollars are not large enough for the Government, which gets 75-85% of the case proceeds if it chooses to intervene, a 25-30% share is not likely to entice the relator.
Sixth, because the cases by definition involve mega-corporations with massive government contracts, the corporations have nearly limitless resources to devote to the case. The relator, on the other hand, is usually a single individual - and one who was fired and is out of work, at that. The relator's attorney typically works in a very small firm. The imbalance between the two sides is enormous, and many relators - and their attorneys, if the attorneys have not litigated large cases before -- fear being crushed in the fight.