Mediating False Claims Act Cases: Issues for Attorneys to Keep in Mind

Tue, Dec 31st, 2024 | by Miles Mediation and Arbitration | Article | Social Share

When I started practicing law in 1981, I focused on labor and employment law. My practice involved management and union matters such as unfair labor practice charges and breaches of collective bargaining agreements. As a labor lawyer during that time, I regularly participated in mediation and arbitration as the primary mechanisms to resolve labor disputes. Other areas of law rarely used mediation or arbitration to resolve disputes as litigation through the court system was the primary vehicle for determining the rights of parties.

As time went on, I handled more employment law cases, including discrimination cases and wage-and-hour class actions as well as all other employment-related legal matters. The use of alternative dispute resolution (ADR) — namely, mediation and arbitration —began to catch on as a significant tool for resolving litigation disputes in the late 1990s and early 2000s. I became a certified mediator in Tennessee in 2003 and began mediating cases while maintaining my law practice.

For the last 15 years, I have practiced within an area of employment law known as False Claims Act (FCA) litigation, or “qui tam” [in the name of the king] cases. These cases generally involve a whistleblower, known as a “relator,” and a company which has allegedly committed fraud against the US government. Today, I use my substantial experience as a FCA lawyer to mediate FCA cases. In this article, I’ll explore some of the issues you may face when representing either a relator or a defendant in a FCA case.

The Elements of a FCA Case and the Rule 9 Burden of Proof

To prove an FCA case, the relator must prove that:

Defendant knowingly presented, or caused to be presented, to the United States government a false claim for payment for approval; or knowingly made used or caused to be made, or used, a false record, or statement to get a false, or fraudulent claim paid or approved by the government;
The false record, statement, or claim, was to a material fact;
The United States suffered damages; and
The damages were the direct result of the false statements.

Because the essence of a False Claims Act case is fraud, rule 9(b) applies to FCA cases. Therefore, in a FCA case, the parties must make far more detailed allegations than in most litigation. Consequently, the evidence presented to support the allegations must be more precise and as substantial as possible. These allegations are not made “ upon information and belief ” but upon direct evidence set forth in the complaint.

The Most Common Types of FCA Cases

While every FCA case is unique, there are some common themes that arise. The most common types of FCA cases are:

the mischarge case – the government is billed for goods or services that are not delivered or it is overcharged for them.
the fraud-in-the-inducement case – false statements are made in the course of bidding or negotiating federal contracts and/or grants, causing increased prices.
the false certification case- loan guarantees are supported through false statements that create eligibility that otherwise would not exist.
the substandard product or service case- inferior products or services are provided.

The Procedure to File a Claim

The relator, through his or her attorney files the FCA complaint in federal court under seal. The complaint must be served on the attorney general and the U.S. attorney for the district in which the plaintiff relator resides but must not be served on the defendant. The complaint must be supported by a comprehensive disclosure memorandum which is not filed in court but served on the U.S. attorney and the attorney general of the United States. The memorandum includes most of the information contained in the complaint but in a less legal format. It can also include more history of the matter as background for the reader.

And after receiving the comprehensive disclosure memorandum, the U.S. Department of Justice initiates an investigation within 60 days. If the department chooses to pursue the case, this is called “intervention.” If the government intervenes, it has the option to pursue the defendant criminally, as well as civilly.

If the department declines to intervene, the relator may prosecute the action on behalf of the United States and it retains the right to receive proceeds from a settlement or trial on behalf of the United States (from the relators recovery). Most FCA intervention cases conclude in a settlement. The U.S. Department of Justice publishes an annual report of the number of FCA cases filed each year and the number of cases which are tried. The timing of settlements vary but due to the government’s subpoena power, discovery is much less extensive which expedites the progress of most cases.

Damages Under the FCA

FCA case damages are primarily punitive in nature rather than remedial. There are no consequential damages, but instead are treble damages (based on the calculated loss to the government), along with reimbursement for attorneys, fees, and costs. There is also a retaliation provision which allows recovery for lost compensation of the relator due to the violation.

It is not unusual for FCA recoveries to be in the millions of dollars, and they can be in the hundreds of millions of dollars. In an intervention case, the government can receive up to 80% of the recovery with the relator receiving up to 20%. Those percentages can vary depending on the complexity of the case. Percentages of recovery methods are generally set forth in the Federal False Claims Act. Although Relator counsel and Defense counsel can have a significant influence primarily with their presentations of their cases, the Justice Department has the end discretion in the determination decision.

Mediating the FCA Case

Even though the government has subpoena power, FCA cases generally move slowly — an FCA case can last three to five years. By the time the parties arrive at mediation, they are often frustrated and impatient with the process. The relator’s counsel has usually not been paid for the time he or she has devoted to the case as the lawyer receives compensation at the end of the case — and only if he or she is successful. Accordingly, the mediator should plan to move the mediation forward in a timely fashion, and to be as efficient as possible.

One of the challenges of choosing to mediate an FCA case is that there are few mediators who specialize in this area of law, so parties don’t have a lot of choices. Relator’s and defendant’s counsel, along with a representative from the U.S. Justice Department and/or the U.S. Attorney’s office, typically attend the mediation. In many instances, there are multiple relators with varying financial interests which can make reaching a settlement challenging. The fact patterns of these cases can be complicated, especially in cases involving sophisticated health services and products.

Because the amount of money involved may be significant, defendants may not be easily convinced to pay the requested amount. They may also struggle to fathom the punitive nature of the damages as there is no other statute like the FCA. This is one of the hurdles that must be overcome for mediation to be successful.

Fortunately, choosing mediation, with a mediator who has experience with FCA cases, can help expedite a settlement that all the parties agree to. This can let the parties get back to their careers, businesses, and their lives.

*Originally published in the Daily Report and reprinted with permission.

About Trevor Howell

Trevor Howell is a Tennessee Supreme Court Rule 31 Certified Civil Mediator and has been a certified mediator for 19 years. His Nashville-based mediation practice primarily involves employment law disputes that include multi-plaintiff class actions, individual employment discrimination matters, collective/class actions under the Fair Labor Standards Act, and general business matters. Trevor also mediates False Claims Act cases.