Legal News

False Claims Act: A Legal Goldrush for the Tort Bar?

By Dan Slater

The False Claims Act, a Civil War-era law, was designed to allow people who are not affiliated with the government to file actions against federal contractors claiming fraud against the government, such as healthcare providers who defraud Medicare. Iowa Republican Chuck Grassley wants to expand the size and number of potential claims, and the WSJ editorial board is unhappy about it.

Here’s how the Act currently works: The DOJ can sue entities it suspects of submitting a false claim for payment to the government, but it also allows private citizens who suspect fraud to bring qui tam suits. (”Qui tam” is Latin for “Who sues on behalf of the King as well as for himself.”) In the latter event, the DOJ investigates the case and decides whether to intervene. If it does, and successfully recovers money, the whistleblower keeps up to 30% of the government’s award.

That’s where the tort bar comes in, writes the WSJ editorial board. “Tort lawyers are ginning up ever more creative suits, seeking a cut of the rewards. Yet Justice now intervenes in only about 20% of qui tam cases, finding the other 80% without merit.”

Grassley’s proposed reform, they write, would expand the universe of false-claim targets, such that qui tam suits could be brought against anyone on the ultimate receiving end of federal funds, rather than just the entities that directly take money from the government. Examples they give: scientists who get federal grants via a university; artists who get endowment money; and homeless shelters that receive block grants.

Grassley’s bill would also increase recoveries, from treble the amount of money the federal Treasury lost from the fraud to treble the amount of the contract. (Ex: if a company made a $10,000 mistake on a $1 million contract, a trial lawyer could get in on a $3 million suit.)

“Mr. Grassley was on his way to slipping this quietly into law until the business community pointed out that a government-tort bar treasure hunt would discourage nonprofits and small businesses from competing for government contracts,” the editorial board writes. “. . . . many Republicans remain clueless that Mr. Grassley is bidding to enrich the very tort lawyers who pour tens of millions of dollars into defeating them every election season.”

LB’ers: We’ve reached out to Mr. Grassley’s office and will let you know what we hear back. Meanwhile, please share your take.

Full post as published by Law Blog - WSJ.com on May 02, 2008 (boomark / email).