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Court Approves Settlement of Qui Tam Action Under New York’s False Claims Act Over the Objection of the Whistleblower

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  • Posted on: Aug 16 2019

It has been some time since this Blog has written an article about whistleblowers and qui tam actions. Those articles typically involved lawsuits arising under the Federal False Claims Act (“Federal False Claims Act”). In today’s post, this Blog looks at City of New York v. Siemens Elec., LLC, 2019 N.Y. Slip Op. 29251 (Sup. Ct., N.Y. County Aug. 7, 2019) (here), a qui tam action brought under the New York False Claims Act (“NYFCA”) (here) against, among others, Siemens Electrical, LLC (“Siemens Electrical”) for misrepresentations about defendants’ compliance with two statutes that defendants were required to comply with pursuant to contracts with the City of New York Department of Environmental Protection (“DEP”). 

Since this Blog has not written about the NYFCA, we provide an overview of the NYFCA and the differences between the NYFCA and the Federal FCA below.


On April 1, 2007, the New York State Legislature passed the NYFCA.  The purpose of the NYFCA, like the legislation on which it was modeled, the Federal FCA, is to assist local governments in recovering payments made to individuals or corporations by reason of fraud or related misconduct. The NYFCA applies to false claims made to the state or any municipality, school district, or public benefit corporation within the state, or to any contractor whose funding derives, in whole or in part, from the state or a local government. The NYFCA gives the New York Attorney General (“NYAG”), a local government or a private citizen the right to litigate lawsuits under the act. 

When the party bringing the action is a private citizen, the NYFCA provides for an award to the individual if the action is successful and results in a payment to the government. If the NYAG supersedes in the qui tam action (i.e., converts the civil qui tam action into an enforcement action), then the whistleblower who filed the action (also known as a “relator”) is entitled to receive 15% to 25% of the proceeds recovered in the action or settlement thereof. If the NYAG does not supersede in the action, and the relator continues to litigate the case and successfully concludes the action, then he/she can recover between 25% to 30% of the proceeds recovered. The court determines the percentage payable to the whistleblower by considering a number of factors, including, but not limited to, the extent to which the relator contributed to the prosecution of the action.

In August 2010, the New York State Legislature amended the NYFCA, following amendments to the Federal FCA in 2009 and 2010. Although the two statutes remain largely the same, there are some important differences.

The Differences Between the NYFCA and the Federal FCA

As noted, there are differences between the Federal FCA and the NYFCA that are important to discuss. 

First, the NYFCA allows for three times the damages (two times the damages for self-reporting the fraud) and civil penalties of $6,000 to $12,000 per violation, plus “the costs, including attorneys’ fees, of a civil action brought to recover any such penalty or damages.” N.Y. State Fin. L. § 189(1)(h). The Federal FCA allows for $5,500 to $11,000 per violation. 31 U.S.C. § 3729(a)(1)(g).

Second, the NYFCA allows a relator to bring a qui tam action alleging tax fraud, which the Federal FCA does not permit. N.Y. State Fin. L. § 189(4). To bring a tax fraud claim, the relator must plead that the defendant has “net income or sales” exceeding $1 million and damages exceeding $350,000. 

Third, the NYFCA provides for a statute of limitations of 10 years – that is, an action must be commenced no later than 10 years after the date on which the violation of the act is committed. N.Y. State Fin. L. § 192(1). The Federal FCA has a statute of limitations of six years. U.S.C. § 3731(b). 

Fourth, if the government declines to intervene in the qui tam action while the case is under seal, the NYFCA allows the relator to withdraw his/her case without public knowledge. Under the Federal FCA, once the government declines intervention and the case is unsealed, the relator cannot withdraw his/her action under seal.

Fifth, the NYFCA does not require allegations of fraud to be stated with the same particularity required by the CPLR. Rather, a qui tam complaint should survive a motion to dismiss “if the facts alleged in the complaint, if ultimately proven true, would provide a reasonable indication of one or more violations … and if the allegations in the pleading provide adequate notice of the specific nature of the alleged misconduct.” N.Y. State Fin. L. § 192(1-a). Qui tam complaints alleging fraud under the Federal FCA must meet the heightened pleading requirements under Rule 9(b) of the Federal Rules of Civil Procedure.

Finally, the NYFCA anti-retaliation protections are broader than those under the Federal FCA. For example, the person against whom retaliatory action is taken does not have to file a qui tam action to be protected. In this regard, the NYFCA covers “[a]ny current or former employee, contractor, or agent of any private or public employer who is discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against in the terms and conditions of employment, or otherwise harmed or penalized by an employer, or a prospective employer, because of lawful acts done by the employee, contractor, agent, or associated others in furtherance of an action brought under [the NYFCA] or other efforts to stop one or more violations of” the NYFCA. 

Also, the definition of “lawful act” covers a wide of array of conduct, including the investigation, the potential filing, or actual filing of a qui tam action, and a broad scope of materials that can be obtained or transmitted in connection with such activity “even though such act may violate a contract, employment term, or duty owed to the employer or contractor, so long as the possession and transmission of such [materials] are for the sole purpose of furthering efforts to stop one or more violations of” the NYFCA.

If an employee seeks protection under the anti-retaliatory provisions of the NYFCA, he/she may recover, among other forms of relief: “(a) an injunction to restrain continued discrimination; (ii) hiring, contracting or reinstatement to the position such person would have had but for the discrimination or to an equivalent position; (c) reinstatement of full fringe benefits and seniority rights; (d) payment of two times back pay, plus interest; and (e) compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys’ fees.” N.Y. State Fin. L. § 191(1).

New York City False Claims Act

Like the State of New York, the City of New York (the “City”) has a false claims act (“NYCFCA”) that is modeled after the Federal FCA. Signed into law on May 19, 2005, the NYCFCA allows private citizens to bring qui tam actions to recover treble damages for fraudulent claims submitted to the City. The NYCFCA was amended in 2012 to bring the NYCFCA into closer conformance with the NYFCA by clarifying that the City may waive the “public disclosure bar” and increasing the minimum awards from proceeds to which private citizens are entitled.

City of New York v. Siemens Electrical, LLC


Siemens arose from five contracts between the DEP and Siemens Electrical in connection with the upgrade and construction of water treatment facilities in Manhattan, the Bronx and Brooklyn. The total value of the contracts was $234,415,844.

In 2012, a whistleblower (the “Relator”), a former vice president of one of the defendants who served on Siemens Electricals’ board of managers, filed a qui tam complaint under seal, alleging that between 2005 and 2012 Siemens Electrical violated the NYFCA by misrepresenting its compliance with two statutes that Siemens Electrical was required to comply with under each of the DEP contracts. 

First, Relator alleged that Siemens Electrical submitted claims for payment overstating the work performed by Minority Business Enterprises (“MBE”) and that Siemens Electrical schemed to evade MBE subcontracting requirements by fabricating a relationship with a contractor to fulfill the requirement that certain contracts be given to MBEs for all five contracts it had with the DEP, when in fact, the equipment was installed by a non-MBE firm.

Second, Relator alleged that Siemens Electrical fraudulently represented itself as a business with a licensed Master Electrician as an officer of the company, in violation of New York City Administrative Code § 27-3017(a)(1), in order to win its bid on the five contracts with the DEP, and in violation of Siemens Electrical’s contracts.

In 2015, the City and the Siemens defendants engaged in settlement discussions before a mediator. No agreement was reached. Soon thereafter, the City, with authorization from the State pursuant to State Finance Law § 190(2)(c)(iii), filed its superseding complaint substituting the original plaintiff in this action and converting the qui tam civil action into a civil enforcement action by the City. N.Y. State Fin. L. § 190(2)(c)(i).

The superseding complaint alleged claims under N.Y. State Fin. L. §§ 189(1)(a), (b), and (c) and the NYCFCA (N.Y.C. Admin. Code §§ 7-803(a)(1), (2), and (3)). The City’s superseding complaint differed from Relator’s qui tam complaint to the extent that it elaborated on the factual allegations of the Master Electrician and MBE related claims against the Siemens defendants.

Soon thereafter, the Siemens defendants moved for summary judgement on the basis of the United States Supreme Court’s decision in Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S Ct. 1989 (2016). In Escobar, the Supreme Court held that the “implied false certification” theory “can be a basis for liability.” Under the implied false certification theory, a defendant may violate the Federal FCA by failing to disclose noncompliance with a relevant statutory, regulatory, or contractual requirement.  

This Blog wrote about Escobar, here.

The Court denied the Siemens defendants’ motion. After resuming discovery, the parties again engaged in settlement discussions. This time, the City and the Siemens defendants reached an agreement and settled the claims for $1.5 million. The settlement of the City’s claims was negotiated and executed contemporaneously with the agreement to settle three separate actions by the Siemens defendants against the City (the “commercial settlement”). The City and the Siemens defendants agreed that the proposed settlement amount is to be paid by a setoff against the commercial settlement amount. The amount of the proposed settlement was reviewed and authorized by the Office of the New York City Comptroller.

The City moved pursuant to N.Y. State Fin. L. § 190 (5)(b)(ii) for a determination that the proposed settlement between the City and Siemens defendants is fair, adequate, and reasonable. The Relator opposed the proposed settlement. The Siemens defendants supported the motion.

The Court granted the City’s motion and denied the Relator’s request for an evidentiary hearing to supersede the City in the action, and for the Court to calculate his qui tam award.

The Court’s Decision

Under the NYFCA, N.Y. State Fin. L. § 190(5)(b)(ii), “[t]he state or a local government may settle the action with the defendant notwithstanding the objections of the person initiating the action if the court determines, after an opportunity to be heard, that the proposed settlement is fair, adequate, and reasonable with respect to all parties under all the circumstances.” The NYFCA does not, however, provide the standard to determine whether a “proposed settlement is fair, adequate, and reasonable with respect to all parties under all the circumstances.” Given the absence of New York authority, the Court looked to federal jurisprudence for the standard. See State ex rel. Seiden v. Utica First Ins. Co., 96 A.D.3d 67, 71 (1st Dept. 2012).

Noting that the federal courts are split on the standard to apply, the Court found the approach adopted by the Eleventh Circuit to be the most appropriate one. In United States v. Everglades Coll., Inc., 855 F.3d 1279 (11th Cir. 2017), the panel determined that the court must “ask whether the government has advanced a reasonable basis for concluding the settlement is in the best interests of the United States, and whether the settlement unfairly reduces the Relator’s potential qui tam recovery.” Id. at 1289.

In Everglades, the panel held that “[i]n the FCA context there must be considerable deference to the settlement rationale offered by the government” because of the “loose similarity between government-obtained FCA settlements and decisions by the government not to prosecute or enforce an administrative remedy, which are presumptively unreviewable.” Id. (citation omitted).

The Court found that the approach in Everglades was consistent with the language of the NYFCA and the legislative intent behind the NYFCA. Slip Op. at **5-6. 

Against the Everglades standard, the Court held that “[t]he City ha[d] demonstrated a reasonable basis to determine that the proposed settlement [was] in the best interest of the City and [did] not unfairly reduce the Relator’s potential qui tam recovery.” Id. at *6. 

The proposed settlement imposes a civil penalty for each of the alleged regulatory violations. According to the City, the $1.5 million settlement “reflects the civil penalties that would be available if Defendants’ defenses were rejected wholesale and liability were imposed for every one of the approximately 260 payment requisitions at issue.” While the civil penalty amount is on the low end of the penalty scheme, the negotiation of a settlement wherein each regulatory violation was accounted for clearly benefits the City and carries out the intent of the FCA. In fact, Relator admits that the settlement was “beneficial to the City,” and suggests that the settlement amount was favorable.

Id. at **6-7 (citations omitted).

The Court also found that the settlement conserved the City’s limited resources, avoided the complexity, expense, and duration of ongoing litigation, and considered the precedential impact of a potentially adverse decision. Id. at *7. The Court noted that “an adverse decision in this matter [could] limit the City’s enforcement efforts” and “further conserved the City’s resources.…” Id

The Court further held that the City demonstrated that the proposed settlement represented a fair outcome considering the risk of litigation. Id. The Court agreed with the City that the uncertainty surrounding proof of materiality under Escobar weighed in favor of settlement:

The record includes evidence demonstrating, and the parties do not dispute, that the City continued paying Siemens Electrical despite knowing of their regulatory non-compliance. Accordingly, an issue of fact may exist as to whether Siemens Electrical’s alleged implied and express false certifications of compliance with the MBE and Master Electrician requirements were material to the City’s payment decisions.


The Court rejected Relator’s contention that the proposed settlement was unfair because the City may have been “entitled to disgorgement damages in excess of $750 million if the damages [were] trebled” – i.e., that the settlement unfairly reduced his award. Id.  Noting that the there was a dispute as to whether the City was entitled to any damages, the Court observed that “the City may be unsuccessful in showing that it incurred damages because of Siemens Electrical’s false statements regarding the credits improperly claimed for work performed by MBEs, since the City received the benefit of the supply and installation of the equipment.” Id. The Court explained that “[t]his litigation risk [was] further compounded by the unique nature of the City’s claims: the City’s bargained-for-benefit involved both tangible and intangible benefits. Considering the real risk that the City may not recover on its claims, it cannot be said that Relator’s potential award was unfairly reduced.” Id.

Having determined that the settlement was fair and reasonable to the City, the Court next addressed whether Relator was entitled to an evidentiary hearing and additional discovery on the issue.  Noting that the issue was a “novel” one (id. at *8), the Court denied the request. 

“Initially, the court [found] that Relator [was] not entitled to an evidentiary hearing as of right.” Id. Under the NYFCA, noted the Court, it could approve a proposed settlement notwithstanding the objections of the relator “after an opportunity to be heard.” Id., citing N.Y. State Fin. L. § 190(5)(b)(ii). The Court found that “Relator was given notice of the City’s motion to confirm the proposed settlement and an opportunity to be heard on the motion.” Id. Relator availed himself of this opportunity, said the Court, when he submitted a brief in opposition to the motion to approve the settlement and presented oral argument on the motion. Id.

Moreover, said the Court, “Relator fail[ed] to establish grounds for an evidentiary hearing and additional discovery.” Id

Relator contends that the difference between the proposed settlement amount and the purported value of the case, and the fact that the settlement amount is to be paid as a setoff against the City in the commercial settlement demonstrates the unreasonableness and impropriety of the settlement. Relator’s contention is addressed in the preceding section—the City has adequately explained its rationale behind the proposed settlement. Relator next argues that his exclusion from the settlement negotiations between the City and Siemens defendants demonstrates collusion. This argument is speculative, and the City apprised Relator of its settlement negotiations with the Siemens defendants. In any event, the City was substituted as plaintiff in this action and was entitled to conduct settlement negotiations without informing the Relator (State Finance Law § 190[5][a]).


Since Relator failed to “‘[c]ome forward with a colorable and non-speculative claim that the government’s settlement rationale [was] improper and that further disclosures [were] needed,’ his requests for an evidentiary hearing and discovery [were] denied.” Id. at **8-9, quoting Everglades, 855 F.3d at 1291.

The Court rejected Relator’s request that he be permitted to “take over the litigation” from the City. Id. at *9. The Court held that “Relator fail[ed] to cite to any basis to support his request.” Id. The Court explained that the request ran counter to the legislative direction that “‘the local government shall have primary responsibility for investigating and prosecuting the action.’” Id., quoting N.Y. State Fin. L. § 190(5)(a). Accordingly, the Court denied Relator’s request that he be permitted to supersede the City in the action.Finally, the Court rejected Relator’s request to have the Court calculate his qui tam award (State Fin. L. § 190(6)(a)), holding that the request was premature since the City did not address the amount of the award to which Relator was entitled and Relator did not cross-move for the court to calculate his award. Id.

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