Potential Bars To A Qui Tam Action
Statutory Bars That Prevent A Whistleblower From Bringing A Qui Tam Action
Although the conduct covered by the False Claims Act (the “Act”) is broad in scope, the Act contains several bars that can prevent a whistleblower (or “relator”) from filing a qui tam action.
- The “First-to-File Rule”
- Actions Against Certain Classes of Persons
- Pending Government Proceedings
- The “Public Disclosure Bar”
- Tax Fraud
The First-To-File Rule
Under the First-To-File Rule, “[w]hen a person brings [a qui tam action], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” The rule has many purposes. First, it makes it clear that only the government may intervene in a qui tam action. Second, it incentivizes potential whistleblowers to promptly report a violation of the Act to the government because only the first whistleblower to report a fraud can recover a monetary award. Third, it prevents opportunistic whistleblowers from filing subsequent lawsuits based on the same set of facts underlying the pending action – such lawsuits do not advance the government’s investigation and prosecution of the fraud.
Most courts examining the First-To-File Rule have interpreted the provision broadly, applying the bar when a subsequently-filed complaint is based on either (1) the same “type of fraud”; (2) the same “essential elements”; or (3) the same “material elements” of fraud. A subsequent complaint will escape application of the bar if it alleges a different type of fraud that is based on a different set of facts, and gives rise to a separate and distinct recovery for the government.
The practical effects of the rule are many. First, it creates a race to the courthouse. It encourages a potential whistleblower to file a qui tam complaint as soon as possible to ensure that the claim is not barred and the whistleblower receives credit for reporting the fraud. Second, it encourages relators to collaborate after filing a qui tam complaint, and share in each other’s recoveries, rather than move to dismiss each other’s complaint.
Freiberger Haber LLP can help ensure that a claim is made both promptly and accurately, so that the whistleblower’s complaint is the first on file. The firm will evaluate and review a whistleblower’s claim to determine whether any previously-filed complaint bars the whistleblower’s claim.
Actions Against Certain Classes of Persons
The False Claims Act bars actions brought by members of the armed services and members of the legislative, judiciary or executive branches. Former or present members of the armed services are barred from bringing a qui tam action against another member or entity of the armed services for violations arising out of the whistleblower’s service. This statutory bar does not, however, prevent a former armed service employee from bringing a qui tam action against a government contractor for fraud on the government.
The False Claims Act bars a whistleblower from filing a qui tam complaint against a Member of Congress, a member of the judiciary, or a senior executive branch official if the action is based on information already known to the government when the action is brought.
Pending Government Proceedings
Follow-on whistleblower actions that are based on existing government proceedings, such as a civil suit or an administrative civil money penalty proceeding, are barred by the False Claims Act. Most courts have interpreted the Act to bar an action if it alleges “all the essential facts” pleaded by the government. The bar will apply even if the claim is somewhat different in detail from the pending government action. In practice, this bar works like the First-to-File Rule.
The Public Disclosure Bar
The “public disclosure” bar precludes a relator from pursuing a qui tam action if the allegations have been publicly disclosed through official proceedings or in the news media, unless the relator was an “original source” of the information upon which the action was based. The bar operates regardless of whether the whistleblower actually knew about or reviewed the public information prior to filing the complaint.
Courts generally apply a two-part test to determine whether the public disclosure bar applies. First, the courts inquire whether there has been any public disclosure of the fraud in (1) a federal criminal, civil, or administrative hearing in which the government is a party; (2) a congressional, Government Accountability Office, or other federal report, hearing, audit or investigation; or (3) the news media (such as newspapers; scholarly, scientific, and technical periodicals, including trade journals; advertisements in periodicals; and widely accessible internet publications). An entity’s self-disclosure to the government is not sufficient to trigger the public disclosure bar. However, responses to FOIA requests are generally held to constitute a public disclosure. Second, the courts look to whether the whistleblower’s allegations are substantially the same as the previously disclosed fraud. If either requirement is not satisfied, the bar does not apply and the relator can proceed with the action. If both requirements are met, the action is barred unless the relator qualifies as an “original source” under the Act. An “original source” is “an individual who either (i) prior to a public disclosure … , has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under [the False Claims Act].”
The application of the Public Disclosure Bar and the Original Source exception is fact dependent and filled with nuance. Freiberger Haber LLP will evaluate and review a whistleblower’s claim and help determine whether the allegations fall within the scope of the Public Disclosure Bar.
The False Claims Act bars actions involving tax fraud; that is, it explicitly excludes false claims, records or statements made under the Internal Revenue Code of 1986. Whistleblowers wishing to report a tax fraud can do so under the IRS Whistleblower Program, which provides for whistleblower rewards of 15 to 30 percent of the amount recovered by the IRS. To file a claim under the program, the tax, penalties, interest, and additions in dispute must exceed $2 million.
Freiberger Haber LLP represents whistleblowers wishing to report a tax fraud to the IRS. For more information, contact Freiberger Haber LLP.