Getnick & Getnick

The Fundamentals of Qui Tam
International Association of Defense Counsel 2003 Mid-Year Meeting, February 2003 (meeting papers)

by Neil V. Getnick & Lesley Ann Skillen

Introduction

In 1995, the Department of Justice (“DOJ”) marked the recovery of its first billion dollars under the qui tam provisions of the amended 1986 False Claims Act, 31 U.S.C. §3729 et seq., with a press release. The DOJ praised the bipartisan efforts of the bill’s sponsors, Senator Grassley and Congressman Berman, as a work of "leadership and vision.” The recovery of over $1 billion, the DOJ declared, “demonstrates that the public-private partnership encouraged by the statute works and is an effective tool in our continuing fight against the fraudulent use of public funds."¹

By the end of 2002, qui tam recoveries under the amended False Claims Act had grown to an awe-inspiring $6 billion. In its press release, the DOJ again attributed the success of the statute to “the vision of its sponsors . . . as well as the thousands of private citizens who have reported fraud by filing suit under the Act."²

The qui tam law is now well established as the weapon of choice for federal (and an increasing number of state) prosecutors seeking to recover defrauded taxpayer funds. Since 1986, qui tam plaintiffs have been the DOJ’s partners in the recovery of more than $6 billion. In the same period, qui tam suits that the DOJ has not joined and that the qui tam plaintiff has pursued alone have realized only $250 million.³ The qui tam law has become in practice what it was intended to be in theory -- a “public-private partnership” of the government and the people

In this article we first provide an overview of the statute and its recent use. In the second part of this article, we share our experience with whistleblowers in order to provide some insights into how corporations can deal with the underlying problems that give rise to qui tam lawsuit in the first place, thereby minimizing or avoiding such exposure.

False Claims Act Fundamentals

The False Claims Act, including its qui tam⁴ provisions, was initially enacted at the urging of President Lincoln in 1863, a few months before the Battle of Gettysburg. A response to reports of widespread fraud by Civil War profiteers,⁵ the Act encouraged citizens with knowledge of fraud against the government to come forward by authorizing them to file a civil suit in the name of the government. As a reward, the whistleblower received a payment amounting to 50% of the recovery of twice the government's actual damages plus a $2,000 penalty for each false claim.⁶

Although the "Lincoln Law" was a wartime initiative, it was not limited to defense fraud. In 1863, private citizen enforcement was an integral part of the U.S. statutory framework. Ten of the fourteen statutes passed by the first Congress contained qui tam provisions designed to supplement government enforcement, including statutes relating to bank regulation, import duties and copyright infringement.⁷ As a California court noted in 1989, the qui tam laws "are firmly rooted in the American legal tradition."⁸

The 1986 amendments overhauled and strengthened the Act, whose qui tam provisions had all but fallen into disuse as a result of amendments that followed a Supreme Court ruling in 1943.⁹ Like the congressional initiative that resulted in the original False Claims Act, the 1986 amendments were prompted by reports of pervasive fraud against federal agencies, notably as a consequence of the Reagan-era military build-up.¹⁰ A revamped qui tam law was seen as the most powerful and effective means of addressing these problems. "[O]nly a coordinated effort of both the Government and the citizenry," wrote the Senate Committee on the Judiciary, "will decrease this wave of defrauding public funds."¹¹

Today's federal False Claims Act provides for treble damages and penalties of $10,000 per violation for virtually any kind of fraud against the federal government or federally funded government entities. The qui tam provisions of the statute permit a private citizen (individual or corporation) who brings suit under the Act - known as the "relator" - to receive up to 30% of the recovery, with the average share hovering around 16%.

Fourteen States¹² have followed the federal lead by enacting False Claims Acts to combat fraud committed against their own programs.

The False Claims Act's Legislative Framework

These are the key features of the current federal False Claims Act:

(1) Almost any false claim or false statement that involves payment or a demand for payment from the Federal Government, or which deprives it of revenues in some way, is actionable. Both making, and causing to be made, false claims or statements are covered; for example, a subcontractor who makes false claims for payment to a general contractor knowing that an overpayment by the government will result is liable.¹³

(2) Specific intent to defraud is not required to create civil liability under the Act. The "knowing" submission of false claims includes not just actual knowledge, but also deliberate ignorance and reckless disregard for the truth.¹⁴ Thus government contractors have a duty to ascertain that they are entitled to the public funds to which they lay claim, and to prevent the conscious avoidance of an enquiry which would reveal the existence of fraud.¹⁵

(3) False claims made under the Internal Revenue Code are expressly excluded from the Act and its qui tam provisions.¹⁶

(4) A qui tam complaint is filed under seal without service on the defendant and is delivered, together with a "disclosure statement" containing all facts material to the action, to the Department of Justice and the local United States Attorney.¹⁷ The government then has a period of time¹⁸ within which to investigate the relator's allegations in the complaint and decide whether to "intervene in," (or take over) the action or to allow the relator to pursue the action alone.¹⁹

(5) The relator's share of the recovery is 15-25% if the government intervenes, and 25-30% if the relator pursues the action alone.²⁰ In certain circumstances, the relator's share may be limited to 0-10%.²¹ Courts are authorized to reduce the share of a relator who "planned and initiated" the wrongdoing, and a relator who is criminally convicted must be dismissed from the action.²²

(6) In a successful suit, the relator’s attorney fees and costs are recoverable from the defendant.²³ In a non-intervened case in which the defendant prevails, the court may award attorneys' fees and costs to the defendant upon a finding that the claim was clearly frivolous, vexatious, or brought primarily for purposes of harassment.²⁴

(7) Qui tam actions are prohibited if they are "based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information."²⁵ An original source is defined as "an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action."²⁶

The "public disclosure" bar is intended to prohibit qui tam cases in which the relator seeks to rely on information that is acquired from public sources - so-called "parasitic" claims - unless the relator is an "original source" of the information as defined in the Act. This issue has been heavily litigated and the circuits sometimes disagree on what disclosures are "public,"²⁷ what constitutes "direct and independent" knowledge,²⁸ and what is meant by "based on."²⁹ In general, the "public disclosure" bar operates to ensure that suits cannot be filed by persons who have contributed nothing substantial to uncovering and reporting the essential elements of the case.

(8) If more than one relator files essentially the same case, only the first to file survives. The statute bars any subsequent case that is based on the "facts underlying the pending action."³⁰ Current caselaw supports a broad construction of this phrase and the notion of a "race to the courthouse" between relators with knowledge of the same fraud.³¹

(9) The 1986 amendments created a federal cause of action for employees who experience retaliatory conduct by their employers because of their acts in furtherance of a qui tam action, providing for double the amount of back pay plus interest, reinstatement and compensation for special damages.³² The employee need not be a qui tam relator in order to bring an action under this section.³³

The False Claims Acts in Practice

During the first six years of its operation, the revamped 1996 False Claims Act was aimed primarily at defense procurement fraud. In November 1992, the $110 million settlement and criminal plea by National Health Laboratories, one of the nation’s premier clinical testing labs, inaugurated the era of big dollar health care fraud settlements.³⁴ Since 1996, more than half of all qui tam cases has involved health care fraud.³⁵ The explosive growth in False Claims Act recoveries -- from $70 million in 1991 to $1.6 billion in 2001 -- has been largely fueled by multi-million dollar settlements arising from qui tam suits against hospital corporations³⁶, clinical testing laboratories³⁷, pharmaceutical companies³⁸, nursing home operators³⁹, insurance companies that process Medicare claims⁴⁰, hospital management companies⁴¹, and other providers of specialized health care such as renal dialysis⁴². Although eclipsed by health care, defense procurement fraud suits have continued to result in substantial recoveries -- over $100 million in 2000, for example.⁴³

In other areas – now termed “non-traditional” – the so-called “oil and gas” cases have constituted the most high profile group. These series of cases, alleging underpayment of royalties on the production of oil, gas and minerals from public lands, recouped nearly $440 million from various oil and energy companies.⁴⁴ Recent recoveries also have included over $140 million in settlements with twenty-five brokerage firms that allegedly sold open market securities with artificially low yields to municipalities refunding tax-exempt bonds, thereby reducing the municipalities' purchase of special low-interest Treasury bonds.⁴⁵

Recent substantial qui tam settlements in other areas include cases involving construction⁴⁶, computers⁴⁷, and environmental testing⁴⁸. Prior to the Supreme Court’s ruling in Vermont Agency of Natural Resources v. U.S. ex rel. Stevens⁴⁹, the qui tam law had also been used to sue state governments and agencies for fraud in federally-funded state administered programs.⁵⁰ Since the Stevens, ruling, however, states may no longer be sued by qui tam relators.

The average relator statutory share of the $6 billion recovered under the qui tam law to date stands at approximately 16%. Relator shares are usually resolved by negotiation with the DOJ, which makes the successful relator an “offer” following settlement. Since the minimum statutory share, in the normal case, is 15%, it is evident that the DOJ is highly protective of qui tam recoveries, reserving offers of higher percentages for cases in which the relator has provided extraordinary assistance. The DOJ and relators have litigated relator share infrequently, but with high visibility. In two recent cases, the court awarded the relators 24%⁵¹ and 20%⁵² respectively.

How Companies Can Deal With The Underlying Problems Giving Rise to Qui Tam Lawsuits

All corporations would like to minimize or avoid entirely the incidence of qui tam whistleblowing activity by their employees.⁵³ Any useful analysis of the qui tam phenomenon requires an understanding of the whistleblowers themselves.

First, however, we make some observations on whistleblower containment strategies that are not effective. Some counsel have responded to the growing significance of the qui tam law by devising various artificial measures designed to thwart whistleblowers. These after-the-fact “solutions” read like the wish-list of a disappointed defense counsel. They range from routine waivers and agreements not to bring a qui tam action in separation agreements,⁵⁴ to requiring employees to sign agreements that they will donate the proceeds of any qui tam suit they file to charity, to “psychological screening” of potential job applicants to identify those with “whistleblowing tendencies.” Another such device is to question a departing employee at the exit interview specifically about whether he or she is aware of any wrongdoing, the objective being to provide some documentary basis upon which to later undermine the employee’s credibility in the event of a qui tam suit.

Such efforts entirely miss the point. To understand how ultimately to prevent qui tam lawsuits, one can best start by examining the motives of whistleblowers. In this regard, we do not attempt to provide a scientific or empirical analysis, but rather to share what we have learned in our dealings with whistleblowers.

First, perhaps surprisingly to people on the receiving end of qui tam lawsuits, we have found that relators generally are not primarily driven by greed or revenge. This is not to say that money is not an important factor in a relator’s decision to go forward. The qui tam law was designed to work that way -- to provide people with an incentive to take the risks to career, security, and personal stability that becoming a whistleblower frequently entails. Likewise, some relators certainly seek vindication, and many are tenacious to the point of obsession. This is usually understandable given that many have fought long and hard to bring their concerns to the attention of corporate management through internal means, only to be ignored, spurned, marginalized, or otherwise frustrated in their efforts. Similarly, others have tried, and failed, to have enforcement authorities address their concerns by calling government reporting hotlines and reporting their concerns through official procedures established for the purpose. Often, they have been met with answer machines and/or apparent indifference.

So what is it that drives relators to pursue qui tam lawsuit? We have found that most relators are driven by some degree of moral outrage. They simply believe that what they observed is wrong, and they believe that reporting it is the right thing to do.

On balance, it is fair to say that in most cases, the qui tam relator is motivated by a combination of factors. More recently, as more corporate executives and management level employees are becoming qui tam relators, a new motive has crept into the mix. That motive is self-protection: a concern about being asked to participate in wrongdoing, or being perceived as having already done so, and the personal consequences that can flow therefrom.

The corporate executive-turned-whistleblower is now a distinct category of qui tam relator. In 2001, for example, TAP, a multinational pharmaceutical joint venture, agreed to pay $875 million to the federal government in the largest health care fraud settlement ever.⁵⁵ The settlement arose from two qui tam cases, one filed by TAP’s former vice president of sales, who alleged that the company gave kickbacks to doctors and encouraged them to defraud Medicare by billing for free samples. When the vice president of sales-turned-whistleblower in that case -- who was already troubled by what he saw as TAP’s “cowboy” culture -- heard about the alleged kickback plan, he reportedly realized the extent of his personal exposure. “The sales force was my responsibility,” he told People magazine. "I could have been the one to get hung out to dry.”⁵⁶

The number of senior managers responsible for high dollar qui tam recoveries illustrates the immense value to the government’s anti-fraud effort of these individuals, whose seniority was such that they were able to provide prosecutors with a virtual road map to the alleged wrongdoing.⁵⁷

Lastly, it is important to understand that blowing the whistle often takes great courage. Despite the fact that Time Magazine saw fit last year to bestow its Person of the Year award on three whistleblowers⁵⁸, it’s hard to see blowing the whistle as a career-enhancing move. In fact, qui tam relators often take tremendous risks and experience great hardship.

For example, in U.S. ex rel. Alderson v. Quorum Health Group, a Florida court awarded the relator, the former Chief Financial Officer of a Montana hospital, 24% of the $85 million recovery.⁵⁹ The criteria upon which the court focused most heavily were the relator’s “extraordinary commitment” of time and energy, the “unusual length and complexity” of the legal proceedings, and “the hardship endured by Alderson and his family” during the currency of the case -- some eight years.⁶⁰ Alderson’s qui tam action, amongst other things, had “a disruptive and divisive effect” on Alderson and his family, “including dispiriting financial hardship and the burden of the confidentiality obligations governing the case.”⁶¹ The court observed that Alderson’s experience “illustrates vividly Judge Learned Hand’s cautionary observation that ‘as a litigant I should dread a lawsuit beyond almost anything else short of sickness and death.’”⁶²

Whistleblowers, therefore, are more likely to be motivated by moral outrage or self-protection than greed or revenge. The key to preventing such people from ultimately taking matters into their own hands is to provide them with a meaningful opportunity to report their concerns internally, without fear of retaliatory acts and with confidence that their complaints will be adequately addressed.

A corporate compliance program grounded in integrity and transparency, honored by senior management and communicated effectively and often to employees, is the bottom line. Crucial to such a program is an effective procedure for employees to report questionable conduct in confidence and anonymously, if they wish. For example, the Department of Health and Human Services recently released Draft Compliance Program Guidance for the Pharmaceutical Industry. This states, in part, that an effective compliance program must have “a process (such as a hotline or other reporting system) to receive complaints or questions, and the adoption of procedures to protect the anonymity of complainants and to protect whistleblowers from retaliation.”⁶³ Similarly, the Sarbanes-Oxley Act requires that Audit Committees establish procedures for the “receipt, retention and treatment of complaints” regarding accounting and auditing matters, while “maintaining the anonymity of complaints made by company employees.”⁶⁴ This means that employees must be free of the following concerns: “Will I be punished or even fired if I draw attention to a practice that is making the company a lot of money? Will I be shunned by my colleagues? What can I do if senior management is part of the problem?”

Ultimately, a corporate culture in which employees, at whatever level, feel safe from retaliation if they report their concerns, and confident that those concerns will receive attention and respect, requires that employees believe in the honesty, integrity and fairness of senior management. It also requires that senior executives are truly committed to taking the kind of tough decisions that might, at times, elevate ethics over short-term gain.

Conclusion

The following remarks by a former senior DOJ official at an industry compliance forum in 2000 underscore the importance of the qui tam law is to the prosecution of fraud against the government

“It is no exaggeration to say the virtually every major case that the Department [of Justice] has brought in the past was the result in one way or another of a whistleblower complaint. It’s an extraordinarily powerful tool for the government. You have insiders who . . . know the practices, they know where documents are located, they know what executives and officials know of certain types of conduct. Sometimes they are cooperators so they can gather additional information. If you were thinking about what kind of case you’d bring if you were an Assistant United States Attorney, and you had some external report of wrongdoing, versus someone who is inside who could give you that level of insight into the alleged conduct, which case would you take?”⁶⁵

Still, corporations and their lawyers need not fear the qui tam law nor see potential plaintiffs as the enemy. Demonizing qui tam whistleblowers as disgruntled, vengeful and/or greedy opportunists intent upon leveraging the treble damages might of the False Claims Act against deep-pocketed corporations is ultimately a hollow exercise and leads to a faulty analysis. In fact, in our experience real whistleblowers are rarely motivated purely or even primarily by money or revenge. Many simply want to do the right thing, and others act from a desire to protect themselves, lest the finger of blame be pointed at them some day. If there is a whistleblower archetype, it is this: the corporate insider who has been unable to have his or her concerns addressed via internal means and who, in fear or frustration, turns to the qui tam law as a last resort.

What then is the way to minimize or avoid whistleblower lawsuits? The answer is to be found in an open and ethical corporate culture and a compliance program with a reporting procedure that is effective both in preventing retaliation and satisfying employees that their concerns are addressed meaningfully. Such a compliance program will help prevent the type of fraud that a whistleblower may be inclined to allege in a qui tam suit. Further, it can help detect fraud so that corporations can get on top of any suspected wrongdoing, and, if appropriate, voluntarily disclose the wrongdoing to the government before any qui tam case if filed. Thus not only is the potential whistleblower more likely to make use of the internal reporting procedures to report his or her concerns, there will hopefully be less fraud to report.

While qui tam lawsuits only continue to grow in importance in combating fraud against the government, perhaps their greatest value will come from further convincing companies to build strong cultures of integrity and transparency, honoring and rewarding employees who help keep them on the right track.

1. Press Release, U.S. Department of Justice, Justice Department Recovers Over $1 Billion In Qui tam Awards And Settlements (October 18, 1995). The figure of $1 billion represents one-third of all recoveries achieved by the Department of Justice in civil fraud cases in the same time period.

4. Qui tam is the short form of qui tam pro domino rege quam pro seipso: "he who as much for the king as for himself." The qui tam action was borrowed from the English common law, which had recognized it since the thirteenth century. See generally, Edmund C. Baird, III, The Use of Qui Tam Actions to Enforce Federal Grazing Permits, 72 Wash. U. L. Q. 1407 (1994) (referencing Note, The History and Development of Qui Tam, 1972 Wash. U.L.Q., 81, 83 (citing 3 Blackstone, Commentaries on the Laws of England 160 (1st ed. 1768)); Dan D. Pitzer, Comment, the Qui Tam Doctrine: A Comparative Analysis of Its Application in the United States and the British Commonwealth, 7 Tex. Int’l L.J. 415, 417-18 (1972)).

9. In 1943, the Supreme Court held in U.S. ex rel. Marcus v. Hess, 317 U.S. 537, reh’g denied, 318 U.S. 799 (1943), that nothing in the False Claims Act barred a qui tam suit based entirely on information already disclosed in a government indictment. Consequently, Congress amended the Act to bar all suits based on information already in the government's possession. The amendment was intended to bar "parasitic suits" but had the effect of prohibiting qui tam actions not only where the government was already pursuing an action based on the fraud in question, but where the government had the information but was not taking steps to investigate or prosecute an action. The amendment severely inhibited the use of the qui tam law. The 1986 amendments included a provision to ease this restriction by barring only those suits based on defined categories of publicly disclosed information, unless the plaintiff is the "original source" of the information (31 U.S.C. § 3730(e)(4)). The 1986 amendments, in addition, imposed an upper limit of 10% on recoveries to the relator in a qui tam action based primarily on public disclosures (31 U.S.C. § 3730(d)(1)).

10. The Senate Committee on the Judiciary noted the following in its Report accompanying the bill: fraud investigations by the Department of Defense ("DOD") increased by 30% from 1983 to 1984; in 1985, 45 of the top 100 defense contractors, including 9 of the top 10, were under investigation for multiple fraud offenses; 4 of the largest defense contractors had been convicted of criminal offenses; according to the DOD Inspector General, the DOD loses $1 billion per year as a result of fraud. S. Rep. No. 345, 99th Cong., 2nd Sess. (July 28, 1986), reprinted in U.S. Code Cong. & Admin. News 5266, p.2.

12. Ark. Code Ann. § 20-77-901 et seq (2000) (Medicaid only); Cal. Govt. Code § 12650 et seq. (1991); Del. Code Ann. Tit. 6, § 1201 et seq. (2000); D.C. Code Ann. § 1-1188.13 et seq. (1986); Fla. Stat. 68.081 et seq. (1994); Haw. Rev. Stat. § 661-22 et seq. (2000); 740 Ill. Comp. Stat. Ann. § 175/1 et seq. (1991); La. Rev. Stat. Ann. § 46:439.1 et seq. (2000) (Medicaid only); Mass. Ann. Laws Ch.12, § 5(A)-(O) (2000); Nev. Rev. Stat. § 357.010 et seq. (1999); Tenn. Code Ann. § 71-5-181 et seq. (1968); Tex. Hum. Res. Code §§ 36.001-36.117; Utah Code Ann. § 26-20-1 et seq. (2000) (Medicaid only); Va. Code Ann. §§ 8.01-216.1-216.19 (2002).

13. 31 U.S.C. § 3729(a)(1) provides that any person who "knowingly presents, or causes to be presented, to an officer or employee of the United States Government ... a false or fraudulent claim for payment or approval" is liable to the government for treble damages and penalties of up to $10,000 per violation. Under § 3729(a)(2) making, using or causing to be made "a false record or statement to get a false or fraudulent claim paid or approved" is similarly proscribed. § 3729(a)(3) creates liability for conspiracy "to defraud the Government by getting a false or fraudulent claim allowed or paid." Other provisions of § 3729(a) attempt to "cover the field" of fraud against the government, such as delivery of less property than contracted for.

19. 31 U.S.C. § 3730(b)(2). If the government decides to intervene, the government has "primary responsibility for prosecuting the action," but the relator has the right to "continue as a party" to it, subject only to conduct which may hinder the government's prosecution of the case or would be repetitious, irrelevant or harassing. 31 U.S.C. §§ 3730(c)(1), (2)(C-D). The government may dismiss or settle an action over the objection of the relator provided that the court has afforded the relator an opportunity to be heard. 31 U.S.C. § 3730(C)(2).

27. While most courts agree in that disclosure denotes some form of affirmative action, the scope of what constitutes public disclosure is disputed. Compare United States ex rel. Fine v. Advanced Sciences, Inc., 99 F.3d 1000, 1005 (10th Cir. 1996), with United States ex rel. Dunleavy v. County of Delaware, 123 F.3d 734 (3d Cir. 1997). For example, a majority of circuit courts has held that disclosures made during discovery or pleadings filed in civil litigation are "publicly disclosed," whether or not the discovery materials were actually filed and accessible to the public. United States ex rel. Stinson, Lyons, Gerlin & Bustamonte v. Prudential Ins. Co., 944 F.2d 1149 (3d Cir. 1991) (holding that filed or unfiled materials obtained during discovery will trigger the public disclosure bar because they are ‘potentially accessible’ to the public); see also United States ex rel. Kreindler & Kreindler v. United Technologies Corp., 985 F.2d 1148, 1157 (2d Cir.) cert. denied, 113 S. Ct. 2962, 125 L.Ed.2d 663 (1993). However, both the Seventh Circuit and the DC Circuit have resisted this exhaustive approach. U.S. ex rel. Springfield Rail Terminal Ry. Co. v. Quinn, 14 F.3d 645, 652 (D.C. Cir. 1994); United States v. Bank of Farmington, 166 F.3d 853, 860 (7th Cir. 1999) (noting that the ordinary meaning of “public disclosure” would demand that information be open to general observation and that “barring such actions based on information which was merely potentially but not actually opened up to view does not discourage parasitism”). The delineation of ‘public disclosure’ is an area of ongoing discordance.

28. See generally, Minn. Ass’n of Nurse Anesthetists v. Allina Health System Corp., 276 F.3d 1032 (8th Cir. 2000), reh’g denied 2002 U.S. App. LEXIS 4870, cert. denied, 2002 U.S. LEXIS 7386, 123 S. Ct. 345, 154 L. Ed. 2d 252 (U.S. Oct. 7, 2002). A relator will not satisfy the “direct and independent knowledge” requirement if a third party is the source of the “core information” upon which the complaint is based. United States ex rel Dhawan v. New York Medical College, 252 F.3d 118, 121 (2d Cir. 2001); see also Kreindler, 982 F.2d at 1159. “A relator must possess substantive information about the particular fraud, rather than merely background information which enables a putative relator to understand the significance of a publicly disclosed transaction or allegation.” Stinson, 944 F. 2d at 1160. This requirement under 3730(e)(4)(B) triggers a two-prong analysis. In order to be direct, “knowledge possessed by the relator must be marked by the absence of an intervening agency...[and] unmediated by anything but the relator’s own labor[,]’” or, as some Circuits have established, it must stem from first-hand experience. United States ex rel. Stone v. Rockwell Int’l Corp., 282 F.3d 787, 799 (10th Cir 2002) (citing United States ex rel. Hafter v. Spectrum Emergency Care, 190 F.3d 1156, 1162 (10th Cir. 1999); see also Quinn, 14 F3d at 656 (D.C. Cir. 1994); see also United States ex rel Harshman v. Alcan Elec. & Eng’g, 197 F.3d 1014, 1020 (9th Cir. 1999). “In other words, ‘direct knowledge is knowledge gained by the relator’s own efforts and not acquired from the labors of others,’ while independent knowledge means that ‘the relator’s knowledge must not be derivative of the information of others[.]’” Stone, 282 F.3d at 799 (citing United States ex rel. Fine v. Advanced Sciences, Inc., 99 F.3d 1000, 1006-7 (10th Circuit 1996). A myriad of decisions have addressed particular circumstances of what might amount to ‘direct’ knowledge. See United States ex rel. Hansen v. Cargill, Inc., 107 F. Supp. 2d 1172, 1183 (9th Cir. 2000); United States ex rel. Findley v. v. FPC Boron Employees’ Club, 105 F.3d 675, 690 (D.C. Cir. 1996). One area of particular contention relates to government employees; circuits differ as to whether a government employees possessing information gained through government audits, reports or investigations can qualify as an original source. Compare United States ex rel. Holmes v. Consumer Insurance Group, 279 F.3d 1245 (10th Cir. 2002) (holding that a government employee investigating fraud in his or her official capacity may not initiate a qui tam suit under § 3730(b)(1) unless the government has abandoned the investigation without making a public disclosure or the employee is exposing the fraudulent acts of another government employee); and United States ex rel. LeBlanc v. Raytheon Co., 729 F. Supp. 170 (D. Mass 1990), aff’d but analysis rejected, 913 F.2d 17 (1st Cir. 1990), cert. denied, 499 U.S. 921, 111 S. Ct. 1312, 113 L. Ed. 2d 246 (1991) with United States ex rel. Fine v. Cheveron, U.S.A., 39 F.3d 957, 961-62 (9th Cir. 1994); and with Williams v. NEC Corp., 931 F.2d 1493 (11th Cir. 1991).

29. Circuits differ in their interpretation of the term “based on” as it applies to public disclosures. Both the Seventh and the Fourth Circuits have held that it should be defined narrowly, so that the jurisdictional bar will not be activated unless the relator’s claims are “derived from” prior public discloses. United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1348 (4th Cir.), cert. denied, 513 U.S. 928, S. Ct. 316, 130 L. Ed. 2d 278 (1994); Farmington, 166 F.3d at 863 (revisiting Siller’s twofold rationale that the plain textual definition does not lend itself to such a conclusion and “a lawsuit based upon information which happens to be similar or identical to publicly disclosed allegations or transactions, but which derives from some other source than public disclosure, in not parasitic”). Conversely, “[t]he majority view is that... a qui tam action is ‘based upon’ a public disclosure when the underlying allegations are ‘the same as those that have been publicly disclosed... regardless of where the relator obtained his information.’ United States ex rel. John Doe v. John Doe Corp. 960 F.2d 318, 324 (2d Cir. 1992); United States ex rel. Mistick PBT v. Hous, Auth. of the City of Pittsburgh, 186 F.3d 376, 385 (3d Cir. 1999), cert. denied 529 U.S. 1018, 120 S. Ct. 1418, 146 L. Ed 2d 310 (2000); United States ex. rel. Precision Co. v. Koch Indus., Inc., 971 F.2d 548 (10th Cir. 1992), cert. denied, 507 U.S. 951, 113 S. Ct. 1364, 122 L. Ed. 2d 742 (1993); Quinn,14 F.3d 645.

33. E.g., Hutchins v. Wilentz, 253 F.3d 176 (3d Cir. 2001), cert. denied 2002 U.S. LEXIS 4254, 122 S. Ct. 2360, 153 L. Ed. 2d 182 (2002); United States ex rel. Yesudian v. Howard Univ., 153 F.3d 731, (D.C. Cir. 1998); McKenzie v. BellSouth Telecomms., Inc., 219 F.3d 508 (6th Cir. 2000); Neal v. Honeywell, 33 F.3d 860 (7th Cir. 1994); Childree v. UAP/GA Ag Chem., Inc., 92 F.3d 1140 (11th Cir. 1996); Mikes v. Strauss, 889 F. Supp. 746 (S.D.N.Y. 1995), reconsideration denied, 1995 U.S. Dist. LEXIS 13917 (Sept. 22, 1995).

36. E.g., $840 million settlement in 2000 with HCA-the Healthcare Company, the nation’s largest for-profit hospital chain, to resolve eleven out of thirty consolidated qui tam suits alleging numerous fraudulent schemes of false cost reporting and improper kickbacks. United States ex rel. Alderson v. Columbia/HCA Healthcare, No. 01-MS-50 (D DC); See also Dylan Trache, Spotlight, 22 TAF QR 23 (April 2001). At the time of writing, HCA had tentatively agreed to pay an additional $625 million to settle additional multiple qui tam suits alleging fraudulent submission of annual cost reports to Medicare, kickbacks to doctors and false claims arising from the operation of the hospital chain’s wound care centers. Kurt Eichenwald, HCA Said to Reach Deal on Settlement of Fraud Case, N.Y. Times, December 18, 2002, at C1.

37. E.g., $182 million settlement with Roche Biomedical Laboratories in 1996 and $325 million settlement with SmithKline Beecham in1997 for allegedly including unnecessary tests in batteries of clinical tests that were sold to doctors and billed to Medicare and Medicaid. United States ex rel. Hendricks v. Roche Biomedical Laboratories, Inc., 93 Civ. 5644 (S.D.N.Y.); United States ex rel. Merena v. SmithKline Beecham Corp., 1997 U.S. Dist. LEXIS 19896, 7-8 (E.D. Pa. 1997) (reviewing the history of the preceding $325 million settlement).

38. E.g., $559.9 million federal civil settlement with TAP Pharmaceuticals in October 2001 for allegedly conspiring with doctors to bill Medicare for samples of the drug Lupron, paying kickbacks to providers to increase sales of the Lupron, and inflating its pricing of the prostrate cancer drug to further a scheme in which TAP and its provider customers overcharged Medicare and Medicaid. United States ex rel. Gerstein v. TAP Holdings, Inc., Civ. No. 98-10547 (D. Mass); see also Judgments and Settlements, 25 TAF QR 32-33 (January 2002). Coupled with $290 million in criminal fines and a civil payment to the fifty states of $25.5 million, the total settlement amount against TAP rose to $845 million, making it the largest health care settlement in the United States to date. Id.

39. E.g., $170 million in 2000 from Beverly Enterprises, Inc., the largest nursing home operator in the United States, for alleged false billings to Medicare involving over 400 nursing homes. The suit alleged that Beverly billed Medicare for labor costs incurred in treating non-Medicare beneficiaries and used phony documents to support its claims for payment. Press Release, U.S. Department of Justice, Justice Department Recovers Over $3 Billion in Whistleblower False Claims Act Awards and Settlements, February 24, 2000, (accessed Feb. 12, 2003) www.usdoj.gov/opa/pr/2000/February/079civ.htm.

41. E.g., $85.8 million settlement in 2001 with Quorum Health Group, Inc., the nation's largest hospital management chain, resolving allegations that Quorum included non-reimbursable costs in its annual cost reports and kept a secret set of cost report reserves identifying the improper claims in case the scheme was uncovered. United States ex rel. Alderson v. Quorum Health Group, Inc., 171 F. Supp. 2d 1323 (M.D. Fla. Nov. 8, 2001); see also Relator’s Share, 25 TAF QR 11 (January 2002).

42. In 2000, Fresenius Medical Care paid a $385 million civil settlement and $110 million in criminal fines to resolve liability in five separate qui tam lawsuits alleging various types of wrongdoing by its kidney dialysis subsidiary. See Judgments and Settlements, 18 TAF QR 26 (April 2000) (citing United States ex rel. Ven-A-Care of the Florida Keys, Inc. v. National Medical Care, Inc. et al., No. 97-10962-NG (D MA); United States ex rel. Ven-A-Care of the Florida Keys, Inc. v. Fresenius Medical Holdings, Inc., No. 97-11033-NG (D MA); United States ex rel. Dana R. Austin v. National Medical Care, Inc., No. 94-12164-NG (D MA); United States ex rel. Jay A. Buford, Russell J Davis, and William L. Schoff v. LifeChem, Inc. et al., No. 95-10706-NG (D MA); United States ex rel. Price v. W. R. Grace & Co., No. 97-11022-NG (D MA); United States ex rel. Bradford v. National Medical Care, Inc., No. 96-3350(SD FL)).

44. Including but not limited to settlements of $110 million from Shell Oil Co., $95 million from Chevron, $45 Million from Mobil, $43 million from Texaco, $32 million from BP Amoco, $26 million from Conoco and $21.5 million from UNOCAL. United States ex rel. Johnson v. Shell Oil Co. et al., Civ. No. 9:96 CV66(ED TX); see also, Judgments and Settlements, 25 TAF QR 30 (January 2002); See also Judgments and Settlements, 22 TAF QR 34 (April 2001).

46. $15.7 million settlement with Contech Construction in 2001 for alleged false claims submitted to the Department of Transportation and the usage of substandard materials in a federal highway construction project. United States ex rel. Hill v. Contech Construction Products, Inc., No. 99-400-B-M2 (MD La.); see also, Highway Fraud Case Nets $30 Million Settlement, FDCH Federal Department and Agency Documents, January 17, 2001.

48. $8.7 million settlement with Intertek Testing Services Environmental Testing Laboratories in 2002. Intertek held contracts with the Air Force, Navy, Army Corps of Engineers, and Environmental Protection Agency to test air, liquid, and soil samples for hazardous substances. The settlement resolved claims that Intertek failed to perform tests as required by its contracts. United States v. Intertek Testing Services Environmental Lab., No. 3-01CR-318-D (N. D. Tex); see also, Judgments and Settlements, 26 TAF QR 47 (April 2002).

In 1989, a sales manager for one of the country’s major clinical testing laboratories filed a qui tam case against his laboratory (and others) after they listened to his complaints alleging corrupt practices by a competitor -- and copied them. His lawsuit resulted in criminal charges, and civil recoveries totaling $149 million. A number of additional qui tam cases against most of the nation’s major clinical testing laboratories followed, ultimately recovering in excess of $1 billion. Calvin Sims, How a Whistleblower Found Blood Test Fraud, N.Y. Times, December 21, 1992, at D12 (commenting the on the settlement reached in U.S. ex rel. Dowden v. National Health Laboratories, Inc.); Rich Spencer, Blood Testing Labs Pay U.S. $39.3 Million; Agreement Settles False Claims Dispute, Washington Post, September 14, 1993, at A4.
The single largest settlement in the clinical laboratory cases -- $325 million -- arose from three qui tam cases, one filed by a senior billings system analyst for the laboratory, and another filed by a laboratory medical director. U.S. ex rel. Merena v. SmithKline Beecham Corp., 205 F.3d (3rd Cir. 2000).
A qui tam lawsuit filed in 1993 by the former CFO of a Montana hospital against his employers alleging Medicare cost reporting fraud resulted in an $85 million settlement in 2001. U.S. ex rel. Alderson v. Quorum Health Group, Inc., No. 8: 99-CV-413T-23TGW (M.D. Fla.).
In 1998, a national chain of psychiatric hospitals agreed to pay $4.75 million to settle a qui tam suit filed by a hospital nurse manager, alleging that the hospital extended the hospital stays of incapacitated seniors in order to increase Medicare reimbursements. U.S. ex rel. Mettevellis v. Charter Hospital of St. Louis, No. 94-1170-CV-ORL-22 (M.D. Fla.).
A former Vice President of a home health care company filed a qui tam case in 1997 against his employer and a national hospital chain alleging that they made claims to Medicare for non-reimbursable marketing activities. In 1999 the home health company agreed to a $51 million settlement and $10 million in criminal fines. In 2000, the hospital chain settled this and a number of other qui tam cases for $745 million. U.S. ex rel. McLendon v. Columbia/HCA Healthcare Corp., No. 97-CV-0890 (N.D. Ga.); No. 99-3295 (D. D.C.).
In 1998, the CFO of a Florida hospital turned in his employers after they responded inadequately to his reports that certain management fees submitted to Medicare for reimbursement were inflated. His qui tam case against the hospital chain and a management company recouped $16.5 million from the management company, with litigation against the hospital chain ongoing. U.S. ex rel. Parslow v. Columbia/HCA Healthcare Corp., No. 99-3338 (D. D.C.).
A qui tam suit filed by a divisional reimbursement supervisor for a national hospital chain against his employer and an accounting firm that helped prepare Medicare cost reports resulted in a $9 million settlement with the accounting firm in 2001, with litigation against the hospital chain ongoing. U.S. ex rel. Schilling v. KPMG Peat Marwick, LLP., No. 98-901 (M.D. Fla.).