A Brief History of the FCA
The FCA was originally enacted in 1863 to combat massive fraud by government contractors during the American Civil War. Under the FCA, any person who knowingly presented, or caused to be presented, a false or fraudulent claim for payment or approval to an officer or employee of the United States could be liable both criminally and civilly, subject to significant penalties, and assessed three times the amount of damages the government sustained. In addition to its draconian penalties, a distinctive feature of the FCA is the unusual procedure under which its civil enforcement actions may be pursued. Since its inception, the FCA has permitted two separate entities to initiate a civil action against an alleged false claimant: (1) the government itself and (2) a private person (relator) on behalf of the person and on behalf of the United States. When a relator initiates the action, that is known as a qui tam suit.
Congress intentionally included qui tam provisions in the FCA to accomplish two purposes: (1) supplement the government’s limited federal law enforcement capabilities and (2) encourage whistleblowing—the process of insiders coming forward and “blowing the whistle” on companies and individuals defrauding the government. In exchange for a relator’s willingness to help protect the federal treasury from fraud, relators that prevail in their lawsuits are entitled to recover a portion of the proceeds. Unsurprisingly, Congress’s empowerment of whistleblowers worked. Qui tam actions quickly became popular, and by World War II, qui tam actions under the FCA were so prevalent that relators successfully recovered hundreds of thousands of dollars on behalf of the United States.
Despite the success of qui tam actions, the qui tam provisions of the FCA have consistently been attacked on various fronts. In the early 1940s, US Attorney General Francis Biddle filed an amicus brief in United States ex rel. Marcus v. Hess, challenging the FCA’s qui tam provisions. His challenge at the Supreme Court was ultimately unsuccessful, but he remained steadfast. Next, Biddle took his complaints about FCA qui tam actions to Congress. There, Biddle was able to get the FCA language modified to eliminate the then-guaranteed 50 percent bounty for successful relators in favor of a significantly reduced recovery. These changes effectively destroyed qui tam as a fraud-fighting tool for the next 40 years. It was not until Congress yet again began receiving alarming reports of fraud, waste, and abuse from the Defense Department in the mid-1980s that the FCA’s qui tam provisions were revisited.
In 1986, the FCA was amended again, and this time with several revisions meant to revive the previous partnership between government prosecutors and whistleblowers. Between the increase in penalties, damages, relator recovery percentages, and enhanced whistleblower protections, Congress’s intent was again achieved.
That is not where the FCA’s story ends, however. Quite the contrary. The more successes the FCA achieves, the harder its adversaries try to tear it down. Major defense contractors have banded together and lobbied Congress for policies enabling self-policing instead of costly qui tam actions as a mechanism for limiting fraud; health care associations have lobbied Congress for revisions to the FCA for violations involving medical programs; and defense lawyers have levied numerous challenges against the FCA, the most recent of which have pried the door open to a discussion of the constitutionality of qui tam actions.
Chipping Away at the Government’s Strongest Fraud Enforcement Tool
After multiple legislative amendments, various judicial challenges, and inconsistent government enforcement, the FCA and its qui tam provisions still seem to be the government’s best defense against rampant fraud involving government spending. That said, recent constitutional challenges to the FCA’s qui tam provisions are gaining traction, which suggests the FCA’s good fortune may be running out.
In 2023 in United States ex rel. Polansky v. Executive Health Resources, the US Supreme Court upheld the government’s ability to dismiss an FCA suit over a relator’s objection despite the government’s decision not to intervene at the outset of the case, instead intervening at the end. However, in a dissent authored by Justice Clarence Thomas, he invited a barrage of constitutional challenges to the FCA’s qui tam device when he argued the Court should have remanded the case for consideration of arguments that “the [FCA’s] qui tam device is inconsistent with Article II [regarding Executive branch authority to enforce the laws] and that private relators may not represent the interests of the United States in litigation.” The fact that Justices Kavanaugh and Barrett agreed with Justice Thomas’s position that federal courts should reexamine the constitutionality of the FCA’s qui tam provisions strongly signaled an impending watershed moment for the FCA.
Arguably that moment came to a head on September 30, 2024, when Judge Kathryn Kimball Mizelle of the US District Court for the Middle District of Florida handed down her decision in the Zafirov case. In Zafirov, the relator filed an FCA suit against various corporate entities, alleging that these entities made misrepresentations to Medicare regarding patients’ medical conditions. Defendants, heavily relying on Justice Thomas’s dissent in Polansky, argued for dismissal because the FCA’s qui tam provisions violated Article II of the US Constitution. Judge Mizelle, herself a former law clerk to Justice Thomas, agreed with the defendants’ reasoning that relators are “officers” of the United States in qui tam litigation, and, therefore, as required by Article II of the US Constitution, they must be constitutionally appointed. Because relators were not “appointed consistent with the Appointments Clause” of Article II of the Constitution, the relators’ appointment was unconstitutional, and dismissal of the case was the only possible remedy.
While the Zafirov ruling does not apply nationally yet, Judge Mizelle’s decision is already generating conversation about the significant ripple effects it will have on FCA enforcement going forward.
The Future of FCA Qui Tam Actions Post-Zafirov
With the constitutionality of FCA qui tam actions in question, there are several trends that may emerge in this arena.
Increase in Constitutional Arguments
It should come as no surprise that FCA litigators may see an increase in the number of constitutional challenges to qui tam actions for the foreseeable future. The goal of individuals or companies defending themselves against qui tam actions will be to have their actions dismissed or disposed of before the government decides to intervene. And should the Eleventh Circuit ultimately affirm the Zafirov ruling, that endorsement of the constitutional challenge to the FCA’s qui tam device will only encourage defendants in other circuits to raise similar arguments in their own cases.
Increased Reliance on DOJ for FCA Enforcement
Justice Thomas’s entire premise for the unconstitutionality of the FCA’s qui tam provisions is based on the “unitary executive theory”—meaning the president and those acting under him or her are the only ones allowed to exercise executive power. If qui tam provisions are declared unconstitutional under this theory, the DOJ will have no choice but to shoulder the entirety of the burden for civil actions under the FCA. As seen in
Figure 1, a review of new FCA matters over the last 20 years shows that qui tam suits account for between 58.7 and 86.6 percent of cases initiated each year.
Depending on the government’s appetite for maintaining the FCA as its most important tool for combatting fraud, the elimination of the qui tam provisions could necessitate the hiring of additional investigators and prosecutors. However, even with a significant increase in personnel, it is highly unlikely the DOJ will be able to pursue anywhere near the number of cases that qui tam relators initiate annually. Without relators, many qui tam suits the DOJ views as meritorious but unworthy of pursuit because “the government’s costs are likely to exceed any expected gain” will likely be dismissed in favor of pursuing more egregious cases. Losing qui tam relators also means the possibility of a significant reduction in the reporting of bad actors by whistleblowers.
Possible Chilling Effect on Relators and Other Whistleblowers
Unfortunately, FCA litigation can take several years to resolve, and there is no reason to believe that the appeal (and potential remand) of the Zafirov case will be any different. As such, individuals considering whether to initiate a new qui tam action will have yet another risk to consider when deciding whether to report an alleged fraud. There is a real possibility that a year or more down the road, a whistleblower’s qui tam action could be “dead on arrival” if the US Supreme Court upholds Zafirov and the DOJ declines to pursue the case. While the possibility of dismissal has always loomed over relators’ actions, prior to Zafirov, there was still a fair chance relators would be able to pursue their case even if the DOJ was not interested in intervening. However, that hope would likely be extinguished if qui tam actions are found to be unconstitutional. Given that the probability of DOJ intervention in a qui tam case is already low, relators may decide that initiating a qui tam action while the constitutionality question is pending is simply not worth the cost or the risk.
Increase in Fraud Perpetrated Against the US Government
Without whistleblowers, the threat of being discovered and held accountable for defrauding the government is drastically reduced, which usually means an increase in fraud. History has proven this to be true. Before the FCA existed as an enforcement mechanism, fraud against the government was completely unfettered. When the FCA was enacted and qui tam actions were incentivized, whistleblowing increased, monetary recoveries increased, and individuals were legitimately held accountable. After the FCA was amended in 1943, disincentivizing qui tam actions, fraud, waste, and abuse soared once again. The 1986 amendments reinvigorated qui tam actions and accountability and recoveries increased. See Figure 2.
Time and again, qui tam actions have proven to be effective at meaningfully addressing fraud in government spending. Absent some new program or legislation that incentivizes compliance and reporting fraud, expect fraud to swell over time if qui tam FCA enforcement actions are declared unconstitutional.
Creation of New Programs or Legislation to Incentivize Fraud Reporting
While the availability of qui tam actions has been instrumental in rooting out fraud over the past four decades, it is but one of many different mechanisms capable of addressing fraud. Data analytics and artificial intelligence (AI) also have been essential in assisting the DOJ to identify fraud in health care claims and Paycheck Protection Program loans, so FCA practitioners may expect the DOJ to expand its use of these tools to assist its fraud detection capabilities. Practitioners also may see agencies leverage the newly minted Administrative False Claims Act to pursue false claims valued at $1,000,000 or less. Regardless of the government’s enforcement approach, if qui tam actions are ultimately deemed unconstitutional, practitioners should expect the DOJ and Congress to immediately consider, select, and implement new programs or legislation specifically designed to ferret out and incentivize the reporting of fraud.
Conclusion
History offers a stark lesson as to what will happen if the FCA’s qui tam actions are curtailed or eliminated. While the government can successfully recover public funds lost to fraud on its own, its ability to do so is significantly enhanced by whistleblowers. Like it or not, qui tam litigation works as a fraud detection and fraud mitigation device. The DOJ does not have enough independent resources to effectively and efficiently identify, investigate, and aggressively pursue actions against the overwhelming number of perpetrators defrauding the US government and the American taxpayer. If qui tam relators disappear, fraud will undoubtably rise, and the government will be forced to quickly identify creative and flexible solutions to curtail it.
