Executive Summary

The False Claims Act (FCA) today bears little resemblance to the law President Lincoln signed 154 years ago to stop con artists from selling the U.S. Army gun powder barrels filled with saw dust. Today, companies and individuals in all sectors of the economy who do business with the federal government, or participate even remotely in government programs, face a growing common threat: the risk that a whistleblower will label them a modern day huckster for failing to comply with some regulation, triggering a costly and lengthy government investigation and then pursue a lawsuit for treble damages and massive financial penalties.

For the FCA, 2016 was a year of expansion. The year witnessed very significant changes to the way courts apply the FCA. Indeed, the U.S. Supreme Court twice took up issues involving interpretation of its key provisions. On June 16, 2016, the Supreme Court handed down what may prove to be its most significant FCA decision to date. Where the court’s last several FCA decisions focused largely on procedural questions and questions specific to the statute’s whistleblower or qui tam provisions,1 Universal Health Services, Inc. v. U.S. ex rel. Escobar2 presented the court with a vexing circuit split on the breadth of the statute’s core liability provisions. Specifically, the court took up the issue of “implied false certification” liability, a theory that had become a favorite of the whistleblower bar and the U.S. Department of Justice (DOJ) as a means to expose and police violations of rules and regulations that are not explicitly referenced on the face of a claim. The Escobar decision is significant because it both validated and circumscribed the theory, focusing the inquiry on the nature and materiality of particular “implied false certification[s]” in ways destined to increase the scope and complexity of FCA investigations and litigation.

In addition, on December 6, 2016, the Supreme Court assessed the scope of the statutory seal imposed on qui tam complaints while those complaints are under investigation and of the sanctions to be imposed on a whistleblower that violates that seal provision. In State Farm Fire & Casualty Co. v. U.S. ex rel. Rigsby,3 the court held that the FCA does not mandate dismissal of a relator’s suit when the relator discloses the existence of his complaint in violation of the FCA’s seal provision but acknowledged that district courts have discretion to grant dismissal or other sanctions to remedy reputational harm that can flow from such violations.

The development of FCA jurisprudence was not limited to those cases, creating even more issues to be confronted in practically every case. Moreover, the year saw major developments in the enforcement policies and practices of the DOJ and private whistleblower litigation. Potential penalties grew exponentially as a result of little-noticed budget legislation and the threat of individual liability grew as a matter of DOJ enforcement policy. After a dip in FY 2015, FCA recoveries are once again on the rise; in FY 2016, the government recovered almost US$5 billion in FCA cases, its third highest total to date. And, as noted below, even with the change in administration, there is likely to be little let-off in enforcement efforts, particularly in healthcare cases. Whether big or small, all of these changes altered the boundaries of the FCA, triggering new challenges for courts, lawyers and their clients.

Thus, this year is an especially fitting one to launch this review. It captures the collective insight of our experienced internal team who handle dozens of these matters every year, and brings clarity to the chaos of FCA jurisprudence.