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Whistleblower suits: 'qui tam' actions
By Daryn Pakcyk

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A whistleblower suit, known as a qui tam action, is "[a]n action brought under a statute that allows a private person to sue for a penalty, part of which the government or some specified public institution will receive." People ex rel. Allstate Ins. Co. v. Weitzman, 107 Cal. App. 4th 534 (2003).

The objective of this article and self-study test is to familiarize readers with qui tam actions. Readers will learn about the purpose of these actions, the California and federal qui tam statutes, the parties involved, the jurisdictional requirements, and damages that are recoverable.

Overview

"Qui tam is short for the Latin phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur, which means 'who pursues this action on our Lord the King's behalf as well as his own.'" Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000). The action "ferrets out fraud on the government by offering an incentive to persons with evidence of such fraud to come forward and disclose that evidence to the government." State ex rel. Grayson v. Pacific Bell Tel. Co., 142 Cal. App. 4th 741 (2006).

The plaintiff in a qui tam action is called a relator. Under Weitzman, a relator is "[a] person who furnishes information on which a civil or criminal case is based; an informer." As Grayson determined, "The typical whistleblower 'is unsophisticated in the legal intricacies of fraud law, and ... happens across evidence of fraud during the course of employment.'"

California and federal statutes

California's qui tam law, known as the False Claims Act, is set forth in Govt C Sections 12650 through 12656, as recently amended by Stats, 2012, ch 647, and is intended to "supplement governmental efforts to identify and prosecute fraudulent claims made against state and local governmental entities." State ex. rel. Hindin v. Hewlett-Packard Co., 153 Cal. App. 4th 307 (2007). "The ultimate purpose of the [act] is to protect the public fisc." City of Hawthorne ex rel. Wohlner v. H & C Disposal Co., 109 Cal. App. 4th 1668 (2003). "To that end, the [act] must be construed broadly so as to give the widest possible coverage and effect to its prohibitions and remedies." LeVine v. Weis, 90 Cal. App. 4th 201 (2001) (overruled on another point in Wells v. One2One Learning Found., 39 Cal. 4th 1164).

Title 31 of the United States Code, Sections 3729 et seq. is the federal counterpart to California's False Claims Act. In fact, the California statute is patterned after the federal law. As City of Pomona v. Superior Court, 89 Cal. App. 4th 793 (2001) held, given the "very close similarity ... it is appropriate to turn to federal cases for guidance in interpreting the act."

Filing guidelines

Under Govt C Section 12652(c)(1), "A person may bring a civil action ... if any state funds are involved, or for a political subdivision in the name of the political subdivision, if political subdivision funds are exclusively involved." Government Code Section 12651(a)(1)-(8) sets forth the acts by a person on which a qui tam action may be based. These include an action against one who "knowingly presents or causes to be presented a false or fraudulent claim for payment or approval," or "knowingly makes, uses, or causes to be made or used a false record or statement material to a false or fraudulent claim."

"[A] qui tam complaint under the [act] must be filed under seal, and immediately must be served, along with a written disclosure of all material evidence and information the qui tam plaintiff possesses, on the Attorney General. Govt C [Section] 12652(c)(2), (3). If political subdivision funds are involved, the Attorney General must forward these materials to the local prosecuting authority within 15 days. Govt C [Section] 12652(c)(7)(A). The complaint must remain sealed for up to 60 days after filing, with additional extensions available upon timely application, while the Attorney General or local prosecuting authority investigates and decides whether to intervene. Govt C [Section] 12652(c)(2), (4), (6), (7). During this period, the complaint must not be served on the defendant. Govt C [Section] 12652(c)(2), (4), (6), (7). Once a qui tam action is filed, it cannot be settled without the consent of the court, 'taking into account the best interests of the parties involved and the public purposes behind [the act].' Govt C [Section] 12652(c)(1)." Wells v. One2One Learning Found., 39 Cal. 4th 1164 (2006). Under Wells, the seal is intended to make sure the action does "not alert wrongdoers, prior to intervention by the government, that they are under investigation."

Jurisdictional guidelines

The California False Claims Act "erects a jurisdictional bar to qui tam actions that do not assist the government in ferreting out fraud because the fraudulent allegations or transactions are already in the public domain." Grayson, 142 Cal. App. 4th at 748. "The court shall dismiss an action or claim ... unless opposed by the Attorney General or prosecuting authority of a political subdivision, if substantially the same allegations or transactions ... were publicly disclosed." Govt C Section 12652(d)(3)(A).

To determine if the qui tam action may proceed, the court must ask "(1) Have allegations made by the relator been 'publicly disclosed' before the qui tam suit was brought? (2) If so, is the qui tam suit 'based upon' the public disclosure? and (3) If so, was the relator an 'original source' of the information on which the allegations were based? Jurisdiction exists only if the answer to one of the first two questions is 'no' or the answer to the third question is 'yes.'" Minnesota Ass'n of Nurse Anesthetists v. Allina Health Sys. Corp., 276 F.3d 1032 (8th Cir. 2002) (citation omitted).

The statute of limitations begins running from date the relator knows or reasonably should have known the facts material to the action. Debro v. Los Angeles Raiders, 92 Cal. App. 4th 940 (2001). Generally, any pleading filed by the Attorney General or prosecuting authority "shall relate back to the filing date of the complaint of the person who originally brought the action." Govt C Section 12654.5.

Previously disclosed information

A court lacks jurisdiction whenever a complaint makes allegations that are "similar to" information that was publicly disclosed. U.S. ex rel. Grynberg v. Praxair, Inc., 389 F.3d 1038 (10th Cir. 2004); U.S. ex rel Bledsoe v. Community Health Sys., Inc., 342 F.3d 634 (6th Cir. 2003); Mao's Kitchen, Inc. v. Mundy, 209 Cal. App. 4th 132 (2012). It is not necessary that the information concerning allegations be potentially accessible to any member of the public, only that it be accessible to some members of the public, in order to be considered publicly disclosed. U.S. ex rel. Doe v. John Doe Corp., 960 F.2d 318 (2nd Cir.1992). As the Court of Appeal stated in Weitzman, "the general purpose of the jurisdictional bar ... is, to prevent qui tam actions brought by persons who ... simply copied allegations from a criminal indictment on file, learned of the specific fraudulent conduct at issue through public channels, and who had not contributed or assisted in a material way in exposing the fraud."

A relator can be a "parasite" to her own earlier filed action if the later "allegations or transactions" are "based upon" the earlier filed complaint. U.S. ex rel. Reagan v. East Texas Med. Ctr. Reg'l, 384 F.3d 168 (5th Cir. 2004) (relator's earlier state court lawsuit for wrongful termination was a public disclosure for purposes of later filed qui tam action); U.S. ex rel. Jones v. Horizon Healthcare Corp., 160 F.3d 326 (6th Cir. 1998) (relator who filed whistleblower complaint under Michigan law had made a public disclosure for purposes of later filed qui tam complaint); and State ex rel. Standard Elevator Co. v. West Bay Builders, Inc., 197 Cal. App. 4th 963 (2011) (relator's earlier cross-complaint constituted a public disclosure). In this instance, under Minnesota Ass'n of Nurse Anesthetists, the subsequent lawsuit can proceed only if the relator is the original source.

Under Govt C Section 12652(d)(3)(C), an original source means an individual who either "has voluntarily disclosed to the state or political subdivision the information on which allegations or transaction in a claim are based," or has "knowledge that is independent of, and materially adds to, the publicly disclosed allegations or transactions, and has voluntarily provided the information to the state or political subdivision before filing an action."

"Relators found to have direct and independent knowledge are those who actually viewed source documents or viewed firsthand the fraudulent activity that is the basis for their qui tam suit." U.S. ex rel. Lam v. Tenet Healthcare Corp., 287 Fed.Appx. 396 (5th Cir. 2008). A whistleblower has direct knowledge when she did not learn of the fraud from any secondary source, be it another document or another person. U.S. ex rel. Grynberg v. Praxair, Inc., 389 F.3d 1038 (10th Cir. 2004). Thus, whistleblowers must be either "close observers or otherwise involved in the fraudulent activity." U.S. ex. Rel. Atkinson v. Pennsylvania Shipbuilding Co., 473 F.3d 506 (3rd Cir. 2007). The fact that the relator knows of the fraud before the public disclosure establishes independence. U.S. ex rel. Laird v. Lockheed Martin Eng'g & Science Servs. Co., 336 F.3d 346 (5th Cir. 2003). Independent knowledge is not secondhand; rather, a relator needs to establish that she discovered the information on which the allegations are based through her own efforts and not "information of others, even if those others may qualify as original sources." U.S. ex rel. Fine v. Advanced Sciences, Inc., 99 F.3d 1000 (10th Cir.1996).

For purposes of Govt C Section 12652(d)(3)(C), information on which the allegations are based refers to allegations in the original complaint as well as any allegations in subsequent amendments to the complaint. Rockwell Int'l Corp. v. U.S., 549 U.S. 457 (2006). The term "information" means "information on which the relator's allegations are based rather than the information on which the publicly disclosed allegations that triggered the public-disclosure bar are based." U.S. ex rel. Baker v. Community Health Sys., 709 F. Supp. 2d 1084 (D.N.M.2010).

Damages

A governmental plaintiff may recover three times damages, costs, and a penalty of up to $11,000 for each violation. Govt C Section 12651(a). If the governmental agency does not pursue the action, a qui tam plaintiff may file a civil action on behalf of a governmental agency. Govt C Section 12652(c)(1), (f)(1). "Indeed, this prospect of reward may be the only means of inducing such private parties to come forward with their information." State ex rel. Harris v. PricewaterhouseCoopers, LLP, 39 Cal. 4th 1220 (2006).

A qui tam plaintiff may "receive an amount that the court decides is reasonable for collecting the civil penalty and damages on behalf of the government. The amount shall not be less than 25 percent and not more than 50 percent of the proceeds of the action or settlement and shall be paid out of these proceeds." Govt C Section 12652(g)(3). If the state or political subdivision proceeds with an action brought by a qui tam plaintiff, the qui tam plaintiff "receive[s] at least 15 percent but not more than 33 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the qui tam plaintiff substantially contributed to the prosecution of the action." Govt C Section 12652(g)(2).

As discussed by Wells, the False Claims Act "specifies recovery of double or triple the amount falsely received. Govt C [Section] 12651(a), (b). From this total amount, the Attorney General, local prosecuting authority, and/or qui tam plaintiff, receive percentage 'cuts' (Govt C [Section] 12652(g)(1)-(5)), with the remainder 'revert[ing] to the state [or] the political subdivision' (Govt C [Section] 12652(g)(6))."

Daryn Pakcyk is a research attorney in the Los Angeles County Superior Court.

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