Address to the 6^th ABA
National Institute on the False Claims Act,
June 15, 2006
 By James Moorman

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Thank you for that kind introduction.  It’s a pleasure and an honor to be able to address the American Bar Association’s 6^th Institute on the False Claims Act.  The ABA Institute has been, since its inception, a key educational forum in the world of the FCA.  Jack Boese is to be congratulated for his efforts over the years that have made it a success.

When Jack asked me to do this talk, he told me I was his second choice.  He said Peter Keisler had been lined up to give this talk, but had bailed out.  So Jack inquired if I objected to being second fiddle.  I said no, not at all, that I always take every opportunity I am given to fiddle around. 

When I asked what Peter’s excuse was, Jack was a gentleman and wouldn’t go into it.  But though Jack said nothing, I sensed that he didn’t think Peter’s excuse was adequate.  Without even knowing what Peter’s excuse was, I can say that Jack was almost certainly correct.  

I say that because I know something about adequate excuses.  I was once invited to be on a morning TV talk show.  I was to be on at 8:30 and I was told to be there at 7:30.  I actually showed up at 7:15 and was put in a little room and waited and waited and … waited.  Just when I was about to go look for someone to find out if I had been forgotten, a woman burst into the room and said:  “Oh, Mr. Moorman, I’m so sorry, but we won’t be able to go on this morning.  Our producer just died of a heart attack.”

Now that’s an adequate excuse!

Jack described me as the president of Taxpayers Against Fraud and said a few words about TAF, but what he didn’t say was that TAF receives numerous calls from potential relators seeking information about the FCA.  They want to know how the act works, whether they have a claim, do they need a lawyer and how do they find one and pay for one, is their employer going to find out if they file suit, what happens after they file, how long will it take, what are they likely to get when it’s all over, and things like that.  My colleagues at TAF and I have many such conversations and, as a result, we’ve become familiar with the problems relators face.  

I assume that most of you in the audience represent or work for defendants or potential defendants or for government and that only a small percentage of you represent relators.  For that reason, I’m guessing that most of you haven’t given much thought to the difficulties relators face and what it says about relators as a group that they persevere in the face of their difficulties.   However, I believe it’s important for all lawyers in the FCA field, whomever they represent, to understand relators’ problems.  Relators are, without question, key players in this arena, and if you are a professional in this field and don’t  “get” the relators situation, then you don’t fully understand what you are dealing with. For that reason, I thought it would be appropriate to walk you through some of the problems relators face.

I start by noting that the problems relators face are daunting and the path of relators is difficult and filled with traps.

Woody Allen has noted that in every life, we all come to a fork in the road. 

One fork leads to despair and utter hopelessness. The other fork, leads to total extinction.

Woody suggests that we pray for the wisdom to choose carefully.

I mention Woody’s black humor because he describes the choice relators often face.

Am I exaggerating?

Let’s look at the numbers.

Every year about 400 federal qui tam cases are filed, but only 80 or 90 or so are successfully resolved.  According to the Department of Justice’s statistics, starting with the 1986 amendments to the FCA through the end of fiscal year 2005, 5,129 qui tam suits were filed, but only 990 were successfully resolved.

You can do the math.  The bottom line is that only about 20% of qui tam cases succeed.

Eighty or ninety successful cases a year.  That’s not a lot, especially when one considers the amount of money that is spent by the federal government on goods and services every year.

Now we know the number of successful cases isn’t so low because fraud is rare.  No, fraud is not rare.  It’s because it’s so very hard for relators to win a False Claims Act case.

As we look at why that is, I invite you to sit in the chair of a potential relator and ponder the choices from that perspective. 

Assume you are 32 years old, you are bright and that you have done well in school. 

Let’s say you have an MBA and your mother is proud of you.

After your first year of employment you received the maximum raise and a glowing review from your boss. 

You’ve been promoted and included in a new division that has a huge federal contract.  You are a project leader and you have five employees working for you on part of this huge federal project.

Life is grand. 

A year or so passes and then, one day, you discover that your division’s bills for your team’s work are significantly inflated. Hours, pay rates, number of employees -- all inflated.  It appears the bills are forty percent beyond what they should be.  You gingerly poke around and come to the conclusion that similar misbilling characterizes the entire project and you estimate that at least $60 million of fraud is involved.

You’re shocked.  So what are your options?  You immediately consider: 

Option One:  Go along with it. 

Many people do this.  It’s the old  ‘go along to get along’ option. 

In the real world, most people follow the herd, even when they don’t like where the herd is taking them. 

In almost every company that gets nailed under the FCA, you find a culture of going along to get along.

But it comes with a cost, especially if you value your self-respect.

So let’s assume that you have some character and that you, for your own self-respect, just can’t be a part of a fraud.  You’re not going to go along to get along.

You quickly figure out that the easiest thing for you to do is:

Option Two:  Leave.

Many people take this option.  They simply leave.  They keep their own counsel, button their lip, update their resume, and find another job as quickly as possible.

This is often what someone does when they have a spouse, a mortgage and a couple of kids in school.

But this option also comes with costs: the disruption of leaving and also the self-knowledge that you did nothing but run away.
 

So let’s further assume you’re one of those people with a lot of character and that you want the fraud to stop and you won’t feel right about yourself unless you have done your bit to stop it.  You figure out that you can take:

Option Three:  Report the Fraud.  

Some will call a government tip line in order to report the fraud, but generally nothing comes of that.  The odds that the government will launch an investigation with regard to any one tip is very, very low. 

A second way to report is to go to your superior, or to your firm’s compliance officer. What frequently happens next in such situations, especially if, as appears here, a big business-plan fraud is involved, is that the reporting employee is, one way or another, out of his or her job.

Those that receive the information of fraud may express concern.   Others may join in to hear all about the problem with apparent concern as well. 

But sooner or later, the whistleblower is reorganized out of their job.  If they’re lucky, they’re given a severance package.

Perhaps that happened to you, or perhaps you were alert enough to notice that these things happened to others at your company, so you didn’t report the fraud. 

Let’s pause here a second and observe that for anyone offended by fraud, options 1, 2, and 3 all come up short. 

So, if we assume you are one of those people who are determined to see that the right thing is done, that you are overflowing with character, you look for more alternatives and you search around and find:

Option Four:  The False Claims Act

You study the FCA as best you can.  Unlike options 1, 2, or 3, this option appears to be effective.  You’re excited.  You seek to find out more. Perhaps you call TAF to see how it works.  Perhaps you even talk to moi.

I or someone else confirms for you that the FCA is an effective option, but we also alert you to some of the difficulties you’ll face:

*       If it’s me you talk to, I tell you that if you haven’t already lost it, you are correct in believing you might well lose your job. 

 
*       I tell you most cases don’t succeed.   

*      I tell you it could take quite a while -- years.

*     I tell you about isolation -- that you can’t talk about your case except to your legal team.

*     Oh yes, I tell you you’ll need a lawyer and that you’ll be working with this lawyer for however long it takes.

*      I tell you this could be quite stressful for you and your family.

But your case seems like a very good case to me and I tell you, based on what you have told me, that you’re in the ball park, and you, being one of the dauntless ones, weigh the risks as acceptable and proceed to become a relator. 

So what can go wrong?  Well to begin with let’s suppose:

1.  You get an inexperienced lawyer.  There are exceptions, but lawyers representing relators always seem to muck up their first FCA case.  If you’re lucky, yours will associate an experienced lawyer to help steer the case.  If you’re unlucky, he’ll just proceed and then, sometime, years later, you’ll find yourself in the legal equivalent of a glider wreck.

There are many ways an inexperienced lawyer can disserve his relator.  For example, he can fail to understand what must be done to comply with Rule 9(b). That’s common.  I’ve heard of many stranger things, such as a lawyer who didn’t serve the government, another that named himself as relator, rather than his client, and one that dismissed his case at an AUSA’s suggestion so the government could investigate, and on and on.  These things seem incredible, but they happen and when they do, they ruin a relator’s case.

2.  At the end of the day, the case recovers very little of the money that was stolen.

This could happen for several reasons.  The company simply can’t afford to pay or goes bankrupt.  Or the extent of the fraud turns out to be much smaller than you thought.  Or, DoJ, for “litigation risk” reasons, settles really cheap.  Thus, you spend seven years of your life, lose your employability in your chosen field, are reduced to flipping burgers, and you walk away with, say, $30,000

3. You were not the first to file.

For example, suppose you find out – two years after filing your case and after spending much time and money – that you were not the first to file.  Woops!

That $60 million claim you thought you had?  It’s someone else’s.  If you have an astute attorney, he may salvage something.  But don’t count on it.

4.  A public disclosure becomes an issue and you are found not to be an original source.

This is a complicated subject with many wrinkles and no doubt the subject of a panel at this Institute.  I won’t go into it, but it can emerge as an issue long after you filed.  If it does, too bad.

5. The government leaves the case under seal for years.

And what is worse, the government may not communicate much with your attorney.

Time marches on, but your case does not march with it.  All your good work has gone into limbo.  Perhaps your case has actually being investigated.  Or, perhaps your case file has simply gathered dust in some investigators office.

What do you do?  Wait or go to the judge?  Neither option is appealing.  I talked to a lawyer last month who told me he has had a case under seal for eleven years.  Nothing is harder on a relator than this situation.  It is like slow death.

6.  The government declines your case.

After three years, you get a call from your lawyer.  Your case has been declined.

The government may have discovered, for one of a number of reasons, that your case has a major defect.  So, after three years, you learn you might as well drop the matter.  Not good, but at least, the waiting is over. 

Sometimes a federal agency is embarrassed by the fraud and would just as soon bury it.  If a False Claims Act case goes forward, everyone from Congress on down is going to read about how stupid this agency was. DoJ can’t do much if the client agency won’t cooperate, but Justice won’t tell you that.  It’ll be one of those “You may have a good case, we just don’t have the resources to pursue it” things.   You are left wondering if this is perhaps a signal that DoJ really wants you to proceed. Your dilemmas multiply.

7.   The government declines, says you may have a good case, you pursue the case, but the defendant fights hard.

The question is, can you see the case through without the government?

In truth, a big hospital, or defense contractor, or oil company engaged in massive fraud against the federal government has all the resources it needs to defend the fraud through protracted litigation. 

In contrast, most of the relators’ firms are small outfits with just one, two or three lawyers juggling a full caseload.  They don’t have the resources to proceed alone.  However, they can recruit other lawyers to help out if they can persuade them that your case is worth the extended fight.

You are represented by one of those solo practitioners.  Your lawyer makes the effort but, for whatever reason, can’t attract the additional help necessary to pursue the case.  And so, it’s over.

8.  The Government changes its mind, but...

Let’s say your lawyer does persuade a larger firm to join the effort and you proceed.  Then after years of struggle, you get GOOD news:  You’ve developed good evidence, your lawyer has been great, and the government, after initially declining, has decided to join the case.

Then, after a while, you get the BAD news:  The government insists on settling the case for only $1 million.

One million?  What’s wrong with that?  One million is not an uncommon FCA settlement.

Putting aside the big problem that the taxpayers are big losers if the government settles for only a tiny fraction of what’s been stolen, it means you, as the relator, don’t get enough to compensate you for what you have been through.  Assume you get the average relator’s award, 16%. That works out to be $160,000. 

You will have to split this with your lawyer and the IRS. That means your take home share of the settlement is going to net out at about $80,000.  That would be a nice amount in another context, but not here.

After seven years of litigation over what you know is $60 million in fraud, the fraudster got away with $59 million and you got $80,000.

You toasted your career, you lost your home and your wife and family, and the $80,000 is not even enough to pay your back alimony and child support.

But it could be worse.

9.  The government says you can only have 5%

Let’s say the Government joins the case, but at the end of the day, DoJ takes the position, for any of a number of reasons, that you are only entitled to a reward for 5% of the $1,000,000 settlement, or $50,000, which nets you only $25,000. 

Can you do anything about it?  It’s problematic.  The choices are difficult and often the answer is to swallow hard and take the crumbs.

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These are just some of the ways that things go wrong for relators and why being a relator is not easy. 

And yet, despite everything, relators are bringing back over a billion dollars a year to the United States, and lesser, but significant amounts to the states.

Since the FCA Amendments of 1986, the U.S. Government has recovered more than $16 billion. 

In the health care arena alone, $15 is returned for every dollar the government invests in FCA cases. 

The False Claims Act has been successful enough that 15 states have passed similar laws, and more are being added every year. 

It really is amazing to see what the government accomplishes with relator-initiated cases.  It is a difficult process, but it works.

Despite how much has been accomplished with so few cases and how hard it has been to achieve what has been accomplished, I have been surprised of late to hear complaints from critics about relators’ awards.  “My God,” say the apologists for fraudsters, “these whistleblowers are nothing but bounty hunters.  They are all greedy.  Their awards are ‘Out of Control’”

The critics’ solution?  To cap relators’ awards at some low number.

But, will there be a cap on the amount of money a company can filch from the U.S. Government and the taxpayers?

I don’t think so.

The effect of any cap on relators’ awards would be to make what is now very difficult, very uninviting. The critics are no doubt aware of this.

Qui tam cases would dry up and the fraudsters would be much relieved.

Does this make any sense/?

We know fraud hasn’t gone away.  Indeed, we’re all aware of a number of large problem areas.

Billions have disappeared in Iraq.

Billions are lost to the Medicaid and Medicare programs.

Billions seem to have sunk into the swamps around New Orleans.

We also know that the FCA retrieves money taken from the government by fraud.

And I should also mention that we know that the False Claims Act cases are not just about money.

They’re also about the victims of defective bulletproof vests -- the victims of dishonest medical research and the victims of ineffective drugs -- the victims of crashes of Chinook helicopters with defective rotor gears -- schools cheated out of their computer equipment -- abused nursing home residents.

The FCA has not been able to end our fraud problems, but so much has been done under that act, and at such great odds. 

And there is no doubt that the current reward incentives have been the key to encouraging relators to come forward with the regularity they do today.  Because of how difficult it is to succeed as a relator, without the current award structure, it would be senseless to bring qui tam cases. Potential relators would soon figure that out

Those who would criticize relators and undermine their incentives are really just carrying the water of those that want everyone to go along to get along.  The critics have a moral obligation to explain why that would be a good thing.  But we never hear such an explanation from the critics. No, what we hear is only the denigration of the righteous; those who act to stop fraud.

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