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As a lawyer who represents whistleblowers, I have been appalled at some
very unfair criticism levied at False Claims Act cases. Using statistics
such as the ones cited by David Krok in a recent article in the American
Bar Association’s Public Contract Law Journal. In the article
Does Private Enforcement Attract Excessive Litigation? Evidence from the
False Claims Act
, Krok gathered statistics about how few whistleblower cases succeed if
the Government chooses not to get involved in the case. Critics of the
False Claim Act have seized upon statistics such as these to argue that
most whistleblower suits must be frivolous because they do not succeed.
I have been writing a series of legal blog entries about why the criticism
is unfair and unfounded.

How the False Claims Act system works: FCA cases are called qui tam cases, because they are initially filed by
a private citizen, called a relator, on behalf of the Government. After
an investigation period, the Government can elect to intervene in the
case, and take it over, or it can refuse to intervene. In the latter case,
the relator is allowed to proceed with the case on his own, but without
the assistance of the Government. The whistleblower gets a minimally higher
percentage of the amount recovered in the case if he proceeds on his own
without the Government.

The Critics are Wrong. The critique levied at relators bringing cases fundamentally misunderstands
how FCA cases work.

First, on average fewer than 500 False Claims Act cases are filed in the
entire United States in a given year, hardly a figure that suggests a
wild gold rush by relators.

Second, the critics are missing the point. The real issue is that enormous
obstacles face a relator who wants to prosecute the case on his or her
own. Unless the courts adjust some draconian rulings made in recent years,
or Congress steps in to make new rules, the relator has a difficult time
succeeding in these cases.

Third, the statute does not incentivize the relator appropriately. If the
Government intervenes in the case, the relator gets 15-25% of the proceeds
recovered by the Government. And if the relator prosecutes the case on
his or her own, the relator receives only minimally more than he would
have gotten if the Government had taken over the case: 25-30% of what
the Government collects.

Fourth, the risk of going forward falls heavily on the relator’s
lawyer. Seldom is the relator able to fund the litigation on his or her
own. After all, for the most part the relator is a former employee of
the corporation that is being sued – a former employee because he
was fired when he tried to get his employer to do the right thing. Instead,
the relators’ counsel generally must fund the litigation, hiring
expensive experts to explain the case to the jury. Given that the return
is only minimally higher, many relators have a difficult time finding
lawyers who will assume the risk of going forward.

Fifth, often the reason the Government refused to intervene had to do with
the amount of damages, not the merits of the case. If the Government’s
investigation reveals that the damages are not particularly large, the
Government may make a financial decision not to go forward with the case.
In a very large percentage of the cases of which I am aware, the Government
confirmed the fraud, but determined that the damages did not justify the
expenditures. In these cases, the Government essentially determines that
if the fraud is under a certain level, it is “free” to the
defendant, because the cost to the Government of recovering the money
is too high. Of course, if the dollars are not large enough for the Government,
which gets 75-85% of the case proceeds if it chooses to intervene, a 25-30%
share is not likely to entice the relator.

Sixth, because the cases by definition involve mega-corporations with massive
government contracts, the corporations have nearly limitless resources
to devote to the case. The relator, on the other hand, is usually a single
individual – and one who was fired and is out of work, at that.
The relator’s attorney typically works in a very small firm. The
imbalance between the two sides is enormous, and many relators –
and their attorneys, if the attorneys have not litigated large cases before
— fear being crushed in the fight.