This post is authored by Stacy Morris, a partner in LDM’s litigation department.
By Stacy Morris
In earlier posts, we had submitted a four-part series about the False Claim Act (“FCA”), and its ever-expanding reach in light of amendments that were passed as part of the Fraud Enforcement and Recovery Act (“FERA”) of 2009. The FCA generally prohibits making false or fraudulent statements to the government to get government funds. Since FERA, it has become less burdensome, in many respects, for the government to establish violations of the FCA. In False Claims Act Fraud Liability (Without the Fraud), a recent article by Joshua Buchman and Peter Schutzel, the authors focus on the “reverse false claim” provision of the FCA.
While the FCA is typically viewed as imposing potential liability against those who submit a false statement or record in an effort to obtain government funds, the “reverse false claim” provision is triggered when a recipient of government funds avoids an obligation to pay the government. This situation typically arises when a defendant receives an overpayment from a government program. Significantly, liability may attach regardless of why the overpayment was made. For instance, an overpayment resulting from a subtle change to the program rules could form the basis for a FCA lawsuit, as could an overpayment caused by a government clerk’s simple mathematical error.
FERA makes it less difficult to prove not just standard false claims cases, but reverse claims as well. Now, instead of having to prove a reverse claim by establishing that a false record or statement was provided to the government, as was required under the old provisions, it is enough for the plaintiff to show that a defendant’s decision to keep an overpayment was “knowing and improper.” What this term means is anyone’s guess since “improper” is not defined, but commentators have suggested that the term is likely be interpreted in a manner consistent with the FCA’s purpose of serving as a broad tool aimed at combating alleged fraud. We’ve all heard the story of the customer who goes to withdraw cash from the ATM, only to discover that the bank mistakenly deposited $100,000.00 into his account instead of $1,000.00. Under FERA, it is doubtful that the customer who then proceeds to withdraw the full $100,000.00 (justified, for example, by a claim that he assumed it was an inheritance from a long-lost, recently-passed uncle) will avoid liability since the customer likely knew of the overpayment and failed to return it.