Coming to a State Attorney General’s Office near you
February 6, 2015
The Vermont State False Claims Act Could Be a Game-changer for Vermont Taxpayers and Businesses.
The Vermont False Claims Act, percolating through Montpelier hearing rooms and corridors, has not yet received much attention, but it should. At its heart an anti-fraud, waste and abuse whistleblower statute, the Vermont legislation is the baby sister of the powerful federal False Claims Act, a statute enacted initially to prevent profiteering by defense contractors in the Civil War. Over the many years since, the federal False Claims Act has expanded and developed into a robust tool to recover taxpayer money from contractors and businesses who deal with the federal government.
Triple Damages and $11,000 Per Claim Penalties
The Vermont False Claims Act brings the tools of the federal False Claims Act to bear on those businesses paid in full or in part with state money. What are those tools? The proposed Vermont False Claims Act, like its big brother federal counterpart, imposes stiff penalties for submitting a false or fraudulent claim for payment of public funds: Triple damages and a penalty of up to $11,000 for each false claim for payment. Sometimes those claims for payment are big (a bridge), sometimes they are quite small (a laboratory test). If a business makes hundreds of modest claims for small, routine payments, the penalties can mount into the millions in a heartbeat. So the penalty and damages structure makes the False Claims Act a potent tool to leverage payments back from contractors to the treasury.
A “Reckless Disregard” Standard for Fraud
The definition for what constitutes “false or fraudulent” is important here: not only does the proposed statute cover traditional fraud in which someone intentionally sets out to trick or deceive the government by putting something false in a claim for payment (the bridge was made with a certain kind of steel when the contractor deliberately made it with a cheaper type in order to save money). It also permits recovery when a claim is submitted with “reckless disregard” for its truth or falsity (the defendant was reckless in not understanding that a particular regulation or policy bulletin prohibited submitting a claim for a particular medical procedure in certain circumstances). This is a lesser intent standard than knowing intent to deceive or steal, which is the standard that applies in most criminal or civil fraud statutes. And the burden of proof in this civil law means it only needs to be proven by a preponderance of the evidence – more likely than not.
To make this an even more powerful tool, the proposed state law, like the federal law, contains a “qui tam” provision that lets whistleblowers bring suit based on information they obtain from inside a company. This section permits whistleblowers to file a lawsuit alleging false claims secretly for a period of time to give the Attorney General’s Office the chance to review the claims and join in the suit if it wishes. If the State declines to get involved in the suit, the qui tam plaintiff, called a relator, can pursue the suit anyway. If the State joins the suit and it is successful, the relator is entitled to between 15 and 25 percent of the amount recovered in the lawsuit. If the State chooses not to get involved and the relator wins, he or she gets up to 30 percent of the recovery. The remaining amount goes to the treasury. The relator also is entitled to recover attorney’s fees and costs of the litigation from the defendant in the suit if successful.
A provision in federal law permits Vermont to keep 10% more of any Medicaid funds recovered in federal False Claim Act cases if the state enacts its own false claims law, so there is some incentive for Vermont to enact its own law, like 29 other states of have done.
At the federal level, the False Claims Act and the qui tam provisions it contains have recovered billions for the federal treasury. Used notably against huge health care, pharmaceutical and defense companies, it has been a significant success in many cases. This success has not been without controversy. Many times companies have complained that the potent remedies that the federal False Claims Act contains really mean companies are forced to bargain from a position on the edge of the cliff. The sense of proportion and national perspective a federal prosecutor and federal agency can bring may moderate these concerns to a degree, but there is no doubt the False Claims Act has left many an unsatisfied customer.
What impact will the Vermont False Claims Act have if it is enacted? That depends on the scope of fraudulent contracting really occurring in Vermont, the judgment and wisdom of the state Attorneys General and other attorneys who will be charged with prosecuting the new law if it is enacted, and the ability of the system to separate the wheat of the real fraud from the chaff of accidental inaccuracies and technical mistakes in complex dealings with the State that do not rise to the level of deceit.
The bill, H.120, is currently in the House Judiciary Committee which will be taking testimony for the next several weeks. Regardless of how this story ends up getting written, with enactment of a Vermont False Claims Act, Vermont businesses and taxpayers will be setting forth on a new adventure with a new and very powerful tool in play.