FCA's Split Personality Makes Compliance A Moving Target
The False Claims Act ("FCA") is undergoing an identity crisis and entities doing business with the government should take notice. Decisions this year by the First, Fourth, and Seventh Circuits have magnified a split among the federal appeals courts regarding what conduct actually constitutes a false claim under the FCA. At the center of the circuit split is the theory of implied certification, which posits that a contractor or participant in a federal reimbursement program violates the FCA not only when it knowingly presents a false claim for payment for goods or services, but also when it presents a claim for payment that falsely implies it has satisfied underlying contractual, statutory, and regulatory requirements. The problem inherent in the theory of implied certification is defining the behavior that constitutes implied certification.
Whether noncompliance with a contract clause or a statutory or regulatory requirement can be shoehorned into a FCA claim is important for two reasons. First, the implied certification theory gives relators and the government additional bases on which to bring FCA claims, increasing litigation costs for contractors or reimbursement program participants. Second, the damages for an FCA violation can dwarf those for breach of contract. A contractor that violates the FCA is liable for treble damages, for civil penalties of between $5,000 and $10,000 for each false claim submitted, and for the plaintiff's costs. The Supreme Court has characterized the FCA's imposition of treble damages and civil penalties as "essentially punitive in nature," stressing that the higher penalties ensure that "the Government is fully compensated for the costs of corruption," which might otherwise go undetected. United States v. Halper, 490 U.S. 435, 450 (1989). In contrast, it is well established that in an ordinary case, a plaintiff cannot recover punitive damages for a breach of contract.
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