Why Companies and Institutions Should Fear False Claims Act Lawsuits When Signing Coming Federal Contract and Grant Certifications

OutSolve has invited John C. Fox, Esq. as a guest blogger providing legal insights on EEO and compliance issues. The views expressed in his posts are his and do not reflect the viewpoint of OutSolve or its employees.

PRACTICE TIPS: How To Reduce Your Risk of FCA Lawsuits 

 SYNOPSIS: 

1. You will find, below, the legal authority springing from the federal False Claims Act (FCA) that the SCOTUS has recently (unanimously) interpreted to require those certifying federal contracts and grants to affirmatively make inquiry and evaluate the facts and law underlying the statements being certified as true BEFORE certifying (blind guessing in good faith no longer counts);  
2. The two new Trump non-discrimination and anti-DEI certification clauses are not yet published (see my separate OutSolve Update on the text of those certification requirements and the current status of those certifications). However, contractors, subcontractors, and grant recipient companies and institutions need to start NOW to eventually be positioned to properly certify their non-discrimination requirement when the time is ripe to do so. “Time’s a wastin’.” You cannot undertake the needed evaluations and inquiries overnight or typically even in the next month. Starting tomorrow is not advised. Your contract/grant RFP will not wait once it pops up for competition.  
3. The Disparity Analyses and Adverse Impact Analyses and other employment system evaluations federal contractors always undertook as a subcomponent part of their former Affirmative Action Plans for Minorites and Women pursuant to Executive Order 11246 should be continued and expanded in their scope. I separately described what contractors, subcontractors, and grant recipients need to do in these two recent OutSolve Blogs: 
   
   
   • "Part 1: Actions Federal Contractors and Grantees Should Take Now to Certify Their Federal Contracts & Grants" 
   • "Part 2: Actions Federal Contractors and Grantees Should Take Now to Certify Their Federal Contracts & Grants”  

 There are three primary ways to avoid a False Claims Act (FCA).  

1. Do not: 
   1. “knowingly” (wait until you see how the FCA defines that word!) submit a false claim to the federal government; and/or 
   2. cause another to submit a false claim to the federal government; and/or 
   3. knowingly make a false record or statement to get a false claim paid by the federal government; and/or 
2.  employ disgruntled employees; and/or 
3.  terminate the employment of disgruntled employees. 

Beware of Unlawful Retaliation of Employees!

While my two references above to disgruntled employees are playful and “tongue-in-cheek,” I mention these employees since “whistleblowers” file the majority of FCA claims and lawsuits and also have many legal rights. In turn, FCA whistleblowers are primarily current or former employees (who know “where the bodies are buried”) and who file a claim or lawsuit on behalf of the federal government agency that signed the contract or grant seeking in exchange a portion of the damages the federal government incurred because of the false claim(s). 

NOTE: The FCA also covers federal “subcontracts” and grants. While this is often a surprise to federal grantees, it is very straightforward: federal grant agencies deliver grants, more formally known as “Federal Financial Assistance,” by what means?...by way of a “contract.” A federal contract is the “envelope” which delivers the “grant.” 

The FCA, almost uniquely, provides a financial “finder’s fee” to private parties who can be off-the-street members of the public, including employees and former employees of a company or institution accused of an FCA violation (unless the claimant made the false claim). The FCA calls these “qui tam” claims. That is a shorthand reference to the full Latin phrase “qui tam pro domino rege quam pro se ipso in hac parte sequitur.” While this phrase almost transparently translates itself, it means “he who sues in this matter for the king (i.e. he who governs) as well as for himself.”  So, qui tam whistleblowers are suing on behalf of the federal government to obtain a portion of the damages for having come forward to alert the federal government and the public that the federal government has been/is being financially snookered in a federal contract or grant. 

PRACTICE TIP: In trying to avoid FCA claims, do not set yourself up for other employment law legal trouble by taking adverse action against whistleblowers trying to exercise legal rights to complain that state and federal laws have provided. Remember, “retaliation” has been for several years now the most common EEO Charge employees have filed with the EEOC. In the most recent Fiscal Year (FY 2024) for which enforcement data are available, almost half (42,301) of the 88,531 Charges filed with the EEOC involved a claim of “retaliation.” Moreover, the EEOC recovered almost one-third ($308,000,000) of a Billion Dollars in financial damages from employers that were paid to Charging Parties who claimed their employer unlawfully retaliated against them JUST LAST YEAR! See EEOC FY 2024 Enforcement and Litigation Statistics.  

PUNCHLINE: Don’t jump out of the FCA “Frying Pan” into the retaliation “Fire” or else you could get burned twice. 

If you want more detail on the FCA, read this wonderfully written piece from the U.S. Department of Justice (which would never reveal that a lawyer wrote these easy to understand prose): The False Claims Act: A Primer. A copy of the current version of the FCA also appears at the end of the USDOJ FCA Primer but you may also otherwise find the statute at 31 USC 3729.  

IMPORTANT: The three most common types of FCA claims are: 

• Medicare and Medicaid fraud; 
• contract kickbacks (typically among suppliers or contract competitors artificially running up the cost of the federal contract/subcontract/grant); and 
• false certifications of compliance with government contract terms and conditions.  

WAIT! WAIT! WAIT! Not so fast. Roll back that last sentence identifying the three most common FCA claims made each year: 

“false certifications of compliance with government contract terms and conditions.” 

Now you know why I wanted you to read this Blog (apart from the new SCOTUS interpretation making you become knowledgeable BEFORE you certify). 

The FCA’s “Knowing” Requirement Requires an Affirmative Investigation Prior To Certification:

The FCA’s “Knowing” definition is not the Webster’s Dictionary definition of the term “knowing.” You must always read the “definitions” section of any statute or regulation to find out what mischief lawyers have poured into the legal recipe for that rule of law. Lawyers have always had fun with words. That was true even before Bill Clinton’s perfectly correct explanation to the Grand Jury investigating his relationship with Monica Lewinsky that the word “is” is a complicated word, but whatever it means, “is” does not mean “was” or “never was.” The FCA is Exhibit 1 demonstrating the Washington D.C. art of twisting words like warm pretzels.  

The FCA has a three-part definition of the terms “knowing” and “knowingly” addressing three different contexts. While most of you reading this will immediately assume that “knowing” has (only) the first definition, claimants and plaintiff lawyers are hoping you will ignore the second and third definitions they like (so they may catch you unaware).  

Spoiler Alert: As a practical matter, it is the second definition you need to be ready to satisfy because it imposes liability for purposely abstaining from inquiring into the facts before certifying false statements. The Hogan’s Heroes “Sergeant Schultz defense” (“I see nothing. I hear nothing. I know nothing.”) does not work as a defense to FCA claims.  

Before making a certification to obtain or renew a federal contract or grant, the contractor or grant recipient must, these days, undertake an affirmative investigation of the facts and applicable law to support and justify your certifications.  

In other words, you cannot just sit at your desk with your back to the vault, put a blindfold on, and certify on a federal contract or grant form that “No crimes have been committed at this bank” even as the bank robbers are tip-toeing past your desk after having taken all of the cash out of the vault while you were not looking.  

NOTE: It is NOT what the person making the certification knows: it is what the company or institution as a whole knows.  

Here is the FCA’s three-part definition of the two ”knowing” words in the statute: 

“b) Definitions.-For purposes of this section- 

1. (1) the terms "knowing" and "knowingly"- 
   1. mean that a person, with respect to information- 
      1. has actual knowledge of the information; 
      2. acts in deliberate ignorance of the truth or falsity of the information; or 
      3. acts in reckless disregard of the truth or falsity of the information; and 
   2. require no proof of specific intent to defraud…” 

Here is the breakdown of that legal jargon, which, significantly tracks the English “Common Law” definitions of fraud. (The English Common Law throwback is significant because that means our federal courts are going to go back into musty Common Law case decisions from England to understand the Common Law, as our U.S. Supreme Court is (very) fond of doing, now and in the past). 

So, you want to know whether your certification of non-discrimination would be in “deliberate ignorance of the truth or falsity of the information” if you just certified without any search, investigation, or evaluation into your company’s compliance with “all” federal non-discrimination laws.  

ANSWER: The SCOTUS has recently unanimously held that companies and institutions which certify contracts, subcontracts, and grants must undertake an affirmative search of the facts and applicable law before you may certify to avoid a potentially successful FCA claim.  

Here is the SCOTUS’ latest reflection on musty English law directly relevant to your FCA question and your FCA duties BEFORE you certify as explained by Justice Thomas for a unanimous court:  

“That [FCA] three-part test largely tracks the traditional common-law scienter requirement for claims of fraud. See Restatement (Second) of Torts §526 (1976); Restatement (Third) of Torts: Liability for Economic Harm §10 (2018). For example, one widely cited English decision, Derry v. Peek, [1889] 14 App. Cas., articulated the rule as follows: “[F]raud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false.” Id., at 374 (judgment of Lord Herschell). And, capturing the FCA’s use of the term “deliberate ignorance,” that decision noted that an action for fraud would lie if “a person making a false statement had shut his eyes to the facts, or purposely abstained from inquiring into them.” (yellow highlighting added)  Id., at 376. Those standards have been cited and widely adopted by American courts in the century since. See 3 D. Dobbs, P. Hayden, & E. Bublick, Law of Torts §665, p. 645 (2d ed. 2011) (Dobbs); Restatement (Second) of Torts, App. §526, Reporter’s Note. See UNITED STATES ET AL. EX REL. SCHUTTE ET AL. v. SUPERVALU INC. ET AL., 598 U.S. 739 (2023) (Slip opinion at p.9). 

PRACTICE TIP: The very same non-discrimination “firewall” your company or institution proactively built as a component part of your Affirmative Action Plans for Minorites and Women pursuant to the now revoked Executive Order 11246 is what you need to help give you the confidence that you may “knowingly” sign the two new coming nondiscrimination and anti-DEI certifications President Trump has ordered up. See Part 1 and Part 2 of my OutSolve (“What You Need To Do”) Blogs referenced and linked at the beginning of this Blog.  

Be safe. Start now. Bear down. Run fast. 
 

Related Articles

• Part 2: Actions Federal Contractors and Grantees Should Take Now to Certify Their Federal Contracts & Grants
• Part 1: Actions Federal Contractors and Grantees Should Take Now to Certify Their Federal Contracts & Grants
• Legal Alert: Federal Court Greenlights Trump Anti-DEI Contract and Grant Certifications: This is Now Real!
• Federal Judge Halts key parts of Trump's Anti-DEI executive orders

• Where Do Corporate Decision Makers Go Now Following the Revocation of EO 11246?

• Executive Order 11246: Affirmative Action Changes

• Webinar: Key Takeaways on DEI, Affirmative Action & Non-Discrimination

• Legal Alert: National Urban League v. Trump – What Employers Should Watch

• IN & OutSolve: What's Happening Around Rescission of EO 11246