Hunting bounty - False Claims Act

SENATOR Charles Grassley (R., Iowa), a slow-talking farmer who has made bales of political hay out of his rural Midwestern heritage, likes to portray himself as a prairie watchdog against government fraud and waste. Since early in his career in Congress he has gotten big political mileage out of his attacks on procurement follies at the Department of Defense. Who can forget the $7,600 Air Force coffee pot he immortalized, or the $1,868 Pentagon toilet seat?

Yet Senator Grassley's efforts to eliminate waste and fraud have produced decidedly mixed results. His blasts led to no congressional investigations. Nor has he helped pass any substantial reforms of the procurement process. What the prairie watchdog did do in 1986 was to help create a new class of plaintiffs in a society already awash in unnecessary litigation, providing employment for a new class of trial attorneys.

These lawyers represent informers and whistleblowers who, in exchange for bounties, expose fraud in government procurement. These lawyers got their big chance after Senator Grassley played a leading role in resurrecting the False Claims Act, a Civil War - era law that allows informers who have found fraud in the government to bring qui tam suits, a Latin term first used in Britain to mean one who sues on behalf of the king as well as of himself. It allows informers who expose fraud to become, in effect, private attorneys general.

Senator Grassley's revived False Claims Act gets both high and low marks for its performance since 1986. It has improved the ability of the Department of Justice to prosecute fraud, with or without a whistleblower, primarily by lowering the burden of proof. However, the qui tam whistleblower provisions have fostered a pattern of fraud and abuse of whistleblowers by attorneys who have grown rich off their clients by taking a huge cut of the bounty.

Original Abuse

THE original False Claims Act didn't work as advertised. Often suits were found to be parasitic, based on information already known to civil and criminal investigators. When the Supreme Court in 1943 (Marcus v. Hess) allowed a qui tam action brought by a person who simply copied a criminal indictment prepared by the government, Congress amended the law to bar any suit based on information the government already possessed. As a result, the False Claims Act fell dormant for forty years.

In 1986, Senator Grassley and Representative Howard Berman (D., Calif.) sponsored a revival of the Act, with various amendments. Most of these amendments were not new -- they had been kicking around for several years, advocated by various nonprofit and liberal organizations that wanted to curtail fraud in defense procurement. The idea of reviving the Act got a big boost from a famous whistleblower -- Ernie Fitzgerald, a Pentagon official who criticized waste on the C5A transport plane in congressional testimony in 1968.

Beyond these public-spirited voices were attorneys who saw an opportunity to make big bucks. The most important of these was John R. Phillips, a liberal Democrat, and an attorney in Los Angeles. Congressman Berman was a friend of Phillips; Senator Grassley's embrace of him is harder to understand.

One of the key provisions Phillips sought, and got, in the 1986 amendments was an increase in the portion of the recovery an informer can claim, from 10 per cent to a range between 15 and 30 per cent. Another provision allowed those who participated in a fraud to bring a qui tam suit. These amendments, Phillips claims, along with an increase in the award to the government from double to triple damages, provided the financial incentives that would make the act work. To be sure that whistleblowers did not end up giving all their bounty to attorneys, the act included a provision for statutory attorney fees awarded to the plaintiff to reimburse his attorney.

The revived False Claims Act has led to a flood of mostly minor suits. Between 1986 and 1993 there were about 335 qui tam suits, which yielded a total recovery of $8.6 million, for an average of $39,000, according to a report prepared for the last Congress by Assistant Attorney General Frank Hunger. On the other hand, eighty qui tam suits that the government joined as co-plaintiff had led to $400 million in recoveries by the end of 1993, Hunger reported. During 1994 another $378 million in qui tam recoveries was added, according to the Justice Department, bringing the total amount to $787 million.

Grassley and other supporters of qui tam believe the $787 million proves that the False Claims Act is working. But even staunch supporters of the doctrine of qui tam do not dispute that the Justice Department would very likely have pursued many of the successful fraud cases without it.

Cui Bono?

PERHAPS the key error in Grassley's view is that he uncritically accepts the notion advanced by Phillips and others that qui tam is purely in the public interest. In fact, when bounty hunting becomes the chief motivating factor in uncovering fraud, the public interest takes a back seat to personal financial gain. For example, since those participating in a fraud can now bring qui tam suits, it is in their interest to prolong the fraud as long as possible before blowing the whistle. They can thus earn an even bigger bounty.