THE NEW YORK STATE FALSE CLAIMS ACT
On April 1, 2007, New York State passed a False Claims Act, NY State. Fin. Law, ch. 13 §§ 187-194. This landmark law allows the state and any local government to bring a civil action to recover three times its financial losses from fraud. It also allows a private citizen with inside knowledge of such fraud (known as a “relator”) to bring a qui tam action on behalf of the government and to receive up to 30% of the proceeds. The legislation covers all kinds of fraud on the state and local governments, including health care, government construction, roads and bridges, prisons, housing, the environment and so on.
As a result of amendments signed into law in September 2010, the New York FCA is now one of the strongest and most far-reaching FCAs in the country. Most significantly, the New York FCA now covers tax fraud, provided that the wrongdoer’s net income or sales in more than $1 million per year, and that damages, i.e., the amount of the fraud, exceeds $350,000.
Important facts about the New York State qui tam law
The scope is broad: The FCA covers almost any false claim or statement that involves a demand for payment from the state or a local government or which deprives it of revenues in some way. Also covered are so-called “reverse false claims,” where an entity fails to pay the government a rebate, royalty or similar sum that it is legally obliged to pay.
Procedure: A qui tam complaint is initially filed in court under seal to allow the government to investigate the allegations in confidence. A copy of the complaint, together with a statement of facts and documents relevant to the action, are served on the state, which has 60 days (plus extensions of time) to conduct an investigation. The state may obtain numerous seal extensions, potentially extending over several years. At the end of this period, the attorney general decides whether to join the action or to allow the relator to pursue the action alone. The attorney general may “convert” the action into an attorney general civil action, “intervene in” the action “so as to aid and assist the plaintiff in the action,” or decline to participate in the action, in which case the relator may pursue the action. If the relator elects to go forward, the state has the right to intervene at a later date upon a showing to the court of good cause. In the federal arena, declined cases have accounted for a small fraction of qui tam recoveries. Nonetheless, a declination does not necessarily amount to a vote of no-confidence on the merits. Sometimes it is driven by resource constraints or other considerations wholly unrelated to the viability of the claims. The decision whether to go forward in a declined case must always be made according to the individual circumstances.
The FCA is a “first-in-time, first-in-right” statute: In order to encourage the prompt reporting of fraud, the FCA bars any qui tam case that is based on the “facts underlying” a pre-existing qui tam action. Federal courts have interpreted this wording broadly, so that qui tam relators with knowledge of the same fraud essentially are in a “race to the courthouse,” even if the second-filer has more detailed knowledge and/or provides the government with more assistance. Similarly, the FCA provides that if a qui tam plaintiff files the same case as a pre-existing civil case filed by government, the qui tam action is barred.
FCA cases cannot be based on information that is in the public domain: The qui tam law is designed to encourage individuals with inside knowledge of fraud on the government to come forward and report it. Therefore, the FCA prohibits qui tam cases in which the plaintiff seeks to rely on information that is substantially the same as allegations in the public domain -- so-called "parasitic" claims -- unless the qui tam plaintiff is an "original source" of the information. An "original source" is defined as someone who has information that is independent of and adds materially to the publicly disclosed information.
Factors governing the qui tam plaintiff's share: The FCA provides for a qui tam reward of 15-25% if the government intervenes in, or joins, the case, and 25-30% if the government declines to intervene and the plaintiff pursues the action alone. The FCA provides little guidance on what determines the size of the qui tam reward, stating only that it depends on the extent to which the relator "substantially contributed" to the prosecution of the case. Under the federal FCA, the share usually is negotiated with the Department of Justice pursuant to its internal Guidelines. These provide for relator share to be increased above the 15% threshold according to such factors as promptness in reporting the fraud, whether the relator tried to stop it, the extent of the plaintiff's knowledge of the fraud, and his/her assistance to the government.
Relators who were involved in the fraud may have their reward substantially reduced or eliminated: The court is authorized to reduce the reward of a qui tam plaintiff who "planned and initiated" the wrongdoing. If the person is criminally convicted for conduct arising from his or her role in the fraud, the person must be dismissed from the case and will not receive any share of the proceeds.
Employment retaliation: Employees whose employers retaliate against them because of their acts in furtherance of a qui tam action can receive double the amount of back pay plus interest, reinstatement and compensation for “special damages.”
Attorneys fees and costs: In a successful suit, both the government’s and the relator's attorney fees and costs are recoverable from the defendant.
Statute of Limitations and Retroactivity: The New York State FCA is expressly retroactive and thus any claims within the statutory limitations period are actionable. A case must be brought within six years of the violation or within three years of the date the government learns, or should have learned, of the facts material to the violation, but in no event more than ten years after the violation.
