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Reverse False Claims and Their Increased Role in the Modern Day

by Edward Kang & Michael Chiumento, Clerk

Modern day application of the False Claims Act falls into a variety of fields and categories which all merit usage under their respective terms when applicable.  One specific claim that seems to be having its usage expanded is a reverse false claim.  Unlike typical false claims where a person can incur liability by receiving a payment…

Introduction

The False Claims Act remains one of the United States’ most powerful tools in bringing justice to those who seek to avoid “playing by the rules” set forth by financial regulatory commissions and the like.  Allowing “whistleblowers” to file claims on behalf of the federal government, (as well as some states) the 150 year old law has brought in $33 billion since it was slightly amended in 1986, with $21 billion resulting from whistleblower, or qui tam, actions.

Modern day application of the False Claims Act falls into a variety of fields and categories which all merit usage under their respective terms when applicable.  One specific claim that seems to be having its usage expanded is a reverse false claim.  Unlike typical false claims where a person can incur liability by receiving a payment from the government when no payment is due to the person by submitting a false claim for payment to the government, reverse false claim liability arises when a person knowingly avoids its payment obligations owed to the government by falsifying its records.  A reverse false claim can be filed under the False Claims Act against a person “who knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.”  In real world practice, reverse false claims are most commonly filed by whistleblowers in fields such as defense and health care but as industries have evolved, so has the application of the reverse false claim action.

Reverse False Claims in Context

Throughout the last few decades, companies have come under fire from a plethora of reverse false claims related to environmental areas.  Some pundits and analysts view this more recent application as an excellent opportunity to enforce compliance with environmental protection set forth by the federal government.  Companies’ refusal to adhere to standards could lead to severe monetary penalties for falsely reporting environmentally hazardous activity.  The thought is that if a fine would be incurred as a result of the improper disposal of hazardous waste, then a false report might be submitted by a company in order to claim less dumping than is actually taking place.  The illegal benefit here would be the avoidance of large fines levied by the federal government.  Such a false claim would “decrease an obligation to pay…money…to the government”, thus being classified as a reverse false claim.  It is vital, however, to realize that the simple failure to report a violation is not, in itself, classified under the reverse claims portion of the False Claims Act.  Only in instances where a false report or statement was submitted to the government does there exist the possibility for a reverse false claims suit.

In better understanding how reverse false claims work and when they could be applied, it helps to look at a widely known example, and in this case, also one that applies in the environmental field to go along with the new modern application mentioned earlier.  The 1996 case of Pickens v. Kanawha River Towing is one such case that delineates a reverse false claim.  The incident boils down to a vessel owned by Kanawha River Towing (916 F. Supp. 702 (S.D. Ohio 1996)) tampering with its vessel logs in order to avoid penalties under the Clean Water Act.  The government uses those logs to assess any potential environmental violations, and because the ship knowingly committed fraud in providing the government with false information to avoid appropriate penalties, this falls under the category of a reverse false claim.  The court ruled against Kanawha River Towing and the company was not only forced to pay the dues it originally should have been charged, but also faced severe retribution for the fraud it committed under the False Claims Act.  Here, it is easy enough to see that Kanawha River Towing faced a reverse false claim due to its falsified submission to the government that would result in the government failing to receive all the money it should have been owed under the Clean Water Act.

The healthcare field still stands as the largest arena for reverse false claim action much as it does in financial regulation related suits under the False Claims Act.  While False Claims Act suits in healthcare more commonly stem from falsifying services that were not actually performed in order to receive unwarranted payments, reverse false claims have become more and more commonplace as companies fail to report overpayment by the government, thus not paying the government back what it is owed.  Any instance in which the government is not paid its due, even if it comes from an overpayment by the government in the first place, would classify as a reverse false claim.  The Fifth Circuit Court of Appeals also ruled in the February. 2011 case, United States v. Caremark (634 F.3d 808), that a reverse false claim exists in instances where private insurance companies deny policyholders because they are also covered by Medicaid, as it is the private company’s responsibility to cover the costs in this scenario.

Conclusion

While the False Claims Act has been applied on a common basis in many different capacities since its inception in 1863, the scope by which whistleblowers who file reverse claim suits has broadened vastly in the last few decades.  With defense contractors and healthcare professionals still standing as the primary targets of a large part of reverse claim action, companies seeking to avoid environmental penalties have come under fire of late for their false submissions to the federal government with respect to the extent of their hazardous disposal techniques.  Reverse false claims brought about under the false claims act not only assist in ensuring that the government is not cheated out of money it is owed but may also, in the case of the environment, go quite a long way in financially forcing companies to “clean up” their act.

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