The State of Minnesota Opens a New Front Against False Claims
By: DAVID L. LILLEHAUG
January 22, 2010
It has always been a crime to present a false bill to the State of Minnesota, but to prosecute, the State has to show intent and prove guilt beyond a reasonable doubt. Now, the State has another weapon in its armory, which it will roll out on July 1, 2010. The new Minnesota False Claims Act (Minn. Stat. § 15C.01) establishes significant civil penalties for “knowingly” presenting, or conspiring to present, to a state or political subdivision a “false or fraudulent claim for payment or approval.”
Here are the key points to keep in mind about the new Act:
- The Act applies to doing business with all political subdivisions. The Act is not limited to just state government. It covers business relationships with counties, municipalities, townships, and school districts.
- The definition of “claim” is quite broad. A claim may include a request for a change order, an extension of time, or an “equitable adjustment,” or even a letter disputing an offset.
- A “knowingly” false claim may be something less than an “intentionally” false claim. A claim may be “knowingly” false if the person submitting it acts in reckless disregard, or deliberate ignorance, of the falsity of the claim. On the other hand, a false claim submitted “negligently, inadvertently, or mistakenly” does not violate the Act, but may subject the submitter to liability for breach of contract or unjust enrichment.
- The State has a lesser burden than in a criminal case. In a criminal trial, the State must prove guilt beyond a reasonable doubt. But the new Act creates civil liability. In a civil trial, the State must prove its case by a “preponderance of the evidence”; that it is “more likely than not” that the Act was violated.
- A government contractor may not be liable for the acts of its nonmanagerial employees. The employer is liable only if it had “knowledge of the act, ratified the act, or was reckless in hiring or supervision” of the employee. But, if the employer benefited from the false claim, it will have to repay the ill-gotten gain.
- The penalties can be steep. The penalty for a single false claim is between $5,500 and $11,000, plus three times the actual damage sustained by the unit of government, plus the government’s attorney’s fees and expenses. (However, the government usually does not have to pay when it loses a False Claims Act case.)
- False Claims Act liability can carry additional consequences. Liable parties may be “debarred” or “suspended” from doing future business with the government, or may have to disclose when proposing or bidding to do more business.
- Whistleblowers can get significant awards. If the whistleblower is the government’s “original source” of information about the false claim, an award of between 15 and 30 percent of the government’s recovery is appropriate, plus the whistleblower’s attorney’s fees and expenses. Recently, a federal False Claims Act whistleblower in a pharmaceutical case received $51.5 million!
- Retaliation against a whistleblower is prohibited. A whistleblower who suffers retaliation may recover double the lost wages and other damages, even if the whistleblower allegation of false claims was incorrect.
- A government contractor may have a brief opportunity to correct the false claim. Before a state False Claims Act lawsuit is filed, and assuming the false claim was not specifically intended to defraud the government, the whistleblower must inform the contractor, who then has 45 days to pay back the government.
Fredrikson & Byron has considerable experience dealing with issues under the federal False Claims Act, on which the new Minnesota law is modeled. Here is what some of our clients have learned:
- Pay extra attention to payment requests – and any documents having a monetary consequence – that are submitted to units of state government.
- Do not inflate claims – or add “fluff” – for negotiating purposes. The fluff may come back – trebled! – to bite you.
- Encourage your employees to ask, “How sure am I that this request for payment is legal under our contract? If it is, is it also reasonable and appropriate; and will it look that way to the government?”
- Have in place a formal and fair compliance program, supported by ethics training, so that company employees have confidence that their concerns will be heard and considered carefully by management, without retaliation.
- Review with company counsel any claims with which the government is likely to disagree or where an employee has expressed concern.
- If a claim is challenged by the government, think carefully before asserting that the claim was cleared by counsel. Once a company asserts that it relied on “advice of counsel,” the attorney-client privilege may be waived, exposing all such communications with counsel.
In other words, any time you request a unit of state government to pay money – whether by invoice, change order, or claim – make sure that your request is fair, accurate, and logical.