Supreme Court, Maryland Address False Claims

Author: Marta Moakley, XpertHR Legal Editor

May 28, 2015

The Supreme Court has provided guidance with respect to the ability of whistleblowers to file claims under the federal False Claims Act, while Maryland has expanded its fraud and retaliation protections by enacting its own version of the federal law.

The federal False Claims Act, as well as its state and local counterparts, allows for an individual to file a case on behalf of the government (a qui tam suit) alleging fraud. Claimants (called relators) may reap a portion of any monetary recovery as a reward.

Supreme Court Ruling

A unanimous Supreme Court declined to extend the time in which to file whistleblower claims under the False Claims Act by ruling that the Wartime Suspension of Limitations Act (WSLA) does not apply to civil claims. Employees that file a claim on behalf of the government will have to file within the six-year limitations period provided in the False Claims Act. However, the Court also ruled that the False Claims Act's first-to-file bar did not preclude a second case from moving forward if the case that was filed first is no longer pending.

In Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, the Supreme Court held that the WSLA, which suspends the statute of limitations in wartime for cases regarding fraud against the government, applies only to criminal offenses. Agreeing with the lower court, the Supreme Court also clarified that the False Claims Act's first-to-file provision applies to related claims that were filed first in court and are pending; the provision does not bar a claim from being filed if there are no other claims pending at the time of filing.

Therefore, a "me too" claim may proceed if the original claimants' case had been dismissed at the time of the second, related complaint's filing.

The Carter case arose after a former employee of a defense contractor providing services to the US military in Iraq filed a suit under the federal False Claims Act alleging that the employer had fraudulently billed the government for water purification services that were either not performed or improperly performed.

Maryland False Claims Act

Maryland enacted a state version of the federal False Claims Act (S.B. 374) that becomes effective next Monday, June 1. The legislation had been championed by Maryland Attorney General Brian E. Frosh, who emphasized the importance of incentivizing employees in order to support ethics in the workplace. "The False Claims Act is a proven tool and I am confident it will recoup millions for the state, while creating a level playing field allowing honest business to thrive," Frosh said in a press release applauding the bill's passage.

Maryland's new law provides that a whistleblower may share in the case's monetary recovery. If there is a monetary recovery, the court would determine the specific amount, which would range between 10% and 25% of the proceeds, depending on the particular circumstances of the case. The new law also includes a number of retaliation protections for employees that engage in protected activities.

Maryland has had a limited state version of the country's oldest whistleblower law (also known as "Lincoln's Law"), but those limited provisions addressed solely Medicaid and healthcare-related fraud.

Government prosecutors and whistleblower firms alike have used the federal, state and local versions of false claims acts to reap massive settlements. The US Department of Justice's efforts in this area alone have yielded billions of dollars in recoveries.