Understanding Treble Damages Under the False Claims Act

The False Claims Act is this law that allows people to sue others who commit fraud against the government. It’s been around since the Civil War when crooked suppliers were ripping off the Union Army with crappy weapons and spoiled food and stuff. Not cool.

The law lets whistleblowers and the federal government sue fraudsters to get back money they stole. But here’s the kicker – they can collect triple damages from the bad guys. Not just what was stolen, but three times as much! It’s called “treble” damages. Wild right?

What Did You Do?!

So let’s say you run a construction business and you land a fat government contract to build a new VA hospital. Nice! But then you get greedy.

You cut corners, use shoddy materials, pad your invoices with bogus charges, maybe bribe some officials to look the other way. Pretty soon you’ve stolen, I dunno, $5 million from Uncle Sam.

But then some whistleblower finds out and files a False Claims lawsuit against you. Uh oh. If you lose, you won’t just have to pay back the $5 million you stole. You’ll have to pay triple damages – so $15 million!

That’s why they call it the “sledgehammer of civil penalties.” The treble damages can crush fraudsters and totally destroy their business. Zoinks!

Y tho?

Good question young padawan! Why such brutal penalties? I mean isn’t getting caught punishment enough?

Well, according to law professor Pamela Bucy, there’s a method to the madness. Treble damages:

• Deter fraud in the first place
• Make sure the government is fully compensated
• Incentivize whistleblowers

In other words, they scare people away from trying to cheat the government, and if someone does commit fraud, the triple damages ensure the government recoups all its losses.

Plus whistleblowers can get a fat cut of the award – like 15-30% potentially. So if you’re on the fence about reporting fraud, cha-ching! The prospect of mega bucks for doing the right thing tips people into action.

Can You Fight It?

What if you’re an honest business owner who gets slapped with a bogus False Claims lawsuit? It happens sometimes. People get falsely accused.

Or maybe there’s real fraud happening behind your back that you don’t know about. Your crooked CFO is cooking the books but you think everything’s kosher.

Do you have any defense against treble damages in situations like these? Or are you just screwed?

The Ostrich Defense

“I didn’t know nothing about any fraud, I swear!” The old Sergeant Schultz defense from Hogan’s Heroes. Hey, it might work.

Courts have said if you can prove the fraud was committed by some rogue employee without your knowledge, then you may be able to limit damages to just what was stolen. No trebling! The legal term here is “vicarious liability.” Look it up.

The Fine Print Defense

What if you put something in the contract saying you won’t be liable for treble damages in a False Claims lawsuit? Like a waiver or limitation of liability clause?

Nice try but no dice! Courts have ruled those clauses don’t apply to fraud cases. You can’t just sign away liability for stealing from the government. Though I’m sure someone’s still trying, the sneaky bastards.

The Flea Defense

“I’m too small to hurt anyone!” Maybe if you’re a one-person operation with just a tiny government contract, courts may take pity and not drop the hammer too hard. But don’t count on it.

The law was originally designed to go after the big dogs. But these days whistleblowers target all sizes of companies, hoping to cash in. And the feds take ALL fraud seriously nowadays – even small timers get whacked.

So if you think you’re too small for anyone to care…think again my little flea friend!

Bottom Line

The False Claims Act was created to protect taxpayer dollars from fraudsters. And the threat of massive treble damages seems to act as a good deterrent.

But mistakes happen. Innocent business owners sometimes get caught up in these lawsuits. And the penalties can be company-destroying.

So if you have any kind of government contract, be careful! Watch your back. Put good controls in place. And pray the whistleblowers don’t target you next!

References

Bucy, Pamela H. “Private Justice and the Constitution”. Tennessee Law Review, 2003.

Kovacic, William E. “Whistleblower Bounty Lawsuits as Monitoring Devices”. Loyola of Los Angeles Law Review, 1999.