New York Finance Law §§187–194
To allow the New York Attorney General [“NYAG”], local government or any person to file a lawsuit against a person or company that obtains or withholds funds or property from the state or local government through false or fraudulent conduct.
Citizen “qui tam” lawsuits are filed under seal to give the NYAG an opportunity to investigate allegations of fraud. There are VERY specific and unique procedural requirements.
Individuals who file qui tam lawsuits—called whistleblowers or relators—are eligible to keep a percentage of the funds recovered for the government.
The NYAG does not represent private individuals or provide legal advice. Rather, the individual must file a qui tam lawsuit and serve the NYAG’s office with the filed complaint and related evidence. The NYAG’s office will review this information and may conduct its own investigation. The NYAG must decide whether they (on behalf of the defrauded governmental entity) will intervene or supersede in the qui tam lawsuit.
If the NYAG does not supersede or intervene in the action, the individual qui tam plaintiff must decide whether they will prosecute the lawsuit. The individual may not prosecute the qui tam lawsuit pro se unless he or she is an attorney who is eligible to represent a party before the court in which the qui tam lawsuit is proceeding.
The NYFCA is modeled after a comparable federal statute (31 U.S.C §§ 3729–3733). The NYFCA was amended significantly in 2010 based on legislation sponsored by then State Senator—and now NYAG—Eric Schneiderman
Examples of Fraud Against the Government:
Seeking payment for services not performed or goods not supplied (e.g., contractor who bills and receives money from the City of Rochester for work it did not do);
Seeking payment for services or goods provided under a contract secured by fraud (e.g., contractor who rigged the bids and was awarded a construction contract by fraud);
Falsely certifying compliance with a government contract (e.g., contractor who certifies they used Grade A concrete when they did not); and
Making a false statement to avoid paying money otherwise owed (e.g., refuse contractor who lies about the amount of garbage it collects for a town which causes them to pay less to that town for being the exclusive refuse contractor).
Qui Tam Awards to Whistleblowers:
If the NYAG supersedes or intervenes in the qui tam lawsuit, the whistleblower who filed the lawsuit shall be entitled to 15% to 25% of the proceeds recovered in the action or settlement thereof.
The court determines the percentage payable to the whistleblower by considering, among other factors, the extent to which he or she contributed to the prosecution.
If the NYAG does not supersede or intervene in the qui tam lawsuit, and the whistleblower prosecutes the lawsuit successfully, he or she is entitled to 25% to 30% of the proceeds recovered in the action or settlement thereof.
In either of these circumstances, the whistleblower also is entitled to receive reasonable attorneys’ fees and costs.
Remedies & Damages Available to All Whistleblowers:
Defendants who violate the NYFCA are liable for a civil penalty of not less than $6,000.00 but not more than $12,000.00 for EACH fraudulent event.
Defendants who violate the NYFCA also are liable for treble (3 times) damages suffered by the government (including consequential damages) as a result of the fraud.
Protection for Employees:
“Any current or former employee . . .who is discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against in the terms and conditions of employment . . . because of lawful acts done by the employee . . . in furtherance of an action brought under this article or other efforts to stop one or more violations of this article, shall be entitled to all relief necessary to make the employee . . .whole” (NYFCA § 191 ).
Such relief includes, but is NOT limited to: (i) an injunction to restrain continued discrimination; (ii) hiring . . . or reinstatement to the position such person would have had but for the discrimination or to an equivalent position; (c) reinstatement of full fringe benefits and seniority rights; (d) payment of two times back pay, plus interest; and (e) compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys’ fees.
An employee can bring an action to enforce this part of the NYFCA on their own and WITHOUT filing the complaint under seal and affording the NYAG the opportunity to supersede or intervene.
NYFCA Cases & Settlements:
State of New York ex rel. Grupp v. DHL Express, Inc., 19 N.Y.3d 278 (2012).
First decision issued by NYS Court of Appeals regarding the NYFCA.
Significance: Court of Appeals determined NYFCA established public policy goals and implemented penalties that were punitive in nature to deter fraudulent conduct against state and local governments.
Court did not decide whether changes made to the NYFCA in 2010 would apply retroactively, however, the Court inferred that doing so was unlikely under the constitutional ex post facto clause.
New York v. Sprint-Nextel Corp., 2015 NY Slip Op 07574 (October 20, 2015).
1st whistleblower tax case brought under the NYFCA.
Potential Recovery: Greater than $300 million.
Basis: Alleged knowing and fraudulent failure to collect and pay more than $100 million in NY sales taxes on receipt from sales of wireless telephone services since July 2005.
Case challenges: Constitutional concern regarding retroactive application of NYFCA in violation of the ex post facto clause.
Status: Pending [But the holding in DHL may signal the likely result].
Kane v. HEALTHFIRST, INC., No. 11 Civ. 2325 (ER) (S.D.N.Y. Aug. 3, 2015).
Relator filed action based upon “reverse false claims” theory, that is, medical providers owed money to Medicare or Medicaid and knowingly failed to repay (or attempted to conceal) the debt. Affordable Care Act set a strict 60 day deadline to report and return identified overpayments. Relator uncovered ~900 claims totaling over $1 million in refundable overpayments.
The United States government and the State of New York intervened as plaintiffs against three of the defendants named in Relator’s complaint. Damages and penalties sought include treble the overpayment amount, $11,000 – $12,000 per un-refunded claim, and the attorneys’ fees/costs related to bringing the suit.
Defendants attempt to dismiss the action based upon interpretation of the word “identified” within the Affordable Care Act (alleging overpayments had to be “classified with certainty” to qualify as “identified” to begin tolling the deadline to report and refund). The motions to dismiss were denied.
Case is continued.
The vast majority of cases brought under the NYFCA settle. Some examples:
A $6.2 million settlement was reached with Lantheus Medical Imaging and its former parent company, Bristol-Myers Squibb, for knowingly failing to pay New York corporate income taxes. The company derived revenue from sales of medical imaging products to hospitals, clinic and other facilities in New York and from training and service activities in connection with its sales.
A $1.56 million settlement was reached with a New Jersey appliance retailer, Topline Appliance Center, for failing to pay New York taxes for almost 10 years. The retailer sold or delivered appliances to New Yorkers from their New Jersey store without collecting New York State and local taxes, which created an improper competitive advantage over appliance stores in New York.
A $475,000 settlement was reached with Office Depot for overcharging New York State and local entities by violating price guarantees due to inadequate systems in place to ensure compliance with the promise that it would offer a price at least as low as the price at which it sold office supplies to the United States General Services Administration.
NYFCA vs. The Federal Statute:
The NYFCA is similar to the Federal statute, however, there are significant differences between these laws. Many of these differences arose after the NYFCA was amended in 2010.
The NYFCA allows for claims based upon violations of the NY tax code. NYAG Schneiderman formed the Taxpayer Protection Bureau to focus on non-Medicaid fraud (http://www.ag.ny.gov/bureau/taxpayer-protection-bureau). In contrast, the Federal Statute does NOT permit qui tam lawsuits for alleged violations of the Internal Revenue Code.
The NYFCA more broadly protects employees as whistleblowers as compared to the Federal Statute. The NYFCA also provides expanded circumstances where immunity may be granted to a whistleblower.
NYFCA has a statute of limitations of 10 years from the date of the violation. The 2010 amendments removed the alternative 3-year limitation period related to the government’s actual or constructive knowledge of material facts. The FCA statute of limitations is 6 years from the date of the violation. There is a 3 year tolling provision for when the facts are known or reasonably should have been known, however, courts are split regarding whether a qui tam whistleblower is entitled to use said tolling provision.
The 2010 amendments relaxed the public disclosure and pleading requirements found in the original NYFCA. Notably, the amended NYFCA does not require that allegations of fraud be stated in the same detail as required by the CPLR. Rather, the complaint should survive a motion to dismiss and proceed to discovery “if the facts alleged in the complaint, if ultimately proven true, would provide a reasonable indication of one or more violations…and if the allegations in the pleading provide adequate notice of the specific nature of the alleged misconduct.”
Whistleblowers initiate the vast majority of all qui tam lawsuits filed under the NYFCA and the Federal Statute.
The 1996 United States Department of Justice Relator Share Guidelines is used as guidance in determining the share paid to whistleblowers in NYFCA cases.
Original source” language can bar a whistleblower from collecting a share of the proceeds. For example, if the same allegations alleged by the whistleblower were public knowledge before they filed their lawsuit (via hearing, investigation, report, audit, in the news, etc.), the case may be dismissed unless the whistleblower was the original source of the public disclosure. The language in the Federal Statute is LESS favorable for a whistleblower than the language in the NYFCA.
The 2010 amendments to the NYFCA were created to increase the viability of NYFCA lawsuits and help the government recover more money and combat fraud.
The FCA and NYFCA allow whistleblowers to bring good faith claims of fraud to the attention of the NYAG’s office without risk of retaliation. The NYFCA (since 2010) has been touted as the “FCA on steroids” and provides increased exposure of businesses to FCA liability while expanding protections to whistleblowers.
Valid qui tam lawsuits under the NYFCA may be superseded or intervened upon by the NYAG’s office. If this occurs and the lawsuit is successful, the whistleblower may recover a portion of the proceeds recovered.
Even where no intervention occurs, the whistleblower may pursue the action independently through a licensed attorney.
Under either circumstance, it is imperative the whistleblower provide strong evidence of fraud at the time of complaint to avoid dismissal and increase the likelihood of intervention by the NYAG. Thus, any potential whistleblower should consult with qualified counsel ASAP.
Although significant questions still exist regarding retroactive application of the NYFCA, the 2010 amendments have increased the potential liability for and damages from NYFCA claims that arise going forward.
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