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What Happens When a Company Continues to Violate the Same Laws Even After it is Caught?

Posted November 14th, 2017 by in Whistleblower Law.

When a company is investigated and prosecuted for fraud, the Government typically requires the company to enter into a Corporate Integrity Agreement. This Agreement obligates the company to take steps to ensure that it complies with the law in the future and regularly reports the status of its compliance to the Government. If the company violates the law again, the Agreement requires the company to report those violations to the Government and to pay specified penalties to the Government.

Unfortunately, these Agreements don’t always keep companies honest. They continue in their violations of the law and don’t report their non-compliance to the Government. Whistleblower lawyers now argue, and some courts agree, that these undisclosed violations constitute an independent fraud that can be reported by whistleblowers.

The False Claims Act is known for covering cases where companies affirmatively make a claim for payment to the Government that is fraudulent. However, there is also a provision of the False Claims Act, known as the “reverse claims” provision, which imposes liability on anyone who “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government. The law defines “knowingly” broadly to include “deliberate indifference” or “reckless disregard.”

Courts have disagreed on whether the penalties specified in Corporate Integrity Agreements give rise to an “obligation” under the meaning of the False Claims Act. Courts in Pennsylvania and Texas have found that the Agreements do create an obligation even if the Government may have some discretion about whether to impose penalties. For example, the court in Texas found that “the fact that some discretion is involved in th[e] decision [to assess penalties] does not preclude False Claims Act liability.” Other courts in Massachusetts and Illinois have disagreed. The language of the particular Corporate Integrity Agreement that a Defendant has signed is important in determining whether or not an obligation exists.

Why does this matter? The False Claims Act imposes treble damages on defendants. So, if a company fraudulently violated its Corporate Integrity Agreement, it would owe three times the specified penalties in the Agreement. Whistleblowers and qui tam attorneys should check if a potential defendant has signed a Corporate Integrity Agreement in the past that covers the same laws that the Company continues to violate. If that is the case, there may be a “reverse claims” allegation that should be included in the case.

 

Inayat Hemani

Inayat Hemani

Inayat Ali Hemani is a Senior Litigation Counsel in the NY office who works primarily on whistleblower/qui tam cases. Learn More

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