Massachusetts has enacted a new false claims law applicable to public contracts that is far tougher and more expansive than the law it replaces.
The new law, M.G.L. c. 12, §§5A-O, broadens the definition of false claims to include any false request for money, whether direct or indirect, or any false statement to obtain a payment, and imposes liability even in the absence of a specific intent to defraud. It also makes a company liable for the acts of its employees who are acting within the apparent scope of their employment even though they are acting for their own benefit and without actual authority. The new law also increases the civil penalty to a maximum of $10,000 for each separate violation, plus triple actual damages, plus court costs including legal fees, plus the cost of investigation which could be substantial.
But it is the encouragement of whistleblowers as a principal means of enforcement that really sets this new law apart from the old. A whistleblower (called a "relator" by the statute) is authorized to file a civil action in the name of the Commonwealth against any company he or she claims has filed false claims in violation of the statute. The law recognizes that most whistleblowers would be current or former employees of the accused company, and it provides them substantial protection against any retaliation by the accused employer.
The new law encourages such suits by giving the whistleblower a stake in any recovery. That stake may run as high as 30% of the amount recovered. The actual percentage depends in part on whether the Attorney General elects to take over the case, or leave prosecution to the initiating whistleblower, and in part on the value of the information the whistleblower provides. In addition to this percentage of recovery, the whistleblower also is entitled to recover his or her legal expenses.
The new law attempts to discourage the initiation of bad faith claims by allowing a company wrongly sued to turn the tables and recover its legal costs against the whistleblower. But the standard for recovery by the accused company is a difficult one. It requires proof either that the whistleblower's action was pursued in bad faith, or was insubstantial, frivolous and advanced for the purposes of harassment. This standard is unattainable in most cases and does not offer a wrongly accused company much practical protection against bad faith claims.
Encouraging whistleblowing by current or former employees who are the primary source of inside knowledge undoubtably makes the filing of false claims by unprincipled contractors a risky proposition. It may also serve as a deterrent to the filing of false or even marginal claims. But the new law also has the potential of encouraging a proliferation of questionable lawsuits by disgruntled former employees looking for a score.
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