The False Claims Act’s Liability Provisions (Part 7 of 7): Reverse False Claims

The False Claims Act has seven liability provisions. Attorneys use some in almost every case, while others are rarely used. In a series of posts, each provision will be discussed.

The Act’s seventh liability provision is 31 U.S.C. § 3730(a)(1)(G), which provides that any person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government” is liable.

Simplified Example: A furniture company makes furniture in China. The United States charges a lower tariff on products from other countries than on products from China. To decrease the tariff owed on the furniture’s entry into the United States, the company ships the products from China to a second country. In second country, the products are relabeled, and then shipped to the United States. The furniture company then pays only the tariff owed on the furniture that the company would have owed had the furniture been made in the second country.

This provision is referred to as the reverse false claims provision because it makes liable the knowing retainment of the Government’s money or property.

Some courts had refused find reverse false claims liability in customs avoidance cases. These courts determined that the defendant had no contractual relationship with the Government and so their duty to pay customs tariffs was contingent and thus not actionable. American Textile Mfrs. Inst., Inc. v. Limited, Inc., 190 F.3d 729, 739–41 (6th Cir. 1999). Congress disagreed with this decision. Therefore, in 2009, Congress amended the False Claims Act to clarify that an actionable reverse false claim exists when relationship between the Government and the defendant is fee-based or when the duty to pay arises from statute or regulation. 31 U.S.C. § 3729(b)(3).

Our Reverse False Claims cases:

(1) Understating the amount of oil taken from land owned by the United States and Indian Tribes to falsely and fraudulently decrease the amount of royalties owed to the United States. United States ex rel. Johnson v. Shell Oil Co., No. 9:96 CV 66 (E.D. Tex.). Read about our successful representation of the Johnson relators.

(2) Failure to record oil spills in vessel logs in order to avoid payment of penalties owed to the United States under the Clean Water Act. United States ex rel. Davis v. M/G Transport Services, Inc., Case No. C-1-92-1001 (S.D. Ohio). Read about our successful representation of the Davis relators.

Other Reverse False Claims cases:

(3) Payments to nursing homes not returned at the end of the year because the nursing home submitted inflated cost reports. United States v. Bourseau, 531 F.3d 1159, 1169–70 (9th Cir. 2008).

(4) Funds not used to administer Government programs were not returned to the Government. United States ex rel. Wuestenhoefer v. Jefferson, 2015 U.S. Dist. LEXIS 5535, 4–6, 65–66 (N.D. Miss. Jan. 16, 2015)

(5) Avoiding or decreasing the payment of penalties to the EPA by failing to report the release of toxic gas as required by the Toxic Substances and Control Act. Simoneaux v. E.I. du Pont de Nemours & Co., 2014 U.S. Dist. LEXIS 158631, 5–13 (M.D. La. Nov. 10, 2014)

(6) Not reporting violations of the law, including kickbacks and employee complaints, as required by a Corporate Integrity Agreement. Ruscher v. Omnicare Inc., 2014 U.S. Dist. LEXIS 123831, 12–15, 17–18 (S.D. Tex. Sept. 5, 2014)

If you know of someone who has failed to pay money to the Government, or who has cheated the Government, protect yourself and explore potential remedies. You can obtain guidance from experienced legal counsel by contacting us.