False Claims Act Conspiracy Lawyer: U.S.C. Section 3729(a)(1)(C)

U.S.C. Section 3729(a)(1)(C) applies to people who conspire “to commit a violation of the Act specifically to violate the other subparagraphs which create liability: 3729 (1) (A), (B), (D), (E), (F), or (G).” A person who conspires to commit any type of False Claims Act violation, has themselves committed a False Claims Act violation, even if they do not present any false claims or make any false statements.

What is a Conspiracy?

The word “conspiracy” conjures up images of shadowy people meeting in darkened rooms to accomplish some nefarious end. However, a conspiracy is simply agreement between two or more people to commit some sort of illegal purpose, plus one or more overt actions in furtherance of accomplishing their goal. Thus, to violate section 3729(a)(1)(C), a person must:

  1. Form an agreement with at least one other person,
  2. To commit a violation of the False Claims Act, and;
  3. Engage in some overt action in furtherance of committing that violation.

What Qualifies as Starting a Conspiracy?

Any sort of agreement can start a conspiracy, so long as the people involved understand that the objective is to commit some action and that intended action violates the False Claims Act. As with any FCA violation, the people agreeing to a conspiracy do not have to know that the intended action will violate the False Claims Act, they only have to know what the intended action will be. If two people agree to falsify purchasing records in order to overcharge the government, that is enough to start a conspiracy in violation of 3729(a)(1)(C) – it does not matter whether they know that falsifying purchasing records would violate the False Claims Act.

Nor do the conspirators need to actually meet and verbally agree. Suppose one person started shredding purchasing records on a government contract, and another person created false records to replace them. In this situation, a court would probably infer that these individuals had reached an agreement to make false records and submit false claims to the government, even though the conspirators never actually sat down and made a formal agreement.

A person also does not need to know all of the details of the plan to be part of the conspiracy, or even all of its members. It is enough that the person agreed to the overall goal. If a subcontractor agrees with the general contractor to falsify time sheets in order to overcharge the government, the subcontractor does not need to know that the general contractor is doing the same scheme with three other subcontractors – agreeing to the general scheme is sufficient to hold the subcontractor liable as a conspirator.

What is an Overt Act?

An overt act is any action that furthers the goals of the conspiracy, beyond the initial planning and agreement. If two people agree to falsify purchasing records in order to present inflated claims to the government, then almost any subsequent action that somehow advanced that plan would be an overt action. Obvious examples would include such actions as shredding old records and creating new ones, but overt acts could also include creating a list of reports to change, or even purchasing a document shredder.

Examples of Conspiracies

Many government contracts offer preferential treatment to veterans-owned businesses and small “disadvantaged” businesses owned by women or minorities. A classic type of conspiracy involves a large contractor making an agreement with a disadvantaged business to bid on a contract that the disadvantaged business is not capable of performing. The parties further agree that the disadvantaged business will subcontract some or all of the work to the large contractor. The large contractor then effectively gets the disadvantaged business’ preferential treatment in the bidding process, and the disadvantaged business usually gets a percentage of the contract profits. Examples of overt acts in furtherance of this agreement would include drafting a subcontracting agreement, preparing the disadvantaged business’ bid, or submitting the bid to the government. This type of scheme is sometimes called “pass-through” fraud and is a conspiracy to submit false statements (the bid in this case) and false claims (all subsequent claims presented by the disadvantaged business).

Conspiracies can also occur when one party simply agrees to stay silent in the face of False Claims Act violations. Consider a subcontractor that discovers a material defect in a batch of components that it makes for a defense contractor. If it informs the defense contractor of the defect, and the defense contractor tells it to keep quiet and forget about it, the two companies have made an agreement to present false claims for defective products. The next time the defense contractor delivers a product containing the defective component, or presents a claim for a product containing the defective component, it will have committed an overt act in furtherance of the conspiracy and violated the False Claims Act.

On the other hand, suppose the subcontractor had not informed the defense contractor of the defect, and the defense contractor had instead discovered the defect on its own and decided to ignore it. In this case, a court might find that no conspiracy had been formed because no agreement had been made. However, both the subcontractor and the defense contractor would still be individually liable for making false statements and presenting false claims.

Intra-Corporate Conspiracy

Under most circumstances, a corporation cannot conspire with itself. If two managers in the same corporation form an agreement to present false claims to the government, and then actually present false claims, no conspiracy has been formed. However, if those two managers committed acts outside the scope of their authority, such as by breaking into corporate records or stealing corporate property that they did not have authority to access, then they may have formed a conspiracy with themselves, but not the corporation. See the definition of Corporate Knowledge for more information on how corporations are treated by the False Claims Act.

Joint and Several Liability for Conspiracy

Once an agreement has been reached and at least one of the conspirators has committed an overt act, the conspiracy has been formed and a violation of the False Claims Act has occurred. The conspirators are now jointly and severally liable for each others’ actions. This means that all conspirators are equally liable for all of the damages resulting from the conspiracy, including those that they did not individually commit. If a conspiracy has ten members and nine members each present one false claim, while the tenth member presented 91 false claims, every member of the conspiracy would still be liable for all 100 false claims.

Likewise, if a general contractor forms agreements with four subcontractors to falsify timesheets in order to overcharge the government, then each subcontractor would be liable for the actions of every other subcontractor, even if they did not know the other subcontractors were part of the conspiracy.

Knowledge Requirement

A person who conspires to violate the False Claims Act must do so knowingly. However, this does not mean that the person must know about the False Claims Act, or that his actions might violate it. Rather it means that he has to know that he entered into the agreement that started the conspiracy. Similarly, any conspirators who commit overt acts must know that those actions were committed as part of the conspiracy.

No Actual Damages are Necessary to Violate the False Claims Act

Conspiracies do not have to be successful in order to violate the False Claims Act. The conduct that triggers liability under 3729(a)(1)(C) is the formation of a conspiracy to violate the False Claims Act. It does not matter whether the conspiracy actually succeeded in getting the government to pay a false claim, or even whether it submitted any false claims at all. Simply forming an agreement to violate the Act and carrying out at least one overt action is sufficient to incur liability. Of course, if the government did not actually pay any money, then a person’s liability is likely limited to civil penalties and a large collection will be virtually impossible.

Liability for Conspiring to Violate the False Claims Act

A person who conspires to violate the False Claims Act, is liable for three times the amount paid by the United States on any claims related to the conspiracy. That person is also liable for civil penalties of between $5,500 and $11,000 for each false claim. The civil penalties have been increased based upon laws, which adjust all such penalties for inflation.