The False Claims Act encourages individuals with knowledge of fraud against the Government to file a court action seeking damages for the fraud. It does this by promising a bounty. The relator receives a percentage of the amount recovered in a false claims case. But there is a constant tension between encouraging plaintiffs to bring cases alleging fraud and protecting defendants from frivolous cases. The January 11, 2011 decision in United States ex rel. Folliard v. Hewlett-Packard Co. illustrates how the requirement that a plaintiff include all of the details of an alleged fraud in the initial complaint helps strike this balance.
The relator worked for a value-added reseller of HP products. He alleged that several HP products listed for sale in multiple awards schedule contracts managed by GSA and NASA were actually made in China. According to his complaint, HP knew that the sale of Chinese products was forbidden by the Trade Agreements Act and falsely listed the products for sale anyway. Although the relator did not assert that the Chinese products had actually been sold to the Government, he stated that such sales were “highly likely.” Even after a two-year investigation, the relator still could not identify a single sale of any of the allegedly-Chinese products.
On HP’s motion, the court dismissed the case. The court observed that Rule 9 requires fraud to be alleged with particularity. A complaint in a False Claims Act case must “state the time, place and content of false representations, the fact misrepresented and what was retained or given up as a consequence of the fraud.” In this case, the court said that the Complaint failed to identify even one specific sale of a product alleged to have been produced in China. The court refused to assume that such sales must have occurred and declined to allow further discovery aimed at uncovering them. The requirement for specific pleading of fraud is intended to prevent the filing of lawsuits merely to conduct discovery to determine whether a claim exists.
The good news for contractors in the HP decision is that the court enforced the requirement for specificity in a complaint alleging violations of the False Claims Act. Relators seeking to recover a bounty for identifying fraud against the government must have specific facts that would support all of the elements of the case.
The bad news is that an apparently early dismissal does not always mean a quick and inexpensive resolution. This case was first filed in November 2007, after which there was presumably an extensive and costly government investigation of the underlying facts. The case was formally served on HP in February 2010, after the government declined to intervene. HP filed its motion to dismiss in March 2010, and it took almost 10 months before the court granted the motion.