An Introduction to the Maryland False Claims Act
March 21, 2016
In April 2015, in response to the urging of Maryland Attorney General Brian Frosh, the General Assembly passed a bill, which introduced the Maryland False Claims Act. The Maryland False Claims Act, Md. Code Ann. Gen. Prov. § 8-101, et seq., which went into effect on June 1, 2015, is similar to its Federal counterpart, the Federal False Claims Act (the “Federal Act”), 31 U.S.C. § 3729, et seq., and allows State and local governments, the Office of the Attorney General and private citizens to initiate lawsuits to curb fraud and abuse in the submission of fraudulent claims, directly or indirectly, to the State of Maryland and/or to County governments throughout the State.
Prior to the enactment of the Maryland False Claims Act, Maryland had a somewhat limited statute entitled the Maryland False Health Claims Act, Md. Code Ann. Health Gen. Prov. § 2-601, et seq., which was narrowly focused on the submission of fraudulent Medicaid and healthcare-related claims. However, the Maryland False Claims Act was much broader in scope and addressed the submission of non-health-related claims to State and County governments. The Maryland False Claims Act will undoubtedly have a major impact on the construction industry on State- and locally-funded Projects.
Because it was introduced less than a year ago, the Maryland False Claims Act is still in its infancy stage, and as of this writing, there have been no reported decisions in Maryland interpreting the statute. However, it is likely that the Maryland Courts will initially look to Federal case law for guidance, because with a few exceptions, the provisions of the Maryland False Claims Act were modeled after the Federal Act.
Similar to the Federal Act, the Maryland False Claims Act prohibits a person from doing the following in his/her dealings with a “governmental entity” (which the statute defines as the State or a County):
(1) knowingly present or cause to be presented a false or fraudulent claim for payment or approval;
(2) knowingly make, use, or cause to be made or used a false record or statement material to a false or fraudulent claim;
(3) conspire to commit a violation under this title;
(4) have possession, custody, or control of money or other property used or to be used by or on behalf of a governmental entity and knowingly deliver or cause to be delivered to the governmental entity less than all of that money or other property;
(5)(i) be authorized to make or deliver a receipt or other document certifying receipt of money or other property used or to be used by a governmental entity; and
(ii) make or deliver a receipt or document intending to defraud the governmental entity, knowing that the information contained in the receipt or document is not true;
(6) knowingly buy or receive as a pledge of an obligation or a debt publicly owned property from an officer, employee, or agent of a governmental entity who lawfully may not sell or pledge the property;
(7) knowingly make, use, or cause to be made or used a false record or statement material to an obligation to pay or transmit money or other property to a governmental entity;
(8) knowingly conceal, or knowingly and improperly avoid or decrease, an obligation to pay or transmit money or other property to a governmental entity, including misrepresenting the time at which a trade was made to make the transaction appear less favorable; or
(9) knowingly make any other false or fraudulent claim against a governmental entity.
A person who violates the Maryland False Claims Act is subject to a penalty that will, at a minimum, equal the amount of actual damages incurred by the governmental entity, but could be as much as $10,000 for each violation plus an amount of up to three times the amount of damages that the governmental entity incurs as a result of the violation(s). Md. Code Ann. Gen. Prov. § 8-102(c).
The Maryland False Claims Act borrows a significant component from the Federal Act – the qui tam action. A qui tam action allows a private citizen to initiate a lawsuit for the benefit of the government in order to recover damages that result from the submission of a false claim. Once a qui tam action is filed, the government generally investigates the claim and has the option of intervening in the case and prosecuting it in place of the private citizen who initiated the litigation. If the government is successful, the qui tam plaintiff is entitled to 15% and 25% of the damages awarded or 15% to 25% of the amount of any settlement between the government and the defendant. Md. Code Ann. Gen. Prov. § 8-105(a)(1). Additionally, in a successful action, a qui tam plaintiff is entitled to recover its reasonable expenses, attorney’s fees and costs. Md. Code Ann. Gen. Prov. § 8-105(a)(4). On the other hand, if the defendant is successful, the Maryland False Claims Act permits a Court to direct the qui tam plaintiff to pay the defendant’s attorney’s fees and expenses, if the Court determines that the claim “was brought primarily for purposes of harassment or otherwise brought in bad faith.”
Like the Federal Act, the Maryland False Claims Act also contains provisions to protect “whistleblowers” who take action consistent with the provisions of the statute. Specifically, the Maryland False Claims Act prohibits a person from retaliating against an employee or a contractor who, among other things, initiates or cooperates with an investigation pursuant to the statute, discloses information regarding misconduct that violates the statute, provides testimony before a public body, and/or refuses to participate in conduct that violates the Maryland False Claims Act. Md. Code Ann. Gen. Prov. § 8-107(a). The “whistleblower” provisions of the Maryland False Claims Act permit an employee or contractor to file suit as a result of retaliatory conduct and seek the following:
(i) an injunction to restrain a continuing violation of subsection (a) of this section;
(ii) reinstatement to the same seniority status held before the retaliatory action;
(iii) reinstatement of full fringe benefits and seniority rights;
(iv) two times the amount of lost wages, benefits, and other remuneration, including any interest accumulated;
(v) payment by the person of reasonable costs and attorney’s fees;
(vi) punitive damages;
(vii) an assessment of a civil penalty:
1. not exceeding $1,000 for the first violation; and
2. not exceeding $5,000 for each subsequent violation; and
(viii) any other relief necessary to make the employee, contractor, or grantee whole.
As a result of the enactment of the Maryland False Claims Act, prime contractors and subcontractors that perform work on State- and County-funded construction projects should be aware of their rights, obligations and liabilities under the new statute and ensure that their contracts address not only the Federal Act, but also the Maryland False Claims Act.