Barclay Damon
Barclay Damon

Legal Alert

Proposed Regulations Set to Toughen New York’s False Claims Act

New York’s False Claims Act, already one of the nation’s toughest state civil false claims statutes, is set to get even stronger under new regulations proposed on October 23, 2013 by the New York Attorney General. The public comment period for the proposed regulations ends at the close of business on December 9, 2013. The proposed measures would change the implementation of the False Claims Act (codified in Article 13 of the State Finance Law) as follows:

  • Clarifying that the damage multiplier in section 189 of the Act is to result in “gross trebling” or “gross doubling” and not “net trebling” or “net doubling,” by applying to the full damages from the fraud, before any subtractions for compensatory payments, offsets or credits received by the government. Federal courts have inconsistently interpreted identical language in the federal False Claims Act (31 U.S.C. §§ 3729-3733), with some requiring the gross amount to be multiplied, and others requiring the net amount. The government reasons that this change would eliminate the possibility that a defendant could avoid the damage multiplier simply by paying the government an offset or a credit before the judgment of multiplied damages is entered. Governments and whistleblowers would also obtain a larger recovery under this new provision. 
  • Harmonizing Section 400.5(a) with the so-called “public disclosure bar” of the federal False Claims Act, see 31 U.S.C. § 3730(e)(4)(A), such that a qui tam complaint with several causes of action will not be dismissed in its entirety if only some, but not all, of the causes of action are dismissed because of publicly disclosed information. 
  • Confirming that an “obligation” to pay or transmit money or property to the state or local government such as would give rise to liability can belong to any person, not necessarily the defendant. 
  • Providing that a person who violates the Act shall be liable for all costs, including attorneys’ fees, of a civil action brought by the state, a local government, a qui tam plaintiff, or counsel, and such costs shall be awarded directly against the defendant rather than charged from the proceeds of the suit.

In addition to these strengthened enforcement provisions, the proposed regulations would tighten standing under the Act by prohibiting plaintiffs from pursuing qui tam actions on a pro se basis after the state or a local government declines to intervene or supersede in the action, unless the plaintiff is eligible to represent a party before the court in which the case is proceeding. Consistent with federal case law, this new subdivision is designed to protect defendants from unmeritorious cases and to ensure that qui tam cases in which the government declines to intervene or supersede are litigated by qualified attorneys who can adequately represent government interests.

In addition to preventing and deterring fraud and increasing recovery of government funds, the proposed rules would also maintain the state’s compliance with section 1909 of the Social Security Act, 42 U.S.C. § 1396h (the “Deficit Reduction Act of 2005”), which allows the state to retain an additional twenty percent of all Medicaid fraud recoveries. The state estimates that this compliance is worth tens of millions of dollars annually that would otherwise be given to the federal government.

If enacted, these regulations will once again move New York’s False Claims Act ahead of its federal and state counterparts. In 2010, New York added tax fraud as an eligible claim under its statute. So far federal lawmakers have not followed suit, and most of the other 29 states with false claims acts either prohibit certain types of tax claim categories or disallow tax suits under their false claims acts altogether.

The full text of the proposed rules and additional information about their impact and how to provide comments are available on the Attorney General’s website, by clicking here.

If you require further information regarding the information presented in this Legal Alert and its impact on your organization, please contact Gabriel M. Nugent, at (315) 425-2836 or gnugent@hblaw.com or Daniel J. French at
(315) 425-4061 or dfrench@hblaw.com, Co-Chairs of the White Collar Practice Area, or Joseph A. Murphy at (518)429-4248 or jmurphy@hblaw.com.