Litigating Claims under the New Maryland False Claims Act

May 26, 2016

Jeffrey Mills was the Director of Food and Nutritional Services for the District of Columbia Public Schools (DCPS) from 2010 to 2013.  DCPS used Chartwells, a contractor, to provide its food and food services for students in DCPS.   Mills saw enormous problems with Chartwells, including overbilling and, even worse, providing spoiled food to students.  His complaints to DCPS officials were ignored.  And when DCPS terminated his employment, he alleged that he was terminated in retaliation for blowing the whistle on Chartwells. Mills sued not only for retaliation but also for fraud against the DC government, under the qui tam provisions of the District of Columbia False Claims Act.   DC Code Ann § 2-381.03. Chartwells settled with Mills for $450,000.00 for his retaliation claim, and settled with DC for $19,000,000.00, 30% of which could go to Mills, and the rest to DC to compensate it for the overbilling and spoiled food.  https://www.washingtonpost.com/local/education/dc-schools-food-vendor-pays-19-million-to-settle-whistleblower-lawsuit/2015/06/05/bae8dd3c-0b96-11e5-9e39-0db921c47b93_story.html.  

Prior to the recent enactment of the Maryland False Claims Act, a private whistleblower action, like the Chartwells case, to benefit the taxpayers in Maryland with respect to fraud involving Maryland government contracts, could not be filed.  There was no mechanism . . . until now.

The Maryland False Claims Act (Maryland FCA) went into effect June 1, 2015. Prior to the 2015 enactment, Maryland recognized limited false claim protections through the False Health Claims Act of 2010, which addressed cases of Medicaid and other health care related fraud. The Maryland False Claims Act models the Federal False Claims Act (FCA), 31 U.S.C. §§ 3729-3733, and now covers fraud relating to all state programs involving state funding and/or state contracts. The Act encompasses both qui tam provisions brought on behalf of the government, and anti-retaliation provisions to protect whistleblowers.

The new Maryland FCA generally prohibits the knowing submission of false claims for payment or approval by the state government. MD Code, General Provisions § 8-102 (b)(1)-(9).  A court must award damages, at a minimum, in the amount of actual damages the government incurred as a result of the violation (MD Code, General Provisions § 8-102 (c)(1)-(2)), but may award up to three times the amount of damages that the government sustained as a result of the violation.  This differs from the federal FCA which mandates treble damages. 

The Maryland FCA also imposes civil penalties of up to $10,000.00 per false claim.  So, if we were to take the Chartwells case for example, with each bill sent for each delivery, the defendant may be fined up to $10,000.00 per bill.  The fines can add up exponentially at that rate. Unlike the Federal FCA, the Maryland FCA contains a list of factors that must be considered in assessing fines and damages.  These factors include the number, nature and severity of the violations, and whether the company is a repeat offender.   Significantly, there is the potential for personal liability for individual wrongdoers under the Maryland FCA.  There is no hiding behind the corporate veil. MD Code, General Provisions § 8-102 (d).

Like the federal FCA, the Maryland FCA includes both individual retaliation claims, and qui tam claims which are private attorney general actions brought on behalf of the State.   Through qui tam actions, individuals work with private attorneys to file complaints under seal, and then serve those complaints upon the Office of the Attorney General (OAG).  Pursuant to MD Code, General Provisions § 8-104 (a)(1)(7) and § 8-104 (b)(3), the State will decline to intervene in those cases that do not pass its screening and investigative process.  In regard to the Maryland FCA, State intervention is the “whole ballgame.”  Unfortunately, unlike under the Federal FCA, an individual may not proceed to litigate a claim after the State declines intervention, at which point the Court must dismiss the case.  Under the Federal FCA, a relator can litigate even if the Department of Justice declines to intervene. 

The Maryland FCA incentivizes individuals to come forward by awarding between fifteen and twenty-five percent of the damages recovered to the whistleblower, plus an award of statutory attorney’s fees and expenses.  

The Statute of Limitations to bring a qui tam action requires that the case be filed within the later of either six years after the date on which the violation occurred or three years after the date the individual bringing the civil action knew or should have known of the material facts regarding the fraud (no later than 10 years after the violation occurred) (Md Gen Provis § 8-108).

A private right of action for illegal retaliation could be pursued in addition to or separate from the qui tam complaint. The retaliation claim belongs to the individual and there is no need for State intervention to proceed.  Like the Federal FCA, the Maryland FCA prohibits retaliatory actions under Md. Gen Provis § 8-107, when the employee’s (or contractor’s) protected conduct was a substantial factor in the employer’s decision to terminate the employee or pursue other adverse actions.  So, if retaliatory action is taken by the employer – like it was against Mills in the Chartwells case – the employee may file a civil action to seek relief, including an injunction to stop an ongoing violation; reinstatement to seniority status; reinstatement of fringe benefits; two times lost wages including interest; payment of reasonable costs and attorney’s fees; punitive damages; and civil penalties.

The Maryland FCA does provide some advantages over the federal law.  For example, the Federal FCA does not specifically provide for injunctive relief, punitive damages, or civil penalties, for retaliation claims.  Retaliatory actions fall under Maryland’s general three year statute of limitation requiring filing from the date of retaliation. Md. Code Ann., Cts & Jud. Proc., § 5-101.

Maryland Courts have had little opportunity to interpret the Maryland FCA. Thus, as a general rule, practitioners and courts should look to the Federal FCA and related federal decisions for guidance.

And a final note, Mills likely and sadly could not have brought his particular claim in Maryland because Maryland, in contrast to DC, prohibits governmental employees from being relators.  MD Code, General Provisions § 8-106(b). That is unfortunately a loss to the citizens and taxpayers in Maryland.  Perhaps we will learn from our neighbors and ultimately broaden the scope of the law. 

Full citations:

MD Code, General Provisions, § 8-101 – § 8-111 Maryland False Claims Act, 2015 Maryland Laws Ch. 165 (S.B. 374)

Jay P. Holland is a shareholder in the law firm of Joseph, Greenwald & Laake, P.A., and Co-Chair of Labor and Employment Section of the Prince George’s County Bar Association.