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Maryland Legislature Passes False Claims Act

Bowie & Jensen Case Law and Legal Update:

During the 2015 legislative session, Maryland passed a False Claims Act similar to the Federal False Claims Act. See Md. Code. Ann, Gen. Prov, § 8-101 et. Seq. This Act was a signature piece of the Frosh campaign for attorney general and was considered the Maryland Office of Attorney General’s top legislative priority.  https://www.oag.state.md.us/Press/2015/040815.html. Previously, Maryland’s False Claims Act applied only to the healthcare industry, but this new piece of legislation applies to anyone doing business with state or local governments.  While the passage of this law creates a new weapon for Maryland regulators to deal with unscrupulous contractors, it will also give rise to a cottage industry for qui tam plaintiff’s attorneys to stretch liability to unsuspecting businesses.

In basic terms, this new law allows the state, a county government, or private citizen (qui tam plaintiff) to bring an action seeking recovery of government funds, treble damages, civil penalties and attorney’s fees from a contractor who is involved in a false claim.   The classic false claim exists where a contractor submits a requisition for payment for work that the contractor did not supply.  This is known as a “presentment claim.”   Like the Federal False Claims Act, the Maryland Act also extends to subcontractors who submit claims to a general contractor who then passes the claim to the government.  While it is easy to applaud the take down of a contractor who submits a false claims act on this basis, potential liability under Maryland’s FCA can extend to subcontractors and general contractors who front load their billing or try to bill in advance of their work to increase cash flow in order to pay for materials and labor.

The Federal FCA also imposes liability for express certifications and, in some federal Circuits, implied certifications that certain conditions necessary for payment have been met.   FCA issues can arise in a multiplicity of areas involving express and implied certifications and there is no reason to believe Maryland will be any different.   For example, many State of Maryland projects require certified payrolls and compliance with various other employment laws.  Conceivably, a Maryland FCA action could arise from the use of illegal workers, underpaid workers or unqualified workers.

In the same vein, the Maryland and Federal FCA also recognize a “fraudulent inducement” theory wherein a contractor is liable for overstating or misstating its qualifications to receive the contract.   This area of liability often arises in the context of MBE and other set-aside contracts.  For example, a contractor may commit to sourcing a certain percentage of a contract to a MBE or enters into a joint venture agreement with a qualified MBE but warrants that the MBE is the controlling partner in the JV.  In many instances, FCA issues arise where the work is not provided to the MBE or the MBE is not really in control over the operations.   While, again it is easy to applaud the application of the FCA to the common situations where a large contractor partners with a bogus MBE to procure a contract, there are practical considerations where a smaller set-aside contractor may require financial assistance or backing to obtain bonding and lines of credit.  Too often, these business considerations become fodder for qui tam plaintiffs.    One material difference, however, between the Federal FCA and the Maryland FCA is that a claim under the Maryland law may only proceed if the government elects to intervene, whereas under the Federal FCA statutes a qui tam plaintiff can proceed regardless of government intervention.   The elimination of this provision in Maryland is designed to curtail “cost of litigation” settlements.

Finally, there has been a substantial increase in qui tam actions and the federal level and with the passage of this Maryland act, it is not unreasonable to expect significant activity in Maryland.   Maryland’s law applies prospectively to claims made on or after June 1, 2015.

For further questions or information, please contact Matt Hjortsberg at 410-583-2400 or at Hjortsberg@bowie-jensen.com.

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