Choosing Litigation Over Settlement in a Federal False Claims Act Case: What You Need to Know
If you are considering litigation over settlement, it’s important to understand what to expect, the potential risks, and the key legal defenses available. At Watson & Associates, LLC, our False Claims Act attorneys help clients weigh their options and strategically navigate FCA cases to protect their businesses and futures.
What Is the False Claims Act, and Why Are You Facing Litigation?
The False Claims Act (31 USC 3729-3733) is one of the most powerful tools the federal government uses to combat fraud against federal programs. It imposes severe penalties, including jail time in criminal cases, on anyone who knowingly submits false claims for payment from the government.
Common reasons businesses and individuals face FCA lawsuits include:
- Billing errors or contract misinterpretations in government contracts
- Alleged overcharging or misrepresentations in Medicare, Medicaid, or TRICARE billing
- Whistleblower (qui tam) lawsuits from former employees or competitors
- Government audits or investigations triggered by compliance concerns
If you are accused of violating the FCA, you must consider whether settling or fighting the case in court is the best course of action.
Understanding the Risks of Settlement
Settling a False Claims Act case may seem like an efficient way to avoid litigation costs, lengthy investigations, and potential criminal exposure. However, settlements carry long-term risks that should be fully considered before making a decision.
Key Risks of FCA Settlements:
- Public Exposure – Many FCA settlements are publicly announced by the DOJ, which can lead to reputation damage and negative media coverage.
- Government Scrutiny – A settlement may invite increased regulatory oversight and future audits of your business practices.
- Follow-On Lawsuits – A civil settlement does not prevent additional state FCA claims, private lawsuits, or even criminal charges.
- Suspension or Debarment – If you are a government contractor, settling an FCA case can jeopardize your ability to win future federal contracts.
- Admitting Liability – While most settlements do not require an admission of guilt, they may still be viewed as an acknowledgment of wrongdoing, affecting future business opportunities.
Before agreeing to a settlement, assessing whether litigation is a viable option is essential.
When Litigation May Be the Better Option
While FCA litigation can be costly and time-consuming, there are situations where fighting the case in court may be the better choice.
1. The Government’s Case Is Weak
For an FCA case to succeed, the government must prove that:
- A false claim was submitted
- The defendant knew the claim was false
- The government suffered damages as a result
Many FCA cases arise from gray areas in contract law, unclear regulations, or simple billing errors rather than deliberate fraud. If the government’s evidence is circumstantial or lacks clear proof of intent, litigation may be the best strategy.
2. The Financial and Business Impact of Settling Is Too High
Settlements often come with large financial penalties, increased oversight, and long-term business consequences. If settling would:
- Trigger additional state FCA claims or lawsuits
- Jeopardize government contracts through suspension or debarment
- Lead to negative media attention that harms your business reputation
Then litigation may be worth considering to protect your long-term interests.
3. Potential Criminal Liability
While False Claims Act violations are typically civil, they can lead to criminal investigations under statutes like:
- 18 U.S.C. § 287 (False Claims Act – Criminal Penalties)
- 18 U.S.C. § 1341 (Mail Fraud)
- 18 U.S.C. § 1343 (Wire Fraud)
- 18 U.S.C. § 371 (Conspiracy to Defraud the Government)
If settling an FCA case does not eliminate the risk of criminal prosecution, litigation may be the only way to fully defend against all allegations.
4. Qui Tam Whistleblower Allegations Are Unfounded
Many False Claims Act cases are brought by whistleblowers (qui tam relators) who are financially incentivized to pursue litigation. These individuals can collect up to 30% of the government’s recovery, creating an incentive to exaggerate or misrepresent claims.
If your case involves a disgruntled former employee, competitor, or opportunistic whistleblower, litigation may be necessary to challenge the relator’s credibility and motives.
Federal False Claims Act Cases Involving the Buy American Act, Trade Agreements Act, Small Business Programs, and Healthcare Fraud
Small businesses engaged in government contracting, federal procurement, small business programs, and healthcare billing are often targeted in False Claims Act (FCA) investigations and lawsuits. Federal agencies, whistleblowers, and the Department of Justice (DOJ) aggressively enforce compliance with federal procurement laws, including the Buy American Act (BAA), Trade Agreements Act (TAA), and SBA small business regulations.
If you are facing an FCA investigation, qui tam lawsuit, or DOJ subpoena, it is critical to understand your risks and legal options. At Watson & Associates, LLC, our False Claims Act attorneys help government contractors, small businesses, and healthcare providers fight FCA allegations and avoid devastating penalties.
False Claims Act Cases Involving the Buy American Act (BAA)
What Is the Buy American Act?
The Buy American Act (BAA) requires that federal contractors use domestic materials and products when performing government contracts. Violations of the BAA can lead to FCA lawsuits if a contractor knowingly:
- Misrepresents foreign-made products as “Made in the USA”
- Falsifies country-of-origin certifications
- Fails to comply with domestic sourcing requirements
- Engages in improper subcontracting with foreign manufacturers
Why BAA Violations Lead to False Claims Act Cases
Government contracts often include BAA compliance clauses, and contractors must certify that their products meet domestic sourcing requirements. If the DOJ or a whistleblower (qui tam relator) alleges that a company knowingly misrepresented its compliance, it could face FCA liability, including:
- Treble damages (triple the government’s losses)
- Statutory penalties per false invoice
- Government contract termination and debarment
- Criminal liability for fraudulent certifications
- Defending Against FCA Claims Involving the Buy American Act
Considerations
- Did the contractor misunderstand BAA requirements?
- Was there a reasonable interpretation of the BAA exemption rules?
- Did the government accept foreign-made components despite BAA provisions?
A strong False Claims Act defense focuses on challenging intent (mens rea), proving good-faith compliance, and disputing whistleblower allegations.
False Claims Act Cases Involving the Trade Agreements Act (TAA)
What Is the Trade Agreements Act?
The Trade Agreements Act (TAA) applies to government contracts exceeding $183,000 and mandates that contractors use products made in “designated countries.” Unlike the BAA, the TAA prohibits the use of products from non-compliant countries like China, Russia, and India.
Common TAA-Related False Claims Act Violations
- Knowingly supplying non-compliant foreign-made goods
- Misrepresenting country-of-origin certifications
- Failing to track supply chains and subcontractors
- Ignoring TAA compliance clauses in federal contracts
FCA Risks for TAA Non-Compliance
- DOJ and whistleblower lawsuits
- Suspension, debarment, and financial penalties
- Contract cancellation and loss of government business
Defending Against FCA Allegations Involving the TAA
- Was the violation unintentional due to supply chain changes?
- Did the government accept non-TAA compliant goods?
- Was there a lack of clarity in country-of-origin determinations?
A strong FCA defense strategy challenges whether the misrepresentation was “knowing” and whether the government sustained actual damages.
Federal False Claims Act Cases Involving Small Business Program Violations
Why Small Businesses Face FCA Liability
The Small Business Administration (SBA) programs provide set-aside contracts for:
- 8(a) Small Disadvantaged Businesses
- Service-Disabled Veteran-Owned Small Businesses (SDVOSB)
- HUBZone Businesses
- Women-Owned Small Businesses (WOSB)
Companies accused of misrepresenting their eligibility or engaging in improper teaming and pass-through schemes often face False Claims Act lawsuits.
Common False Claims Act Allegations in SBA Programs
- Misrepresenting business size or ownership structure
- Improper subcontracting under set-aside contracts
- Teaming agreements that violate SBA regulations
- Affiliation fraud (large businesses controlling small business contracts)
FCA Risks for Small Business Contractors
- Federal audits and SBA debarment
- DOJ investigations and whistleblower lawsuits
- Loss of future government contracting opportunities
Defending Against SBA-Related FCA Claims
- Was the certification process ambiguous or unclear?
- Did the government agency approve contract performance?
- Was there reliance on SBA guidance that changed over time?
Our False Claims Act defense lawyers fight SBA fraud allegations by challenging intent, proving regulatory compliance, and demonstrating good-faith business practices.
Litigating False Claims Act Cases Involving Healthcare Fraud
Why Healthcare Providers Face FCA Investigations
The False Claims Act is heavily enforced in Medicare, Medicaid, and TRICARE billing. Healthcare fraud cases often involve:
- Upcoding and unbundling of medical services
- Billing for medically unnecessary procedures
- Kickback schemes under the Anti-Kickback Statute
- Violations of the Stark Law (physician self-referrals)
FCA Risks for Healthcare Providers
- DOJ and HHS-OIG investigations
- Treble damages and civil monetary penalties
- Loss of Medicare/Medicaid reimbursement eligibility
Defending Against FCA Healthcare Fraud Allegations
- Did the provider follow medical necessity guidelines?
- Were billing errors unintentional and corrected promptly?
- Did government auditors misinterpret the billing practices?
A strong False Claims Act defense for healthcare fraud focuses on challenging intent, proving compliance with CMS rules, and attacking whistleblower credibility.
Making the Right Decision: Settle or Litigate?
Before deciding whether to settle or litigate a federal FCA case, companies should assess:
- The strength of the government’s evidence – Can they prove intent beyond a reasonable doubt?
- The financial risks of settling – Will it lead to more investigations, contract debarment, or private lawsuits?
- The potential for criminal exposure – Could settling trigger further DOJ investigations?
Our False Claims Act attorneys conduct a comprehensive risk analysis to help clients make informed decisions about litigation vs. settlement.
Key Defenses in False Claims Act Litigation
If you decide to fight your False Claims Act case in court, potential defenses include:
- Lack of Intent (Mens Rea) – The government must prove knowing misconduct, not just mistakes or misinterpretations.
- Regulatory Ambiguity – Many FCA cases involve complex, unclear regulations, making it difficult to prove fraud. Public Disclosure Bar – If the allegations are based on publicly available information, the case may be dismissed.
- Statute of Limitations – FCA claims are barred if not filed within 6–10 years.
- Procedural Challenges – Cases may be dismissed by the. court if the government fails to plead fraud with specificity under Rule 9(b).
By challenging the government’s case early, a strong federal False Claims Act defense can lead to dismissal, reduced penalties, or a favorable trial outcome.
Weighing the Costs: Litigation vs. Settlement
Before deciding whether to settle or litigate, consider:
- The strength of the government’s evidence – Can they prove intent beyond a reasonable doubt?
- The financial impact of settling – Will a settlement trigger more lawsuits, regulatory scrutiny, or contract debarment?
- The potential for criminal exposure – Could settling lead to further investigations or charges? Long-term business risks – Will a settlement harm your company’s reputation and ability to do business with the government?
At Watson & Associates, LLC, our False Claims Act defense attorneys conduct a thorough risk analysis to help you make informed decisions about your legal strategy.
Key Takeaways from US Supreme Court Case – U.S. ex rel. Schutte v. SuperValu Inc. for False Claims Act Cases
In U.S. ex rel. Schutte v. SuperValu Inc., the U.S. Supreme Court clarified a critical issue in False Claims Act (FCA) litigation—whether a defendant’s subjective belief about the truthfulness of their claims matters when determining liability. This case has significant implications for government contractors, healthcare providers, and businesses facing FCA investigations, particularly in cases involving the Buy American Act (BAA), Trade Agreements Act (TAA), small business program violations, and healthcare fraud.
The False Claims Act imposes liability on individuals and businesses that knowingly submit false claims to the government. However, in FCA cases involving complex regulations, defendants often argue that they relied on an objectively reasonable interpretation of the rules.
In Schutte v. SuperValu, the Supreme Court addressed whether a defendant can avoid FCA liability by pointing to an ambiguous regulation, even if they subjectively believed their claim was false at the time of submission.
The case involved SuperValu, a national pharmacy chain, accused of overcharging Medicare and Medicaid by reporting inflated “usual and customary” drug prices instead of the discounted prices it routinely charged cash-paying customers. Whistleblowers alleged that SuperValu knowingly submitted false claims by failing to report the lower rates.
If you received a target letter or subpoena from the OIG, HHS, OIG or FBI, call our Healthcare fraud defense and government contractor whistleblower attorneys at 1.866.601.5518 today. Speak to Lead Counsel and Government Contractor False Claims Act lawyer and healthcare legal attorney Theodore Watson.
Free Attorney Consultation – How We Can Help You Defend Your False Claims Act Case?
Two essential elements of an FCA violation are (1) the falsity of the claim and (2) the defendant’s knowledge of the claim’s falsity. See U.S. ex rel. Schutte v. SuperValu Inc. The government prosecutors will have to show that you have the scienter required by the FCA and that you correctly understood that standard and thought that your submitted claims were inaccurate. You must know your claim to be false
Our job as False Claims Act attorneys is to show that you did not. This is especially true in allegations that you overcharged Medicare and Medicaid programs when seeking reimbursement for prescription drugs. Call us today to get a free attorney consultation. 1.866.601.5518.
Consult Watson & Associates, LLC for FCA Defense Guidance
If you are facing an FCA lawsuit or investigation and are considering litigation over settlement, early legal intervention is crucial. Our False Claims Act defense lawyers help businesses, government contractors, and healthcare providers develop strategic defense plans tailored to their specific case.
Call us today for a confidential consultation at 1.866.601.5518.
With decades of experience in federal False Claims Act defense, our team is here to help you navigate this critical decision and protect your business, reputation, and future. We help clients in virtually all states in the United States.