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Qui Tam Claims and Derivative Actions

By Jonathan S. Feld and Tiffani C. Siegel

'Parallel proceedings' is a term with which white-collar criminal defense lawyers and in-house counsel are very familiar. It describes the private civil actions that often are concurrently filed when a criminal investigation or charges are disclosed. The civil impact of criminal investigations and prosecutions begin and continue long after resolution of the criminal case. Indeed, once the corporation's alleged fraudulent actions or resulting settlement become public knowledge, often it is only a matter of time before an action is filed against its officers and directors.

For decades, parallel proceedings often took the form of a class action based on a corporate criminal guilty plea. Now that recent legislation has made the requirements for class actions much more stringent, two types of claims may well begin to appear as alternatives: False Claim Act (FCA) lawsuits (see 31 U.S.C.
” 3729 et seq.) and derivative actions. While a recent Supreme Court decision placed more stringent requirements on persons entitled to bring FCA cases, those restrictions may be overturned by the proposed legislation liberalizing FCA requirements. In addition, there has been an upsurge in derivative actions instead of class actions to seek damages.

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