When Do You Have Property Rights in a Legal Claim? The Unusual Situation of Claims for Fraud Against the Federal Government

Most of the time, people don’t think of legal claims as being property unless there is a clear debt owed by one person to another. Sometimes, however, a claim has to be looked at from a property perspective, such as in a divorce or an inheritance. A recent case from the Washington Court of Appeals looks at the question of whether an unusual kind of claim became property so that it could rule who inherited it after the claimant died.

Most claims become property when the event causing the claim – a breach of a contract, or an accident, or something similar – happens. The federal False Claims Act, however, allows a special kind of claim designed to help the government recover its losses when it has been defrauded by a false or fraudulent request for payment. Because Congress thought the government wouldn’t learn about, or pursue, all of these claims, it allows private citizens to sue on the government’s behalf and receive a percentage (ranging from 15 to 30 percent) of any recovery.

Mark Duxbury learned, between 1992 and 1998, that his employer, a pharmaceutical company, allegedly was paying kickbacks to doctors and hospitals to prescribe once of its drugs, resulting in false Medicare claims. He left the company in 1998, and in 2003, sued under the False Claims Act. It was only at this time that he notified the federal government of the alleged kickbacks. That suit has not been resolved, and remains pending in federal court in Massachusetts.

Duxbury, who lived in Washington, died in 2009 without leaving a will. In Washington, if someone dies without a will, and is married, the surviving spouse inherits all of the community property and half the separate property; the remaining separate property is divided among children.  Duxbury had married in 2001, between his learning about the kickback scheme and his filing the suit. His widow and daughter both claimed his interest in the suit.

The primary question became when Duxbury’s claim became property. If it became property before 2001, it would be separate property. If it became property afterward, it would be community property. There was no real dispute that if Duxbury had claimed that he had been the victim of fraud and sued to recover, the date of the fraud would control. Under the False Claims Act, however, the government is the victim. Duxbury had no rights to any recovery until he actually brought the suit and notified the government; after all, someone else could have beaten him to it. The court ruled that because Duxbury didn’t file until 2003, his rights in the suit were community property, and his widow will inherit any recovery. I suspect that the stepmother will not name the stepdaughter in her will, if she writes one.

This distinction isn’t as relevant in inheritances in Oregon because Oregon doesn’t use community property. It does, however, take into account when property is acquired when distributing property in a divorce. If property is acquired during marriage, the courts usually will hold that both spouses contributed to its acquisition, and that it’s fair to consider that property potentially available to be divided among the spouses.

If you’re getting divorced and one of the spouses has a fairly large legal claim against someone, it may be worth getting an opinion of its value. Talk to a divorce lawyer about it; this may lead to getting an opinion from the lawyer handling the claim, or, if that lawyer isn’t willing to cooperate, from an expert. If you are pursuing a claim that is taking a very long time, and you’re worried that you may not live to see the result, consider whether you should talk to a lawyer about how to leave the claim in a will; it may avoid a dispute within the family.

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