On May 20, 2009, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009 (“FERA”). FERA makes significant amendments to the False Claims Act (“FCA”), which was last amended in 1986. In addition, FERA is designed to protect federal funds recently expended in the Troubled Asset Relief Program (“TARP”) and the American Recovery and Reinvestment Act of 2009 (“ARRA”) by greatly enhancing the government’s ability to prosecute fraud in the financial industry and mortgage lending business. Many of the FCA-related amendments in FERA were originally proposed in the False Claims Correction Act of 2007, which was introduced in Congress in late 2007. The FCA amendments were intended to, among other things, address certain recent court decisions that Congress believed misinterpreted the FCA.
The principal amendments to the FCA contained in FERA are summarized below. Except as indicated below, the amendments are effective on the date of FERA’s enactment.
Elimination of Intent To Defraud United States Government Requirement: FERA amends the FCA to provide that a defendant may be liable for knowingly submitting false statements that result in false claims being paid by the government, regardless of whether the defendant specifically intended to defraud the United States government. This amendment is intended to address the Supreme Court’s decision last term in Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008), which held that a relator asserting an FCA claim must prove that the defendant intended that the false record or statement be material to the government’s decision to pay or approve the false claim. The Senate Judiciary Committee’s Report indicates Congress was concerned the Allison Engines decision would permit subcontractors on large government contracts to escape FCA liability if they knowingly submitted a false claim to the general contractor, but there was no evidence the subcontractor specifically intended to defraud the United States government. This amendment was made retroactive to June 7, 2008 (the date of the Allison Engines decision).
Elimination of Presentment Requirement: FERA amends the FCA to eliminate the presentment requirement, which required that the false claim be presented for payment to an officer or employee of the United States government. This amendment is intended to address the D.C. Circuit’s 2004 decision in United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), which held that a claim presented to Amtrak did not satisfy the FCA’s presentment requirement because Amtrak was a federal grantee, and thus the claim was not presented to an officer or employee of the government. The Senate Judiciary Committee’s Report indicates Congress was concerned the Bombardier decision, like the Allison Engines decision, exempted from FCA liability subcontractors who submitted false claims to general contractors and were paid with government funds. With this amendment, Congress intends that FCA liability attach “whenever a person knowingly makes a false claim to obtain money or property, any part of which is provided by the Government without regard to whether the wrongdoer deals directly with the federal Government; with an agent acting on the Government’s behalf; or with a third party contractor, grantee, or other recipient of such money or property.”
Expansion of Definition of “Obligation” to Reach “Reverse False Claims”: Section 3729(a)(7) of the FCA imposes liability for a “reverse false claim,” where a person submits a false record or statement that conceals, avoids or decreases an “obligation” to return government funds in his possession. FERA amends the FCA to expand the definition of “obligation” to include “an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensorlicensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.” The Senate Judiciary Committee’s Report indicates this amendment is intended to address certain court decisions that Congress believed narrowly interpreted the definition of obligation to include only fixed, and not contingent, obligations. By expanding the definition to include “the retention of an overpayment,” Congress intended “to prevent Government contractors and others who receive money from the Government incrementally based upon cost estimates from retaining any Government money that is overpaid during the estimate process.” Thus, Congress explained: “the violation for receiving the overpayment may occur once an overpayment is knowingly and improperly retained, without notice to the Government about the overpayment.” Congress, however, noted that this provision is not meant to reach situations where statutory and regulatory provisions in government contract law allow for the reconciliation of cost reports that may permit “an unknowing, unintentional retention of overpayment.”
Expansion of Definition of “Government Property or Money”: FERA amends the FCA to clarify that it reaches knowingly false requests for money and property from the United States government, without regard to whether the United States holds title to the funds under its administration. This amendment is intended to address the decision in United States ex rel. DRC Inc. v. Custer Battles, 376 F. Supp. 2d 617 (E.D. Va. 2005), where the court held that Iraqi funds administered by the United States government were not government funds within the meaning of the FCA.
Amendments to Civil Investigative Demand Provisions: Section 3733 of the FCA permits the Attorney General, before commencing a civil proceeding, to issue a civil investigative demand to obtain documents, testimony or other information it deems relevant to an FCA investigation. FERA amends the FCA to permit the Attorney General to share with a relator any information obtained pursuant to such a demand, if such sharing is deemed necessary as part of an FCA investigation. FERA also permits the Attorney General to delegate the authority to issue civil investigative demands.
Restriction on Statute of Limitation Defense Where Government Intervenes: FERA amends the FCA to provide that for statute of limitations purposes, when the government intervenes in a case and files its own complaint, any such pleading shall “relate back” to the filing date of the relator’s complaint, provided the new complaint arises out of the conduct set forth, or attempted to be set forth, in the relator’s complaint.
Clarification Regarding Conspiracy Liability: FERA amends the FCA to clarify that conspiracy liability can arise whenever a person conspires to violate any provision of the FCA. This amendment addresses certain court decisions that limited conspiracy liability to only specific provisions of the FCA.
Updating Conversion Provisions: Section 3729(a) (4) of the FCA allows the government to recover losses incurred because of conversion of government assets. FERA updates this provision to clarify that recovery under a conversion theory is not contingent on whether the defendant received an actual receipt for the property.
Expansion of Liability for Retaliatory Acts: FERA expands liability under the FCA for retaliatory actions against whistleblowers and “associated others.”