Just before the close of this legislative session, on Wednesday, December 19, 2007, Representative Howard Berman introduced H.R. 4854, entitled the “False Claims Act Corrections Act of 2007.” See 153 Cong. Rec. E2658-59 (Dec. 19, 2007) (statement of Rep. Berman). The bill is co-sponsored by Representative Sensenbrenner. The text of H.R. 4854 was not released until today and is now available. Based on a quick review of the bill’s language, H.R. 4854 tracks much of Senator Grassley’s sweeping proposal to change the False Claims Act in S. 2041, introduced this September with the same misleading term (“Corrections”) in the title, but H.R. 4854 goes well beyond those significant changes to the Act.
H.R. 4854, like S. 2041, would, among other significant changes, remove the presentment requirement, the public disclosure jurisdictional bar and the original source requirement as defenses under the Act. See FraudMail Alert No. 07-09-12 (discussing S. 2041). H.R. 4854, however, contains a number of significant additional changes not found in S. 2041.
Weakening of Rule 9(b): First, the bill attempts to remove (or significantly weaken) the pleading requirement found in Federal Rule 9(b), which requires that the details of actual false claims must be alleged with particularity. New section 3731(e) of H.R. 4854 provides:
(e) NOTICE OF CLAIMS. — In pleading an action brought under section 3730(b), a person shall not be required to identify specific claims that result from an alleged course of misconduct if the facts alleged in the complaint, if ultimately proven true, would provide a reasonable indication that one or more violations of section 3729 are likely to have occurred, and if the allegations in the pleading provide adequate notice of the specific nature of the alleged misconduct to permit the Government effectively to investigate and defendants fairly to defend the allegations made.
What effect this will have on the applicability of Rule 9(b), which applies to all Federal pleadings, will be determined by the courts which have utilized Rule 9(b) to eliminate qui tam cases where the relator could not articulate a legitimate case. If passed, and if applied, this provision could allow even the most inadequate of complaints to proceed to the discovery stage, which would cause more defendants to seek an early settlement of meritless cases rather than undergo the enormous expense of discovery.
Retroactivity of Amendments: Second, it appears that Representative Berman’s billttempts to apply the proposed amendments to pending cases, which would make them retroactive. Section 8 of H.R. 4854 states:
SEC. 8. EFFECTIVE DATE. The amendments made by this Act shall take effect on the date of the enactment of this Act and shall apply to any case pending on, or filed on or after, that date.
There is serious question whether such a provision will be effective, particularly since the FCA is considered a “punitive” statute. Nonetheless, this means that relator’s counsel will attempt to resuscitate all cases and claims still pending or on appeal which were dismissed under Rule 9(b), public disclosure/original source, or any of the defenses eliminated in this bill.
Additional Relief to Third Parties: The bill adds a new subsection (i) in section 3730 for “Damages Collected for Financial Loses [sic] Suffered by Administrative Beneficiaries.” Under this new provision, the government—after paying relators’ awards—must pay from its proceeds “all amounts that the Government has collected in the action for financial losses suffered by  administrative beneficiar[ies],” keeping the remainder. This slap dash provision seems to recognize that, without a presentment requirement or loss to the Federal Treasury, the government will be recovering for the losses of a broad class of “administrative beneficiaries” that may include anyone from Social Security beneficiaries to Federal employees. In addition to its other problems, this provision has serious constitutional flaws because it authorizes suits by the government and qui tam relators to recover losses that are not connected to the government’s harm.
Other New Provisions: There are a number of additional provisions in the bill which are so opaque as to defy explanation. For example, a new section 3729(c) provides:
(c) STATUTORY CAUSE OF ACTION.— Liability under this section is a statutory cause of action all elements of which are set forth in this section. No proof of any additional element of common law fraud or other cause of action is implied or required for liability to exist for a violation of these provisions.
What exactly this provision is intended to do is unknown. It might relate to “materiality” or some other defense which has resulted in the dismissal of frivolous qui tam actions. As written, it is impossible to determine what it does or intends to do.