Two proposed amendments to the False Claims Act, 31 U.S.C. §§ 3729, et seq. (“FCA”) currently pending in the House (H.R. 4854) and the Senate (S. 2041) are known as the The False Claims Act Correction Act of 2007. The proposed revisions are significant and, if passed, will effect the most substantial changes to FCA/qui tam litigation in more than 20 years. Both bills have been passed by their respective Judiciary Committees and are awaiting a floor vote. It is expected that The Obama Administration will support passage of these amendments.
The major proposed changes to the FCA under these bills include:
Expanding The Presentment Requirement
Currently, false claims must be presented directly to the United States and not just to an entity that receives federal funds. Both H.R. 4854 and S. 2041 would revise the FCA, however, to impose liability on any person who presents “a false or fraudulent claim for government money or property,” or also uses a “false statement or record to get” the claim paid. The Senate bill defines “government money or property” to include money or property that the United States has “provided or will reimburse to a contractor, grantee, agent or other recipient to be spent or used on the government’s behalf or to advance government programs, or money or property belonging to any ‘administrative beneficiary.’” If this broad definition were accepted, the current FCA requirement—that the government itself have approved or denied payment based on a false claim presented directly to it—would be eliminated. This proposed change could materially increase the number of FCA claims filed by broadening the reach of the FCA to include a wide range of disputes between private parties in which the government’s involvement is only nominal or tangential. The proposed revisions would also be at odds with recent court decisions that have confirmed that false claims must be presented directly to the United States, and not merely to an entity that receives federal funds. See, e.g., U.S. ex. rel. DRC v. Custer Battles, 376 F. Supp. 2d 628 (E.D. Va. 2006); U.S. ex rel. Totten v. Bombadier Corp., 286 F. 3d 542 (D.C.Cir. 2004).
Eliminating The Public Disclosure/Original Source Defense
Under the current FCA, courts do not have jurisdiction over qui tam actions that are based on information publicly known, unless the person bringing the qui tam action is an original source of the information. 31 U.S.C. 3730(e)(4)(A). Accordingly, defendants often seek dismissal if a qui tam relator’s case is based only upon information gleaned from public sources, or when the relator is not an original source of the information disclosed to the government. H.R. 4854 proposes to change this provision by allowing only the government—not the defendant—from raising public disclosure as a ground for dismissal. Another reason qui tam actions may increase if the proposed amendments are adopted is that the revisions seek to allow such actions to be brought even when there is already a government investigation in progress. Under the proposed amendments, qui tam actions would be subject to dismissal only if “all essential elements” of the allegations are “based exclusively on the public disclosure” (defined as information “on the public records” or “disseminated broadly to the general public”). The concern arising from this revision is that relators could profit from qui tam actions without any personal, first-hand knowledge of the alleged wrongdoing, if the relators are able to establish that any one element of their FCA claim is based upon information that was not “disseminated broadly to the general public,” even in cases where a government investigation is in progress.
Qui Tam Actions By Federal Employees
The revisions also propose to amend the FCA to permit federal employees to bring qui tam actions, even if the suit is based upon information uncovered in the course of the employees’ official duties, so long as the employee previously presented the allegations to the respective inspector general or to the attorney general, before initiating the qui tam action. Once a qui tam action is filed, the proposed revisions would only afford the government 60 days to seek dismissal of the action filed by a federal employee.
Statute Of Limitations
Both the House and Senate versions of the bill provide for a 10-year statute of limitations in all FCA suits that would not begin to run until the qui tam case is unsealed. The current statute of limitations is six years, or three years from the date of discovery of the false claims, up to a maximum 10-year period. The concern with the proposed extension of the limitations period is that qui tam cases often remain sealed for years, and defendants might first learn of the action long after employee memories have faded, documents have been destroyed and/or witnesses are no longer available. This extension could also require that contractors retain documents for many more years than legally required in the event that qui tam actions are filed at some time in the future.
In the meantime, the likelihood of increased future qui tam actions—along with the requirements of the new Mandatory Disclosure Rule—all call for a new look at your company’s ethical codes of conduct, and internal compliance policies and procedures to protect against False Claims liability.