On April 28, 2009, legislation that could significantly expand civil False Claims Act liability and qui tam litigation passed two milestones. Congress has been debating two bills containing different sets of amendments to the False Claims Act (FCA). See “Federal Civil False Claims Act Expansion Moving Quickly Through the U.S. Senate,” Litigation Alert (Mar. 11, 2009).1 On April 28, those amendments moved much closer to becoming law.
Of particular interest to government contractors and grantees are the amendments that would expand covered conduct under the FCA to include liability for the knowing retention of overpayments. Moreover, the amendments pending in the House would abolish two defenses often used by defendants to accomplish early dismissal of an FCA action: namely, the FCA’s public disclosure bar and the requirement that relators plead fraud with particularity. These and other provisions of the legislation are discussed in more detail below.
Senate Votes to Expand Liability Provisions. First, the United States Senate passed the Fraud Enforcement and Recovery Act of 2009 (FERA) by a vote of 92-4. FERA, introduced by Judiciary Committee Chairman Patrick Leahy (D-VT), Senator Ted Kaufman (D-DE) and Senator Chuck Grassley (R-IA), is primarily aimed at improving the government’s ability to investigate and prosecute financial frauds such as mortgage, securities, and financial institution fraud, and other frauds related to federal assistance and relief programs (such as the Troubled Assets Relief Program or TARP). But included in the bill are several provisions that could substantially expand the range of conduct subject to liability under the FCA and its whistleblower or qui tam litigation provisions.
FERA Would Expand the Range of FCA Covered Transactions. The Senate amendments would broaden the reach of the FCA to include a wide range of programs and activities where federal funds are disbursed by others to advance a “Government purpose or interest,” including various construction, manufacturing, research, energy, health care and education projects where payments are made by state or foreign governments, federal grantees and certain other recipients of federal funds.
FERA Would Expand the Types of Conduct Triggering FCA Liability. The Senate amendments would replace the FCA’s current limitation that liability only attach to a false claim or statement the defendant used “to get” a false claim paid by the federal government with the requirement that it be “material” to payment of a false claim using funds the federal government had disbursed for a specific “purpose or interest.” Most significantly, the amendments would create an entirely new category of FCA liability for defendants who “knowingly and improperly” conceal, avoid, or decrease an “established obligation” to pay money to the government, including specifically the “retention of any overpayment.” While this latter provision was amended slightly in an attempt to recognize that certain contractors, grantees and health care providers operate under regulatory schemes that contemplate periodic reconciliation of over- and under-payments, its scope is not likely to be fully understood without years of whistleblower-driven litigation.
House Committee Votes to Increase the Volume of Qui Tam Lawsuits. In the House, the Judiciary Committee issued a favorable report on H.R. 1788, the False Claims Act Correction Act of 2009, by a voice vote of 20-6. Like FERA, H.R. 1788 is designed to expand the FCA to cover more types of transactions and more conduct than it reaches today, but the expansion that could result from the House amendments exceeds the reach of the Senate bill. In addition to expanding the covered transactions, the House amendments would also amend the FCA qui tam provisions to significantly strengthen the hand of whistleblowers who are authorized to sue in the name of the United States and to virtually eliminate the primary defenses presently available not only to defendants, including contractors, universities and health care providers, but also to the government itself. Many of the Corrections Act amendments would apply retroactively to conduct and lawsuits that predate its enactment. The Corrections Act sponsors include Representatives Howard Berman (D-CA), James Sensenbrenner (R-WI), Daniel Lungren (R-CA), John Conyers (DMI), and Steve Cohen (D-TN).
The House Bill Would Expand FCA Covered Transactions and Conduct. The House amendments would broaden the scope of liability by redefining the fraud on the government to include fraud related to funds in the possession of government contractors, agents, grantees, or other recipients or money held for administrative beneficiaries. As such, the bill would expand the universe of false claims covered by the FCA beyond those submitted to the federal government or its agents for federal funds. Most significantly, in terms broader than those the Senate included in FERA, the bill would create an entirely new category of FCA liability for defendants who conceal, avoid, or decrease an obligation to pay money to the government, including the failure to disclose an overpayment, apparently without regard to whether those actions were taken for a proper or improper purpose.
The House Bill Would Extend the Statute of Limitations. The Corrections Act would extend the statute of limitations on all FCA causes of action, including whistleblower retaliation claims, to 8 years.
The House Bill Would Strengthen the Hand Dealt to Whistleblowers. The House amendments would amend the FCA’s qui tam provisions to increase the number of cases in which whistleblowers press on with litigation after the government investigates and declines to take up their allegations of fraud. The amendments would abolish the jurisdictional bar prohibiting whistleblowers from filing suit based on public information and preclude defendants from raising public disclosure as a defense. The amendments would exempt whistleblowers from the burden of pleading an FCA violation with particularity, a burden all other fraud plaintiffs, including the government, must meet under Rule 9(b) of the Federal Rules of Civil Procedure. The amendments would also increase whistleblower rewards by requiring the government to account for non-monetized benefits from the filing of a qui tam in calculating the bounty to be paid from any financial settlement. The amendments would also broadly expand employment litigation under the Act, extending the anti-retaliation provision to reach a wider range of conduct and cover contractors and agents as well as employees of a defendant.