On November 2, 2012, the Sixth Circuit held that a 2009 amendment Congress made to the liability provisions of the False Claims Act ("FCA") applies retroactively to civil FCA cases pending as of June 7, 2008. U.S. ex rel. Sanders v. Allison Engine Co., Nos. 10-3818/10-3821, at *17-20 (6th Cir. Nov. 2, 2012).
Background of the Allison Engine Case
In 1995, whistleblowers filed an action under the qui tam provisions of the FCA against various subcontractors alleging that they submitted claims for payment to the Government relating to the construction of generator sets used in Navy Arleigh-Burke-class Guided Missile Destroyers despite knowing that the sets failed to conform to contract specifications and Navy regulations. The district court dismissed the claim on the ground that relators failed to satisfy the presentment element under the FCA, i.e., relators failed to show that defendants presented a false claim to the Government. Sanders v. Allison Engine Co., No. 1:95-cv-970, 2005 U.S. Dist. LEXIS 5612, at *32 (S.D. Ohio Mar. 11, 2005).
On appeal, the Sixth Circuit reversed the decision, holding that presentment was not required for a violation of the FCA. U.S. ex rel. Sanders v. Allison Engine Co., 471 F.3d 610, 622-23 (6th Cir. 2006). The U.S. Supreme Court, however, reversed the Sixth Circuit and remanded the case to the district court, holding that contrary to the Sixth Circuit’s holding, the FCA requires the plaintiff to prove that the defendant intended that the false record or statement be material to the Government’s decision to pay or approve a false claim. Allison Engine Co. v. U.S. ex rel. Sanders, 553 U.S. 662, 665 (2008).
The FERA FCA Amendments
In response to the Supreme Court's decision, Congress amended the FCA as part of the 2009 Fraud Enforcement and Recovery Act (“FERA”) to expand FCA liability to anyone who "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim" (“FCA Liability Amendment”). As such, the amendment removed the requirement that a false claim be actually presented to the Government for FCA liability to attach – the element that the trial court found unsatisfied in Allison Engine. The FERA also contained a retroactivity clause providing that the FCA Liability Amendment "shall take effect as if enacted on June 7, 2008, and apply to all claims under the False Claims Act . . . that are pending on or after that date" (“FERA Retroactivity Clause”). (emphasis added.)
The Allison Engine Holding and Resulting Circuit Split
On remand, the Allison Engine district court held that the word "claims" in the FERA Retroactivity Clause meant claims for payment from the government, not civil actions. Because there were no such claims for payment pending on or after June 7, 2008, the trial court dismissed the action. U.S. ex rel. Sanders v. Allison Engine Co., 667 F.Supp.2d 747, 752 (S.D. Ohio 2009). The district court further held that even if the FERA Retroactivity Clause rendered the FCA Liability Amendment applicable, its application would have violated the ex post facto clause of the Constitution because Congress intended to impose punishment when it amended the FCA. Id. at 752-56.
The Sixth Circuit reversed the trial court's decision, holding that "claims" in the FERA Retroactivity Clause refers to a “civil action or case,” not a "claim for payment" from the Government. U.S. ex rel. Sanders v. Allison Engine Co., Nos. 10-3818/10-3821, at *17-20 (6th Cir. Nov. 2, 2012). The court also found that such retroactive application did not violate the ex post facto or due process clauses of the Constitution. Id. at 20-33.
The Sixth Circuit's decision adds to an existing circuit split on the interpretation of "claims" in the FERA Retroactivity Clause. The Sixth Circuit joins the Second and Seventh Circuits holding that "claims" means "cases," and is at odds with the Ninth and Eleventh Circuits as well as various district courts holding that "claims" means "claims for payment" from the government. Given the circuit divide and the importance of this issue to FCA litigation, one should not be surprised to see the U.S. Supreme Court resolve the question once and for all.
Impact of Allison Engine
The Allison Engine decision is the latest in a line of cases from various circuits interpreting the word "claims" in the FERA Retroactivity Clause. The interpretation of this term is important because the subsection of the FCA imposing liability for making or using a "false record or statement material to a false or fraudulent claim" and not requiring presentment of a claim can only apply in pre-FERA cases if the requirements of the retroactivity clause are met. There can be a wide gap of time between an alleged claim for payment from the Government and the time at which a resulting FCA action is filed. As such, whether "claims" is interpreted to mean a claim for payment from the government or an FCA action can have a great impact on the number of defendants with potential FCA exposure for making or using a false record or statement material to a false or fraudulent claim.
If and when the U.S. Supreme Court steps in and resolves this issue, we will have an answer in all circuits as to the proper application of the FERA Retroactivity Clause to claims under the FCA Liability Amendment. Until then, however, companies must deal with the current circuit split. In the Second, Sixth, and Seventh Circuits, the FCA Liability Amendment applies retroactively to FCA cases filed as of June 7, 2008, while in the Ninth and Eleventh Circuits, it applies retroactively to claims for payment from the government pending as of June 7, 2008. FCA defendants must be mindful of the rule applicable in their circuit and plan their defense strategy accordingly.