An Update on the False Claims Act

By: Meredith Taylor, Esq., CIS Senior Compliance Manager
meredithtaylor@cis-partners.com

On May 20, 2009, the Fraud Enforcement and Recovery Act of 2009[1] (“FERA”) was signed into law by the President. FERA amends the Civil False Claims (FCA) by imposing liability on any person or entity who submits a false claim to the government, with or without overt intent, in exchange for payment, whether the claim was submitted to the government directly or indirectly, and whether the Government ever actually paid the claim.

The FCA, prior to the amendment, imposed liability on anyone who:

(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval;
(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;
(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid; …[2]

Recently, the Courts have interpreted the FCA to narrow the scope of liability, and Congress has made multiple attempts o to amend the FCA to expand its scope and overturn those Court decisions. Until last week, none of those Bills were successful. S.2041 and. H.R.4854, both known as “the False Claims Corrections Act,” and H.R.3180, known as “The Whistleblower Recovery Act of 2007” failed to make it out of session. After these failures Senators Chuck Grassley (R-Iowa) and Patrick Leahy (D-Vermont) drafted a Bill which finally passed.

Senate Bill S.386 (amended by the House) was passed by the Senate and amended by the House, and has been signed by the President. According to the Bill’s proponents, S.386 was crafted from portions of the unsuccessful Bills and was fueled by the desire to undo the “harm” that was done by the Allison Engine[3] case.

In the Allison Engine case, the Court ruled that a government contractor was not liable under the FCA because it did not intend to present a false claim to the federal government. In that case, a subcontractor used false information to receive payment, but from another contractor, not directly from the government. The Court held: “it is insufficient for a plaintiff asserting a § 3729(a)(2) claim to show merely that “[t]he false statement's use ... result[ed] in obtaining or getting payment or approval of the claim,” 471 F.3d 610, 621 (C.A.6 2006) or that “government money was used to pay the false or fraudulent claim,” id., at 622. Instead, a plaintiff asserting a § 3729(a)(2) 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.[4] This case requires a clear showing of intent to defraud the government.

The first S.386 passed by the Senate on April 28, 2009, included these changes to the FCA:

• Presentment - The requirement that the false statement be presented to a representative of the federal government would be done away with. Now, the false statement could be provided to a government contractor or a third party.
• Claim – What used to require requests or demands for money directly from the government would now include money provided by the government, in whole or part, for work in furtherance of a government interest.
• Material – The false statement used “to get” a false claim paid would now only require that the false statement was “material” to the false claim. An influence of the false claim could be enough.
• Reverse false claims – An addition of FCA violations for knowingly and
  intentionally avoiding a repayment of money owed to the government, as a result of an overpayment.
• Retroactivity - This section of the Bill seeks to reach back to Allison Engine
  and those cases that relied on Allison Engine as precedent, and apply this new
  Bill to those facts, to essentially reverse many decisions.

The amended S.386 passed by the House on May 6, 2009, included these amendments to
the Senate Bill:

• Qui Tam Intervention - The government can join suit with realtors by filing its own
  complaint, or by amending the Qui Tam complaint to clarify or add detail to the
  claims. The government’s complaint relates back to the realtor’s filing date.
• Civil Investigation Demands – The Attorney General, or a designee, can
  share information with the realtor if appropriate to investigate the claim.
• Anti-retaliation – An employee who is terminated or demoted as a result of lawful acts done in furtherance of reporting or stopping FCA violations is entitled to
  reinstatement with the same authority.

Finally, the President signed the Bill on May 20, 2009. It should be noted that the final version of FERA states that the amendments to the FCA take effect on the date of the enactment, May 20, 2009, and apply to conduct on or after that date, but there are limited exceptions. As such, the retroactivity amendment above in the Senate Bill did not survive.

FERA will lead to more liability because it will take less to prove a violation of the FCA. The fraudulent claim, statement, or information does not have to be directly presented to the government for payment. Now, if false information submitted indirectly to the government is material in the false claim, liability could attach.

Sources:
[1] P.L. 111-21
[2] 31 USC 3729
[3] Allison Engine Co., Inc. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008).
[4] Id. at 2128-2130