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Trial Lawyers Prosecuting Qui Tam Cases

Hundreds of Millions Recovered for the Government and Whistleblowers

Fraud Enforcement Recovery Act of 2009

OVERVIEW

On May 20, 2009, President Barack Obama signed into law the Fraud Enforcement and Recovery Act of 2009 (“FERA”).1 The purpose of FERA was to strengthen legislation that combats various types of fraud related to federal assistance and relief programs by specifically addressing judicial interpretations that Congress thought limited the effectiveness of the FCA.2 As Senator Patrick Leahy states in the Committee on the Judiciary’s Senate Report regarding FERA:

FERA improves one of the most potent civil tools for rooting out waste and fraud in Government–the False Claims Act (18 U.S.C. S 3729 et seq.). The effectiveness of the False Claims Act has recently been undermined by court decisions which limit the scope of the law and, in some cases, allow subcontractors paid with Government money to escape responsibility for proven frauds. The False Claims Act must be corrected and clarified in order to protect from fraud the Federal assistance and relief funds expended in response to our current economic crisis.

In addition, FERA clarifies the reach of the FCA’s conspiracy and reverse false claims liability provisions, strengthens anti-retaliation provisions, addresses the “relation back” issue regarding the government’s complaints-in-intervention and amended complaints, and permits the government to share information with relators and delegate civil investigative demand authority.

SUBCONTRACTOR LIABILITY

Before the passage of the 2009 FERA Amendments, several judicial decisions effectively blocked the government and relators’ ability to attack fraud committed by a subcontractor who did not have a direct contractual relationship with the government.3 In a 2005 opinion, the Court of Appeals for the District of Columbia held that FCA liability did not attach to subcontractor fraud.4 The D.C. Circuit, however, based its decision on the “presentment” language of Section 3729(a)(1), requiring a claim to be presented to a government official or employee.5 The court held that FCA liability does not attach where false claims are made to a prime contractor that received federal funds and who was not a “government official or employee.”6

In a controversial 2008 opinion, the Supreme Court similarly decided in Allison Engine Co., Inc., v. United States ex rel. Sanders that FCA liability did not attach to subcontractors who committed fraud but did not have direct contractual obligations with the government.7 The Court arrived at this conclusion by reading an intent requirement into the language of Section 3729(a)(2) of the FCA, which provided liability for one who “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 Government.”8 The Court interpreted the phrase “to get a false or fraudulent claim paid” to mean that a defendant must intend the government itself to pay the claim; thus, FCA liability would not attach to fraud committed against prime contractors working on projects funded with federal dollars because the fraud was not directed against the government itself.

Concerned in part by the government’s increasing reliance on private entities to disburse government funds, Congress amended the statute in several ways to remedy these judicial decisions and clarify that liability under Section 3729(a) attaches whenever a person knowingly makes a false claim to obtain money or part regardless of whether the person deals directly with the government. First, Congress eliminated the phrase “to an officer or employee of the Government, or to a member of the Armed Forces” in the “presentment” requirement in Section 3729(a) and the “get paid” language in Sections 3729(a)(2) and 3729(a)(3).9 Congress then modified the definition of “claim” to include a request for money or property made “to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government’s behalf or to advance a Government program or interest.”10 Representative Howard Berman noted that these amendments clarify that the FCA may be used to redress fraud on Medicare’s new Part D program, fraud on Medicare managed care, and fraud on State-administered Medicaid programs.11

Remarkably, Congress made FERA’s amendment of Section 3729(a)(2) retroactive, providing the effective date for this amendment as the date that Allison Engine was decided, June 7, 2008.12

MATERIALITY

Before FERA, most courts read a “materiality” requirement into the FCA, finding that false statements are actionable under the FCA only if they are “material” to the government's decision to pay a claim.13 Courts, however, were split on the test to determine whether a claim was “material.” Some courts held that a claim was material if it had a “natural tendency” to influence payment from the Government, while other courts applied a more rigorous standard and required that the claim have an “actual effect” on the Government’s decision to pay.14 FERA resolved this split by expressly making materiality an element in two of the seven liability provisions in 3729(a)15 while adopting the less stringent “natural tendency” standard as the definition of “material.”16

CONSPIRACY

Prior to FERA, Section 3729(a)(3) imposed conspiracy liability on persons “who conspire to defraud the Government by getting a false or fraudulent claim allowed or paid.”17 Courts construed this language to mean that liability only attached to conspiracies that violated Sections 3729(a)(1), 3729(a)(2) and 3729(a)(7). Some courts interpreted the conspiracy provision to be even more limited. For example, in United States ex rel. Huangyan Import & Export Corp. v. Nature’s Farm Products, Inc., the court held that conspiracy liability did not extend to conspiracies to make reverse false claims because reverse false claims do not involve the “payment” of a false claim by the Government, but instead occur when wrongdoers want to “avoid” paying money to the Government.18 Congress thus amended the conspiracy provision to clarify that conspiracy liability can arise whenever a person conspires to violate any of the provisions in Section 3729 imposing FCA liability.19

OVERPAYMENTS

The old FCA imposed liability for “reverse false claims” where a person made or used false records or statements “to conceal, avoid or decrease an obligation to pay or transmit money or property to the Government.” The FCA did not contain a provision that expressly imposed liability when a person made a false statement to avoid a duty to return funds or property to the government. This language failed to prohibit the silent retention of overpayments. To address this issue, Congress amended the statute to remove the requirement of a false statement, making it a violation of the FCA if one “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.”20 To avoid any confusion, Congress also defined “obligation” to specifically include the retention of any overpayment and clarified that the term “obligation” includes fixed and contingent duties owed to the government.21

WHISTLEBLOWER PROTECTIONS

Before FERA, the FCA only imposed liability on an employer for retaliation if the employer discriminated against an employee because of that employee’s lawful acts in furtherance of a qui tam action. The old FCA retaliation provisions failed to provide protection against other types of retaliation commonly faced by whistleblowers.22 FERA clarified that the FCA also protects the following individuals from retaliation: (i) those who planned to file a qui tam action that never gets filed or who blew the whistle internally without ever filing a qui tam action; (ii) family members and colleagues of relators; and/or (iii) independent contractors and agents of the employer that are not technically “employees.”23 The new retaliation provisions is intended to protect

“not only steps taken in furtherance of a potential or actual qui tam action, but also steps taken to remedy the misconduct through methods such as internal reporting to a supervisor or company compliance department and refusals to participate in the misconduct that leads to the false claims, whether or not such steps are clearly in furtherance of a potential or actual qui action.”24

Furthermore, the changes to the retaliation section extending protection to include “contractors” and “agents” of an employer work to protect “physicians from discrimination by health care providers that employ them as independent contractors, and government subcontractors from discrimination . . . .”25

Additionally, FERA eliminates the requirement that retaliatory acts be taken by the relator’s employer.26 This change essentially extends liability for retaliatory acts committed by a relator’s co-workers, supervisors, or other employees.

RELATION BACK DOCTRINE AND STATUTE OF LIMITATIONS

Before FERA, the FCA did not expressly provide that the government may amend the relator’s complaint or file its own complaint-in-intervention and take advantage of the “relation back” provision of Rule 15(c) of the Federal Rules of Civil Procedure, which provides that a party’s amendment of pleading will relate back to the date of the party’s original pleading when the claims” asserted in the amended pleading arose of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading,”27 as if the government were amending its own pleading. In United States v. The Baylor University Medical Center, the Second Circuit held that the “relation back” provision of Rule 15(c)(2) of the Federal Rules of Civil Procedure “does not allow complaints-in-intervention filed by the government to relate back to a relator’s qui tam complaint when filing its complaint-in-intervention.”28 The immediate result of Baylor was that the government might be barred by the statute of limitations even if it brought claims that arose out of the conduct, transactions, or occurrences in the relator’s complaint, potentially forcing the government “to forgo a thorough investigation of the merits of qui tam allegations in order to ensure that it does not lose claims due to the running of the statute of limitations.”29

To remedy this situation, FERA added a new provision to Section 3731 of the FCA that expressly provides that the government’s complaint-in-intervention or amended complaint relates back to the date of the complaint filed by the relator as long as the government’s claim” arises out of the conduct, transactions, or occurrences set forth, or attempted to be set forth, in the prior complaint . . . .”30 As a matter of practice, this “relation back” may allow the government to extend the statute of limitation in FCA suits.31

ENDNOTES

  1. Pub. L. No. 111-21, § 4, 123 Stat. 1617 (2009).
  2. S. Rep. No. 111-10 (2009), reprinted in 2009 U.S.Code Cong. & Admin News 430 (citing Allison Engine Co. v. United States ex rel. Sanders, 128 S.Ct. 2123 (2008); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004); United States ex rel. Rutz v. Village of River Forest, 2007 WL 3231439 (N.D. Ill. Oct. 25, 2007)).
  3. See Allison Engine Co. v. United States ex rel. Sanders, 128 S.Ct. 2123 (2008); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004).
  4. United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488, 490 (D.C. Cir. 2004).
  5. Id., 380 F.3d at 492.
  6. Id., 380 F.3d at 492.
  7. Allison Engine Co. v. United States ex rel. Sanders, __U.S.__, 128 S.Ct. 2123, 2125, 170 L.Ed.2d 1030 (2008).
  8. Id., 128 S.Ct. at 2128.
  9. Id.
  10. Fraud Enforcement Recovery Act of 2009, Pub. L. No. 111-21, § 4(a), 123 Stat. 1617, 1622 (2009).
    (emphasis added).
  11. 155 Cong. Rec. E1298 (daily ed. Jun 3, 2009) (statement of Rep. Berman).
  12. Pub. L. No. 111-21, § 4(f), 123 Stat. 1617, 1625 (2009).
  13. See § 3.03 infra.
  14. See id.
  15. FERA incorporated “material” into Sections 3729(a)(2) and 3729(a)(7). These provisions have now been renumbered as Sections 3729(a)(1)(B) and 3729(a)(1)(G).
  16. FERA defines “materiality” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” See 31 U.S.C. § 3729(b)(4) (2009).
  17. 31 U.S.C. § 3731(a)(3).
  18. United States ex rel. Huangyan Import & Export Corp. v. Nature’s Farm Prod., Inc., 370 F. Supp. 2d 993, 1004 (N.D. Cal. 2005).
  19. 31 U.S.C. § 3729(a)(1)(C) (2009).
  20. Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, § 4(a), 123 Stat. 1617, 1622 (2009).
  21. Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, § 4(a), 123 Stat. 1617, 1622 (2009).
  22. 155 Cong. Rec. E1300 (daily ed. Jun 3, 2009) (statement of Rep. Berman).
  23. 155 Cong. Rec. E1300 (daily ed. Jun 3, 2009) (statement of Rep. Berman).
  24. 155 Cong. Rec. E1300 (daily ed. Jun 3, 2009) (statement of Rep. Berman).
  25. 155 Cong. Rec. E1300 (daily ed. Jun 3, 2009) (statement of Rep. Berman).
  26. 31 U.S.C. § 3730(h)(1) (2009). For more information, see § 7.04 infra.
  27. Fed. R. C. Evid. 15(c)(2).
  28. United States v. Baylor University Medical Center, 469 F.3d 263, 269 (2d Cir. 2006).
  29. 155 Cong. Rec. E1299 (daily ed. Jun 3, 2009) (statement of Rep. Berman).
  30. See 31 U.S.C. § 3731(c).
  31. See id.

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Notice

This website is designed to provide general information only. This information is not and should not be construed to be legal advice. The transmission of the information found on this website also does not result in the formation of a lawyer-client relationship.

You should be aware that qui tam claims are subject to a Statute of Limitations. The area of limitations periods is complex. There are also first to file rules, public disclosure bars, original source issues, and varying limitations in pursuing retaliation claims. If you wish to pursue your claims, you should promptly seek the opinion of an attorney regarding the merits of your qui tam claim and the applicable statute of limitations.