A Threat Is Looming: The Proposed False Claims Act Amendments Could Prove Devastating to Government Contractors
By Glenn V. Whitaker, Victor A. Walton Jr., and Michael J. Bronson
In its last two terms, the United States Supreme Court has recognized the importance of imposing reasonable limitations on the potential scope of liability under the federal False Claims Act (FCA). Earlier this year, in Rockwell International Corp. v. U.S. ex rel. Stone, the Court announced the common sense rule that, for an FCA qui tam whistleblower (also called a ''relator'') to recover on fraud allegations that are already in the public domain, he or she must be an ''original source'' of the information upon which a jury's verdict is based. That is, the relator must have direct and independent knowledge of the allegations underlying any meritorious claims in order to recover a bounty based on those claims.
Although the jurisdictional limits imposed by Rockwell apply only to relators and not to the Department of Justice (DOJ), the relators' bar has protested that these restrictions inevitably will create disincentive for whistleblowers to bring qui tam suits in the first place, thus reducing overall government recoveries under the FCA. But since the principal purpose of these provisions is to discourage qui tam suits in which the relator does not bring any new information to the government's attention and instead merely dresses up publicly available, secondhand allegations as a qui tam lawsuit, this point amounts to little more than a straw man complaint about the very existence of the public disclosure bar and original source requirement.
This term, the Supreme Court is set to hear Allison Engine Co. Inc. v. U.S. ex rel. Sanders, a case in which the Sixth Circuit held that no false claim ever has to be presented to the government for FCA liability to attach. The Sixth Circuit's decision created and acknowledged a direct conflict on this issue with a D.C. Circuit decision authored by then-Judge, now-Chief Justice John Roberts. Next year, the Supreme Court will weigh in on whether the FCA requires a false claim to the government.
Contrary to some alarmist mischaracterizations of this "presentment" issue by proponents of expansive FCA liability, an affirmative answer to this question would still leave subcontractors in federal projects exposed to the FCA; it would simply require a plaintiff to prove that such an entity caused a prime contractor to submit false claims to the government. Without this link to the government, subcontractors accused of fraud against other private entities would remain subject to appropriate contract and tort remedies but would be properly shielded from the onerous and punitive treble damages and penalties available under the FCA. This requirement that a false claim reach the United States to create liability is consistent with the intent of the FCA — to combat fraud against the government.
Victor A. Walton Jr.
Faced with these critical but unremarkable limitations on FCA liability, the relators' bar has turned away from the courts and toward Congress. With the backing of Senator Charles Grassley, the False Claims Act Corrections Act of 2007 has been introduced in the Senate. While the nominal intent of the amendments in this bill is to "correct" prior judicial decisions — including Chief Justice Roberts's decision concerning the presentment requirement — the actual aim of the bill is transparent: to expand the FCA to reach more businesses, not-for-profit institutions, and individuals and to increase the amounts that whistleblowers and their lawyers can win from FCA cases.
Among the sweeping amendments proposed by the bill, the FCA Corrections Act would functionally "overrule" the Supreme Court's decision in Rockwell, and, in the process, all but eliminate the FCA's public disclosure bar. The act would even purport to preclude defendants from challenging a relator's action on public disclosure grounds, instead permitting only the government to raise the issue. It would also allow whistleblowers to seek bounties based on allegations of fraud that are widely known and of which the government has notice, so long as the prior public disclosure of the alleged fraud is not identical to the relator's claims in all respects.
Moreover, the bill would essentially codify the Sixth Circuit's decision in Allison Engine, turning the FCA into a vehicle for the DOJ and relators to prosecute fraud and breach of contract issues arising between private entities. Any organization that submits invoices to another private entity that receives federal funding would be subject to government investigation, treble damages, and penalties, even if its conduct did not reach and had no impact on the United States. This expansion of the FCA would leave private entities hesitant to resolve any issues between them, since duplicative and potentially devastating FCA claims by a stranger to the relationship — either a relator or the DOJ — could not be released as part of any settlement agreement. Indeed, on this last point, the FCA Corrections Act would also specifically prohibit waiver or release of any FCA claims absent a court-approved settlement. The amendments would thus undermine traditional state law remedies and cripple conventional dispute resolution.
Michael J. Bronson
Finally, the FCA Corrections Act would raise the FCA's statute of limitations from six years to 10, would expand the scope of potential liability for FCA retaliation claims, and would allow relators and their lawyers greater access to materials obtained through DOJ investigative demands. All told, the FCA Corrections Act threatens to strip recent Supreme Court jurisprudence of meaning and remove all significant procedural and substantive barriers to FCA liability.
These changes would dramatically expand the universe of entities subject to FCA liability and increase incentive for opportunistic relators' lawyers to bring unwarranted lawsuits. Since each qui tam lawsuit triggers a DOJ investigation, the amendments would expose every contractor, healthcare provider, accounting firm, and educational institution that receives federal money to a substantially increased risk of government involvement in purely private matters — even when the underlying information has long been public and even where there is no allegation that the government itself has been defrauded. Any organization that does business with the government or in government programs should take appropriate measures to prevent the enactment of the FCA Corrections Act of 2007.
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