    [House Hearing, 110 Congress]
    [From the U.S. Government Publishing Office]

                    FALSE CLAIMS ACT CORRECTION ACT OF 2007

    =======================================================================

                                 JOINT HEARING

                                   BEFORE THE

                     SUBCOMMITTEE ON COURTS, THE INTERNET,
                           AND INTELLECTUAL PROPERTY

                                    AND THE

               SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED TENTH CONGRESS

                                 SECOND SESSION

                                       ON

                                   H.R. 4854

                                   __________

                                 JUNE 19, 2008

                                   __________

                               Serial No. 110-137

                                   __________

             Printed for the use of the Committee on the Judiciary

          Available via the World Wide Web: http://judiciary.house.gov
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                           COMMITTEE ON THE JUDICIARY

                     JOHN CONYERS, Jr., Michigan, Chairman
    HOWARD L. BERMAN, California         LAMAR SMITH, Texas
    RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr.,
    JERROLD NADLER, New York                 Wisconsin
    ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
    MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
    ZOE LOFGREN, California              BOB GOODLATTE, Virginia
    SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
    MAXINE WATERS, California            DANIEL E. LUNGREN, California
    WILLIAM D. DELAHUNT, Massachusetts   CHRIS CANNON, Utah
    ROBERT WEXLER, Florida               RIC KELLER, Florida
    LINDA T. SANCHEZ, California         DARRELL ISSA, California
    STEVE COHEN, Tennessee               MIKE PENCE, Indiana
    HANK JOHNSON, Georgia                J. RANDY FORBES, Virginia
    BETTY SUTTON, Ohio                   STEVE KING, Iowa
    LUIS V. GUTIERREZ, Illinois          TOM FEENEY, Florida
    BRAD SHERMAN, California             TRENT FRANKS, Arizona
    TAMMY BALDWIN, Wisconsin             LOUIE GOHMERT, Texas
    ANTHONY D. WEINER, New York          JIM JORDAN, Ohio
    ADAM B. SCHIFF, California
    ARTUR DAVIS, Alabama
    DEBBIE WASSERMAN SCHULTZ, Florida
    KEITH ELLISON, Minnesota

                Perry Apelbaum, Staff Director and Chief Counsel
          Sean McLaughlin, Minority Chief of Staff and General Counsel
        Subcommittee on Courts, the Internet, and Intellectual Property

                     HOWARD L. BERMAN, California, Chairman
    JOHN CONYERS, Jr., Michigan          HOWARD COBLE, North Carolina
    RICK BOUCHER, Virginia               TOM FEENEY, Florida
    ROBERT WEXLER, Florida               LAMAR SMITH, Texas
    MELVIN L. WATT, North Carolina       F. JAMES SENSENBRENNER, Jr.,
    SHEILA JACKSON LEE, Texas                Wisconsin
    STEVE COHEN, Tennessee               ELTON GALLEGLY, California
    HANK JOHNSON, Georgia                BOB GOODLATTE, Virginia
    BRAD SHERMAN, California             STEVE CHABOT, Ohio
    ANTHONY D. WEINER, New York          CHRIS CANNON, Utah
    ADAM B. SCHIFF, California           RIC KELLER, Florida
    ZOE LOFGREN, California              DARRELL ISSA, California
    BETTY SUTTON, Ohio                   MIKE PENCE, Indiana

                         Shanna Winters, Chief Counsel
                        Blaine Merritt, Minority Counsel
                                     ------

               Subcommittee on Commercial and Administrative Law

                    LINDA T. SANCHEZ, California, Chairwoman

    JOHN CONYERS, Jr., Michigan          CHRIS CANNON, Utah
    HANK JOHNSON, Georgia                JIM JORDAN, Ohio
    ZOE LOFGREN, California              RIC KELLER, Florida
    WILLIAM D. DELAHUNT, Massachusetts   TOM FEENEY, Florida
    MELVIN L. WATT, North Carolina       TRENT FRANKS, Arizona
    STEVE COHEN, Tennessee

                         Michone Johnson, Chief Counsel

                        Daniel Flores, Minority Counsel

                                C O N T E N T S

                                  ----------

                                 JUNE 19, 2008

                                                                       Page

                                TEXT OF THE BILL

    H.R. 4854, the ``False Claims Act Correction Act of 2007''.......    11

                               OPENING STATEMENTS

    The Honorable Howard L. Berman, a Representative in Congress from
      the State of California, and Chairman, Subcommittee on Courts,
      the Internet, and Intellectual Property........................     9
    The Honorable Howard Coble, a Representative in Congress from the
      State of North Carolina, and Ranking Member, Subcommittee on
      Courts, the Internet, and Intellectual Property................    18
    The Honorable Linda T. Sanchez, a Representative in Congress from
      the State of California, and Chairwoman, Subcommittee on
      Commercial and Administrative Law..............................    19
    The Honorable Lamar Smith, a Representative in Congress from the
      State of Texas, Ranking Member, Committee on the Judiciary, and
      Member, Subcommittee on Courts, the Internet, and Intellectual
      Property.......................................................    20
    The Honorable John Conyers, Jr., a Representative in Congress
      from the State of Michigan, Chairman, Committee on the
      Judiciary, Member, Subcommittee on Courts, the Internet, and
      Intellectual Property, and Member, Subcommittee on Commercial
      and Administrative Law.........................................    21

                                   WITNESSES

    Mr. Albert Campbell, Winter Springs, FL
      Oral Testimony.................................................    25
      Prepared Statement.............................................    27
    Ms. Shelley R. Slade, Partner, Vogel, Slade & Goldstein, LLP,
      Washington, DC
      Oral Testimony.................................................    33
      Prepared Statement.............................................    36
    Mr. Peter B. Hutt, II, Partner, Akin Gump Strauss Hauer & Feld,
      LLP, Washington, DC
      Oral Testimony.................................................    65
      Prepared Statement.............................................    67
    Mr. James B. Helmer, Jr., President, Helmer, Martins, Rice &
      Popham Company, LPA, Cincinnati, OH
      Oral Testimony.................................................    96
      Prepared Statement.............................................    98

              LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Prepared Statement of the Honorable Chris Cannon, a
      Representative in Congress from the State of Utah, Member,
      Subcommittee on Courts, the Internet, and Intellectual
      Property, and Ranking Member, Subcommittee on Commercial and
      Administrative Law.............................................     2
    Prepared Statement of the Honorable Linda T. Sanchez, a
      Representative in Congress from the State of California, and
      Chairwoman, Subcommittee on Commercial and Administrative Law..    20
    Prepared Statement of the Honorable John Conyers, Jr., a
      Representative in Congress from the State of Michigan,
      Chairman, Committee on the Judiciary, Member, Subcommittee on
      Courts, the Internet, and Intellectual Property, and Member,
      Subcommittee on Commercial and Administrative Law..............    22

                                    APPENDIX

    Material Submitted for the Hearing Record........................   131

                        FALSE CLAIMS ACT CORRECTION ACT
                                    OF 2007

                                  ----------

                            THURSDAY, JUNE 19, 2008

          House of Representatives,
                Subcommittee on Courts,
                          the Internet, and
                 Intellectual Property, and the
                         Subcommittee on Commercial
                                and Administrative Law,
                                    Committee on the Judiciary,
                                                        Washington, DC.

        The Subcommittees met, pursuant to notice, at 10:05 a.m.,
    in Room 2141, Rayburn House Office Building, the Honorable
    Howard L. Berman (Chairman of the Subcommittee on Courts, the
    Internet, and Intellectual Property) presiding.
        Present from the Subcommittee on Courts, the Internet, and
    Intellectual Property: Representatives Conyers, Berman,
    Boucher, Johnson, Coble, Sensenbrenner, Smith, Goodlatte,
    Cannon, and Issa.
        Present from the Subcommittee on Commercial and
    Administrative Law: Representatives Conyers, Sanchez, Johnson,
    Cannon, and Feeney.
        Staff Present from the Subcommittee on Courts, the
    Internet, and Intellectual Property: Julia Massimino, Majority
    Counsel; Christal Sheppard, Majority Counsel; and Rosalind
    Jackson, Majority Professional Staff Member.
        Staff Present from the Subcommittee on Commercial and
    Administrative Law: Michone Johnson, Subcommittee Chief
    Counsel; and Blaine Merritt, Minority Counsel.
        Mr. Berman. I call to order the joint legislative hearing
    on H.R. 4854, the ``False Claims Act Correction Act of 2007,''
    held by the Subcommittees on Courts, Internet and Intellectual
    Property and the Subcommittee on Commercial and Administrative
    Law.
        Before I give my opening statement, I am going to yield to
    the Ranking Member of the Subcommittee on Commercial and
    Administrative Law for a unanimous consent request.
        Mr. Cannon. Thank you, Mr. Chairman. I appreciate your
    holding this hearing. I have a conflict right now so I would
    ask unanimous consent to have my opening statement inserted
    into the record.
        Mr. Berman. Without objection.
        [The prepared statement of Mr. Cannon follows:]
     Prepared Statement of the Honorable Chris Cannon, a Representative in
     Congress from the State of Utah, Member, Subcommittee on Courts, the
     Internet, and Intellectual Property, and Ranking Member, Subcommittee
                      on Commercial and Administrative Law

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Cannon. Thank you, Mr. Chairman.
        Mr. Berman. I will now yield to myself for an opening
    statement.
        The False Claims Act represents one of Congress' great
    success stories. As fraud by defense contractors ran rampant
    during the Civil War, President Lincoln implored Congress to
    pass legislation that would recruit citizen soldiers to help
    uncover schemes that were harming the war effort. My
    recollection was the Union Army was buying barrels filled with
    what they thought were ammunition, and when they opened the
    barrels they were sawdust.
        In response to that, Congress passed the False Claims Act
    of 1863. The Act created incentives for private individuals--
    referred to sometimes as relators--to report false claims and
    fraudulent activity. It also allows private parties to sue on
    behalf of the United States to recover money lost to fraud. If
    the Government investigates and finds merits to a relator's
    allegations, it may join the action and take control of the
    lawsuit, bringing to bear the Government's resources.
        The False Claims Act has been hugely successful since its
    passage, though not without some bumps along the road.
    Amendments made to the Act in the 1940's gutted key parts of
    the law, making it virtually toothless. After 4 decades of
    relative dormancy in which the law was barely used, Senator
    Charles Grassley and I worked together to pass amendments that
    restored incentives for whistleblowers and clarified that the
    law was intended to reach all types of fraud on the Government
    regardless of the form of the transaction.
        The 1986 amendments provided a host of new tools for the
    Government and private citizens to utilize in order to make the
    law an effective tool against fraud once more. Since these
    changes were made, the False Claims Act has recovered over $20
    billion of taxpayer money that otherwise would have been lost
    to fraud. Government funds spent on the pursuit of the False
    Claims Act cases have proven to be money well spent.
        A recent study found that for every dollar invested in
    healthcare-related False Claims Act enforcement, the Federal
    Government receives $15 in return. I suspect that this is still
    a gross underestimate because though it is impossible to
    measure, the money saved through the deterrence as a result of
    this law is almost assuredly much greater. If construed to
    Congress' original intent, the False Claims Act could be
    bringing in many billions of additional dollars in recoveries
    from those who have cheated at the expense of the taxpayer.
        Unfortunately, over the last several years, a series of
    judicial decisions have severely weakened key provisions of the
    False Claims Act and narrowed its application. These courts
    have misconstrued our intent even in clear language in the law
    and legislative history, in a manner that leaves entire
    categories of fraud outside the reach of the law.
        For example, courts have thrown out cases in which the
    Government has administered Government programs and expended
    its funds through contractors and other agents as opposed to
    direct expenditure. Many courts have barred suits by
    whistleblowers who are insiders with key details of fraudulent
    schemes because while they know the key details, they cannot
    plead specific details of the billing documentation such as the
    dates and identification numbers of invoices--information
    ordinarily sought and obtained in discovery.
        Finally, due to procedural requirements and an oversight in
    our original drafting, the Department of Justice has not
    employed the civil investigative demand authority as hoped.
        The amendments proposed in this legislation will remove
    these debilitating qualifications and clarify that the Act is
    intended to reach all types of fraud, without qualification,
    leading to Government losses. The bill would apply these
    amendments to all future cases, as well as all cases that are
    pending in the courts on the date the amendments become law.
        The most critical provisions of the legislation will
    clarify that the Act covers fraud on Government programs even
    when the Government uses agents or other third parties to
    administer a program or contract. For example, when a third
    party administers a program like Medicare Part D, false claims
    against funds in that program are covered even though the
    claims may not be presented to a fiscal Government employee,
    but rather the intermediary.
        The bill will clarify that the Government's new or amended
    complaint in a qui tam action relates back to the original qui
    tam complaint to the same extent it would relate back if the
    Government had filed the original complaint. This would ensure
    that when a case is filed near the end of the statute of
    limitations, the Government still can conduct a thorough
    evaluation of whether or not to join a relator's case, and when
    they join, they join as though they filed with the relator on
    the first day of the case.
        We also clarify that plaintiffs do not need to have access
    to individual claims data or documents to bring a False Claims
    Act case. As I noted earlier, in many cases judges have
    required relators to provide things such as alleged false
    invoices or phony billing documents, information that is
    available only to a handful of employees in the company's
    billing department and generally out of reach of most
    whistleblowers until the discovery process.
        The bill would also amend the Act to return the public
    disclosure bar to its original intent--a shield for the
    Government, not a jurisdictional shield for defendants. The
    public disclosure bar is meant to keep the Government from
    losing a share of a False Claims Act recovery to a parasitic
    claim filed by a relator only with information that was
    available to the public. In other words, it is designed to stop
    the parasitic lawsuit, not to provide a basis for the defendant
    to escape without responsibility for the fraud that he or she
    has committed.
        We would also amend and clarify that Act to know how the
    Act's chief investigative tool, the civil investigative demand,
    may be used to investigate violations of the Act.
        And finally, the bill clarifies how the Act applied to
    Federal employees who discover fraud during the course of their
    employment by providing the Government authority to move to
    dismiss the action of any Federal employee who brings a qui tam
    action without first having provided the Government fair notice
    and opportunity to pursue such wrongdoing through its own false
    claims action or other appropriate remedy.
        I have heard concerns about this provision allowing
    Government employees to ``enrich themselves by just doing their
    jobs.'' That is not what this provision does. This provision is
    a safeguard, a backstop if you will, for situations in which a
    Government employee identifies fraud, tries to get his
    supervisor, the inspector general of his agency, or even the
    attorney general to act on it, and his concerns are ignored.
    Only then after meeting those standards may he file a qui tam
    suit on his own, and even then the Government may move to
    dismiss it.
        When Senator Grassley and I worked on the 1986 amendments,
    we were joined by legislators on both sides of the aisle. The 2
    decades since have not changed much. The bill we are
    considering today was introduced with my friend and colleague,
    the gentleman from Wisconsin, and the former Chairman of the
    Judiciary Committee, and the Judiciary Committee in the other
    body has reported similar legislation introduced by Senators
    Grassley, Leahy, Durbin and Specter.
        These coalitions illustrate that the fight against fraud is
    neither a partisan nor political issue. It is about protecting
    taxpayer funds judiciously and protecting an approach to doing
    so that has proven very successful.
        I look forward to hearing the testimony of the witnesses. I
    apologize for the length of this opening statement, but I did
    want to at least run through the key procedural changes in this
    bill.
        [The text of the bill, H.R. 4854, follows:]

    HR 4854 IH  ___________________________________________________

     deg.

                                                                          I
    110th CONGRESS
        1st Session

                                    H. R. 4854

    To amend the provisions of title 31, United States Code, relating to
        false claims to clarify and make technical amendments to those
        provisions, and for other purposes.
                                   __________
                        IN THE HOUSE OF REPRESENTATIVES
                               December 19, 2007
    Mr. Berman (for himself and Mr. Sensenbrenner) introduced the following
        bill; which was referred to the Committee on the Judiciary
                                   __________

                                     A BILL

    To amend the provisions of title 31, United States Code, relating to
        false claims to clarify and make technical amendments to those
        provisions, and for other purposes.

        Be it enacted by the Senate and House of Representatives of the
    United States of America in Congress assembled,

    SECTION 1. SHORT TITLE.

        This Act may be cited as the ``False Claims Act Correction Act of
    2007''.

    SEC. 2. LIABILITY FOR FALSE CLAIMS.

        Section 3729 of title 31, United States Code, is amended to read as
    follows:

    ``Sec. 3729. False claims

        ``(a) Liability for Certain Acts.--
                ``(1) In general.--Any person who--
                        ``(A) knowingly presents, or causes to be presented
                    for payment or approval a false or fraudulent claim for
                    Government money or property,
                        ``(B) knowingly makes, uses, or causes to be made
                    or used, a false record or statement to get a false or
                    fraudulent claim for Government money or property paid
                    or approved,
                        ``(C) has possession, custody, or control of
                    Government money or property and, intending to--
                                ``(i) defraud the Government,
                                ``(ii) retain a known overpayment, or
                                ``(iii) knowingly convert the money or
                            property, permanently or temporarily, to an
                            unauthorized use,
                    fails to deliver or return, or fails to cause the
                    return or delivery of, the money or property, or
                    delivers, returns, or causes to be delivered or
                    returned less money or property than the amount due or
                    owed,
                        ``(D) authorized to make or deliver a document
                    certifying receipt of property used, or to be used, by
                    the Government and, intending to defraud the
                    Government, makes or delivers the receipt without
                    completely knowing that the information on the receipt
                    is true,
                        ``(E) knowingly buys, or receives as a pledge of an
                    obligation or debt, public property from an officer or
                    employee of the Government, or a member of the Armed
                    Forces, who lawfully may not sell or pledge the
                    property,
                        ``(F) knowingly makes, uses, or causes to be made
                    or used, a false record or statement to conceal, avoid,
                    or decrease an obligation to pay or transmit money or
                    property to the Government, or
                        ``(G) conspires to commit any violation set forth
                    in any of subparagraphs (A) through (F),
            is liable to the United States Government for a civil penalty
            of not less than $5,000 and not more than $10,000, plus 3 times
            the amount of damages which the Government or its
            administrative beneficiary sustains because of the act of that
            person, subject to paragraphs (2) and (3).
                ``(2) Lesser penalty if defendant cooperates with
            investigation.--In an action brought for a violation under
            paragraph (1), the court may assess not less than 2 times the
            amount of damages which the Government or its administrative
            beneficiary sustains because of the act of the person
            committing the violation if the court finds that--
                        ``(A) such person provided to those officials of
                    the United States who are responsible for investigating
                    false claims violations, all information known to the
                    person about the violation within 30 days after the
                    date on which the person first obtained the
                    information;
                        ``(B) such person fully cooperated with any
                    Government investigation of the violation; and
                        ``(C) at the time such person provided to the
                    United States the information about the violation under
                    subparagraph (A), no criminal prosecution, civil
                    action, or administrative action had commenced with
                    respect to such violation, and the person did not have
                    actual knowledge of the existence of an investigation
                    into such violation.
                ``(3) Assessment of costs.--A person violating paragraph
            (1) shall, in addition to a penalty or damages assessed under
            paragraph (1) or (2), be liable to the United States Government
            for the costs of a civil action brought to recover such penalty
            or damages.
        ``(b) Definitions.--For purposes of this section--
                ``(1) the terms `known', `knowing', and `knowingly' mean
            that a person, with respect to information--
                        ``(A) has actual knowledge of the information,
                        ``(B) acts in deliberate ignorance of the truth or
                    falsity of the information, or
                        ``(C) acts in reckless disregard of the truth or
                    falsity of the information,
            and no proof of specific intent to defraud is required;
                ``(2) the term `Government money or property' means--
                        ``(A) money or property belonging to the United
                    States Government;
                        ``(B) money or property that--
                                ``(i) the United States Government provides
                            or has provided to a contractor, grantee,
                            agent, or other recipient, or for which the
                            United States Government will reimburse a
                            contractor, grantee, agent, or other recipient;
                            and
                                ``(ii) is to be spent or used on the
                            Government's behalf or to advance a Government
                            program; and
                        ``(C) money or property that the United States
                    holds in trust or administers for any administrative
                    beneficiary;
                ``(3) the term `claim' includes any request or demand,
            whether under a contract or otherwise, for Government money or
            property; and
                ``(4) the term `administrative beneficiary' means any
            entity, including any governmental or quasi-governmental
            entity, on whose behalf the United States Government, alone or
            with others, serves as custodian or trustee of money or
            property owned by that entity.
        ``(c) Statutory Cause of Action.--Liability under this section is a
    statutory cause of action all elements of which are set forth in this
    section. No proof of any additional element of common law fraud or
    other cause of action is implied or required for liability to exist for
    a violation of these provisions.
        ``(d) Exemption From Disclosure.--Any information that a person
    provides pursuant to subparagraphs (A) through (C) of subsection (a)(2)
    shall be exempt from disclosure under section 552 of title 5.
        ``(e) Exclusion.--This section does not apply to claims, records,
    or statements made under the Internal Revenue Code of 1986.''.

    SEC. 3. CIVIL ACTIONS FOR FALSE CLAIMS.

        (a) Actions by Private Persons Generally.--Section 3730(b) of title
    31, United States Code, is amended--
                (1) in paragraph (1), by striking the last sentence and
            inserting the following: ``The action may be dismissed only
            with the consent of the court and the Attorney General.'';
                (2) in paragraph (2), by inserting after the second
            sentence the following: ``In the absence of a showing of
            extraordinary need, the written disclosure of any material
            evidence and information, and any other attorney work product,
            that the person bringing the action provides to the Government
            shall not be subject to discovery.'';
                (3) in paragraph (4), by striking subparagraph (B) and
            inserting the following:
                ``(B) notify the court that it declines to take over the
            action, in which case the person bringing the action shall have
            the right to conduct the action, and, within 45 days after the
            Government provides such notice, shall either--
                        ``(i) move to dismiss the action without prejudice,
                    or
                        ``(ii) notify the court of the person's intention
                    to proceed with the action and move the court to unseal
                    the complaint, and any amendments thereto, so as to
                    permit service on the defendant and litigation of the
                    action in a public forum.
    A person who elects to proceed with the action under subparagraph
    (B)(ii) shall serve the complaint within 120 days after the person's
    complaint is unsealed under such subparagraph.''; and
                (4) by amending paragraph (5) to read as follows:
        ``(5) When a person brings an action under this subsection, no
    person other than the Government may join or intervene in the action,
    except with the consent of the person who brought the action. In
    addition, when a person brings an action that is pled in accordance
    with this subsection and section 3731(e), no other person may bring a
    separate action under this subsection based on the facts underlying a
    cause of action in the pending action.''.
        (b) Rights of the Parties to Qui Tam Actions.--Section 3730(c)(5)
    of title 31, United States Code, is amended by striking the second
    sentence and inserting the following: ``An alternate remedy includes--
                ``(A) anything of value received by the Government from the
            defendant, whether funds, credits, or in-kind goods or
            services, in exchange for an agreement by the Government either
            to release claims brought in, or to decline to intervene in or
            investigate the action initiated under subsection (b); and
                ``(B) anything of value received by the Government based on
            the claims alleged by the person initiating the action, if that
            person subsequently prevails on the claims.
    If any such alternate remedy is pursued in another proceeding, the
    person initiating the action shall have the same rights in such
    proceeding as such person would have had if the action had continued
    under this section, except that the person initiating the action may
    not obtain an award calculated on more than the total amount of
    damages, plus any fines or penalties, that could be recovered by the
    United States under section 3729(a).''.
        (c) Award to Qui Tam Plaintiff.--Section 3730(d) of title 31,
    United States Code, is amended--
                (1) in paragraph (1)--
                        (A) in the first sentence, by inserting ``an award
                    of'' after ``receive'';
                        (B) by striking the second and third sentences and
                    inserting the following: ``Any payment to a person
                    under this paragraph or under paragraph (2) or (3)
                    shall be made from the proceeds, and shall accrue
                    interest, at the underpayment rate under section 6621
                    of the Internal Revenue Code of 1986, beginning 30 days
                    after the date the proceeds are paid to the United
                    States, and continuing until payment is made to the
                    person by the United States.''; and
                        (C) in the last sentence, by striking
                    ``necessarily'';
                (2) in paragraph (2)--
                        (A) in the second sentence, by striking ``and shall
                    be paid out of such proceeds''; and
                        (B) in the third sentence, by striking
                    ``necessarily''; and
                (3) by amending paragraph (3) to read as follows:
        ``(3)(A) Whether or not the Government proceeds with the action, if
    the court finds that the action was brought by a person who either--
                ``(i) planned and initiated the violation of section 3729
            upon which the action was brought, or
                ``(ii) derived his or her knowledge of the action primarily
            from specific information relating to allegations or
            transactions (other than information provided by the person
            bringing the action) that the Government publicly disclosed,
            within the meaning of subsection (e)(4)(A), or that it
            disclosed privately to the person bringing the action in the
            course of its investigation into potential violations of
            section 3729,
    then the court may, to the extent the court considers appropriate,
    reduce the share of the proceeds of the action that the person would
    otherwise receive under paragraph (1) or (2) of this subsection, taking
    into account the role of that person in advancing the case to
    litigation and any relevant circumstances pertaining to the violation.
    The court shall direct the defendant to pay any such person an amount
    for reasonable expenses that the court finds to have been incurred,
    plus reasonable attorneys' fees and costs.
        ``(B) If the person bringing the action is convicted of criminal
    conduct arising from his or her role in the violation of section 3729,
    that person shall be dismissed from the civil action and shall not
    receive any share of the proceeds of the action. Such dismissal shall
    not prejudice the right of the United States to continue the action,
    represented by the Department of Justice.''.
        (d) Certain Actions Barred.--Paragraph (4) of section 3730(e) of
    title 31, United States Code, is amended to read as follows:
        ``(4)(A) Upon timely motion of the Attorney General of the United
    States, a court shall dismiss an action or claim brought by a person
    under subsection (b) if the allegations relating to all essential
    elements of liability of the action or claim are based exclusively on
    the public disclosure of allegations or transactions in a Federal
    criminal, civil, or administrative hearing, in a congressional, Federal
    administrative, or Government Accountability Office report, hearing,
    audit, or investigation, or from the news media.
        ``(B) For purposes of this paragraph, a `public disclosure'
    includes only disclosures that are made on the public record or have
    otherwise been disseminated broadly to the general public. An action or
    claim is `based on' a public disclosure only if the person bringing the
    action derived the person's knowledge of all essential elements of
    liability of the action or claim alleged in the complaint from the
    public disclosure. The person bringing the action does not create a
    public disclosure by obtaining information from a request for
    information made under section 552 of title 5 or from exchanges of
    information with law enforcement and other Government employees if such
    information does not otherwise qualify as publicly disclosed under this
    paragraph.''.
        (e) Relief From Retaliatory Actions.--Subsection (h) of section
    3730 of title 31, United States Code, is amended to read as follows:
        ``(h) Relief From Retaliatory Action.--Any person who is
    discharged, demoted, suspended, threatened, harassed, or in any other
    manner discriminated against in the terms or conditions of employment,
    or is materially hindered in obtaining new employment or other business
    opportunities, by any other person because of lawful acts done by the
    person discriminated against or others associated with that person--
                ``(1) in furtherance of an actual or potential action under
            this section, including investigation for, initiation of,
            testimony for, or assistance in an action filed or to be filed
            under this section, or
                ``(2) in furtherance of other efforts to stop one or more
            violations of section 3729,
    shall be entitled to all relief necessary to make the person whole.
    Such relief shall include reinstatement with the same seniority status
    such person would have had but for the discrimination, 2 times the
    amount of back pay or business loss, interest on the back pay or
    business loss, and compensation for any special damages sustained as a
    result of the discrimination, including litigation costs and reasonable
    attorneys' fees. An action under this subsection may be brought in the
    appropriate district court of the United States for the relief provided
    in this subsection.''.
        (f) Relief to Administrative Beneficiaries.--Section 3730 of title
    31, United States Code, is amended by adding at the end the following
    new subsection:
        ``(i) Damages Collected for Financial Loses Suffered by
    Administrative Beneficiaries.--After paying any awards due one or more
    persons who brought an action under subsection (b), the Government
    shall pay from the proceeds of the action to any administrative
    beneficiary, as defined in section 3729(b), all amounts that the
    Government has collected in the action for financial losses suffered by
    such administrative beneficiary. Any remaining proceeds collected by
    the Government shall be treated in the same manner as proceeds
    collected by the Government for direct losses the Government suffers
    from violations of section 3729. Nothing in section 3729 or this
    section precludes administrative beneficiaries from pursuing any
    alternate remedies available to them for losses or other harm suffered
    for them that are not pursued or recovered in an action under this
    section, except that if such alternate remedy proceedings are initiated
    after a person has initiated an action under subsection (b), such
    person shall be entitled to have such alternative remedies considered
    in determining any award in the action under subsection (b) to the same
    extent that such person would be entitled under subsection (c)(5) with
    respect to any alternate remedy pursued by the Government.''.

    SEC. 4. FALSE CLAIMS PROCEDURE.

        (a) Statute of Limitations; Intervention by the Government.--
    Subsection (b) of section 3731 of title 31, United States Code, is
    amended to read as follows:
        ``(b) Statute of Limitations; Intervention by the Government.--
                ``(1) Statute of limitations.--A civil action under section
            3730 (a), (b), or (h) may not be brought more than 10 years
            after the date on which the violation of section 3729 or
            3730(h) is committed.
                ``(2) Intervention.--If the Government elects to intervene
            and proceed with the action under section 3730, the Government
            may file its own complaint, or amend the complaint of a person
            who brought the action under section 3730(b), to clarify or add
            detail to the claims in which it is intervening and to add any
            additional claims with respect to which the Government contends
            it is entitled to relief. For purposes of paragraph (1), any
            such Government pleading shall relate back to the filing date
            of the complaint of the person who originally brought the
            action to the extent that the Government's claim arises out of
            the conduct, transactions, or occurrences set forth, or
            attempted to be set forth, in the person's prior complaint.''.
        (b) Standard of Proof.--Section 3731(c) of title 31, United States
    Code, is amended--
                (1) by striking ``(c) In'' and inserting ``(c) Standard of
            Proof.--In''; and
                (2) by striking ``United States'' and inserting
            ``plaintiff''.
        (c) Notice of Claims; Void Contracts, Agreements, and Conditions of
    Employment.--Section 3731 of title 31, United States Code, is amended
    by adding at the end the following new subsections:
        ``(e) Notice of Claims.--In pleading an action brought under
    section 3730(b), a person shall not be required to identify specific
    claims that result from an alleged course of misconduct if the facts
    alleged in the complaint, if ultimately proven true, would provide a
    reasonable indication that one or more violations of section 3729 are
    likely to have occurred, and if the allegations in the pleading provide
    adequate notice of the specific nature of the alleged misconduct to
    permit the Government effectively to investigate and defendants fairly
    to defend the allegations made.
        ``(f) Void Contract, Agreements, and Conditions of Employment.--
                ``(1) In general.--Any contract, private agreement, or
            private term or condition of employment that has the purpose or
            effect of limiting or circumventing the rights of a person to
            take otherwise lawful steps to initiate, prosecute, or support
            an action under section 3730, or to limit or circumvent the
            rights or remedies provided to persons bringing actions under
            section 3730(b) and other cooperating persons under section
            3729 shall be void to the full extent of such purpose or
            effect.
                ``(2) Exception.--Paragraph (1) shall not preclude a
            contract or private agreement that is entered into--
                        ``(A) with the United States and a person bringing
                    an action under section 3730(b) who would be affected
                    by such contract or agreement specifically to settle
                    claims of the United States and the person under
                    section 3730; or
                        ``(B) specifically to settle any discrimination
                    claim under section 3730(h) of a person affected by
                    such contract or agreement.''.
        (d) Conforming Amendments.--Section 3731 of title 31, United States
    Code, is amended--
                (1) in subsection (a), by striking ``(a) A subpena'' and
            inserting ``(a) Service of Subpoenas.--A subpoena''; and
                (2) in subsection (d), by striking ``(d) Notwithstanding''
            and inserting ``(d) Estoppel.--Notwithstanding''.

    SEC. 5. FALSE CLAIMS JURISDICTION.

        Section 3732 of title 31, United States Code, is amended by adding
    at the end the following new subsection:
        ``(c) Service on State or Local Authorities.--With respect to any
    State or local government that is named as a co-plaintiff with the
    United States in an action brought under subsection (b), a seal on the
    action ordered by the court under section 3730(b) shall not preclude
    the Government or the person bringing the action from serving the
    complaint, any other pleadings, or the written disclosure of
    substantially all material evidence and information possessed by the
    person bringing the action on the law enforcement authorities that are
    authorized under the law of that State or local government to
    investigate and prosecute such actions on behalf of such
    governments.''.

    SEC. 6. CIVIL INVESTIGATIVE DEMANDS.

        (a) Civil Investigative Demands.--Section 3733(a)(1) of title 31,
    United State Code, is amended--
                (1) in the matter preceding subparagraph (A), by inserting
            ``, or a designee (for the purposes of this section),'' after
            ``Whenever the Attorney General''; and
                (2) in the matter following subparagraph (D), by--
                        (A) striking ``may not delegate'' and inserting
                    ``may delegate''; and
                        (B) adding at the end the following: ``Any
                    information obtained by the Attorney General or a
                    designee of the Attorney General under this section may
                    be shared with any a person bringing an action under
                    section 3730(b) if the Attorney General or the designee
                    determines that it is necessary as part of any false
                    claims law investigation.''.
        (b) Procedures.--Section 3733(i)(3) of title 31, United States
    Code, is amended to read as follows:
                ``(3) use of material, answers, or transcripts in false
            claims actions and other proceedings.--Whenever any attorney of
            the Department of Justice has been designated to handle any
            false claims law investigation or proceeding, or any other
            administrative, civil, or criminal investigation, case, or
            proceeding, the custodian of any documentary material, answers
            to interrogatories, or transcripts of oral testimony received
            under this section may deliver to such attorney such material,
            answers, or transcripts for official use in connection with any
            such investigation, case, or proceeding as such attorney
            determines to be required. Upon the completion of any such
            investigation, case, or proceeding, such attorney shall return
            to the custodian any such material, answers, or transcripts so
            delivered which have not passed into the control of a court,
            grand jury, or agency through introduction into the record of
            such case or proceeding.''.
        (c) Definitions.--Section 3733(l) of title 31, United States Code,
    is amended--
                (1) in paragraph (6), by striking ``and'' after the
            semicolon;
                (2) in paragraph (7), by striking the period at the end and
            inserting ``; and''; and
                (3) by adding at the end the following:
                ``(8) the term `official use' means all lawful, reasonable
            uses in furtherance of an investigation, case, or proceeding,
            such as disclosures in connection with interviews of fact
            witnesses, settlement discussions, coordination of an
            investigation with a State Medicaid Fraud Control Unit or other
            government personnel, consultation with experts, and use in
            court pleadings and hearings.''.

    SEC. 7. GOVERNMENT RIGHT TO DISMISS CERTAIN ACTIONS.

        Section 3730(b) of title 31, United States Code, is amended by
    adding at the end the following:
        ``(6)(A) Not later than 60 days after the date of service under
    paragraph (2), the Government may move to dismiss from the action the
    person bringing the action if the person is an employee of the Federal
    Government and--
                ``(i) all the necessary and specific material allegations
            contained in such action were derived from an open and active
            fraud investigation by the executive branch of the Government;
            or
                ``(ii) subject to subparagraph (B), the person bringing the
            action learned of the information that underlies the alleged
            violation of section 3729 that is the basis of the action in
            the course of the person's employment by the United States.
        ``(B) In the case of a person to whom subparagraph (A)(ii)
    applies--
                ``(i) if the employing agency has an Inspector General and
            the person, before bringing the action--
                        ``(I) disclosed in writing to the Inspector General
                    substantially all material evidence and information
                    that relates to the alleged violation that the person
                    possessed, and
                        ``(II) notified in writing the person's supervisor
                    and the Attorney General of the disclosure under
                    subclause (I), or
                ``(ii) if the employing agency does not have an Inspector
            General and the person, before bringing the action--
                        ``(I) disclosed in writing to the Attorney General
                    substantially all material evidence and information
                    that relates to the alleged violation that the person
                    possessed, and
                        ``(II) notified in writing the person's supervisor
                    of the disclosure under subclause (I),
    the motion under subparagraph (A) may be brought only after a period of
    12 months (and any extension under subparagraph (C)) has elapsed since
    the disclosure of information and notification under clause (i) or (ii)
    was made, and only if the Attorney General has filed an action under
    this section based on such information.
        ``(C) Before the end of the 12-month period described under
    subparagraph (B), and upon notice to the person who has disclosed
    information and provided notice under subparagraph (B)(i) or (ii), the
    Attorney General may file a motion seeking an extension of that 12-
    month period. The court may extend that 12-month period for an
    additional period of not more than 12 months upon a showing by the
    Government that the additional period is necessary for the Government
    to decide whether or not to file an action under this section based on
    the information. Any such motion may be filed in camera and may be
    supported by affidavits or other submissions in camera.
        ``(D) For purposes of subparagraph (B), a person's supervisor is
    the officer or employee who--
                ``(i) is in a position of the next highest classification
            to the position of such person;
                ``(ii) has supervisory authority over such person; and
                ``(iii) such person believes is not culpable of the
            violation upon which the action under this subsection is
            brought by such person.
        ``(E) A motion to dismiss under this paragraph shall set forth
    documentation of the allegations, evidence, and information in support
    of the motion.
        ``(F) Any person bringing an action under paragraph (1) shall be
    provided an opportunity to contest a motion to dismiss under this
    paragraph. The court may restrict access to the evidentiary materials
    filed in support of the motion to dismiss, as the interests of justice
    require. A motion to dismiss and papers filed in support or opposition
    of such motion may not be--
                ``(i) made public without the prior written consent of the
            person bringing the civil action; and
                ``(ii) subject to discovery by the defendant.
        ``(G) If the motion to dismiss under this paragraph is granted, the
    matter shall remain under seal.
        ``(H) Not later than 6 months after the date of the enactment of
    this paragraph, and every 6 months thereafter, the Attorney General
    shall submit to the Committee on the Judiciary of the Senate and the
    Committee on the Judiciary of the House of Representatives a report
    on--
                ``(i) the cases in which the Department of Justice has
            filed a motion to dismiss under this paragraph;
                ``(ii) the outcome of such motions; and
                ``(iii) the status of the civil actions in which such
            motions were filed.''.

    SEC. 8. EFFECTIVE DATE.

        The amendments made by this Act shall take effect on the date of
    the enactment of this Act and shall apply to any case pending on, or
    filed on or after, that date.

        Mr. Berman. I recognize the Ranking Member, Mr. Coble, for
    his opening statement.
        Mr. Coble. Thank you, Mr. Chairman.
        Mr. Chairman, about 600 years ago the British admitted the
    qui tam action in which citizens were encouraged to expose
    fraudulent acts perpetrated at the expense of the crown In
    return for their assistance, the participating citizens were
    rewarded. The rationale behind this arrangement was that the
    crown could not police every attempt to defraud it of money.
    Compensation paid to whistleblowers was more than offset by
    recovered revenue, fines and a deterrence factor that might
    dissuade future graft or greed.
        This fundamental attribute of the qui tam action survives
    in our legal system today. Its use has waxed and waned for more
    than 200 years of American jurisprudence, but the qui tam
    concept remains a prominent feature of the False Claims Act.
    Written in 1863, the FCA is still used to prosecute theft of
    Federal resources.
        The Act was amended, as you pointed out, Mr. Chairman, in
    1986 in response to defense contractor fraud that was prevalent
    at the time. Mr. Berman, the distinguished Chairman of this
    Subcommittee, wrote the House bill and he is the author of the
    legislation that is the subject of our hearing this morning.
        None of us is indifferent to the theft of public resources.
    Food stamps, defense, Medicare, Medicaid, education and more--
    no area of Federal spending is immune to theft. We must be
    vigilant and we must give the Department of Justice the
    resources it needs to combat fraud.
        But there is always a flip-side to every legislative coin.
    Well-intentioned critics of H.R. 4854 and a bill pending in the
    other body believe that we may be overreaching. These critics
    argue that the Government, not the whistleblowers, is largely
    responsible for recovery of public resources that are
    fraudulently obtained.
        Moreover, some believe that the FCA as written is too often
    used as a bludgeon against small businesses and other entities
    that deal with the Federal Government. Opponents of these qui
    tam actions--and by the way, Mr. Chairman, am I pronouncing
    that correctly? Is it qui tam or qui tam?
        Mr. Berman. Qui tam.
        Mr. Coble. Qui tam. I don't want to violate the rules of
    grammar here.
        Opponents of these actions say these organizations do
    business in an above-board manner. They are guilty of
    committing innocent paperwork mistakes, it is alleged. That, or
    they simply lack the resources to defend themselves against
    questionable qui tam actions, resulting in forced settlements.
        In conclusion, Mr. Chairman, I approach today's hearing
    with an open mind. If criminals are defrauding the Federal
    Government with greater frequency and the FCA is in need of an
    update, let's figure out how to change the law to increase
    legitimate prosecutions. I think we ought to be careful in
    doing so, Mr. Chairman, so that it does not dispense collateral
    damage.
        I thank you, Mr. Chairman, for having called this hearing.
    I am looking forward to the testimony. I yield back.
        Mr. Berman. Thank you, Mr. Coble. I look forward to working
    with you on the concerns that you expressed.
        I now am pleased to recognize the Chair of the Commercial
    and Administrative Law Subcommittee, one of the two
    Subcommittees holding this hearing, the gentlelady from
    California, Ms. Sanchez.
        Ms. Sanchez. Thank you, Mr. Chairman.
        We are here today to hear testimony from several witnesses
    on H.R. 4854, the ``False Claims Act Corrections Act of 2007.''
    This legislation introduced by Chairman Berman and
    Representative Sensenbrenner would amend the False Claims Act,
    which was enacted in response to complaints about fraud and
    corruption against the United States government during the
    Civil War.
        The central purpose of the False Claims Act has been to
    enlist private citizens in combating fraud against the United
    States. The Act's qui tam provision provides a clear process to
    assist and encourage private citizens not only to report fraud
    against the United States, but also to participate in
    investigating and prosecuting those who steal from the Federal
    Government.
        Since 1986, filings under the False Claims Act have led to
    recovery for the United States government of over $20 billion
    in taxpayer funds. Such a success should be commended. However,
    over the course of the Act's history, court decisions have led
    to conflicting interpretations that have limited the reach of
    the Act, discouraged qui tam relators from filing suits under
    the Act, and left billions of dollars vulnerable to fraud.
        The various interpretations, in fact, were noted earlier
    this year when an Arkansas Federal court invited Congress to
    take legislative action to clarify the False Claims Act,
    stating ``the court sympathizes with anyone litigating under
    the False Claims Act. Perhaps Congress will elect at some point
    to give legislative attention to the FCA to resolve some of the
    still-unresolved questions about the Act's application.''
        H.R. 4854 is a legislative response to the court's plea for
    clarification of many issues and resolves the split among the
    Federal circuits. The bill provides that False Claims Act
    liability protects all Federal funds. Among other things, the
    legislation defines what are recoverable damages and
    strengthens anti-retaliation protections.
        Finally, H.R. 4854 establishes a statute of limitations
    period and revitalizes the Government's investigative powers
    under the Act.
        At a time when billions of American taxpayer dollars are
    being poured into the hands of contractors in Iraq, this
    legislation is particularly timely. Often, fraud cannot be
    discovered unless a whistleblower comes forward, and this bill
    makes sure that whistleblowers have better tools to hold
    fraudulent individuals and companies accountable.
        Accordingly, I thank Chairman Berman and Representative
    Sensenbrenner for their leadership on this issue, and I look
    forward to hearing the testimony from our witnesses today.
        With that, I yield back the balance of my time.
        [The prepared statement of Ms. Sanchez follows:]
    Prepared Statement of the Honorable Linda T. Sanchez, a Representative
    in Congress from the State of California, and Chairwoman, Subcommittee
                      on Commercial and Administrative Law
        We are here today to hear testimony from several witnesses on H.R.
    4854, the ``False Claims Act Corrections Act of 2007.'' This
    legislation, introduced by Chairman Berman and Representative
    Sensenbrenner, would amend the False Claims Act, which was enacted in
    response to complaints about fraud and corruption against the United
    States government during the Civil War.
        The central purpose of the False Claims Act has been to enlist
    private citizens in combating fraud against the United States. The
    Act's qui tam provisions provide a clear process to assist and
    encourage private citizens not only to report fraud against the United
    States, but also to participate in investigating and prosecuting those
    who steal from the Federal Government.
        Since 1986, filings under the False Claims Act have led to recovery
    for the United States Government of over $20 billion in taxpayer funds.
    Such a success should be commended.
        However, over the course of the Act's history, court decisions have
    led to conflicting interpretations that have limited the reach of the
    Act, discouraged qui tam relators from filing suits under the Act, and
    left billions of dollars vulnerable to fraud. The various
    interpretations, in fact, were noted earlier this year, when an
    Arkansas federal court invited Congress to take legislative action to
    clarify the False Claims Act, stating: ``The Court sympathizes with
    anyone litigating under the False Claims Act. Perhaps Congress will
    elect at some point to give legislative attention to the FCA to resolve
    some of the still unresolved questions about the Act's application.''
        H.R. 4854 is a legislative response to the court's plea for
    clarification of many issues and resolves the splits among the federal
    circuits. The bill provides that False Claims Act liability protects
    all federal funds. Among other things, the legislation defines what are
    recoverable damages and strengthens anti-retaliation protections.
    Finally, H.R. 4854 establishes a statute of limitations period and
    revitalizes the Government's investigative powers under the Act.
        At a time when billions of American tax-payer dollars are being
    poured into the hands of contractors in Iraq, this legislation is
    particularly timely. Often, fraud cannot be caught unless a
    whistleblower comes forward, and this bill makes sure that
    whistleblowers have better tools to hold fraudulent individuals and
    companies accountable.
        I thank Chairman Berman and Representative Sensenbrenner for their
    leadership on this issue and look forward to hearing the testimony from
    our witnesses.

        Mr. Berman. I thank the gentlelady.
        I am now pleased to recognize the Ranking Member of the
    full Judiciary Committee, Lamar Smith, the gentleman from
    Texas, for his opening statement.
        Mr. Smith. Thank you, Mr. Chairman.
        False claims actions have a distinguished legal pedigree.
    They evolved in England during the 13th century as a way to
    help the crown prosecute fraud perpetrated against the
    government. Like its modern-day American equivalent, these
    actions of old empowered an ordinary citizen to sue a
    transgressor on behalf of the government and himself. If a
    transgressor was penalized for his misconduct, the
    whistleblowing citizen kept a portion of the fine.
        During the Civil War, many companies supplying the Union
    Army with goods and services indulged in fraudulent conduct.
    This compelled Congress to create the first False Claims Act in
    1863. Defense fraud motivated Congress to revisit the False
    Claims Act again in 1986. Amendments adopted that year
    encouraged greater use of the law. Since then, the Government
    has recovered more than $20 billion under the Act.
        The bill before us, H.R. 4854, represents the largest
    potential change to the Act in more than 20 years. It
    eliminates the requirement that a false claim be presented
    directly to a member of the Government. It revises the ban
    against retaliatory measures by including material hindering of
    a complainant in obtaining new employment. And it expands the
    Act's statute of limitations from 6 years to 10 years.
        Why should we amend the False Claims Act once more? While
    the statute applies to a broad spectrum of industry fraud in
    housing, defense and food stamp programs, many proponents argue
    that healthcare fraud has become a major problem. Most
    recently, the Washington Post reported that healthcare fraud
    cost Americans $60 billion annually.
        Are stories such as these a reflection of a trend, or are
    they anecdotal? That is one of the main issues we need to
    explore today. Are fraudulent claims on the rise? If so, are
    the provisions of H.R. 4854 necessary to combat this upsurge in
    commercial crime? Some critics of the House and Senate bills
    believe the legislation constitutes an overreaction. They
    maintain the Government is better suited to policing misconduct
    and bringing transgressors to justice.
        To these critics, the False Claims Act is counterproductive
    and has devolved into a lottery for plaintiffs attorneys who
    can't resist the lure of a big payoff. If the Department of
    Justice intervenes in only 20 percent of false claims cases, as
    The Wall Street Journal points out, doesn't that suggest the
    other 80 percent might be meritless? And why since 1986 have
    these cases in which the Government did not participate
    generated less than 2 percent of all recoveries under the Act?
        Other detractors argue that the majority of defendants in
    false claims cases do not fit the stereotype of a venal
    corporation. Rather, they are small businesses, local
    governments and nonprofit institutions. Strapped for legal
    resources, they settle questionable cases rather than risk
    bankruptcy.
        Similarly, many individuals who do business with the
    Government believe that advocates of the False Claims Act
    confuse fraud with honest mistakes. For example, if a
    contractor checks a box attesting to his familiarity with the
    rules and regulations of the Medicare program, which reportedly
    exceed 100,000 pages, but subsequently fails to comply with one
    of these rules, has he really committed fraud?
        Mr. Chairman, I support whistleblower laws that help the
    Government uncover fraud. If there is a demonstrable need to
    pass H.R. 4854, we should support it. But we should not support
    legislation that does little to combat fraud, while placing
    additional burdens on the backs of businesses, local
    governments and nonprofit institutions. These are the issues
    that I think this Committee and other Committees should
    explore.
        With that, Mr. Chairman, I yield back the balance of my
    time.
        Mr. Berman. I thank the gentleman.
        Now, I am pleased to yield to the Chairman of the Judiciary
    Committee, my friend Mr. Conyers.
        Mr. Conyers. Thank you, Mr. Chairman.
        I am going to just put my statement in the record. As
    usual, you remind me of my professors at Wayne University.
        Mr. Berman. Who does?
        Mr. Conyers. You do, because you cover everything in such
    detail that there is nothing left for me to add, except that I
    am glad we cleared up the Latin pronunciation.
        Mr. Berman. Are those the ones you thought of as pedantic
    and boring? [Laughter.]
        Mr. Conyers. Well, I will save those descriptions for some
    other part of your opening statement.
        But I did take a Latin course that if it didn't do anything
    else, it helped me pronounce words that began with ``qui'' in
    Latin.
        This is an important hearing because we are really talking
    about whistleblowers. Of course, when we get disturbed about
    people cheating the Government, the focus becomes some poor
    little bloke that is getting unemployment compensation for a
    few weeks more than he was eligible, or something like that.
    But this is the beginning of a subject that goes into a far
    deeper and more important dimension of the Government being
    treated fairly, which is really all of us being treated fairly
    as citizens and taxpayers.
        So today, we are looking at the big guys. I have another
    area that we will be talking with the Department of Justice
    about when the attorney general comes next month. One of the
    issues are these deferred prosecution practices in which we
    have huge settlements that are being arrived at to avoid
    prosecution. There is a lot to learn from this practice. By the
    way, I say to my good friend, the Ranking Member of the full
    Committee, Lamar, guess who some of the biggest violators are?
    They are people in the healthcare industry, the
    pharmaceuticals--Tenet, $900 million; HCA, $731 million;
    Serono, $567 million; TAP Pharmaceuticals, $559 million;
    Schering-Plough; and Abbott Labs.
        For all of us, we are worried about the healthcare problem,
    and these are the greatest--between oil and the
    pharmaceuticals--areas where most of the largest profit-taking
    in this capitalist system of ours is taking place. And look who
    the biggest violators are?
        So, this raises some very interesting questions. I close
    with the IRS. We are not collecting from the big people
    anymore. I mean, IRS reviews of the big people's returns, all
    the time we are lowering their taxes over the last 2 decades.
    And so if I sound slightly disturbed about it, you got that
    right.
        Thank you, Mr. Chairman.
        [The prepared statement of Mr. Conyers follows:]
    Prepared Statement of the Honorable John Conyers, Jr., a Representative
      in Congress from the State of Michigan, Chairman, Committee on the
         Judiciary, Member, Subcommittee on Courts, the Internet, and
       Intellectual Property, and Member, Subcommittee on Commercial and
                               Administrative Law
        Thank you Mr. and Ms. Chairman for this joint hearing today.
        This bill takes, head on, the issue of fraud against the
    government. The proposed changes to the False Claims Act would provide
    a better mechanism for the public to stand up and speak out when they
    see fraud against the government.
        It would provide better incentives and remove substantial
    disincentives such as the fear of retaliation.
        The aim of these amendments to the False Claim Act are the same as
    when the law was first enacted in 1863 to enable citizens to help in
    the fight against the misappropriation of government fund provided
    through the taxpayer.
        I fully support my friends Mr. Berman and Mr. Sensenbrenner in
    spearheading this effort to strengthen the national ability to fight
    fraud and recover damages particularly in the subcontractor context.
        The Rockwell, Totten, and Custer Battles cases created a situation
    which discouraged citizens from coming forward, effectively exempted a
    whole range of subcontractors and allowed defendants to overuse the
    public disclosure bar as a defense. It's time to revisit this issue.
        The criminals who commit this type of fraud are not just cheating
    the government, they are cheating each and every one of us--taking
    money out of the pockets of taxpayers.
        More over, by redirecting government funds, this impacts so many
    good programs and priories that get shortchanged financially because of
    limited resources. The False Claims Act has rooted out $20 billion in
    fraud since 1986, including $5 billion since 2005.
        In a time such as now, we have to be more vigilant than ever that
    every dollar is used efficiently and effectively for the purpose in
    which it was intended.
        This nation is in the midst of a double punch, no, a triple punch,
    the housing crisis, astronomical gas prices which have led to high food
    prices and a general economic slump. We have to make the taxpayers
    dollars go farther and do more. We can not tolerate theft, not now or
    ever. This bill puts more eyes and ears toward ferreting out and
    shining the light on taxpayer money that would have been lost to fraud.
        I am dedicated to making sure that in attacking fraud, we do not
    unintentionally harm our nations universities and research institutions
    or our hospitals.
        The research institutions have legitimate concerns that I will be
    working with my colleagues on to find a compromise that targets the
    intended parties and not innocent intermediaries. I am also dedicate to
    ensuring that this bill does not encourage unfounded claims in its
    loosening of the standards for instituting and maintaining lawsuits and
    that retroactivity of the provision is done in a equitable manner for
    pending cases currently under seal.
        I look forward to hearing from our witnesses today as we consider
    this important step toward better fraud control and deterrence.

        Mr. Berman. Thank you, Chairman Conyers.
        Now, I will introduce our distinguished panel of witnesses.
        Our first witness today is Mr. Albert Campbell, who is with
    us from Winter Springs, FL. From 1973 to 1976, Mr. Campbell
    served as a crew chief on CH-47 Chinook helicopters as part of
    the 101st Airborne Division. He earned a bachelor of science in
    business administration from Austin Peay in Clarksville,
    Tennessee.
        In 1978, Mr. Campbell began a 21-year career in the defense
    industry as a financial analyst for the Honeywell Corporation,
    working on programs that produced cryptic communications
    equipment. In 1981, Mr. Campbell started work as a financial
    analyst for the Martin Marietta Corporation, which later became
    Lockheed Martin. There, he served as a senior analyst for the
    Patriot missile launcher programs, supervisor of cost control
    for the Apache helicopter TADS/PNVS program, and chief of cost
    control for the LANTIRN program, the latter of which was the
    subject of a False Claims Act action filed in 1995.
        Mr. Campbell now serves on the board of directors of
    Taxpayers Against Fraud and runs a family real estate business
    with his wife, Kimberly, in Central Florida.
        Shelley Slade is a partner at Vogel, Slade and Goldstein in
    Washington, DC, where she maintains a nationwide practice
    representing qui tam plaintiffs under the False Claims Act. She
    earned her undergraduate degree at Princeton University and her
    J.D. from Stanford.
        From 1990 to 1997, Ms. Slade investigated and litigated
    fraud matters in the Civil Fraud Section of the Commercial
    Litigation Branch of the Justice Department, the office which
    handles the most significant and large-scale False Claims Act
    cases in the country.
        As a trial lawyer attorney in the Commercial Litigation
    Branch, Ms. Slade specialized in matters involving fraud on the
    U.S. Department of Defense and fraud involving state and
    foreign government entities.
        Prior to entering private practice in 2000, Ms. Slade was
    the senior counsel for healthcare fraud in the Civil Division
    at DOJ, where she coordinated the healthcare fraud enforcement
    efforts, handled related policy and legislative matters, and
    instructed Department of Justice attorneys and investigators on
    the investigation and prosecution of False Claims Act matters.
        She speaks regularly at key legal conferences on the False
    Claims Act and has published a number of articles in the area.
        Peter Hutt is a partner at Akin Gump Strauss Hauer and Feld
    in Washington, DC. He advises clients on a broad range of
    Federal Government contract issues and has litigated more than
    a dozen False Claims Act cases, including many qui tam matters.
    He has also litigated cases in Federal courts ranging from
    securities fraud to constitutional issues, and has conducted
    numerous internal investigations.
        Mr. Hutt is a former chair of the Procurement Fraud
    Committee of the ABA Section of Public Contract Law and he
    writes frequently on the False Claims Act. He earned his B.A.
    from Yale College in 1984 and his J.D. in 1989 from Stanford
    Law School, where he was the senior articles editor of the
    Stanford Law Review.
        He was a law clerk for Judges William Schwarzer and Vaughn
    Walker of the U.S. District Court for the Northern District of
    California.
        James Helmer, Jr., is a senior partner and president of
    Helmer, Martins, Rice and Popham in Cincinnati. Approximately
    half of his practice involves the representation of employees
    blowing the whistle on fraudulent Government contractors. He
    has been trial counsel in over 200 published legal decisions.
        Most recently, Mr. Helmer was the lead relator's counsel in
    Allison Engine Company v. United States, and argued the case
    for the plaintiff at the 6th Circuit and at the Supreme Court.
    Mr. Helmer testified before this Committee over 20 years ago,
    the last time we were considering amendments to the False
    Claims Act, and I am pleased to see him back again today. His
    False Claims Act cases have returned over $700 million to the
    taxpayers and have resulted in 13 criminal indictments.
        He has written extensively on the False Claims Act and the
    practice of qui tam litigation, including the text False Claims
    Act Whistleblower Litigation. Mr. Helmer earned his
    undergraduate degree from Dennison University, law degree from
    Cincinnati College of Law, where he was editor-in-chief of the
    Cincinnati Law Review. He began his legal career as a law clerk
    for the chief judge of the United States District Court for the
    Southern District of Ohio.
        We appreciate all of you being here today. Your entire
    written statements will be made part of the record. I ask each
    of you to summarize your testimony in 5 minutes or less. To
    help stay within that timeframe, there is a light in front of
    you. When 1 minute remains on your time, the light will switch
    from green to yellow, and then red when the 5 minutes are up.
        We are glad to have you here, and look forward to hearing
    your testimony.
        Mr. Campbell, why don't you begin?

            TESTIMONY OF ALBERT CAMPBELL, WINTER SPRINGS, FL

        Mr. Campbell. Good morning, Mr. Chairman, and good morning
    to the other Members of this Committee.
        My name is Al Campbell, and as you know, I am a
    whistleblower. Now, my task is to help you understand what it
    is like to be a whistleblower under the False Claims Act, and I
    am supposed to do it in less than 5 minutes. My previous
    attempts to do this have taken me about 1 hour, so here we go.
        I thought that I would speak metaphorically to you, and
    that it might help you understand what it is. A whistleblower
    uses the False Claims Act not as a sword. What a whistleblower
    uses as a sword is his or her truth. What they use as a shield
    is their conviction of what they believe.
        What we use the False Claims Act for is as a coat of armor.
    The way that coat of armor is constructed is the Congress of
    the United States and Senate of the United States passed the
    False Claims Act, and that False Claims Act was to protect us
    if we stepped forward and did what we thought was the right
    thing. As you have pointed out, going all the way back to the
    Civil War, we have been encouraged to do it.
        Now, if you encourage someone to go out into battle and you
    promise to provide them with the armor they need to be
    protected, shouldn't that armor be as complete and as defensive
    as it possibly can? If you have a suit of armor and you knew
    there was a chink in it, would you suit me up and send me into
    battle with that chink? Or would you work to try to correct it?
        Keep in mind that the Department of Justice does not
    initiate a False Claims Act, a relator does. The relator is the
    person who puts himself or herself out on the line initially.
    Relators do not have deep pockets. Relators for the most part
    are not lawyers. But relators end up engaged in a battle with
    companies, whether they are SBAs or whether they are
    multinational, multi-billion dollar corporations. They have
    lawyers and they have funds. The Department of Justice has
    funds. The relator only has the truth that he or she believes.
        When I was going through my litigation with a defense
    contractor, the first thing the defense contractor did was
    attack my character because that is normally the first thing
    that they do. The second thing the defense contractor does is
    seek to prove that if there was any wrongdoing done, I somehow
    was the person who did it. So our character is continually
    under attack.
        I was one of those relators who ended up having to use the
    anti-retaliation clause of the False Claims Act because I was
    retaliated against not by the contractor that I filed the
    lawsuit against, but I was retaliated by a subsequent
    contractor because of the fact that that provision, the way it
    was interpreted by the Federal courts in our district, it said
    that any subcontractor or any contractor who did anything to
    retaliate against me was subject to the law.
        Now, if it had been ruled a different way, that contractor
    would have gotten away with having violated the intent of the
    law by using a loophole. Those loopholes that exist in the
    False Claims Act are chinks and holes in the armor that you
    give a whistleblower to fight the battles for you, to fight the
    battles for the people of the United States, to fight the
    battle for themselves.
        It is not about windfall lotteries. It is about a fight to
    make sure that the right thing is done. Regardless of how you
    question a whistleblower's motives or his or her beliefs, at
    the end of the day what we are trying to do is make sure that
    if there was in fact a violation, that the violation is
    corrected. Not that the violation fell through a loophole, not
    that the whistleblower, who has put on hold his life and his
    family's life and has risked his reputation to do what he
    thinks is right and what he believes in--that is not the
    ultimate goal. The ultimate goal is to correct what is wrong.
        So if we close the loopholes, if we fix the armor, the
    relators will be much better served through this process. If
    you don't fix the holes in it, you will not only lose the
    relators who step forward and get shot down, but you will lose
    those other people who considered becoming a relator, but said,
    I am not going to step into that with armor that has those
    kinds of holes in it.
        So all I ask you to do is consider the whistleblower.
    Consider closing the loopholes so that the whistleblower can do
    what you have asked him to do, and that is help you fight
    fraud.
        Thank you.
        [The prepared statement of Mr. Campbell follows:]
                    Prepared Statement of Albert D. Campbell

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        Mr. Berman. Thank you very much, Mr. Campbell.
        Ms. Slade?

                TESTIMONY OF SHELLEY R. SLADE, PARTNER,
             VOGEL, SLADE & GOLDSTEIN, LLP, WASHINGTON, DC

        Ms. Slade. Mr. Chairman of the Committee, Mr. Chairman,
    Madam Chairwoman, and Members of the Subcommittees, thank you
    for inviting me to testify on H.R. 4854, the ``False Claims
    Correction Act of 2007.'' I have handled False Claims Act cases
    on behalf of the qui tam plaintiffs in the United States for 18
    years--8 years with a private firm and 10 years with the
    Department of Justice in Washington, DC.
        The qui tam bar wholeheartedly supports H.R. 4854. The
    bill's proposed corrections are badly needed to ensure that the
    law remains fully effective in an era in which so many
    Government functions have been outsourced to Government
    contractors and grantees.
        According to 2008 testimony by the U.S. Controller General,
    the Government is relying on contractors to fill roles
    previously held by Government employees and to perform many
    functions that closely support inherently governmental
    functions such as contracting support, intelligence analysis,
    program management, and engineering and technical support for
    program offices.
        A handful of large companies are now effectively serving as
    a shadow government that awards and oversees contracts,
    disburses Federal funds, and attempts to detect fraud in
    Government contracting. We must do all we can to make sure that
    the False Claims Act covers false claims submitted to this
    shadow government of Government contractors.
        As we all know, the qui tam provisions in the False Claims
    Act as amended in 1986 have been a resounding success,
    returning over $20 billion to the treasury since 1986. This law
    is one of the most brilliant on the books and qui tam
    plaintiffs are key to its success. In most cases, only an
    informant from the inside will produce a smoking gun that
    conclusively establishes liability.
        Moreover, time and time again, it has been the relentless,
    zealous pursuit of qui tam litigation by qui tam plaintiffs and
    their counsel that has played a major role in the large FCA
    recoveries that we read about in the papers. I will provide you
    this morning with just one example, although I would be happy
    to provide many more upon request.
        In 1989, two Northrop Grumman employees filed a qui tam
    case. They alleged that Northrop Grumman was overcharging the
    Government for radar-jamming devices installed on Air Force
    jets. After a 3-year investigation, the Department of Justice
    declined to intervene in this case. Convinced of the fraud, the
    relators and their counsel litigated the case for 9 years on
    their own.
        Finally, in 2002, 12 years after the original case was
    filed, the former Northrop Grumman employees were able to
    convince the U.S. of the merits of the case, and the DOJ then
    did intervene. In 2006, the case finally settled for $134
    million.
        Now, I would like to emphasize a very important point here.
    This case I just described to you, in which the qui tam
    relators litigated on their own, going into their own resources
    for 9 years, this is in the DOJ statistics as an intervened
    case. The DOJ did intervene in this case a couple years prior
    to the settlement. There are many, many other cases like that
    in that category called intervened cases. So you need to
    examine closely what is in those stats. Upon request, I could
    provide you a paper with many such examples.
        The fact that the Act has worked in many ways as planned
    does not mean that we should sit on our laurels, however. There
    are deficiencies in the current operation of the law, many
    created by judicial misinterpretations of the statute and
    others created by the unintended consequences of certain of the
    provisions in the Act.
        Here are four examples of how H.R. 4854 fixes these
    problems. Number one, for the first time the Act would impose
    liability on healthcare providers who identify overpayments
    they have received through their mistaken billing, and then
    make the deliberate decision to avoid reporting the overpayment
    so as to fraudulently secure the overpayment for their own use.
        Under Medicare's rules, providers are liable to repay such
    overpayments that they have identified. Moreover, the
    nondisclosure runs afoul of a criminal statute. There should be
    a civil fraud remedy here, too. In my judgment, this provision
    should generate hundreds of millions of dollars more in
    additional recoveries to the U.S. government each year.
        In the mid-1990's, HHS Inspector General June Gibbs Brown
    looked into the level of overpayments in the Medicare program
    and concluded that $23.2 billion or 14 percent of total program
    costs were lost each year due to fraud, waste and abuse. This
    number undoubtedly has only grown larger with the aging of our
    population, the increased cost of healthcare, and the addition
    of Medicare Part D, the new pharmaceutical benefit for seniors.
        Second, H.R. 4854 clarifies that the Act imposes liability
    on those who submit false claims to Government contractors and
    grantees to get Government money. Under the Allison Engine
    Supreme Court decision that came out just last week, and under
    a 2005 decision by the D.C. Court of Appeals, the Act is being
    interpreted to cover only those situations in which false
    claims are submitted to an employee or official of the U.S.
        This change in the bill, which focuses on the nature of the
    funding rather than the entity paying the claim, is fully
    consistent with the original intent behind the 1986 amendments
    and reflective of the fact that our Government has outsourced
    even the contracting function to private companies.
        Importantly, this change would not get rid of the nexus
    between the Federal interest and the claim. For one thing,
    there would only be recovery permitted when the damages were
    damages to the United States. Secondly, the funds would have to
    be ones that were being held by the contractor or grantee to be
    spent on behalf of the Government or for a Government program.
        Third, as has been referenced by some of the congressmen,
    the bill makes clear that a qui tam plaintiff can proceed with
    his case even if he can't get his hands on the actual invoices
    submitted to the Government. In a large business, information
    is compartmentalized. The engineer who sees his bosses
    intentionally taking shortcuts that result in defective
    military products won't have access to the billing department's
    files.
        Conversely, the billing department employees are unlikely
    to know that the engineers are submitting false information to
    the billers about the work that they have performed. Unless we
    fix this problem that the courts are creating, we will find
    that qui tam plaintiffs will not be able to bring cases against
    large businesses with compartmentalized functions.
        Fourth, the bill takes out of the defendant's hands the
    ability to move to dismiss qui tam cases on the ground that
    they are based on a public disclosure. The public disclosure
    bar is designed to protect the Government from copycat
    pleadings by qui tam plaintiffs. It is not designed to protect
    any interest of the defendants. It is the Government that
    should properly assess whether the plaintiff's pleading is
    parasitic of a matter in the public domain.
        Yet, the defendants these days are filing motions to
    dismiss under this provision time and time again to delay
    adjudication on the merits and wear down their opposition. In
    many of the cases in which defendants make these motions, there
    is no active Government investigation that had been generated
    by the arguable public disclosure. If there had been, the
    Government would have been concerned enough to file a motion on
    its own.
        Thank you very much.
        [The prepared statement of Ms. Slade follows:]
                     Prepared Statement of Shelley R. Slade

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        Mr. Berman. Thank you.
        Mr. Hutt?

      TESTIMONY OF PETER B. HUTT, II, PARTNER, AKIN GUMP STRAUSS
                   HAUER & FELD, LLP, WASHINGTON, DC

        Mr. Hutt. Chairman Berman, Chairwoman Sanchez, and Members
    of the Committee, I thank you for inviting me to testify here
    today.
        I am here on behalf of the United States Chamber of
    Commerce and the U.S. Chamber Institute for Legal Reform in
    opposition to H.R. 4854. For 20 years, I have analyzed and
    written on the False Claims Act and its qui tam provisions. I
    have also defended individuals and companies both small and
    large and other entities that were sued by qui tam plaintiffs
    under the statute.
        The Chamber, let there be no doubt, fully supports the
    Department of Justice in its ongoing efforts to root out and
    eliminate instances of fraud against the Federal fisc. The
    Chamber recognizes that the False Claims Act has provided the
    Government with an effective tool to combat fraud against the
    Federal treasury.
        The $20 billion that has been returned to the Federal
    treasury over the last 2 decades is a testament to the reach of
    the statute, and the hundreds of qui tam actions that are filed
    each year show that the statute already provides sufficient
    incentives for whistleblowers to come forward. Accordingly, the
    Chamber strongly believes that no amendment to the statute is
    necessary or desirable.
        The current proposed amendments would not assist the
    Department of Justice in its efforts to protect the Federal
    treasury. Rather, they would encourage qui tam plaintiffs to
    file baseless and derivative actions that are not in the
    interests of the United States government or its taxpayers.
        At the outset, I would like to dispel any misconception
    that the Supreme Court's recent decision in the Allison Engine
    case has weakened the statute or compels any legislative
    change. To the contrary, that decision illustrates precisely
    why no amendments to the current legislation are needed.
        The Supreme Court reversed the Totten decision that the
    bill before you today was in part designed to reverse. The
    Supreme Court unanimously agreed with the Department of Justice
    that a false statement of record is actionable even if no claim
    is directly presented to the United States. There is no need,
    therefore, for the provisions in the current bill that would
    eliminate presentment as a requirement under the statute.
        Moreover, the Allison Engine decision left untouched
    sections a(1) and a(3) of the statute and imposed only modest,
    if any, limitations in the liability provisions of section
    a(2). More broadly, the Allison Engine case exemplifies that
    the current legislative undertaking is unnecessary. It is far
    better, we urge, to let the courts continue to apply and
    interpret the current statute which has worked so well.
        I will now briefly touch on some of the more objectionable
    features of H.R. 4854. First, the bill contains expansive new
    definitions of Government money or property, and administrative
    beneficiary that would expand the liability provisions of the
    statute to situations that are currently covered by state
    contract laws and tort laws. The unanimous Supreme Court in the
    Allison Engine case concluded that expanding the False Claims
    Act to encompass all claims submitted to private entities where
    the claimant never intended to seek Government funds would
    threaten to transform the False Claims Act into an all-purpose
    anti-fraud statute.
        Second, H.R. 4854 would destroy the logical structure of
    the public disclosure provision of the current law. Since 1986,
    the Act has effectively encouraged true whistleblowers to come
    forward, but deputized the defendants to seek dismissal where
    the action was based on publicly disclosed information. By
    stripping defendants of the ability to raise this defense,
    parasitic lawsuits that bring no new or useful information to
    the Government will routinely go forward.
        Third, the proposed legislation would unfairly exempt qui
    tam plaintiffs, but not the Department of Justice, from the
    requirements of Federal rule of civil procedure 9(b) that all
    persons asserting fraud actions in Federal court must plead the
    elements of fraud with particularity. The sensible purpose of
    rule 9(b) is to prevent abusive plaintiffs from using
    conclusory allegations of fraud to embroil defendants in
    litigation and to give defendants sufficient information to
    prepare their defense. There is no basis whatsoever for holding
    qui tam plaintiffs to a lower standard than all other litigants
    in Federal court, and certainly no basis for holding them to a
    lower standard than the Department of Justice in False Claims
    Act cases.
        Fourth, the bill would encourage Government employees to
    file qui tam lawsuits based on information they learned on the
    job. The Chamber agrees with the Department of Justice that
    this represents a terrible policy that would lead to conflicts
    of interest within the Government workforce and would regularly
    undermine public trust in the integrity and the impartiality of
    Government personnel.
        Finally, the package of amendments in H.R. 4854 if enacted
    would disproportionately fall on nonprofits, educational
    institutions, hospitals, and small businesses. The legislation
    would encourage a spate of unfounded and parasitic lawsuits.
    Without the gate-keeping device of rule 9(b) and without the
    defense of the existing public disclosure bar, these
    nonprofits, universities, and small businesses will bear the
    enormous costs of litigating cases that the Department of
    Justice has declined to prosecute. The costs of doing business
    with the Government and participating in vital Federal programs
    will go up. The Government will lose the benefit of working
    with some of its most valuable partners or will pay more for
    their services.
        In sum, the Chamber submits that it is only the qui tam
    plaintiffs and their attorneys who will benefit from the
    amendments proposed today. The Government, the American
    taxpayer, and nonprofits, universities, hospitals and small
    businesses will all be the losers.
        [The prepared statement of Mr. Hutt follows:]
                    Prepared Statement of Peter B. Hutt, II

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        Mr. Berman. Thank you very much, Mr. Hutt.
        Mr. Helmer?

    TESTIMONY OF JAMES B. HELMER, JR., PRESIDENT, HELMER, MARTINS,
               RICE & POPHAM COMPANY, LPA, CINCINNATI, OH

        Mr. Helmer. Thank you, Mr. Chairman.
        In the mid-1980's, many people in this country became
    alarmed by reports of $400 hammers and $6,000 coffee pots being
    purchased by the Department of Defense. This body also became
    alarmed and took action as a result of those reports. In
    February 1986, I testified before this Subcommittee concerning
    amending the Civil War-era False Claims Act because I had the
    only pending qui tam case in the United States at that time.
        With Chairman Berman's leadership, this House passed the
    False Claims Act amendments in 1986 and President Reagan signed
    them into law in October of that year. Now, prior to that,
    prior to 1986, the entire Department of Justice, with all of
    its lawyers and jet airplanes and resources, recovered $26
    million for fraud. Since 1986, and the amendments that were
    made at that time, the average now is close to $1 billion a
    year year after year after year.
        The False Claims Act has 3,000 words in it. I thought in
    1986 that the concept was simple enough: go out and enlist
    citizens to assist their Government in fighting those who would
    abuse the public trust and steal tax dollars, and at the same
    time encourage those citizens and protect them. I thought that
    was a simple enough concept.
        But I have now spent 25 years litigating under this
    statute, the False Claims Act. I have done that all over the
    United States. I have been involved in cases involving Medicare
    theft, violation of the environmental protection laws, cheating
    on Federal oil and gas leases, and on trade duties. But I have
    spent most of my time prosecuting this country's major defense
    contractors, and these are not small businesses. These are not
    universities. These are the largest corporations known to
    Western civilization.
        What I have learned in those 25 years of using this statute
    is set out in a 1,600-page book I wrote, now five times--it has
    been written five times on this subject--and what I have
    learned is that nearly all of those 3,000 words in the False
    Claims Act have been challenged and are being challenged by
    those who represent the minority of Government contractors who
    are unscrupulous.
        As a result, several courts have lost sight of what this
    body was intending to accomplish, and this magnificent public-
    private partnership, the device of using the qui tam cases is
    in my opinion doomed to become the toothless tiger that it was
    after 1944 when Congress at that time legislated the ability to
    use qui tam cases out of existence.
        Every provision of the False Claims Act Corrections Act of
    2007, H.R. 4854, is designed to clarify parts of the False
    Claims Act which have been tortured by various judicial
    decisions over those 22 years since 1986. The Allison Engine
    case, which was referred to, I have worked on that case for 14
    years. The next paycheck I get on that case will be the first
    one in those 14 years. It is not a get-rich-quick scheme to
    bring a qui tam case against a major defense contractor--in
    that case, four major defense contractors. You might even end
    up having your case go to the United States Supreme Court after
    14 years.
        While Mr. Hutt is correct that the Supreme Court determined
    that presentment no longer exists in a(2) or a(3), although
    some judges had seen it there--it is not in my copy of the
    statute, and Chairman Berman, it is not in your copy of the
    statute either--but some courts have found it there. He is
    incorrect to say that is inconsequential, because what the
    Supreme Court did add last week was four new elements that you
    will find nowhere in the 1986 version of the statute or the
    1863 version of the statute. Intent, materiality, reliance, and
    even damages--none of those are in the False Claims Act. All of
    those can be found in the Supreme Court's Allison Engine
    decision.
        I urge your Subcommittees, just as I did in 1986, to give
    full consideration to passing this bill out of Committee and
    joining with your colleagues in the Senate in getting these
    amendments made so that citizens like Mr. Campbell, who is a
    real patriot in my opinion, can continue to play a vital and
    necessary role in helping their Government to protect the
    billions and billions of tax dollars that remain at risk.
        Thank you, Mr. Chairman.
        [The prepared statement of Mr. Helmer follows:]
                   Prepared Statement of James B. Helmer, Jr.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Berman. Thank you all very much.
        I yield myself 5 minutes for the first round of questions.
        Mr. Hutt, I appreciated your comments and support for the
    existing law. I don't know if you are aware that 22 years ago
    your client didn't like the bill that was proposed or the law
    that had just passed. Your client felt like it would unfairly
    drive up the costs of doing business with the Federal
    Government and therefore make contracts more expensive; that it
    would disproportionately fall on the backs of small businesses
    and nonprofits; and felt that the law you now so strongly
    defend would do all the things you predict these new amendments
    to the law would do. Is there any irony in that?
        Mr. Hutt. Well, I would just say in response to that that
    the statute as drafted is not perfect, but certainly the
    Chamber, and I think everyone who litigates under the statute
    recognizes that over the past 20 years it has provided the
    Department of Justice with a very effective tool in enforcing
    fraud. Primarily when it has been used by the Department of
    Justice, it has been an effective tool in bringing recoveries
    back to the Federal treasury.
        But I will say that I do feel strongly that it is very
    difficult for small businesses and smaller entities, not the
    large defense contractors, to defend themselves against
    allegations of fraud, especially ones asserted by qui tam
    plaintiffs under the statute which tend in many, many
    circumstances not to have substantial or sometimes any merit.
    That is really the reason for the continued opposition to any
    expansion of the False Claims Act or the reduction of available
    defenses.
        Mr. Berman. Would the Chamber change its position on this
    bill if we simply added an amendment that said these amendments
    don't apply to companies doing less than a certain amount of
    business a year, or below a certain net worth? Would that cause
    the Chamber to be supportive of this legislation?
        Mr. Hutt. I think it would be difficult to craft any line
    that could be workable in practice. The statute has always been
    a statute of broad applicability and I think that is the best
    way to frame the statute.
        Mr. Berman. The public disclosure issue--we wanted to then
    and we want now to stop parasitic lawsuits. It is the Federal
    Government and the taxpayers that this is supposed to be
    protecting, and we in Congress, don't want to see private
    parties grabbing a significant part of a recovery for actions
    that the Federal Government was about to move on in any event,
    and that is an important consideration.
        Why should that be an issue a defendant raises, rather than
    the Department of Justice, or rather than the Government? Why
    should the defendants have this as a jurisdictional shield to
    dismiss a case where, and for the sake of this question let's
    assume, they had committed the fraud and in fact were
    appropriately liable? Why should they get out of their
    liability when the Justice Department, which has a high
    interest in being sure that the taxpayers recover all the
    damages contemplated, chooses not to file the motion?
        In other words, all this does is give the party who has the
    real interest in preventing the parasitic lawsuit the power to
    stop the lawsuit where there has been clear public disclosure
    of the fraud already, and the whistleblower is adding nothing
    to it in that situation? I am not sure why we should consider
    continuing to allow defendants to have the tool to raise this
    issue when their goal in raising that issue is to avoid their
    liability.
        Mr. Hutt. I think that in a nutshell the reason that it
    makes sense to continue to allow defendants to raise the public
    disclosure bar is best answered by looking at the overall
    purpose and structure of the statute as it exists since 1986.
    Since 1986, the structure of the statute has worked very well
    at weeding out parasitic lawsuits and allowing only true
    whistleblowers to go forward. Essentially, what the statute
    does is deputizes whistleblowers like Mr. Campbell to come
    forward with allegations of fraud. It does that by providing
    significant financial incentives for them to come forward, a
    share in a potential recovery.
        At the same time, from the very outset in 1986, Mr. Berman,
    you and others were concerned that there could be the
    possibility for more parasitic actions. Therefore, the public
    disclosure bar was put in the statute. The way the statute has
    worked, because this was a jurisdictional provision, since 1986
    defendants have been able to raise this defense.
        The statute essentially deputizes defendants to do the
    Department of Justice's work for it. Defendants have the
    ability and the incentive to determine which of the
    whistleblowers or qui tam plaintiffs who come forward in fact
    have true, fresh new information of fraud, and which ones are
    merely parasites or echoing information already in the public
    domain or already known to the Government.
        It simply makes sense to allow the public disclosure
    provision of the statute to be policed effectively by
    defendants who have the tools of discovery and other tools
    available to them to determine which whistleblowers really are
    bringing the kind of information forward that the Congress has
    said they want to reward.
        Mr. Berman. My time has expired.
        And now, the gentleman from North Carolina, Mr. Coble.
        Mr. Coble. Thank you, Mr. Chairman.
        I thank the witnesses for the testimony.
        Mr. Hutt, since you are in the witness box, I will visit
    with you again, and relate to your testimony regarding the
    pleadings with particularity. Now, the Government still has
    that burden, as I understand it. The bill would relieve the
    whistleblower of that responsibility. Am I reading it
    correctly?
        Mr. Hutt. Yes, that is the way H.R. 4854 is worded.
        Mr. Coble. And some might allege that this results
    inequitably to named defendants. What do you say to that?
        Mr. Hutt. I would concur wholeheartedly. It makes simply no
    sense to allow anyone to come into Federal court and fail to
    identify in an action sounding in fraud, all elements of the
    fraud with particularity. The goal of 9(b) is very simple.
    Courts have recognized uniformly that the purpose of 9(b) is
    really two-fold. First of all, to ensure that litigants coming
    into Federal court making serious accusations that sound in
    fraud have to have the goods. They have to have specific
    information about all elements of the fraud. And then second,
    they need to put defendants on notice of these very serious
    accusations against them.
        Mr. Coble. All right. Let me insert Mr. Helmer into the
    witness box, and let's hear from him regarding my question.
        Mr. Helmer. Fraud is a different animal, the type of fraud
    that Mr. Hutt is talking about, sir. In this area, fraud is
    disfavored by the courts throughout the country in common law
    fraud. It is a disfavored tort. As a result of that, 9(b) was
    constructed to add an additional level or additional hurdle
    that litigants had to get over before they had their ticket to
    the courtroom.
        The False Claims Act is not disfavored. In fact, this body
    has spoken very clearly and very eloquently that the False
    Claims Act, the qui tam provisions, are to be encouraged, that
    citizens like Mr. Campbell and others are to be encouraged to
    come forward with their information.
        What has happened is that 9(b) has been engrafted onto the
    False Claims Act. I don't think it should ever have been
    engrafted there to start with. This is a statutory cause of
    action, not a common law cause of action where the elements are
    set by this body.
        But be that as it may, 9(b) now having been the landscape,
    the whistleblowers like Mr. Campbell see a portion of the
    elephant. They see where the part for the Chinook is not being
    made pursuant to the regulations and the contract requirements.
    They see that fraud going on, but they don't see the claim
    process that is being made by the contractor to the United
    States Army. That is being done in the billing department.
        What Mr. Hutt and his colleagues want is that the
    whistleblower has to have the entire picture of the elephant
    when he comes into court. He has to not only know the fraud
    that occurred, but he has to know the claim process and where
    the claim is and why that claim is false, and tie it back to
    the allegations and what Mr. Campbell saw on the shop-room
    floor.
        Mr. Coble. Thank you, Mr. Helmer.
        Before my time expires, Ms. Slade, you wanted to insert
    your oar into these waters?
        Ms. Slade. Sure. The statute as it would be amended by this
    bill does not get rid of rule 9(b). That is a misperception.
    There is nothing in the statute that says that rule 9(b) no
    longer applies. All it says is that the qui tam plaintiff when
    he first goes to court in his opening pleading doesn't need the
    specifics of the billing documentation.
        I think an important distinction is in your common law
    fraud case, the two parties in the case are the two parties to
    the transaction, who presumably do have access to the documents
    reflecting the transaction. When the qui tam plaintiff comes
    in, he comes in on behalf of the United States.
        Mr. Coble. My time is about to expire. The red light is
    about to illuminate.
        Mr. Hutt, let me ask you this, what happens to a
    whistleblower now who brings a frivolous claim?
        Mr. Hutt. There are two principal safeguards that a
    defendant has in an un-intervened qui tam action. First is rule
    9(b). Many frivolous actions are thrown out because of the
    staunch conclusions of the courts I think uniformly that rule
    9(b) applies. That weeds out many cases.
        The second principal tool that defendants have to weed out
    frivolous qui tam cases is the public disclosure provision.
    Many cases that are frivolous in fact are based upon public
    disclosures.
        Mr. Coble. Should we include new penalties in this bill?
        Mr. Hutt. I am sorry?
        Mr. Coble. Should new penalties be included in the bill
    before us?
        Mr. Hutt. No. There is no reason to impose any additional
    penalties. The existing statute is, as I have said before and
    as everyone has recognized, has returned $20 billion to the
    Federal treasury. There is no reason for any additional
    penalties to be imposed by this legislation.
        Mr. Coble. I see the red light. Mr. Chairman, I yield back.
        Mr. Berman. I thank the gentleman.
        The gentlelady from California, Ms. Sanchez.
        Ms. Sanchez. I am going to pick up where Mr. Coble left
    off. I am going to ask our witness, Ms. Slade, to perhaps
    comment on the response that Mr. Hutt just gave.
        Ms. Slade. Regarding the issue of penalties?
        Ms. Sanchez. Yes.
        Ms. Slade. The damage provision in the Act remains the
    same. And then if there is a frivolous unsubstantiated case,
    there already is a provision in the law, as I recall, for the
    defendant to be able to recover its costs.
        Ms. Sanchez. Attorney fees and the like?
        Ms. Slade. Yes.
        Ms. Sanchez. Thank you.
        Mr. Helmer, based on your experience and expertise, why do
    you think the Government has increasingly relied on qui tam
    relators and their counsel to locate and investigate Federal
    claims allegations? In addition, how do you think that those
    public and private partnerships have grown over the last 22
    years?
        Mr. Helmer. If I could give a real-life example, I was
    involved in litigation against the 17 major oil companies in
    Texas who were cheating the taxpayers on leases for oil and gas
    revenues. In that case, the size of the defendants and the size
    of the defendants' counsel, this room would not be large enough
    to hold them all. In fact, we had to move the proceedings into
    a different facility so that all the defense counsel could
    attend the hearings in the case.
        What happened was the Department of Justice was very
    interested in the case and assigned a very top-notch lawyer to
    it. But the size of the case was just so overwhelming that
    eventually the Government allowed the relator's counsel to
    prosecute most of those oil companies. We recovered $432
    million for the taxpayers. On the day that the settlements were
    reached and the cases were dismissed, the United States
    Department of Justice intervened in those cases. You will not
    find that $432 million listed in the department's statistics
    for a non-intervened case because they did intervene at the
    11th hour.
        Ms. Sanchez. At the 11th hour. So it is a question of
    resources, to some degree?
        Mr. Helmer. Yes. And what I was going to add, in that case
    we hired 80 additional lawyers--``we'' being the private
    counsel representing the relators in Texas--at a cost of in
    excess of $10 million. The entire Civil Fraud Division of the
    Department of Justice does not have 80 lawyers in it. We
    supplemented the resources of the department in prosecuting
    that case, and in carrying out the intent of this body.
        That is one of the things that I think Congressman Berman
    and his colleagues back in 1986 were interested in, not just
    people coming forward and bringing information to Government,
    but in coming forward and putting their neck on the line and
    helping the Government prosecute these cases so that there can
    be a recovery for the taxpayers. That is exactly what happened.
        The public-private partnership is working very well. But
    the bottom-line answer to your question is, the Department of
    Justice could use additional resources, and until they have
    those resources, they need the qui tam relators and the qui tam
    relators' bar, small as it is, to complement their abilities.
        Ms. Sanchez. Thank you.
        Mr. Campbell, I just wanted to thank you for your
    testimony. I had an opportunity to read your written testimony,
    and I think that your oral testimony with the metaphor about
    the armor was on point. So I want to thank you for your courage
    in coming today to tell your story.
        Mr. Hutt, when Congress was considering amendments to the
    False Claims Act over 2 decades ago, witnesses testified that
    they didn't blow the whistle on fraud because there was no
    anti-retaliation protection. So Congress included the
    protection in the 1986 amendments to the Act, and since then
    court decisions have weakened that protection. H.R. 4854, the
    bill that we are discussing today, would seemingly restore that
    protection that the courts have undermined in their decisions.
        I would like for you to perhaps explain briefly why in your
    written testimony you suggest that this legislation would
    unnecessarily and confusingly expand the anti-retaliation
    provisions. I would think, and I would hope that you would
    think and hope, that we would want to protect employees like
    Mr. Campbell, future employees and others, from retaliation for
    basically blowing the whistle on fraud.
        Mr. Hutt. Yes, certainly, I don't think anyone would take
    position in favor of retaliation against someone who is trying
    to blow the whistle on fraud. Certainly, I would not take that
    position. Our position is simply that the proposed changes are
    largely unnecessary. I would respectfully disagree with the
    characterization that the courts have somehow cut back on
    protections which are available under the anti-retaliation
    provision.
        In my experience, many qui tam plaintiffs assert claims
    under the 3730(h) provision and are successful in doing so. I
    view that provision as having worked quite well. Right now, the
    way that provision has been crafted is understood. The courts
    have addressed that provision. The rules of the road, if you
    will, are fairly well understood.
        A large part of the concerns that we have with the current
    provision is that it is confusingly drafted. It seems to have
    new terms which are unclear, such as making an effort to stop
    the violation of the False Claims Act. The kind of language
    embedded in H.R. 4854 we urge is unclear and will lead to a
    great deal of litigation over the years as the courts have to
    work through what the language might mean.
        Mr. Berman. Time of the gentlelady has expired.
        The gentleman from Florida, Mr. Feeney, is recognized for 5
    minutes.
        Mr. Feeney. Thank you, Mr. Chairman.
        I wasn't here when the original Act was passed, so this has
    been a good education about the nuances of this important area
    of the law. I think that even Mr. Hutt, whose organization
    apparently opposed the original legislation, agrees that when
    there is general intentional wrongdoers who defraud taxpayers,
    there ought to be a way to protect those people.
        I think Mr. Campbell's testimony points out that there is a
    lot of pressure not to come forward in normal circumstances.
    You have colleagues who are going to be mad at you, coworkers,
    not to mention your bosses or the wrongdoers. And then there is
    always the concern about loss of job, so retaliation.
        On the other hand, it is important to find a way to balance
    those interests that taxpayers have with the higher costs
    associated with total risk avoidance, not to mention lawsuits
    or frivolous claims, which are a huge burden on the American
    economy and one of the reasons that increasingly international
    companies, or even American companies, are moving offshore
    because of the civil litigation abuse here.
        So finding some balance I think is what all of us want to
    do to one extent or another. All of the witnesses have talked
    about some positive experiences with the Act. We want to create
    a shield and an incentive for people to come forward, without
    giving a sword and sort of a lottery mentality that there is
    nothing to lose. So some of my concerns, and maybe it is just
    because I don't understand enough of it----
        Mr. Hutt, you talked about the 9(b) problem. Right now in
    most cases, whether they are common law or in this case
    statutory, and I suppose we could do away with virtually
    anything as long as it wasn't unconstitutional in terms of a
    defense, but one of the typical claims that a defendant has is
    that you have to state a full cause of action. You have to
    plead your entire case.
        I guess my initial question is, supposing that I am an
    employee and I am aware that a contractor I work for is guilty
    of a specific case or incidence of fraud in a contract. But
    supposing during the discovery period, or if the Government
    intervenes during their discovery, that it becomes apparent
    that it is not just the widgets we produce, but it is the paper
    clips and it is whatever else we sell to the Government, and
    this is routine.
        Is my potential share of the proceeds for bringing this
    initial claim, am I just subject to the fact that I knew about
    the widget problem, but not about a dozen other problems? Or am
    I eligible to share in the benefits that the taxpayer receives
    from everything that is discovered as a consequence of my
    bringing the case forward?
        Mr. Hutt. I would answer that question this way. It seems
    to me that the statute is seeking to reward individuals who
    come forward with concrete knowledge, particularized knowledge
    of fraud. That is the benefit to the United States taxpayer
    that is rewarded through the qui tam provisions.
        If a relator comes forward with specific instances of fraud
    and only those instances, let's call it X, then the relator
    should be rewarded only for a share of the X that he brings
    forward. If the United States government using its own
    resources uncovers additional fraud, Y, let's say, I would urge
    that it is inappropriate to allow the relator a recovery of a
    share of that Y, when it was the Department of Justice and its
    resources that led to recovery for Y.
        Mr. Feeney. But let me ask this, suppose that I hire Mr.
    Helmer or Ms. Slade and during our discovery period, we
    discover that it is not just X, but it is A, B, and C. Can we
    amend our complaint?
        Mr. Hutt. Complaints can always be amended, yes. Qui tam
    plaintiffs, if they bring a case, are permitted I think fairly
    routinely to amend complaints. But there is a real question you
    raise as to whether it is appropriate to allow a recovery for
    something the relator has not brought forward.
        Mr. Feeney. But does anybody disagree that if I amend my
    complaint because of something I have discovered, to add
    specifics, that I would be eligible?
        Ms. Slade?
        Ms. Slade. I believe that under the current law, many
    courts would rule that, no, you would not be eligible because
    it was a public disclosure that generated your new knowledge.
    Many courts would rule that way at the current time.
        Mr. Hutt. I would just add this, that the facts you posit
    are fairly close to what I believe happened in the Stone case,
    where a relator came forward with information as to fraud and
    he was wrong. The Department of Justice then investigated and
    found out the real fraud. The Supreme Court decided that in
    those circumstances, it was not appropriate to afford a
    recovery to the qui tam plaintiff because he had not brought
    forward new, fresh, accurate information of fraud.
        Mr. Feeney. Well, let me just finally say, and if there is
    time left perhaps we can get a couple of comments. The fact
    that a defendant cannot move to dismiss based on public
    disclosure is a huge concern for two reasons for me. Number
    one, philosophically I think those motions ought to be
    available to a defendant, and a judge ought to decide based on
    the requirements of the statute.
        But even Mr. Helmer acknowledge that this division of the
    Justice Department I think you said has less than 80 attorneys
    in it, so that they are probably disinclined to be out there
    defending hundreds of contractors that may be subject to these
    sorts of after-the-fact lawsuits from employees. Number one,
    they are disinclined. And number two, they don't have the
    resources. So it seems to me that seems to be an unfair part of
    this proposal.
        With that, I will yield back the balance of my time.
        Mr. Berman. I thank the gentleman.
        I would love to get more into this, but Mr. Johnson, I
    would like to be able to yield to him his 5 minutes,
    notwithstanding the fact that there are about 50 things I would
    love to pursue with you, I think we will do it informally.
        Mr. Johnson is recognized for 5 minutes.
        Mr. Johnson. Thank you, Mr. Chairman.
        Mr. Hutt, the Federal Claims Act was first enacted in 1863
    in response to widespread fraud in defense contracting during
    the U.S. Civil War. It is ironic that we are in the midst of
    two wars and we are dealing with this False Claims Correction
    Act at this point.
        But now, given the fact that the original Act is over 100
    years old, and I suppose that the Federal rules of civil
    procedure are not quite that old. How was it that the Federal
    rule of civil procedure 9(b) has been found to apply to Federal
    Claims Act cases? Was it statutory or was it the result of,
    say, judicial activism?
        Mr. Hutt. I would say that every court except two that I am
    aware of over the last 20 years has concluded that a case
    asserted under the False Claims Act sounds in fraud. Rule 9(b)
    is simply a general rule of pleading embedded in the Federal
    rules that says that if you are going to plead an action
    asserting fraud or mistake, then you need to allege all the
    elements of the fraud or mistake with particularity.
        Mr. Johnson. Courts have even ruled that particularity in
    the case of fraud with respect to billing would require that
    the relator produce the billing records and attach them to the
    complaint.
        Mr. Hutt. Not attach them to the complaint, but what courts
    have generally----
        Mr. Johnson. Or actually refer to them in the complaint.
        Mr. Hutt. Refer to them in the complaint. Many courts have
    said----
        Mr. Johnson. Which is the same as pretty much being able to
    produce them.
        Mr. Hutt. I would answer it this way. Many courts have said
    that it is not enough to allege a general, inchoate, non-
    particular scheme of fraud unconnected to specific claims for
    payment. The claims for payment, keep in mind this is the False
    Claims Act. The claims are at the heart of the fraud. As a
    defense counsel, I will tell you the first thing you need to
    prepare a defense is to find the claims, find the documents
    that are associated with the claims.
        Mr. Johnson. I understand. But now, if a complaint
    specifically is reasonable with no documentation, an individual
    who was in Mr. Campbell's position would not be able to produce
    records. I mean, if you can make the allegations, colorable
    allegations which puts you on specific notice, but you don't
    have the specific billings records, courts are using 9(b) to
    exclude those kinds of claims.
        Now, Mr. Helmer, did Congress intend that Federal Claims
    Act cases would be subject to the strict pleading provisions of
    rule 9(b)?
        Mr. Helmer. Congressman Johnson, it is my opinion that they
    did not, and the reason for that is they didn't call this the
    Fraud Claims Act. It is the False Claims Act. The Fraud Claims
    Act is something that has been overlaid onto this statute by
    some very well-paid, very competent defense counsel, and bought
    by a number of courts around the country.
        The problem with that is it adds additional elements of
    proof that both the Government and the relators have to get
    over to establish their case, additional elements of proof that
    this body never intended to put in there.
        Mr. Johnson. What is that conclusion based on?
        Mr. Helmer. The False Claims Act is a statutory cause of
    action that has very specific elements. Fraud is not one of the
    elements of the False Claims Act. Okay? Fraud conjures up terms
    of materiality.
        Mr. Johnson. So this is a False Claims Act, that is a
    species of case----
        Mr. Helmer. Yes.
        Mr. Johnson [continuing]. As opposed to fraud, which is a
    species of case, but not a False Claims Act case.
        Mr. Helmer. That is right. When you think of fraud, there
    are two people, one lies and the other they know what the
    statement is and what the causation is and the materiality.
    They know those elements. When you have an action involving a
    crime against the sovereign, which is what this statute is
    designed for----
        Mr. Johnson. Very distinctive.
        Mr. Helmer. Those individuals are not going to have access
    to that type of information.
        Mr. Johnson. Okay.
        Mr. Hutt. I would have to disagree strongly. Rule 9(b)
    speaks of fraud or mistake. Most cases asserted under the False
    Claims Act allege fraud, outright fraud, or false claims, but
    usually fraud in addition to false claims. In any event, an
    allegation of a false claim very much is like an action for
    mistake. By its very terms, rule 9(b) is intended to apply
    broadly to all actions sounding in fraud or mistake. Certainly,
    the False Claims Act sounds either in fraud or mistake.
        I would also note there are many other Federal actions
    which are statutory involving fraud, such as securities fraud,
    all of which have been held to my understanding to require
    compliance with rule 9(b).
        Mr. Johnson. All right. Thank you.
        Ms. Slade, any comment, briefly?
        Mr. Berman. Well, all right, we have about 3 minutes and 52
    seconds to get our vote.
        Ms. Slade. These amendments do not take away the
    applicability of rule 9(b). In fact, to the contrary, they
    require a qui tam plaintiff to allege facts that provide a
    reasonable indication that one or more violations are likely to
    have occurred, to provide adequate notice of the specific
    nature of the alleged misconduct.
        This language tracks one of the court rulings that did
    apply rule 9(b), but felt that in the False Claims Act case,
    that was the way rule 9(b) should apply. In other words, you do
    need to allege your fraud or your false claims with
    particularity, but that doesn't necessarily mean that you need
    to have the invoices.
        Mr. Johnson. Thank you.
        Mr. Berman. The time of the gentleman has expired.
        We have a vote. While I would love to pursue this further,
    I think the story of Mr. Campbell and how the successor
    employer retaliated and under what circumstances would be very
    interesting, but time is not going to let us do this.
        I thank all of you for being here and sharing your insights
    with us.
        Without objection, Members will have 5 legislative days to
    submit any additional written questions for you, which we will
    forward and ask that you answer as promptly as you can, to be
    made part of the record. Without objection, the record will
    remain open for 5 legislative days for the submission of any
    other materials.
        Once again, with our thanks for your being here and your
    testimony, the hearing is adjourned.
        [Whereupon, at 11:31 a.m., the Subcommittees were
    adjourned.]

                                A P P E N D I X

                                  ----------

                   Material Submitted for the Hearing Record

           Prepared Statement of the Honorable Sheila Jackson Lee, a
        Representative in Congress from the State of Texas, and Member,
        Subcommittee on Courts, the Internet, and Intellectual Property

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]