[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
----------
U.S. GOVERNMENT PRINTING OFFICE
42-973 PDF WASHINGTON : 2008
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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]