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


 
                FALSE CLAIMS ACT CORRECTION ACT OF 2007 

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

                             JOINT HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON COURTS, THE INTERNET,
                       AND INTELLECTUAL PROPERTY

                                AND THE

           SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                                   ON

                               H.R. 4854

                               __________

                             JUNE 19, 2008

                               __________

                           Serial No. 110-137

                               __________

         Printed for the use of the Committee on the Judiciary


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

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

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

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


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

           Subcommittee on Commercial and Administrative Law

                LINDA T. SANCHEZ, California, Chairwoman

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

                     Michone Johnson, Chief Counsel

                    Daniel Flores, Minority Counsel





















                            C O N T E N T S

                              ----------                              

                             JUNE 19, 2008

                                                                   Page

                            TEXT OF THE BILL

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

                           OPENING STATEMENTS

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

                               WITNESSES

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

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

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

                                APPENDIX

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


                    FALSE CLAIMS ACT CORRECTION ACT 
                                OF 2007

                              ----------                              


                        THURSDAY, JUNE 19, 2008

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

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


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

HR 4854 IH  ___________________________________________________
                               

 deg.

                                                                      I
110th CONGRESS
    1st Session

                                H. R. 4854

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

                                 A BILL

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

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

SECTION 1. SHORT TITLE.

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

SEC. 2. LIABILITY FOR FALSE CLAIMS.

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

``Sec. 3729. False claims

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

SEC. 3. CIVIL ACTIONS FOR FALSE CLAIMS.

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

SEC. 4. FALSE CLAIMS PROCEDURE.

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

SEC. 5. FALSE CLAIMS JURISDICTION.

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

SEC. 6. CIVIL INVESTIGATIVE DEMANDS.

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

SEC. 7. GOVERNMENT RIGHT TO DISMISS CERTAIN ACTIONS.

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

SEC. 8. EFFECTIVE DATE.

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



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

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

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

        TESTIMONY OF ALBERT CAMPBELL, WINTER SPRINGS, FL

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

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

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

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

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    Mr. Berman. Thank you.
    Mr. Hutt?

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

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

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

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

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

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    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

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               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]


                                 
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