[Congressional Record (Bound Edition), Volume 145 (1999), Part 11]
[Extensions of Remarks]
[Pages 16031-16033]
[From the U.S. Government Publishing Office, www.gpo.gov]




                            FALSE CLAIMS ACT

                                 ______
                                 

                         HON. HOWARD L. BERMAN

                             of california

                    in the house of representatives

                        Wednesday, July 14, 1999

  Mr. BERMAN. Mr. Speaker, I submit the following for the Record:

     Hon. Janet Reno,
     Attorney General of the United States,
     U.S. Department of Justice,
     Washington, DC.
       Dear Madam Attorney General:
       As you know, we are the principal House and Senate sponsors 
     of the 1986 Amendments to the False Claims Act, 31 U.S.C. 
     Sec. 3729, et seq. (``the Amendments''). We have watched with 
     pride the remarkable success of the amendments in bringing to 
     the attention of the federal government hundreds of cases of 
     fraud. We are particularly pleased with the qui tam 
     provisions of the Amendments, which have resulted in cases 
     that have returned $2.3 billion to the federal Treasury.
       With dismay, however, we have watched the federal courts 
     interpret several sections of the Amendments in ways that 
     directly contravene Congressional intent, and, of even 
     greater significance, discourage and foreclose potential 
     relators from bringing meritorious cases. In particular, we 
     are extremely concerned with the courts' crabbed 
     interpretations of the public disclosure bar--
     Sec. 3730(e)(4)(A) and (B). That provision, which was drafted 
     to deter so-called ``parasitic'' cases, has been converted by 
     several circuit courts into a powerful sword by which 
     defendants are able to defeat worthy relators and their 
     claims. If this trend continues, we fear that the very 
     purpose of the Amendments--``to encourage more private 
     enforcement suits''--ultimately will be undermined. See S. 
     Rep. No. 99-345, at 23-24 (1986).
       Thus, we believe it is imperative that the Department of 
     Justice (``the Department'') adopt and adhere publicly to an 
     interpretation of the public disclosure bar that comports 
     with the plain meaning of the statute and the Congress' 
     obvious intent. The Department's role in this regard is 
     critical. First, of course, the Department is often involved 
     as a party in cases where the public disclosure bar is 
     raised, and it is entitled and expected to make its views 
     known. Even in cases where the Department determines not to 
     intervene, Congress intended for the Department to be 
     involved in monitoring cases, in part to address questions 
     significant to the ongoing operation of the statute. See e.g. 
     Sec. 3730(c)(3) and (c)(4). Finally, as the agency charged, 
     in effect, with the administration of the False Claims Act, 
     the courts are likely to accord significant deference to the 
     Department's interpretation of the Act, and we believe the 
     Department has an obligation to the Congress and to the 
     courts to articulate those views.
       With this letter, we intend to provide a detailed 
     explanation of our view of the public disclosure bar, 
     focusing in particular on some of the cases where we believe 
     the

[[Page 16032]]

     courts have misinterpreted the law. In order to place that 
     discussion in context, we want first to explain the origin 
     and significance of the public disclosure bar so that the 
     cases can be viewed in light of Congress' intent.
       The public disclosure bar is intertwined inextricably with 
     the history of the qui tam provisions of the statute. From 
     its enactment in 1863, the False Claims Act allowed a relator 
     to bring a qui tam action even if the Government already knew 
     of, investigated and even criminally prosecuted the identical 
     fraud. Such parasitic suites, made infamous in the Supreme 
     Court's decision in Marcus v. Hess, 317 U.S. 537 (1943), 
     allowed relators to recover if they ``contributed nothing to 
     the discovery of this crime.'' Id. At 545. To correct that 
     obvious inequity, Congress enacted the government knowledge 
     bar in 1943, which prohibited qui tam suits based on 
     information in the Government's possession. The government 
     knowledge bar, however, was interpreted too broadly by the 
     courts. If information about fraud was in a file somewhere in 
     the vast federal bureaucracy, a qui tam case was barred even 
     if the government was unaware of the information in its files 
     or had done nothing to pursue it. Indeed, one court held that 
     even if it was the relator him or herself who had reported 
     the fraud to the federal government, their case was precluded 
     on the theory that the government had knowledge of the fraud 
     before the relator filed their case. See, e.g. United States 
     ex rel. State of Wisconsin v. Dean, 729 F.2d 1100 (7th Cir. 
     1984).
       The 1986 Amendment sought to restore some balance between 
     these two extreme regimes. Unquestionably, Congress wanted to 
     prohibit qui tam cases that merely copies a federal criminal 
     indictment and to allow those in which the relator simply 
     informed the government of their allegations before filing 
     suit. But there is considerable terrain between these two 
     poles, and it is here that the courts seem to get lost. The 
     key to navigating the public disclosure bar successfully is 
     understanding Congress' purpose is enacting the Amendments.
       Three goals inspired the 1986 Amendments. First and 
     foremost, Congress wanted to encourage those with knowledge 
     of fraud to come forward. Second, we wanted a mechanism to 
     force the government to investigate and act on credible 
     allegations of fraud. Third, we wanted relators and their 
     counsel to contribute additional resources to the 
     government's battle against fraud, both in terms of 
     detecting, investigating and reporting fraud and in terms of 
     helping the government prosecute cases. The reward to the 
     relator is for furthering these goals.
       In reversing the old government knowledge bar, however, we 
     wanted to continue to preclude qui tam cases that merely 
     repackage allegations the government can be presumed already 
     to know about because they were disclosed publicly either in 
     a federal proceeding or in the news media. The reason is 
     simple: if the relator simply repeats allegations that he or 
     she heard from someone else and about which the government is 
     already aware and taking action, the relator contributes 
     nothing to the government's efforts to combat fraud. 
     Accordingly, in the 1986 Amendments, we provided that a 
     qui tam case is barred if the relator has based his or her 
     filing upon publicly disclosed allegations unless the 
     relator already has provided information concerning the 
     allegations to the government before filing suit.
       Certain courts have exploded this limited bar in ways that 
     mock the very purpose and intent of the 1986 Amendments. A 
     recent case is illustrative. In United States ex rel. Jones 
     v. Horizon Healthcare Corp., No. 97-1635, the Sixth Circuit 
     Court of Appeals held that Ms. Jones' qui tam action was 
     barred because, before she filed her case, she had filed an 
     application for unemployment insurance with the Michigan 
     Employment Security Commission. Her application stated that 
     she had been fired after reporting to her supervisor at 
     Horizon HealthCare that she believed several claims prepared 
     for submission to Medicare were false. The Court held that 
     Ms. Jones' unemployment application was a public disclosure 
     within the federal government prior to filing her action, her 
     suit was barred.
       In both its reasoning and its outcome, Jones strays far 
     from the policies that underlie the public disclosure bar. 
     First, as you know, 3730(e)(4)(A) specifically limits a 
     public disclosure to ``allegations or transactions'' 
     disclosed in a ``criminal, civil, or administrative hearing, 
     in a Congressional, administrative, or Government Accounting 
     Office report, hearing, audit or investigation, or from the 
     news media.'' That list is exclusive, as many of the courts 
     to have considered the question agree. See U.S. ex rel. 
     Dunleavy v. County of Delaware, 123 F.3d 734, 744 (3rd. Cir. 
     1997) (recognizing the ``prevailing view is that this list 
     constitutes an exhaustive rendition of possible sources.'') 
     Only an absurdly broad definition of an ``administrative 
     hearing'' would put an application for unemployment insurance 
     on that list. And Congress did not intend to enact 
     absurdities.
       We did intend, and any fair reading of the statute will 
     confirm, that the disclosure must be in a federal criminal, 
     civil or administrative hearing. Disclosure in a state 
     proceeding of any kind should not be a bar to a subsequent 
     qui tam suit. The reason is grounded in the history of the 
     FCA and the policies underlying the 1986 Amendments that we 
     just reviewed. One thing is common to the law throughout its 
     history. It was the Federal Government's knowledge of fraud 
     that triggered the government knowledge bar; it was the 
     federal government's indictment in Marcus v. Hess that formed 
     the basis of the parasitic suit. Thus, when it enacted the 
     public disclosure bar in 1986, Congress was concerned about 
     what the federal government knew about fraud, that is, 
     whether the federal government had in its possession 
     sufficient information to investigate and pursue allegations 
     of fraud, and whether that information was sufficiently 
     publicized so that the federal government would be forced to 
     act or explain why it chose not to act. As was noted in the 
     Senate Report on the Amendments: ``Unlike most other types of 
     crimes or abuses, fraud against the Federal Government can be 
     policed by only one body--the Federal Government.'' S. Rep. 
     99-345 at 7. To suggest that Congress was concerned with 
     disclosure to anyone other than the federal government when 
     it enacted the public disclosure bar is to ignore history. 
     And to suggest, as the Sixth Circuit held in Jones, that 
     disclosure of fraud to a state agency on an application 
     for unemployment is likely to alert the federal government 
     to fraud is to ignore common sense. \1\
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     Footnotes appear at end of letter.
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       Unfortunately, Jones is by no means an isolated example. 
     U.S. ex rel. Fine v. Advanced Sciences, Inc., 99 F.3d 1000 
     (10th Cir. 1996) is an equally egregious example of judicial 
     overreaching. In Advance Sciences, the Tenth Circuit held, 
     first, that the listed sources in Sec. 3730(3)(4)(A) were not 
     the exclusive means of public disclosure--a holding which, as 
     we have noted already, is simply wrong. The Court went on, 
     however, to hold that a public disclosure occurs whenever the 
     allegations or transactions are provided to any member of the 
     public who is a ``stranger to the fraud.'' In Mr. Fine's 
     case, the stranger was a representative of the American 
     Association of Retired Persons counseling Mr. Fine with 
     respect to a potential age discrimination claim. By public 
     disclosure, we meant disclosure to the public at large, not 
     just one member of the public and certainly not to a 
     confidential counselor. U.S. ex rel. John Doe v. John Doe 
     Corp., 960 F.2d 318 (2nd Cir. 1992), reached a similarly 
     untenable result, holding that disclosure of a government 
     investigation of fraud to the employees of the defendant 
     corporation was during their interviews with government 
     investigators a public disclosure within the meaning of the 
     False Claims Act.
       Finally, in this regard, we want forcefully to disagree 
     with cases holding that qui tam suits are barred if the 
     relator obtains some, or even all, of the information 
     necessary to prove fraud from publicly available documents, 
     such as those obtained through a Freedom of Information Act 
     (FOIA) request. See ex rel. Schumer v. Hughes Aircraft Co., 
     63 F.3d 1512, 1520 (9th Cir. 1995), (finding that a public 
     disclosure would occur only if the relator makes a FOIA 
     request and receives the information requested). We believe 
     that a realtor who uses their education, training, 
     experience, or talent to uncover a fraudulent scheme from 
     publicly available documents, should be allowed to file a qui 
     tam action. Cases such as U.S. ex rel. Stinson, Lyons, Gerlin 
     & Bustamante, P.A. v. Prudential Ins. Co., 944 F. 2d 1149, 
     1150 (3rd Cir. 1991), which held that a ``relator must 
     possess substantive information about the particular 
     fraud, rather than merely background information which 
     enables a putative relator to understand the significance 
     of a publicly disclosed transaction or allegation [,]'' 
     undermine Congress' explicit goals. If, absent the 
     relator's ability to understand a fraudulent scheme, the 
     fraud would go undetected, then we should reward relators 
     who with their talent and energy come forward with 
     allegations and file a qui tam suit.\2\ This is especially 
     true where a relator must piece together facts exposing a 
     fraud from separate documents.
       The consequences of these decisions are alarming. Fraud may 
     well go unpunished and, as a practical matter, undetected. 
     Relators, like Ms. Jones, who are fired from their jobs 
     because they blew the whistle on fraud and then take the not 
     unreasonable step of applying for unemployment insurance will 
     be told by their lawyers that their qui tam case is barred. 
     Congress never intended to force relators to choose between 
     filing a qui tam case and providing for themselves and their 
     families.
       The Jones case highlights one aspect of the public 
     disclosure bar that has been widely misinterpreted by the 
     courts--the question of what constitutes public disclosure. 
     Unfortunately, other issues involving the public disclosure 
     bar also need to be addressed. A second issue concerns how 
     much information needs to be disclosed in order to constitute 
     a disclosure of ``allegations or transactions.'' On this 
     question, some, but by no means all, of the courts have held 
     appropriately that in order to trigger the bar, the 
     disclosure must include all of the essential elements of the 
     fraud against a specifically identified defendant. As the 
     Eleventh Circuit observed in U.S. ex rel. Cooper v. Blue 
     Cross and Blue Shield,

[[Page 16033]]

     19 F. 3d 562, 566 (11th Cir. 1994): ``Requiring that 
     allegations specific to a particular defendant be publicly 
     disclosed before finding the action potentially barred 
     encourages private citizen involvement and increases the 
     changes that every instance of specific fraud will be 
     revealed. To hold otherwise would preclude any qui tam suit 
     once widespread--but not universal--fraud in an industry was 
     revealed.'' See also U.S. ex rel. Lidenthan v. General 
     Dynamics Corp., 61 F. 3d 1402 (9th Cir. 1995) cert. denied 
     517 U.S. 1104 (1996) (disclosures that make no mention of 
     specific defendant insufficient to invoke bar).\4\
       Not only must the particular defendant be identified, so 
     too must all of the elements necessary to bring a fraud 
     action. As the D.C. Circuit explained in U.S. ex rel 
     Springfield Terminal Ry Co. V. Quinn, 14F.3d 645 (D.C. Cir. 
     1994), ``Congress sought to prohibit qui tam actions only 
     when either the allegation of fraud of the critical elements 
     of the fraudulent transaction themselves were in the public 
     domain.'' Bits and pieces of information about a defendant 
     and some of its actions--even when publicly disclosed--rarely 
     add up to an allegation of fraud. There must be ``enough 
     information * * * in the public domain to expose the 
     fraudulent transaction.'' U.S. ex rel. Rabushka v. Crane Co., 
     40 F.3d 1509, 1513-14 (8th Cir. 1994) quoting Springfield, 14 
     F.3d at 65. To hold otherwise, as some courts have, would 
     undermine the stated purposes of the False Claims Act.
       ``Embracing too broad a definition of `transaction' 
     threatens to choke off the efforts of qui tam relators in 
     their capacity as `private attorneys general.' By allowing 
     [qui tam] complaint[s] to proceed beyond the jurisdictional 
     inquiry, we help ensure that private actions designed to 
     protect the public fisc can proceed in the absence of 
     governmental notice or potential fraud. This is not the type 
     of case that Congress sought to bar, precisely because the 
     publicly disclosed transactions involved do not raise such an 
     inference of fraud.''--Id., at 1514.
       The last issue we want to raise with respect to public 
     disclosure concern the ``original source'' exception to the 
     bar. The public disclosure bar applies ``unless the action is 
     brought by the Attorney General or the person bringing the 
     action is an original source of the information'' 31 U.S.C. 
     Sec. 3730(e)(4)(A). Section 3730(e)(4)(B) defines ``original 
     source'' as a relator with ``direct and independent knowledge 
     of the information on which the allegations are based who has 
     voluntarily provided the information to the Government before 
     filing an action under this section which is based on the 
     information.'' This provision, too, is a source of 
     considerable confusion and controversy in the courts. Again, 
     however, what Congress intended when it drafted the original 
     source exception is easy to discern both from the statute 
     itself and from its legislative history.
       First, the language of the statute makes plain that by 
     ``original source,'' Congress meant an original source of 
     information provided to the government and did not, as some 
     courts have held, add an additional requirement that the 
     relator also be the original source of the public 
     disclosure that triggers the bar. See, e.g. U.S. ex rel. 
     Dick v. Long Island Lighting Co., 912 F.2d 13 (2d Cir. 
     1990); U.S. ex rel. Wang v. FMC Corp., 975 F.2d 1412, 1418 
     (9th Cir. 1992). There is no statutory nor logical 
     linguistic connection between an original source and the 
     public disclosure that triggers the bar. Of course, a 
     relator could be an original source of the information 
     publicly disclosed, if the relator first provided the 
     information to the Government.
       Nor is there any policy rationale that would justify such 
     an interpretation of the original source provision. When 
     Congress enacted the original source provision, we had in 
     mind a scenario where an individual reports fraud to the 
     government and then there is a subsequent public disclosure 
     of the allegations or transactions before that person has 
     filed a qui tam complaint. The disclosure could be, for 
     example, a criminal indictment brought by the Government as a 
     result of the relator's information. It could also be a press 
     story, based on a leak from a Government investigation or an 
     enterprising reporter's investigative skills. Under these 
     circumstances, the relator would not be barred from bringing 
     a qui tam case. To the contrary, he or she should be rewarded 
     for bringing to the Government information about the fraud.
       Defendants have also sought the dismissal of relators by 
     urging that ``direct and independent knowledge'' somehow 
     requires the relator to be an eyewitness to the fraudulent 
     conduct as it occurs. To the contrary, as the Eleventh 
     Circuit concluded in Cooper v. Blue Shield of Florida, Inc., 
     19 F.3d 562 (1994) a relator's knowledge of the fraud is 
     ``direct and independent'' if it results from his or her own 
     efforts. For example, a relator who learns of false claims by 
     gathering and comparing data could have direct and 
     independent knowledge of the fraud, regardless of his or her 
     status as a precipitant witness.
       In light of these policies, it should not be surprising 
     that we support emphatically the courts that have held that 
     Sec. 3730(e)(4)(B) does not require that the qui tam relator 
     possess direct and independent knowledge of ``all of the 
     vital ingredients to a fraudulent transaction.'' Springfield, 
     14 F.3d at 656-57. As Representative Berman explained, ``A 
     person is an original source if he had some of the 
     information related to the claim which he made available to 
     the government . . . in advance of the false claims being 
     publicly disclosed.'' 132 Cong. Rec. 29322 (Oct. 7, 1986).
       In closing, we want to urge you to consider seriously the 
     Department's obligation to shape the courts' interpretation 
     of the False Claims Act. We are frankly troubled by the fact 
     that the majority of cases confronting the public disclosure 
     bar are cases in which the Department has not intervened and 
     in which there is no reference at all to the Department's 
     views. To us, it appears that the courts take the 
     Department's decision not to intervene in a case as a verdict 
     on the merits of the relator's claims and are using the 
     public disclosure bar in order to dismiss the case quickly. 
     Even if some of those cases should be dismissed on the 
     merits, we cannot countenance a tortured interpretation of 
     the public disclosure bar to reach a desired result. 
     Moreover, if the public disclosure provisions continue to be 
     misinterpreted, relators and their counsel will be deterred 
     from filing truly meritorious claims.
       Further, not all of the cases in which the public 
     disclosure bar is raised are those in which the government 
     has declined to intervene. Defendants make public disclosure 
     motions after the government has joined a case, and they do 
     so for only one reason: to deprive the government of the 
     resources that relators and their counsel bring to the case. 
     Yet in those cases, too, the Department is typically silent, 
     refusing to take a position on the public disclosure issue. 
     That stance, too, may well undermine Congress' expressed 
     intent.
       One of the principal goals of the 1986 Amendments was to 
     ameliorate the ``lack of resources on the part of Federal 
     enforcement agencies.'' S. Rep. 99-345 at 7. That was one of 
     the reasons we strengthened the qui tam provisions of the 
     law. Thus, we expected some meritorious cases to proceed 
     without the Government's intervention, and we fully expected 
     that the Government and relators would work together in many 
     cases to achieve a just result. By dismissing relators based 
     on spurious interpretations of the public disclosure bar, the 
     courts are depriving the government of these additional 
     resources. And those resources have been considerable. In 
     numerous cases, relators and their counsel have contributed 
     thousands of hours of their time and talent and spend 
     hundreds of thousands of their own dollars investigating and 
     pursuing their allegations. The Department must act to 
     protect those resources, even in cases where it has not 
     intervened. When a question of statutory interpretation 
     arises, particularly with respect to the public disclosure 
     bar, the Department must make its views known to the court. 
     As we stated emphatically at the time the Amendments were 
     adopted, Congress enacted the Amendments based on the belief 
     that ``only a coordinated effort of both the Government and 
     the citizenry will decrease this wave of defrauding public 
     funds.'' We continue to hold that view.
           Sincerely,
     Howard L. Berman,
       Member of Congress.
     Charles E. Grassley,
       U.S. Senator.

                               FOOTNOTES

     \1\ The same is true for civil complaints filed in state 
     court or discovery obtained as a result of state court 
     proceedings, which several Circuits have held constitute 
     public disclosures within the meaning of Sec. 3720(3)(4)(A). 
     See e.g. U.S. ex rel. Kreindler & Kreindler v. United 
     Technologies Corp., 985 F.2d 1148, 1158 (2d Cir.), cert. 
     denied, 113 S.Ct. 2962 (1993) (holding that discovery 
     materials contained in unsealed court records was ``publicly 
     disclosed''); U.S. ex rel. Stinson, Lyons, Gerlin & 
     Bustamante v. Prudential Ins. Co., 944 F2d 1149, 1155-56 (3d 
     Cir. 1991) (holding that the disclosure of discovery 
     material--even if not filed in court--constitutes a public 
     disclosure). We believe those cases are wrongly decided. 
     Disclosure of fraud in a state court proceeding, even a state 
     criminal proceeding, is unlikely to get to the attention of 
     the federal government, unless it is publicized in the news 
     media, a contingency the public disclosure bar addresses.
     \2\ Some courts do get it right. In U.S. ex rel. Fallon v. 
     Accudyne Corp., 921 F.Supp. 611 (W.D. Wisc. 1995), the court 
     held that an audit report produced by a state agency did not 
     constitute a public disclosure. ``Under these circumstances 
     there is no reason to believe that the United States would 
     become aware of such information.'' Id., at 625.
     \3\ Senator Grassley made a similar comment during the debate 
     on the 1986 Amendments: ``The publication of general, non-
     specific information does not necessarily lead to the 
     discovery of specific, individual fraud which is the target 
     of the qui tam action.'' False Claims Act Implementation: 
     Hearing Before the Subcomm. On Admin. Law and Gov. Relations 
     of the House Comm. On the Judiciary, 101st cong. 6 (1990) 
     Statement of Senator Grassley.

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