[Senate Report 110-507]
[From the U.S. Government Publishing Office]
Calendar No. 910
110th Congress Report
SENATE
2d Session 110-507
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THE FALSE CLAIMS ACT CORRECTION ACT OF 2008
_______
September 25 (legislative day, September 17), 2008.--Ordered to be
printed
_______
Mr. Leahy, from the Committee on the Judiciary, submitted the following
R E P O R T
[To accompany S. 2041]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to which was referred the
bill (S. 2041), to amend the False Claims Act, having
considered the same, reports favorably thereon, with amendment,
and recommends that the bill, do pass.
CONTENTS
Page
I. Background and Purpose of the False Claims Act Correction Act....1
II. History of the Bill and Committee Consideration..................9
III. Section-by-Section Summary of the Bill..........................15
IV. Congressional Budget Office Cost Estimate.......................30
V. Regulatory Impact Evaluation....................................32
VI. Conclusion......................................................32
VII. Changes to Existing Law Made by the Bill, as Reported...........32
I. Background and Purpose of the False Claims Act Correction Act of
2008
A. BACKGROUND
In 1863, President Abraham Lincoln proposed legislation
designed to protect the United States Treasury from fraud and
abuse in Civil War defense contracts. This legislation, the
False Claims Act (FCA), was adopted by Congress late that year
and signed into law by President Lincoln. The FCA that was
originally enacted provided both civil and criminal penalties
against individuals who were found to ``knowingly have
submitted a false claim to the Government.'' \1\ These
penalties included double damages for ``any false claims for
money or property upon the United States'' \2\ or for any
individual ``who submit[s] false information in support of
claims.'' \3\ On top of double damages, the FCA passed in 1863
also imposed a $2,000 civil penalty per false claim.
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\1\ S. Rep. No. 99-345, 99th Cong., 2d Sess. (1986), reprinted in
1986 U.S.C.C.A.N. 5266, 5273 (hereinafter ``S. Rep. No. 99-345'').
\2\ Id.
\3\ Id.
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The heart of the 1863 Act was an authorization for private
individuals, known as qui tam \4\ relators, to file FCA cases
on behalf of the Federal Government. If an individual private
relator successfully prosecuted a case to final judgment under
the FCA, they were awarded one-half of the damages recovered.
The FCA also awarded a successful relator with reimbursement
for all costs to prosecute the case.\5\
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\4\ The term qui tam is shorthand for qui tam pro domino rege quam
pro se ipso in hac parte sequitur, which means ``who pursues this
action on our Lord the King's behalf as well as his own.'' See Rockwell
Int'l Corp., v. United States, 549 U.S. ____, 127 S.Ct. 1397, 1403 n.2
(2007).
\5\ See S. Rep. No. 99-345, supra note 1, at 5275.
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The 1863 Act did not authorize the Government to intervene
once a suit was commenced under the FCA by a private relator.
In fact, as this Committee previously noted, ``[a] relator's
interest in the action was viewed, at least in one instance, as
a property right which could not be divested by the United
States if it attempted to settle the dispute with the
defendant.'' \6\ Further, under the 1863 Act, nothing precluded
qui tam actions from being pursued by a relator regardless of
the source of the relator's information. The 1863 Act remained
on the books virtually unchanged until World War II.
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\6\ Id. at 5275 (citing United States v. Griswold, 30 Fed. Rep. 762
(Cir. Ct., D. Ore. 1887)).
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In the early 1940s, a number of qui tam cases were filed in
response to the increased Government procurement during World
War II. One case, United States ex rel Marcus v. Hess, 317 U.S.
537 (1943), raised the question of whether qui tam relators
were filing FCA cases based solely upon information obtained in
the criminal indictments brought by the Government. In Marcus,
the Government argued that a civil action filed by an informant
with knowledge of the criminal complaint created a situation
where a relator was filing a qui tam action without any new
information. The Court found that such suits could proceed and
accomplish the goals of the Act recovering more money than is
allowed under criminal penalties.\7\ This decision prompted
then-Attorney General Francis Biddle to request \8\ a repeal of
the qui tam provisions. This repeal passed in the House, but
when amended in the Senate, the qui tam provisions were
reinstated with modifications.\9\
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\7\ See Marcus, 317 U.S. at 545.
\8\ See S. Rep. No. 1708, 77th Cong., 2d Sess. (1942) (reprinting
Attorney General Biddle's letter to Congress requesting modifications
to the FCA).
\9\ For further background see S. Rep. No. 99-345, supra note 1, at
5276.
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The Senate legislation limited jurisdiction of the courts
by barring qui tam suits based upon information that was in
possession of the Government unless the relator was an original
source of that information.\10\ However, the final conference
report adopted a modified version of this jurisdictional bar
and did so without explanation. The final language ``dropped
the clause regarding original sources of allegations'' and left
a jurisdictional bar if the Government had prior knowledge.\11\
This ``government knowledge bar'' deprived courts of
jurisdiction over qui tam actions ``based upon evidence or
information in the possession of the United States, or any
agency or officer or employee thereof, at the time such suit
was brought.'' \12\
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\10\ See False Claims Amendments Act of 1986, P.L. 99-562, 100
Stat. 3154, 3157 (codified as amended at 31 U.S.C. Sec. 3730(e)(4)(b)
(2000)).
\11\ See S. Rep. No. 99-345, supra note 1, at 5277.
\12\ 57 Stat. 608, codified as amended at 31 U.S.C. Sec. 232-235
(1976). See also United States v. Pittman, 151 F.2d 851, 853-54 (5th
Cir. 1945) (discussing 1943 amendments to the FCA).
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The conference report also had other amendments to the FCA.
The 1943 amendments authorized the Department of Justice to
take over cases initiated by relators and required relators to
submit all of their supporting evidence to the Department of
Justice at the time they filed a complaint. The Department of
Justice was then given 60 days to decide if they would
intervene in the suit and take control of the case. If the
Department took control, the relator had no say in the final
disposition of the case. Further, the 1943 amendments limited
the relator's portion of proceeds to ``fair and reasonable
compensation'' not to exceed 10 percent of the proceeds if the
Government prosecuted the suit.\13\ In the event the Government
did not intervene, a relator could receive up to, but not to
exceed, 25 percent of the recovery.\14\
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\13\ Id.
\14\ Id.
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These changes--the ``government knowledge bar'' in
particular--significantly limited the number of FCA cases that
were filed. By the 1980s, the FCA was no longer a viable tool
for combating fraud against the Government. Courts had
interpreted the ``Government knowledge bar'' narrowly and found
that there was a complete bar for qui tam relators even if the
Government made ``no effort to investigate or take action after
the original allegations were received.'' \15\ Some courts went
further, finding that the bar precluded all qui tam cases when
the information was already known, or should have been known by
the Government, even if the source of the information to the
Government was the qui tam relator.\16\ As a result, FCA
filings plummeted from 1943 through 1986 with only about six to
ten FCA cases filed per year.\17\
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\15\ See S. Rep. No. 99-345, supra note 1, at 5277 (citing United
States ex rel Lapin v. Int'l Bus. Machs. Corp., 490 F.Supp 244 (D. Hi.
1980)).
\16\ See United States ex rel., Wisconsin v. Dean, 729 F.2d 1100
(7th Cir. 1984).
\17\ Elleta Sangrey Callahan & Terry Morehead Dworkin, Do Good and
Get Rich: Financial Incentives for Whistleblowing and the False Claims
Act, 37 Vill. L. Rev. 273, 318 (1992).
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In the early 1980s, Congress began to take note of the
increased evidence of fraud against the Government. A three-
volume report issued by the General Accounting Office (now
known as the Government Accountability Office or GAO) concluded
that fraud against the Government was ``widespread.'' \18\ The
report also noted that undetected fraud was probably much
higher than expected because ``weak internal controls allow
fraud to flourish.'' \19\ Further, this Committee observed that
``the cost of fraud cannot always be measured in dollars and
cents'' \20\ and the GAO report discussed how fraud erodes the
public confidence and ability to manage programs.\21\ In
addition, one Senate hearing included testimony that ``45 of
the 100 largest defense contractors--including 9 of the top
10--were under investigation for multiple fraud offenses.''
\22\ Scholars similarly expressed concern about serious fraud
against the Government and began to discuss the past successes
of the FCA.\23\
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\18\ General Accounting Office, Fraud in Gov't Programs: How
Extensive is It?--How Can it Be Controlled ii (1981) (hereinafter ``GAO
Report'').
\19\ S. Rep. No. 99-345, supra note 1, at 5268 (1986) (citing GAO
Report).
\20\ Id. at 5268.
\21\ Id.
\22\ S. Rep. No 99-345, supra note 1, at 5267 (citing testimony of
Dep't of Defense Inspector Gen., Joseph Sherick).
\23\ See, e.g., Erwin Chemerinsky, Controlling Fraud Against the
Government: The Need for Decentralized Enforcement, 58 Notre Dame L.
Rev. 995 (1983) (arguing that the FCA should be amended).
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In response, Senators Charles E. Grassley, Carl Levin, and
Dennis DeConcini introduced S. 1562, the False Claims
Amendments Act, in 1985.\24\ This bill, along with similar
legislation introduced by Senator Strom Thurmond, was referred
to the Senate Committee on the Judiciary, Subcommittee on
Administrative Practice and Procedure. The House of
Representatives also considered a bill to amend the FCA, H.R.
3317, which was referred to the House Committee on the
Judiciary, Subcommittee on Administrative Law and Governmental
Relations. Both the House and Senate Subcommittees held
hearings to review this legislation.\25\
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\24\ False Claims Amendments Act of 1986, S. 1562, 99th Cong.
(1985).
\25\ False Claims Reform Act: Hearing Bef. the Subcomm. on Admin.
Practice and Procedure of the Senate Comm. on the Judiciary, 99th
Cong., 1st Sess. (Sept. 17, 1985); Hearings Bef. the Subcomm. on Admin.
Law and Govern. Rel. of the House Comm. on the Judiciary, 99th Cong.,
2d Sess. (Feb. 5, 1986).
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The House and Senate bills amending the FCA in 1985 shared
the similar goal of returning the qui tam provisions to the FCA
in order to empower private citizens to work with the
Government in rooting out fraud. More specifically, the Senate
Committee on the Judiciary noted that ``perhaps the most
serious problem plaguing effective enforcement [of fraud] is a
lack of resources on the part of Federal enforcement
agencies.'' \26\ The Committee continued, ``allegations that
perhaps could develop into very significant cases are often
left unaddressed at the outset due to a judgment that devoting
scarce resources to a questionable case may not be efficient.''
\27\ This Committee concluded that it ``believes that the
amendments [to the FCA] which allow and encourage assistance
from the private citizenry can make a significant impact on
bolstering the Government's fraud enforcement efforts.'' \28\
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\26\ S. Rep. No. 99-345 supra note 1, at 5272.
\27\ Id.
\28\ Id.
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Ultimately, the House and the Senate passed the False
Claims Amendments Act of 1986 (the 1986 Amendments) and
President Reagan signed it into law on November 23, 1986.\29\
The final legislation made a number of reforms to the 1943
version of the FCA. Chief among them was a change to increase
the penalty provision from the double damages to treble
damages. The 1986 Amendments also provided the qui tam cases
filed by private relators must be filed under seal for sixty
days and served to the United States, but not the
defendant.\30\ The purpose of this provision was two-fold: to
provide the Department of Justice an opportunity to decide if
the case was meritorious and worthy of the Department taking
over the case, and to protect the defendant from unfounded
accusations. The 1986 amendments also created a new mechanism
that allowed the Department of Justice the option of
intervening in a FCA case that it initially declined to take
over, provided the Department had ``good cause.'' \31\ Further,
the amendments included a provision that provided qui tam
relators the ability to continue to participate in a FCA case
working side-by-side with the Government, subject to a court's
ability to limit the relator's role in certain instances.
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\29\ False Claims Amendments Act of 1986, Pub. L. No. 99-562, 100
Stat. 3153 (codified as amended at 31 U.S.C. Sec. Sec. 3729-3733)
(1994); 22 Weekly Comp. Pres. Doc. 1499 (Nov. 3, 1986).
\30\ 31 U.S.C. Sec. 3730(b)(2)-(3) (2000).
\31\ 31 U.S.C. Sec. 3730(c)(3) (2000).
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The 1986 amendments also sought to incentivize further qui
tam relators by lifting the uncertainty of relators' monetary
rewards for coming forward and reporting fraud. Specifically,
the amendments removed the discretionary award structure for
qui tam relators and, in most cases, provided that a relator
could be awarded 15 percent of the recovery for coming forward
and their hard work.\32\ Further, the amendments provided
whistleblower protections in recognition of the risk that qui
tam relators take in reporting fraud against the Government.
This provision provided qui tam relators the ability to seek
reinstatement, back pay with interest, as well as special
damages that includes attorney's fees and litigation costs in
courts if they were retaliated against.\33\
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\32\ 31 U.S.C. Sec. 3730(d)(1)-(2) (2000).
\33\ 31 U.S.C. Sec. 3730(h) (2000).
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Most importantly, the 1986 Amendments specifically
overturned the Government knowledge bar that was created in the
1943 amendments and replaced it with a new mechanism referred
to as a ``public disclosure bar.'' \34\ This new, public
disclosure bar was designed to bar only truly parasitic cases
filed by relators whose complaints were ``based upon the public
disclosure of allegations or transactions in a criminal, civil,
or administrative hearing, in a congressional, administrative,
or Government [General] Accounting Office report, hearing,
audit, or investigation, or from the news media.'' \35\
However, this jurisdictional limitation included an important
exception that allowed cases to go forward in two instances:
first, if it was brought by the Attorney General; \36\ and
second, if ``the person bringing the action is an original
source of the information.'' \37\ The 1986 Amendments defined
``original source'' as ``an individual who has direct and
independent knowledge of the information on which the
allegations are based and has voluntarily provided the
information to the Government before filing an action under
this section which is based on the information.'' \38\ The goal
of this provision was to ensure that any individual qui tam
relator who came forward with legitimate information that
started the Government looking into an area it would otherwise
not have looked, could proceed with an FCA case.
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\34\ 31 U.S.C. Sec. 3730(e) (2000); see also United States ex rel.
LeBlanc v. Raytheon Co., 874 F. Supp. 35, 38 (D. Mass 1995), aff'd 62
F.3d 1411 (1st Cir. 1995), cert. denied, 516 U.S. 1140 (1996).
\35\ 31 U.S.C. Sec. 3730(e)(4)(A) (2000).
\36\ Id.
\37\ Id.
\38\ 31 U.S.C. Sec. 3730(e)(4)(B) (2000).
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Finally, the 1986 Amendments authorized an award of
attorneys' fees to any defendant that prevailed in a suit where
the ``court finds * * * [the litigation] was clearly frivolous,
clearly vexatious, or brought primarily for the purposes of
harassment.'' \39\
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\39\ 31 U.S.C. Sec. 3730(d)(4) (2000).
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B. IMPORTANCE OF THE FALSE CLAIMS ACT
The need for a robust FCA cannot be understated. For
example, the year prior to the 1986 Amendments, the Department
of Justice recovered only $54 million using the FCA. After the
1986 Amendments, recoveries have increased incrementally each
year with over $5 billion from settlements and judgments
recovered in the past two years alone. All told, the 1986
Amendments have led the Government to recover over $20 billion
since 1986, of which $12.6 billion has been the result of qui
tam actions. However, more work remains to be done. For
instance, the Administrator of the Centers for Medicare and
Medicaid Services testified in 2006 that fraud--excluding
errors--in the Federal/State Medicaid program could be as high
as 8 percent.\40\ Based on 2008 estimates, the fraud losses
could be as high as $16.25 billion \41\ this year for the
Federal Government alone--not including the State share of
funds required by the Medicaid program. With such a great
potential for fraud against the Government, it is important
that the Committee revisit the FCA and correct erroneous court
interpretations that have limited the scope and application of
the FCA in contravention of Congress's intent in passing the
1986 Amendments.
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\40\ S. Hrg. 109-905, Physician-Owned Specialty Hospitals: Profits
Before Patients? Hearing Before the Senate Comm. on Finance, 109th
Cong. 141-142 (2006) (responses to questions for the record from Mark
McClellan, Administrator, Centers for Medicare and Medicaid Services).
\41\ United States Dep't of Health and Human Servs., Budget in
Brief Fiscal Year 2009 61 (2008) available at http://www.hhs.gov/
budget/09budget/2009BudgetInBrief.pdf (last visited Aug. 13, 2008).
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In the 110th Congress, the Judiciary Committee heard
testimony highlighting the critical role that qui tam relators
play in uncovering and prosecuting violations of the FCA.\42\
Pamela Bucy, Bainbridge Professor of Law at the University of
Alabama School of Law, noted that a great deal of fraud would
go unnoticed absent the assistance of qui tam relators.
Professor Bucy testified:
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\42\ See S. Hrg. 110-412, The False Claims Act Correction Act (S.
2041): Strengthening the Gov't's Most Effective Tool Against Fraud for
the 21st Century, Hearing before Committee on the Judiciary, 110th
Cong., 2d Sess. (February 27, 2008).
Complex economic wrongdoing cannot be detected or
deterred effectively without the help of those who are
intimately familiar with it. Law enforcement will
always be outsiders to organizations where fraud is
occurring. They will not find out about such fraud
until it is too late, if at all. When law enforcement
does find out about such fraud, it is very labor
intensive to investigate.
Fraud is usually buried in mountains of paper or
digital documents. It is hidden within an organization.
Many different people within an organization, in
multiple offices, divisions, and corporate capacities,
may have participated in the illegality. Because of the
complex nature of economic crime and the diffuse nature
of business environments, it may not be apparent,
perhaps for years, that malfeasance is afoot. By then,
victims will have been hurt, records and witnesses will
have disappeared, and memories will have faded.
Given these facts, insiders who are willing to blow
the whistle are the only effective way to learn that
wrongdoing has occurred. Information from insiders is
the only way to effectively and efficiently piece
together what happened and who is responsible. Insiders
can provide invaluable assistance during an
investigation by identifying key records and witnesses,
interpreting technical or industry information,
providing expertise, and explaining the customs and
habits of the business or industry. Help from an
insider can save time and expense for both law
enforcement and putative defendants by focusing the
investigation on relevant areas. Because of the
valuable information brought by insiders, it is no
surprise that Government officials state:
`Whistleblowers are essential to our operation. Without
them, we wouldn't have cases.' (Emphasis added).\43\
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\43\ Id. at 120-21.
Michael Hertz, Deputy Assistant Attorney General, Civil
Division, of the Department of Justice concurred with Professor
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Bucy, testifying:
[T]he 1986 qui tam amendments to the Act that
strengthened whistleblower provisions have allowed us
to recover losses to the Federal fisc that we might not
have otherwise been able to identify.\44\
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\44\ Id. at 192.
The cases filed by qui tam relators following the 1986
Amendments have proven that fraud is pervasive and that it
permeates Government programs from welfare and food stamp
benefits to multibillion dollar defense contracts; from crop
subsidies to disaster relief; and from Government-backed loan
programs to health care benefits issued by Medicare and
Medicaid. Resourceful qui tam relators have uncovered these
often-complex frauds and have tipped off the Government to
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fraudulent activity. Mr. Hertz elaborated on this point:
[T]here are no government programs that are immune
from possible fraud, as reflected by our caseload.
Cases brought by the Department under the Act,
including those initiated by whistleblowers, have
recovered significant funds on behalf of the Department
of Interior, the General Services Administration, the
Department of Housing and Urban Development, the
Department of Agriculture, the Department of Education,
the Department of State, the Department of Energy,
NASA, and more recently, the Department of Homeland
Security, to name but a few.\45\
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\45\ Id. at 189.
Mr. Hertz's testimony highlights the depth and breadth of
frauds perpetrated against the Government. Yet it is important
to note that some areas of fraud are more pervasive than others
and none more so than healthcare benefits paid by the
Government under the Medicare and Medicaid programs. FCA cases
have touched virtually every area of the healthcare community,
including hospitals, doctors, pharmaceutical companies, nursing
homes, durable medical equipment retailers and manufacturers,
and renal care facilities, among others. Healthcare cases have
constituted a significant portion of FCA recoveries, with
hospital cases recovering over $3.4 billion and pharmaceutical
manufacturer cases recovering over $4.6 billion. That is about
40 percent of $20 billion that the Government has recovered
using the FCA over the past 20 years.
Qui tam relators have been particularly instrumental in
unearthing healthcare frauds given the complexity of Federal
healthcare programs. Prescription drug pricing cases and
Medicare billing frauds are often sophisticated and, are often
compartmentalized within a corporation so that only a very few
individuals may actually understand the fraudulent scheme.
Complexity of subject matter should never preclude the
Government from uncovering fraud, but, unfortunately, it is
impossible to determine how much fraud goes undetected.
Of the over 5,800 qui tam FCA cases filed since 1986, more
than half (roughly 3,117) have focused on fraud against
Government health care programs. These cases have recovered
over $9 billion of the $12.6 billion recovered through qui tam
cases since 1986 (nearly 72 percent). Frauds against the
Department of Defense ranked second with over $1.6 billion of
qui tam recoveries (nearly 13 percent). While these recoveries
represent a victory for American taxpayers, they are only one
measure of the fraud against the Government. As the GAO pointed
out,\46\ fraud erodes public confidence in the Government's
ability to efficiently and effectively manage its programs.
This is why the FCA is so important to not just the Government,
but to American taxpayers. It offers an opportunity for the
Government to win back the hearts and minds of taxpayers who
believe the Government does not care how taxpayer dollars are
spent.
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\46\ See S. Rep. No. 99-345, supra note 1, at 5268 (citing GAO
Report).
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In addition, the presence of effective qui tam provisions
in the FCA has a deterrent effect on those who seek to defraud
the Government. Mr. Hertz testified:
In the wake of well-publicized recoveries
attributable to the qui tam cases, those who might
otherwise submit false claims to the Federal Government
are more aware than ever of the `watchdog' effect of
the qui tam statute. We have no doubt that the Act has
had the salutary effect of deterring fraudulent
conduct.\47\
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\47\ S. Hrg. 110-412, supra note 42, at 192.
Despite these important successes, the FCA continues to
face challenge after challenge in courts across the country,
and recent court interpretations now undermine its potential
effectiveness.
C. PURPOSE OF THE BILL
The original FCA was written to assist the Government in
combating fraud against the U.S. Treasury by incentivizing
private individuals to act as private attorneys general. By
multiplying the number of individuals looking for fraud, the
FCA was designed to bolster the resources of the Government to
protect the Federal fisc and uncover frauds that otherwise
would never have come to light. The FCA was crafted to enable
private individuals to not only report fraudulent conduct, but
also to move forward with lawsuits and to participate in the
recovery. Allowing individual relators to proceed with lawsuits
also provided a check on the Government bureaucracy that may
lack the resources or the incentive to pursue complex or
potentially embarrassing fraud cases. Despite these noble
goals, the FCA has been subjected to substantial legal
challenges that have led to conflicting interpretations from
courts across the country. These conflicts make the outcomes of
FCA cases unclear--not based upon facts, but based upon where
the case is filed--and significantly undermine the
effectiveness of the FCA.
The Committee has closely watched various interpretations
of the FCA that have been appealed all the way to the Supreme
Court. Despite the Supreme Court's holdings in these cases, the
interpretation of the FCA widely varies from court to court.
Earlier this year, a court summarized the current state of law
interpreting the FCA 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.'' \48\ In addition to conflicting
interpretations of the FCA, a number of courts--including the
Supreme Court--have interpreted provisions of the FCA contrary
to Congress's intent in passing the 1986 Amendments.
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\48\ United States ex rel. Montgomery v. St. Edward Mercy Medical
Center, 2008 WL 110858 (E.D. Ark. Jan. 8, 2008).
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The False Claims Act Corrections Act, S. 2041, seeks to
clarify conflicting interpretations of the FCA, to provide an
affirmative answer to unresolved questions created over the
years by litigation, and to bring the FCA back into line with
congressional intent. Among other things, this legislation
makes clear that the FCA protects all Federal funds, including
circumstances in which a person discovers an overpayment by the
Government and decides to retain those funds. The legislation
also defines recoverable damages; clarifies that Government
employees may act as qui tam relators in limited, defined
circumstances; prevents dismissal of qui tam allegations that
assist Government investigations; strengthens anti-retaliation
protections for qui tam whistleblowers; clarifies the statute
of limitations period for all portions of the FCA; and provides
technical amendments to the Civil Investigative Demands (CIDs)
the Department of Justice is authorized to issue under the FCA.
These provisions will assist practitioners, judges, and
businesses across the country by providing clarity and
certainty to the FCA. A more detailed section by section
analysis of these provisions is provided below.
II. History of the Bill and Committee Consideration
A. INTRODUCTION OF THE BILL
Senator Grassley introduced S. 2041, the False Claims Act
Correction Act of 2007, on September 12, 2007, joined by
Senators Durbin, Leahy, Specter, and Whitehouse as original
cosponsors. The bill was referred to the Committee on the
Judiciary.
B. COMMITTEE CONSIDERATION
1. Committee hearing
The Committee held a hearing on S. 2041 entitled, ``The
False Claims Act Correction Act (S. 2041): Strengthening the
Government's Most Effective Tool Against Fraud for the 21st
Century'' on February 27, 2008. Testimony was received from:
Michael F. Hertz, Deputy Assistant Attorney General, Civil
Division, Department of Justice; Tina M. Gonter of
Jacksonville, Florida; The Honorable John E. Clark, Of Counsel,
Goode, Casseb, Jones, Riklin, Choate, & Watson P.C., San
Antonio, Texas; John T. Boese, Partner, Fried, Frank, Harris,
Shriver, & Jacobson LLP, Washington, D.C.; and Pamela M. Bucy,
Professor of Law, University of Alabama Law School, Tuscaloosa,
Alabama.
Mr. Hertz testified that while the Department of Justice
was in agreement with many individual components contained in
the legislation, it could not support the bill as drafted. In
particular, the Department is concerned with section 3 of the
legislation which expressly states that Government employees
may act as qui tam relators in limited defined circumstances.
Mr. Hertz also testified about the Department's concerns
regarding the revisions to the public disclosure bar contained
in the legislation. Mr. Hertz discussed the position
articulated by the Department in a formal views letter and
corresponding appendix which was submitted to the Committee
prior to the hearing. Mr. Hertz also discussed other subjects
where the Department supported provisions in the bill that
clarify the FCA. Mr. Hertz stated that the Department believed
some cases had been wrongly decided by the courts, including
the Supreme Court, and that the Department had submitted briefs
consistent with provisions contained in S. 2041. Specifically,
Mr. Hertz discussed how the Department disagreed with holdings
in United States, ex rel., Totten v. Bombardier Corp., 286 F.3d
542 (D.C. Cir. 2004) (hereinafter ``Totten''), Allison Engine
Co. v. United States, ex rel., Sanders, 471 F.3d 610 (6th Cir.
2006), cert granted, 128 S. Ct. 491 (2007), rev'd on other
grounds, 553 U.S. __, 128 S.Ct. 2123 (2008), and United States
ex rel. DRC, Inc., v. Custer Battles, LLC, 376 F. Supp. 2d 617
(E.D. Va 2005) (hereinafter ``Custer Battles''). Mr. Hertz
concluded by stating that the Department of Justice was
supportive of the qui tam provisions of the FCA and provided
their views to ensure that corrections to the FCA do not
``create additional obstacles to government enforcement
efforts.'' \49\
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\49\ See S. Hrg. 110-412, supra note 42, at 194.
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Ms. Gonter, Judge Clark, and Professor Bucy each provided
testimony recognizing the need to clarify the FCA and to
strengthen the partnership between relators and the Federal
Government.\50\ Ms. Gonter shared her first hand experience as
a qui tam relator. She worked as a quality assurance inspector
for a Navy subcontractor and how she uncovered a scheme where
the subcontractor, with tacit approval from the prime
contractor, supplied defective valves for use in United States
Navy submarines. Ms. Gonter told the Committee how she tried to
raise her concerns regarding the defective valves, but was
ignored by company managers. She reported this to the prime
contractor, and they ignored her concerns as well. Ms. Gonter
testified about how she made the decision to disclose the fraud
as a whistleblower and how she alerted the Government to the
problem.
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\50\ Unfortunately, due to illness, Professor Bucy was unable to
attend the hearing in person, but submitted written testimony.
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Ultimately, Ms. Gonter filed a FCA qui tam complaint and
assisted the Government during its five-year investigation. As
a result of Ms. Gonter's efforts, the Government brought a
criminal case against her company's owners and recovered more
than $13 million from the prime contractor despite a decision
by the Department of Justice not to intervene in that part of
the case. Had Ms. Gonter not come forward, the Government would
not have known about the defective values, would not have
brought a criminal case, and would not have recovered any money
for the defective valves. Ms. Gonter concluded her testimony by
noting that S. 2041 would clarify the scope of a
subcontractor's liability under the FCA, the statute of
limitations period, the public disclosure provisions, and the
CID provisions, all of which would enhance the Government's
effectiveness in using the FCA. Ms. Gonter's testimony
highlighted the very goals of the FCA--empowering everyday
citizens to come forward and report fraud against the
Government.
Judge Clark discussed the need to amend the FCA from a
practitioner's standpoint.\51\ Judge Clark testified that S.
2041 provides much-needed clarification to the FCA by
correcting several recent court decisions that have
misconstrued the statute and limited its effectiveness. For
instance, Judge Clark discussed how current case law has
misinterpreted the public disclosure bar provisions in the 1986
Amendments and provided defendants with ammunition to have
meritorious cases dismissed. Judge Clark believes that these
decisions were directly contrary to the spirit and intent of
Congress in passing the 1986 Amendments.
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\51\ Judge Clark has worked as a qui tam relator's counsel after
stepping down from the state bench in Texas.
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Judge Clark also emphasized the need to clarify the public
disclosure bar provisions in the FCA because of a split among
the Federal circuit courts of appeals. Most significantly, he
testified that the Supreme Court's decision in Rockwell
International Corp. v. United States ex rel. Stone, 549 U.S.
__, 127 S.Ct. 1397 (2007), misinterpreted the public disclosure
bar and eroded the effectiveness of the FCA.
Judge Clark also testified that provisions in S. 2041 were
needed to clarify the substantive liability provisions of the
FCA outlined in 31 U.S.C. Sec. 3729. Specifically, Judge Clark
testified about clarifying the definition of the term ``claim''
in S. 2041 as necessary to bring the FCA back into line with
the intent of the 1986 Amendments. Judge Clark observed that S.
2041 would overrule the D.C. Circuit Court's recent decision in
Totten and its progeny, which the Committee views as critical
to the future of the FCA. Those cases have misinterpreted the
liability provisions of the FCA to include a ``presentment''
requirement, when Congress never intended that result. Judge
Clark testified that S. 2041 makes clear that the FCA applies
to funds administered by the United States under Government
programs, noting that, as a result of the misapplication of
this ruling, Custer Battles, was wrongly decided.
Professor Bucy's testimony also expressed general support
for S. 2041, stating that the legislation properly clarifies
the presentment issue raised in the Totten case, corrects the
Custer Battles case, and properly broadens the Department of
Justice's ability to use CIDs. Professor Bucy also supported S.
2041's goal of clarifying the rules governing the FCA's public
disclosure bar provisions, although she offered the Committee
some suggestions that she believes would make that provision
even clearer.
Mr. John Boese testified on behalf of the U.S. Chamber of
Commerce and the U.S. Chamber Institute for Legal Reform in
opposition to S. 2041. Mr. Boese testified that S. 2041 would
greatly expand the scope of the FCA beyond what Congress
intended in 1986. He claimed that S. 2041 would result in the
application of the Act to private contractual disputes that do
not affect Federal funds, would unjustifiably allow
whistleblowers who provide the Government with no new
information to still share in recoveries of Government funds,
and would allow Government employees to abuse their positions
for personal profit. He also raised the concern that the
amended liability provisions would cover false claims submitted
to Federal Government employees in their personal capacity, and
paid from their salary checks. Moreover, he voiced the specific
concern that the amended liability provision would cover false
claims to Social Security beneficiaries, if they used their
Government benefits to pay the claims.
2. Substitute bill
In response to the concerns raised at the hearing, S. 2041
was revised and a substitute bill was prepared prior to the
Committee mark-up on February 28, 2008. The substitute bill
incorporated 13 of 16 recommendations made by the Department of
Justice, as well as addressing a number of concerns raised by
Mr. Boese.
First, the substitute bill modified the liability
provisions of the FCA by removing ambiguous language that
claims be presented to a Government officer or employee of the
U.S. Government. The substitute also removed definitions of
``Government money and property'' and ``Administrative
Beneficiary'' after hearing concerns from the Department of
Justice that these new definitions would require substantive
litigation and could render an outcome contrary to that which
was intended. These modifications retained all the scienter
requirements for liability to attach, but redefined the term
``claim'' to ensure that liability attaches to false claims to
a Government contractor or grantee when the contractor or
grantee pays the claim, at least in part, with funds that the
Government has provided or for which the Government will
provide reimbursement. Further, the substitute bill ensured
that money or property under the trust of the Government or
otherwise administered by the Government is protected as well.
These changes made clear that false claims are covered whether
made to the Government itself or to an organization that
received Federal funds and expended them on the Government's
behalf or to further Government programs, purposes, or
interests. However, the substitute bill did not amend any of
the FCA's current intent requirements. Additionally, in
response to the concerns raised by the U.S. Chamber of
Commerce, the substitute bill made clear that FCA liability
will not attach to false claims submitted to individuals who
receive employment compensation or income subsidies (such as
Social Security) from the Federal Government.
Second, the substitute bill outlined the circumstances
under which a Government employee can serve as a whistleblower
in a qui tam lawsuit. The substitute bill made modifications to
this provision to help alleviate concerns about the motives of
a Government employee who may serve as a qui tam relator.
Specifically, the provision defined narrow circumstances where
a Government employee can act as a qui tam relator and created
a defined procedure that a qualifying Government employee must
follow before filing a qui tam action. If the Government
employee does not meet the qualifications or if proper
procedure is not followed, the Government has the right to
dismiss the relator from the case.
Regarding the Government relator's qualifications, the
substitute bill specifically barred Government employees from
being relators when they were auditors, attorneys, and other
Government investigators. The substitute also barred family
members of Government employees from filing qui tam lawsuits,
closing a potential loophole for barred Government employees
who could merely pass along the information to family members.
The substitute bill also created a defined procedure that a
qualifying Government employee relator must follow. The
substitute required that if the Government employee learned of
the information that is the basis for his/her FCA case during
the course of his/her employment for the Government, then that
employee must first directly disclose such information to the
agency's designated Inspector General or to the Attorney
General if there is not an Inspector General. Further, the
Government employee must also notify his/her supervisor of the
disclosures as well as the Attorney General (if he/she had
previously reported to the Inspector General). Only if the
Attorney General fails to bring a claim based on the disclosed
information within 18 months is the Government employee then
free to bring the claim as a qui tam relator. In addition, the
substitute bill prohibited Government employees from being qui
tam relators if they derive information for their FCA claim
from an indictment or information, or any ongoing active
criminal, civil, or administrative investigation. The Committee
notes that these modifications in the substitute bill are
restrictions that were discussed by the Tenth Circuit Court of
Appeals in then-Chief Judge Tacha's dissenting opinion in
United States ex rel. Holmes v. Consumer Ins. Group, 318 F.3d
1199 (10th Cir. 2003). While the Committee strongly agrees with
the majority opinion holding that Government employees may
serve as qui tam relators without condition under the current
FCA and these restrictions are currently not imposed upon
Government employees that file FCA cases as qui tam relators in
the Eleventh and Sixth Circuits, the Committee nonetheless
believes such a limitation would help to clarify the split of
authority across the country related to Government employee
relators.
Third, the substitute bill empowered the Attorney General
to file a timely motion to dismiss a claim, so that the only
cases barred are those in which a qui tam relator truly
contributed no information providing a new basis for recovery.
This section incorporated much of the language submitted by the
Department of Justice in its views letter. The provision allows
courts to dismiss a claim if it relates to substantially the
same matters and same wrongdoer that is the subject of an open
and active criminal indictment or information, criminal, civil,
or administrative fraud investigation or audit, news media
report, or congressional hearing, report or investigation that
is acted on by the Department of Justice or Inspector General
within 90 days. This section also makes technical modifications
to the FCA including a clarification that no claim for a
violation of section 3729 may be waived or released from
liability by a person other than the Government, unless it is
part of a settlement of a section 3730(b) action. This section
also included additional language requested by the Department
of Justice that ensures that this limitation will not prohibit
the Government from pursuing FCA settlements with defendants.
This provision will ensure that the courts dictate which
violations of the FCA may be dismissed as part of an approved
settlement agreement.
Fourth, with respect to the FCA's retaliation provisions,
the substitute bill included a clarifying provision to include
the term ``agent'' in the list of individuals who may use the
anti-retaliation provisions of the FCA. The omission of the
term ``agent'' was merely a clerical error in the original
draft of S. 2041 and was always intended to be included.
Fifth, the substitute bill made two minor amendments to the
use of CIDs by including a provision allowing the Department of
Justice to share information derived from a CID with Federal,
State, or local law enforcement officers conducting an
investigation into allegations raised in a FCA case.
Sixth, the substitute made a clarifying amendment that
information obtained from a CID by the Department of Justice,
may be shared with qui tam relators who filed the FCA claim.
The Committee included this provision because it is well-
recognized that qui tam relators are often insiders who have
substantive knowledge of how a corporation may work and can
provide substantive background (as was the case with Ms.
Gonter's support of Navy investigators).
Seventh, with respect to severability, the substitute bill
adopted language offered by the Department of Justice designed
to avoid the unnecessary use of Government resources to
litigate the application of these amendments to current cases
and to ``ensure that any provision in the FCA that might be
invalidated does not result in the invalidity of the remaining
provisions.''
Finally, the substitute bill incorporated a provision
sought by the Department of Justice that would expressly apply
to ``all cases pending on the date of enactment, and to all
cases filed thereafter.'' This provision was requested in order
to avoid the same type of litigation that occurred following
the passage of the 1986 Amendments. The Department of Justice
noted that it spent significant resources and time litigating
the application of the 1986 Amendments and that this provision
would help to prevent a similar situation.
3. Executive business meeting
The False Claims Act Corrections Act of 2008, S. 2041, was
placed on the Committee's executive business meeting agenda on
February 28, 2008. However, the bill was held over and not
addressed by the Committee until April 2008. During this time,
the sponsors of the bill drafted and circulated a second
substitute bill that incorporated three additional changes.
First, the second substitute amended a clerical error where the
previous version of S. 2041 erroneously struck portions of 31
U.S.C. 3730(d)(1). Second, the substitute made a technical
change requested by the Department of Justice to the CID
provision. Finally, the second substitute made one substantive
change creating a tiered application of the effective date as
recommended by the Department of Justice. The second substitute
also renamed the bill as ``The False Claims Corrections Act of
2008,'' to reflect the changes made in 2008.
The bill was considered by the Committee at its executive
business meeting on April 3, 2008. Chairman Leahy, on behalf of
Senator Grassley, offered the complete second substitute bill
as an amendment, which was accepted by unanimous consent. No
other amendments were offered.
The Committee then voted to report the False Claims Act
Correction Act of 2008, with an amendment in the nature of a
substitute, favorably to the Senate by voice vote.
III. Section-by-Section Summary of the Bill
Section 1. Short title
This section provides that the legislation may be cited as
the ``False Claims Act Correction Act of 2008.''
Section 2. False claims generally
This section of the bill updates the substantive liability
provisions of the FCA which are contained in section 3729(a) of
the Act. The bill contains clarifications to remove ambiguities
and inconsistencies in the law that have been created through
years of litigation. As the bill makes changes to the section
and renumbers the liability provisions compared to the current
statute, this report will outline the clarifications to the law
based on each topic.
A. Fraud against government contractors and grantees
Following the decision in United States ex rel. Totten v.
Bombardier Corp. a number of courts have held that the FCA does
not reach false claims that are (1) presented to Government
grantees and contractors, and (2) paid with Government grant or
contract funds.\52\ These cases are representative of the types
of frauds the FCA was intended to reach when it was amended in
1986. This section of the bill clarifies that liability under
3729(a) attaches whenever a person knowingly makes a false
claim to obtain money or property, any part of which is
provided by the Government without regard to whether the
wrongdoer deals directly with the Federal Government; with an
agent acting on the Government's behalf; or with a third party
contractor, grantee, or other recipient of such money or
property. The bill explicitly excludes from liability requests
or demands for money or property that the Government has paid
to an individual as compensation for Federal employment or has
received as an income subsidy, such as Social Security
benefits.
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\52\ 380 F.3d 488 (D.C. Cir. 2005); see, e.g., United States, ex
rel., Atkins v. McInteer, 345 F. Supp. 2d 1302 (N.D. Ala. 2004), aff'd
on other grounds, 470 F.3d 1350 (11th Cir. 2006); United States, ex
rel., Rafizadeh v. Continental Common, Inc., 2006 WL 980676 (E.D. La.
April 10, 2006); United States v. City of Houston, 2006 WL 2382327
(S.D. Tex. Aug. 16, 2006); United States, ex rel., Rutz v. Village of
River Forest, 2007 WL 3231439 (N.D. Ill. Oct. 25, 2007); United States,
ex rel., Arnold v. CMC Engineering, 2007 WL 442237 (W.D. Pa. Feb. 7,
2007).
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As some defendants have argued that Totten and Atkins
restrict FCA liability from attaching to Medicaid claims, the
bill clarifies the position taken by the Committee in 1986 that
the FCA reaches all false claims submitted to State-
administered Medicaid programs. By removing the offending
language from section 3729(a)(1), which requires a false claim
be presented to ``an officer or employee of the Government, or
to a member of the Armed Forces,'' the bill clarifies that
direct presentment is not required for liability to attach.
This is consistent with the intent of Congress in amending the
definition of ``claim'' in the 1986 Amendments to include ``any
request or demand . . . for money or property which is made to
a contractor, grantee, or other recipient if the United States
Government provides any portion of the money or property which
is requested or demanded, or if the Government will reimburse
such contractor, grantee, or other recipient for any portion of
the money or property which is requested or demanded.'' \53\
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\53\ 31 U.S.C. 3729(c) (2000). See also S. Rep. No. 99-345 supra
note 1, at 5282-5301 (providing section-by-section analysis explaining
that a false claim includes claims submitted to grantees and
contractors if the payment ultimately results in a loss to the
Government).
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B. Fraud against funds administered by the United States
The Committee included provisions in Section 2 of the bill
to address a decision recently decided involving funds
administered by the U.S. Government during the reconstruction
of Iraq. In United States ex rel. DRC, Inc. v. Custer Battles,
LLC, a trial court judge set aside a jury award finding that
Iraqi funds administered by the U.S. Government on behalf of
the Iraqi people were not U.S. Government funds within the
scope of the FCA.\54\ The Committee believes this result is
inconsistent with the spirit and intent of the FCA.
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\54\ 376 F. Supp. 2d 617 (E.D. Va. 2006).
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When the U.S. Government elects to invest its resources in
administering funds belonging to another entity, or providing
property to another entity, it does so because use of such
investments for their designated purposes will further interest
of the United States.\55\ False claims made against Government-
administered funds harm the ultimate goals and U.S. interests
and reflect negatively on the United States. The FCA should
extend to these administered funds to ensure that the bad acts
of contractors do not harm the foreign policy goals or other
objectives of the Government. Accordingly, this bill includes a
clarification to the definition of the term ``claim'' in new
section 3729(b)(2)(A) and attaches FCA liability to knowingly
false requests or demands for money and property from the U.S.
Government, without regard to whether the United States holds
title to the funds under its administration.
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\55\ See, e.g., United States ex rel. Haynes v. CMC Electronics,
Inc., 297 F.Supp.2d 734 (D.N.J. 2003) (discussing sales of equipment to
foreign governments under the Arms Export Control Act).
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C. Conspiracy
As noted above, the current FCA contains a provision that
subjects those who knowingly conspire to defraud the Government
by getting a false or fraudulent claim allowed or paid. Some
courts have interpreted this provision narrowly.\56\ The
current FCA conspiracy provision does not explicitly impose
liability on those who conspire to violate other provisions of
the FCA, such as delivery of less Government property than that
promised or making false statements to conceal an obligation to
pay money to the Government.\57\ Because of the confusion and
uncertainty surrounding the application of the conspiracy
provision, Section 2 amends current section 3729(a)(3) to
clarify that conspiracy liability can arise whenever a person
conspires to violate any of the provisions in Section 3729
imposing FCA liability.
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\56\ See, e.g., United States ex rel. Huangyan Import & Export
Corp. v. Nature's Farm Products, Inc., 370 F.Supp.2d 993 (N.D. Cal.
2005) (holding that section 3729(a)(3) does not extend to conspiracies
to violate section 3729(a)(7)).
\57\ 31 U.S.C. Sec. Sec. 3729(a)(4)-(6) (2000).
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D. Wrongful possession, custody or control of government
property
Section 3729(a)(4) of the FCA has remained unchanged since
enactment of the FCA in 1863. This provision establishes FCA
liability upon an individual that has ``possession, custody, or
control of property or money used, or to be used, by the
Government, and, intending to defraud the Government or
willfully to conceal the property, delivers, or causes to be
delivered, less property than the amount for which the person
receives a certificate of receipt.'' \58\ This section allows
the Government to recover losses that are incurred because of
conversion of Government assets. However, because this section
has remained unchanged from the original act that was drafted
in 1863, the archaic language has made recoveries under a
conversion theory contingent upon the individual receiving an
actual receipt for the property. The new section, renumbered as
section 3729(a)(1)(D) in the bill, updates this provision by
retaining the core conversion principle while redrafting it in
a more straightforward manner and removing the receipt
requirement. Where knowing conversion of Government property
occurs, it should make no difference whether the person
receives a valid receipt from the Government. This amendment to
3729(a)(1)(4) was supported by the Department of Justice, as
noted in its February 21, 2008 views letter.
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\58\ 31 U.S.C. Sec. 3729(a)(4) (2000).
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E. ``Reverse'' false claims
Section 3729(a)(7) of the FCA currently imposes liability
on any person who ``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.'' \59\ This provision is commonly referred to
as creating ``reverse'' false claims liability because it is
designed to cover Government money or property that is
knowingly retained by a person even though they have no right
to it. This provision is similar to the liability established
under 3729(a)(2) for making ``false records or statements to
get false or fraudulent claims paid or approved.'' \60\
However, the provision does not capture conduct described in
3729(a)(1), which imposes liability for actions to conceal,
avoid, or decrease an obligation directly to the Government.
This legislation closes this loophole and incorporates an
analogous provision to 3729(a)(1) for ``reverse'' false claims
liability.
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\59\ 31 U.S.C. Sec. 3729(a)(7) (2000).
\60\ 31 U.S.C. Sec. 3729(a)(2) (2000).
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Further, this legislation addresses current confusion among
courts that have developed conflicting definitions of what the
term ``obligation'' in section 3729(a)(7) really means.\61\ The
term ``obligation'' now contains an express definition under
new section 3729(b)(3) and includes both fixed and contingent
duties owed to the Government--including fixed liquidated
obligations such as judgments, and fixed, unliquidated
obligations such as tariffs on imported goods. It is also
noteworthy to restate that while the new definition of
``obligation'' expressly includes contingent, non-fixed
obligations, the Committee supports the position of the
Department of Justice that current section 3729(a)(7) ``speaks
of an `obligation,' not a `fixed obligation.' '' \62\ By
including contingent obligations such as ``implied contractual,
quasi-contractual, grantor-grantee, licensor-licensee, fee-
based, or similar relationship,'' this new section reflects the
Committee's view, held since the passage of the 1986
Amendments,\63\ that an ``obligation'' arises across the
spectrum of possibilities from the fixed amount debt obligation
where all particulars are defined \64\ to the instance where
there is a relationship between the Government and a person
that ``results in a duty to pay the Government money, whether
or not the amount owed is yet fixed.'' \65\
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\61\ See, e.g., United States ex rel. Prawer & Co. v. Verrill &
Dana, 946 F.Supp. 87, 93-95 (D. Me. 1996) (discussing the definition of
``obligation'' at length); Am. Textile Mfr's Inst., Inc. v. The
Limited, Inc., 190 F.3d 729, 736 (6th Cir. 1999) (discussing definition
of ``obligation'').
\62\ Brief for United States at 23, United States v. Bourseau No.
06-56741, 06-56743 (9th Cir. July 14, 2008).
\63\ See S. Rep. No. 99-345 supra note 1, at 5283.
\64\ See, e.g., Am. Textile Mfrs. Inst. v. The Limited, Inc., 190
F.3d 729 (6th Cir. 1999); United States v. Q Int'l Courier, Inc., 131
F.3d 770 (8th Cir. 1997).
\65\ Brief for United States at 24, United States v. Bourseau No.
06-56741, 06-56743 (9th Cir. July 14, 2008) (citing United States ex
rel. Bahrani v. Conagra, Inc., 465 F.3d 1189, 1201 (10th Cir. 2006),
motn. for reh'g pending, (10th Cir. 2007)); United States v. Pemco
Aeroplex, Inc., 195 F.3d 1234, 1237-38 (11th Cir. 1999) (en banc).
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The new definition of the term ``obligation'' also includes
``customs duties for mismarking country of origin,'' a singular
type of obligation that is specific and not a general class of
obligations. The Committee included this provision in response
to the decision in American Textile Manufacturers Institute,
Inc. v. The Limited, Inc. where the Sixth Circuit Court of
Appeals narrowly defined the term ``obligation'' to apply
reverse false claims to only fixed obligations and dismissing a
claim for false statements made by importers to avoid paying
customs duties.\66\ The inclusion of this express reference to
customs duties is not intended to exclude other types of
contingent or fixed obligations that are similar in effect and
purpose or that otherwise meet the definition set forth in the
proposed amendments.
---------------------------------------------------------------------------
\66\ See Am. Textile Mfrs. Inst., 190 F.3d at 729.
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The Committee also notes that the reverse false claims
provision and amendments to that provision do not include any
new language that would incorporate or should otherwise be
construed to include a presentment requirement. This is
consistent with various court decisions that have held that the
current reverse false claims provision does not contain a
presentment requirement.\67\
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\67\ See, e.g., United States ex rel. Bahrani, 465 F.3d 1189, 1208
(10th Cir. 2006); United States ex rel. Koch v. Koch Indus., 57
F.Supp.2d 1122, 1144 (N.D. Okla. 1999).
---------------------------------------------------------------------------
Finally, the new definition of ``obligation'' includes an
express statement that an obligation under the FCA includes
``the retention of an overpayment.'' The Department of Justice
supported the inclusion of this provision and provided
technical advice that the proper place to include overpayments
was in the definition of obligation.\68\ This new definition
will be useful to prevent Government contractors and others who
receive money from the Government incrementally based upon cost
estimates from retaining any Government money that is overpaid
during the estimate process. Thus, the violation of the FCA for
retention of a known overpayment occurs once a payment is
retained following the final submission of payment as required
by statute or regulation--including relevant statutory or
regulatory periods designated to reconcile cost reports, but
excluding administrative and judicial appeals.
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\68\ Letter from Brian Benczkowski, Principal Deputy Assistant
Attorney General, United States Department of Justice, to Senator
Patrick Leahy, Chairman, Senate Committee on the Judiciary Appendix 3
(Feb. 21, 2008) (hereinafter ``DOJ Views Letter'').
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F. Damages
The 1986 Amendments to the FCA created a system where
damages are measured based on ``the amount of damages which the
Government sustains because of the act of that person.'' \69\
After determining that amount, the damages are trebled. This
provision was designed to provide courts flexibility to measure
damages on a case-by-case basis to ensure the broad remedial
goal of the Act. Despite this legislative goal, some courts
have read the damage provision narrowly and have made it
difficult for the Government to recover the true losses
sustained because of the fraud, let alone include penalties to
provide a deterrent effect.
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\69\ 31 U.S.C. Sec. 3729(a)(2000).
---------------------------------------------------------------------------
For example, problems have occurred with certain medical
providers who were sued for violating the FCA. These providers
received payments from Medicare and Medicaid despite being
disqualified from participating in the programs because they
received kickbacks from referring physicians, but argued there
were no damages when they provided services and sought
reimbursement.\70\ While it may appear that there are no actual
damages for simply seeking reimbursement when disqualified, the
integrity of those Federal programs is seriously undermined by
these practices which can cause overutilization of services,
patient steering, and medical decisions made outside of the
best interest of the patient.
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\70\ See United States ex rel. Pogue v. Am. Healthcorp, Inc., 914
F.Supp. 1507, 1513 (M.D. Tenn. 1996) (hereinafter ``Pogue I'') (holding
that the FCA was ``intended to govern not only fraudulent acts that
create a loss to the government but also those fraudulent acts that
cause the government to pay out sums of money to claimants it did not
intend to benefit); United States ex rel. Pogue v. Diabetes Treatment
Ctrs. of Am. Inc., 238 F. Supp.2d 258, 264-66 (D.D.C. 2002) (discussing
various courts that have upheld implied certification theory for
violations of the Anti-Kickback and Stark laws as sufficient to state a
claim under the FCA and reaffirming Pogue I).
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To address problems that have occurred, this bill amends
the damages provision in Section 3729(a) to a more simplified
approach that measures damages based on the amount of money or
property ``paid or approved because of the act of the
defendant.''
Section 3. Government right to dismiss certain actions
This section addresses the current split of authority
between various courts regarding whether or not Government
employees may act as qui tam relators under the FCA. The FCA
was originally designed to be an avenue for any individual to
bring a claim for recovery when the predicate elements for the
offense were met. The FCA currently provides no specific
guidance as to whether a Government employee may serve as a qui
tam relator, and a number of courts have addressed this issue
during the course of litigation.\71\ The crux of the debate
surrounding the role Government employees may play in qui tam
litigation involves ethics concerns about Government employees
filing potentially parasitic qui tam actions based upon
information learned in the course of fulfilling their job
duties.
---------------------------------------------------------------------------
\71\ See, e.g. United States ex rel. Holmes v. Consumer Ins. Group,
318 F.3d 1199 (10th Cir. 2003); United States ex rel. LeBlanc v.
Raytheon Co., Inc., 913 F.2d 17 (1st Cir. 1990); United States ex rel.
Maxwell v. Kerr-McGee Chemical Worldwide, LLC, 486 F.Supp.2d 1217 (D.
Colo. 2007).
---------------------------------------------------------------------------
This issue first arose following the passage of the 1986
Amendments, when the House Judiciary Committee, Subcommittee on
Administrative and Government Relations held hearings to
discuss the topic in 1990.\72\ At the hearing, Senator
Grassley--the original Senate sponsor of the 1986 Amendments--
testified that Government employees should be allowed to act as
qui tam relators under the FCA provided, ``he can show that he
first made a good faith effort within the proper channels'' to
report the fraud.\73\ Further, Senator Grassley stated that
Government employee relators are a key check on the Government
bureaucracy and are a basic resource to fight fraud.\74\
Subsequent to the hearings, legislation was introduced in the
next two sessions of Congress to remedy this open question.\75\
---------------------------------------------------------------------------
\72\ False Claims Act Implementation, Hearing Before the House
Subcomm. on Admin. and Governmental Relations, 101st Cong., 2d Sess. 1
(Apr. 4, 1990).
\73\ Id. at 7.
\74\ Id.
\75\ False Claims Act Amendments Act of 1992, H.R. 4563, 102 Cong.,
2d Sess. (1992); False Claims Act Amendments Act of 1993, S. 841, 103rd
Cong., 1st Sess. (1993).
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Over time, courts across the country began to take various
approaches in addressing the question of whether a Government
employee could serve as a qui tam relator. Currently, the
prevailing case law in the Tenth and Eleventh Circuits supports
the proposition that Government employees are not categorically
barred from acting as relators in FCA cases regardless of
whether reporting fraud was one of the employee's main
duties.\76\ However, the prevailing case law in the First
Circuit and the Ninth Circuit does not allow Government
employees to act as qui tam relators.\77\ Together these
decisions create a patchwork of applications of the FCA to
Government employee relators and the Committee believes
providing clarity on the issue is consistent with the spirit
and intent of the 1986 Amendments.
---------------------------------------------------------------------------
\76\ See United States ex rel. Williams v. NEC Corp., 931 F.2d
1493, 1502 (11th Cir. 1991) (finding no general prohibition against
government employees serving as qui tam relators); United States ex
rel. Holmes v. Consumer Ins. Group, 318 F.3d 1199, 1214 (10th Cir.
2007) (en banc) (rejecting arguments seeking to preclude government
employees per se from filing qui tam actions based upon information
obtained during the course of their employment).
\77\ See United States ex rel. LeBlanc v. Raytheon Co., Inc., 913
F.2d 17 (1st Cir. 1990) re'hrg denied, cert. denied, 499 U.S. 921
(1991); United States ex rel. Fine v. Chevron, U.S.A., Inc., 72 F.3d
740 (9th Cir. 1995).
---------------------------------------------------------------------------
To achieve this goal, the bill includes section 3, which
clarifies when Government employees could serve as qui tam
relators. The section resolves the circuit split by providing
that Government employees can file qui tam suits in narrow
circumstances and only after following a specific procedure. If
the specific procedure is not followed, the Government has the
right to dismiss the relator from the case. For example, if the
person learned of the information that is the basis for their
FCA claim in the course of their employment for the Government,
the person must disclose such information to the agency's
designated Inspector General or to the Attorney General
directly if there is not an Inspector General. Further, that
individual must also notify their supervisor of the disclosures
as well as to the Attorney General (if they had previously
reported to the inspector general). Only if the Attorney
General fails to bring a claim based on the disclosed
information within 18 months, is the employee then free to
bring the claim as a qui tam relator.
This section also includes new language that bars any
Government employee from being a qui tam relator if they derive
information for their FCA claim from an indictment or
information, or any ongoing active criminal, civil, or
administrative investigation. Government employees are also
barred if they work as investigators, auditors, or attorneys
who have a duty to investigate fraud and they learn about the
alleged fraud from an ongoing investigation or audit. These are
restrictions that were discussed by the Tenth Circuit in then-
Chief Judge Tacha's dissenting opinion in United States ex rel.
Holmes v. Consumer Ins. Group. The Committee believes these
restrictions strike the proper balance between providing
protections so that Government employees simply do not hide
fraud in order to file a qui tam action, while ensuring that
good faith claims brought by Government employees can remain a
check on Government bureaucrats who may be disinterested in
chasing allegations of fraud against taxpayer dollars.
Section 4. Barred actions
A. Waiver of claims
Section 4(a) of the bill adds language to the FCA that is
designed to protect individuals from unknowingly waiving their
right to file qui tam actions on behalf of the Government. This
provision was included because of the growing number of
employees who unwittingly waive the right of either the United
States, or that individual, to file FCA cases.\78\ These cases
have created a situation where employers may use separation
agreements as a method of preventing the Government's right to
recover monies lost to fraud, waste, or abuse.
---------------------------------------------------------------------------
\78\ See, e.g., United States ex rel. Green v. Northrop Corp., 59
F.3d 953 (9th Cir. 1995); United States. ex rel. Gebert v. Transport
Admin. Servs., 260 F.3d 909 (8th Cir. 2001).
---------------------------------------------------------------------------
This section clarifies that no person who brings an action
under the FCA may waive or release a claim unless it is part of
a court-approved settlement of a false claim civil action.
However, because the Department of Justice was concerned that
the original language could be construed to require court
approval of a non-qui tam settlement negotiated by the
Department, the Committee included the requested modifications
the Department sought in the second substitute bill adopted
during the mark-up. These changes added the following language:
``Nothing in this paragraph shall be construed to limit the
ability of the United States to decline to pursue any claim
brought under this subsection, or to require court approval of
a settlement by the Government with a defendant, unless the
person bringing the act objects to the settlement.'' This
language is consistent with the intent of the sponsors not to
restrict the Department of Justice in settling non-qui tam FCA
cases, while protecting qui tam relators from accidently
waiving valid claims for themselves, or the Government.
B. Basis for government dismissal
Section 4(b) of the bill amends the provisions that were
commonly referred to as the ``public disclosure bar'' which is
contained in section 3730(e)(4) of the FCA. These amendments
were required because of excessive litigation over perceived
ambiguities in the statute following the 1986 Amendments. As a
result, many meritorious cases brought by qui tam relators have
been dismissed because of the misuse of the public disclosure
bar and other related erroneous interpretations of the 1986
Amendments. The Committee believes that many of these court
interpretations dismissing qui tam actions have created a
situation where the prevailing case law in many jurisdictions
is inconsistent with the original intent of the public
disclosure bar.
The 1986 Amendments added the public disclosure bar to
ensure the dismissal of truly parasitic cases filed where a qui
tam relator brought no new information to the Government. It
also sought to dismiss parasitic claims based solely upon
public information. The one statutory exception to this public
disclosure bar was for qui tam relators that were an ``original
source'' of the public information. An original source was
statutorily defined as an individual with direct and
independent knowledge of the information and brought the
information to the Government before filing suit. In creating
both the public disclosure bar and the original source
exception, the Committee explained that this provision was
intended to only bar truly ``parasitic'' lawsuits, such as
those brought by individuals who did nothing more than copy a
criminal indictment filed by the Government.\79\
---------------------------------------------------------------------------
\79\ See S. Rep. No. 99-345 supra note 1, at 5275-5278.
---------------------------------------------------------------------------
Section 4(b) replaces the ``public disclosure''
jurisdictional bar with a new section that provides the
Government with the sole authority to move to dismiss parasitic
qui tam cases that are brought based upon information that is
known to the Government and has led to or was based upon part
of an ``open and active criminal, civil, or administrative
investigation or audit.'' This new dismissal for barred actions
will apply only when the Government has already initiated an
investigation into the same matter based on information
received from an independent source. The Committee does not
intend to bar suits solely because the Government already knew
of the fraud or could have learned of the fraud from
information in the public domain. This balance was designed to
bar parasitic cases while encouraging relators to come forward
with information that would assist the Government in recovering
money or property lost to fraud, waste, or abuse.
Despite the Committee's belief that the public disclosure
bar and original source statutory provisions were clear when
passed in 1986, many courts have interpreted these provisions
to create ambiguities and have issued opinions contrary to the
intent outlined in the 1986 Committee report. The result of
these interpretations has been significant litigation, delays
in settling FCA cases with clear violations of law, and,
regrettably, the dismissal and presumptive barring of
meritorious claims brought by qui tam relators. These decisions
have created a chilling effect on relators coming forward with
claims because certain types of cases cannot survive dismissal.
Some examples--but by no means an exclusive list--of these
decisions that run contrary to the intent of the Committee are:
Using the public disclosure bar to deny an award
to a qui tam relator despite the objections of the United
States.\80\
---------------------------------------------------------------------------
\80\ See Rockwell Int'l Corp. v. United States, supra note 4.
---------------------------------------------------------------------------
Finding the public disclosure bar applies to bar
cases that are ``similar to'' rather than the statutorily
required standard of ``derived from'' information in the public
domain, unless the relator has firsthand knowledge of the
fraud--thus finding that any information about the matter that
was available in the public domain, even if it was not readily
accessible, is sufficient to prompt a Government investigation
and bar the qui tam action.\81\
---------------------------------------------------------------------------
\81\ See United States ex rel. Doe v. John Doe Corp, 960 F.2d 318
(2d Cir. 1992) (holding that investigators questioning employees during
execution of a search warrant was sufficient to make information about
the fraud ``public'' and barring the qui tam action); United States ex
rel. Mistick PBT v. Housing Auth. of City of Pittsburgh, 186 F.3d 376
(3d Cir. 1999) (holding release of information under Freedom of
Information Act (FOIA) by Government agency was a public disclosure in
an administrative report triggering jurisdictional bar).
---------------------------------------------------------------------------
Finding production of documents or information
during the discovery phase of trial is a ``public disclosure''
even if documents are not put into the public record of the
judicial proceeding.\82\
---------------------------------------------------------------------------
\82\ See, e.g., United States ex rel. Paranich v. Sorngard, 396
F.3d 326 (3d Cir. 2005) (holding that disclosures made in an unrelated
state lawsuit constitute public disclosures); United States ex rel.
Stinson, Lyons, Gerlin & Bustamante, P.A. v. Prudential Ins. Co., 944
F.2d 1149, 1158 (3d Cir. 1991) (determining that absent a protective
order information disclosed in court ordered discovery is ``potentially
accessible'' to the public and therefore qualifies as a public
disclosure).
---------------------------------------------------------------------------
Four Courts of Appeals have ruled that responses
to FOIA requests are public disclosures and deprives
jurisdiction even if the relator relies exclusively on
knowledge gained as an insider to establish the requisite
elements of liability.\83\
---------------------------------------------------------------------------
\83\ See, e.g., United States ex rel. Grynberg v. Praxair, Inc.,
389 F.3d 1038 (10th Cir. 2004), cert. denied, 545 U.S. 1129 (2005);
United States ex rel. Reagan v. E. Tex. Med. Ctr. Reg'l Healthcare
Sys., 384 F.3d 168, 175-176 (5th Cir. 2004); United States ex rel.
Mistick PBT v. Housing Auth. of City of Pittsburgh, 186 F.3d at 383,
cert. denied, 529 U.S. 1018 (2000).
---------------------------------------------------------------------------
Interpreting the public disclosure bar to mean
that disclosure in a Government report includes disclosures
even in a State or local government report, which were not
required to be given to the Federal Government and might never
have come to the Government's attention.\84\
---------------------------------------------------------------------------
\84\ See, e.g., United States ex rel. Maxwell v. Kerr McGee Oil &
Gas Corp., 486 F.Supp.2d 1217 (D. Colo. 2007); United States ex rel.,
Bly-Magee v. Premo, 470 F.3d 914 (9th Cir. 2006), cert. denied, 128
S.Ct.1119 (2008) (holding that an administrative report, audit or
investigation prepared by a state entity qualifies as a
``congressional, administrative, or Government Accounting Office
report, hearing, audit, or investigation'' for purposes of the public
disclosure bar).
---------------------------------------------------------------------------
Courts have concluded that a public disclosure
occurs even when the information is not disclosed to the public
at large.\85\
---------------------------------------------------------------------------
\85\ See, e.g., United States ex rel. Fowler v. Caremark RX, LLC,
496 F.3d 730 (7th Cir. 2007) (holding that disclosure to U.S. Attorney
was a public disclosure for purposes of Section 3730(e)(4)(A)).
---------------------------------------------------------------------------
Courts have concluded that when the Government
enlists the qui tam relators help reviewing documents obtained
from the defendant; either the act of the defendant producing
the documents or the act of the Government showing the
documents to the relator constitutes a public disclosure.\86\
---------------------------------------------------------------------------
\86\ Id. See also United States ex rel. Montgomery v. St. Edwards
Mercy Medical Center, et al., 2007 U.S. Dist. LEXIS 73376 (E.D. Ark.
2007) (holding reviewed by relators along with Government agents and
Attorney's after the filing of the initial complaint, but prior to the
filing of an amended complaint, constitute public disclosures barring
the action).
---------------------------------------------------------------------------
Courts have held that the public disclosure of an
industry-wide fraud constitutes a public disclosure with
respect to a particular defendant even though that defendant
had not been identified and the Government would not be aware
of the particular fraud by that entity.\87\
---------------------------------------------------------------------------
\87\ See United States ex rel. Gear v. Emergency Medical Assoc's of
Illinois, Inc., 436 F.3d 726 (7th Cir. 2006); see also 145 Cong. Rec.
E1546 (July 14, 1999) (remarks of Rep. Berman and letter to Attorney
General Reno) (critiquing the notion that report of industry-wide
practice sufficiently informs Government of fraud against a particular
defendant).
---------------------------------------------------------------------------
While these are examples of the problem with the overuse
and overexpansion of the public disclosure bar, it is by no
means an exclusive list. The Committee believes providing
examples of these cases is helpful in explaining the need for
legislating, but the Committee also wants to make clear that
courts should not use this as a exhaustive list of problematic
cases. All cases that have expanded the public disclosure bar
and narrowed the original source doctrine threaten to limit the
FCA more than the Committee ever intended in passing the 1986
Amendments.
The erroneous court interpretations of the public
disclosure bar are particularly problematic for the FCA because
once a court finds that a case is based upon a public
disclosure, the qui tam relator then has an uphill battle to
prove he/she was the original source of that information.
Because courts have also narrowly construed the terms
``direct'' and ``independent'' under the original source
exception to bar actions in which any aspect of the relator's
information was derivative or second-hand, real meritorious
cases have been dismissed where the Government would have never
been brought but for the qui tam action pointing the Government
to the fraud. For instance, courts have dismissed cases where a
relator has hired an investigator to corroborate information or
has obtained Government documents to confirm that false claims
were submitted.\88\
---------------------------------------------------------------------------
\88\ See United States ex rel. Grynberg v. Praxair, Inc., 380 F.3d
1038 (10th Cir. 2004), cert. denied, 545 U.S. 1139 (2005).
---------------------------------------------------------------------------
Many of these cases arose as a result of a motion by
defendants because of the jurisdictional nature of public
disclosure bar. However, the best source for determining
whether a relator has provided meaningful, new information to
the Government is the Government itself. Only the Government
has an interest in ensuring that its resources are not
squandered on litigation that does no more than duplicate a
fraud matter already under investigation. In fact, the
incentive is strongest with the Government to ensure that
monies recovered based upon an internal Government
investigation are not split or shared with qui tam relators who
file truly parasitic suits. This is especially true when the
law allows the Government to proceed against the defendant for
the same damages even after a relator is dismissed.\89\ Despite
this, defendants continue to raise this jurisdictional defense
in virtually all FCA cases, while searching in court filings
across the country hoping to find that one piece of information
the Government would never have found that may deny the court
jurisdiction. In fact, in one case a court declared the
Government could not intervene to collect a judgment despite
the fact that a jury had awarded the judgment, all because the
defendant successfully argued that the relator should be
dismissed on public disclosure grounds.\90\
---------------------------------------------------------------------------
\89\ See United States ex rel. Stone v. Rockwell Int'l Corp., 127
S. Ct. 1397, 1411 (2007).
\90\ See United States ex rel. Maxwell v. Kerr-McGee Oil & Gas
Corp., 486 F.Supp.2d 1233 (D. Colo. 2007).
---------------------------------------------------------------------------
The amendments in section 4(b) of the bill are designed to
stop this abuse of the public disclosure bar from occurring.
The provision converts the public disclosure bar from a
jurisdictional bar that may be invoked by either the defendant
or the Government, to a basis for a motion to dismiss that may
only be filed by the Government. The provision also clarifies
that a FCA action may be dismissed only if the action is truly
parasitic. Thus, the provision provides for a motion to dismiss
only when the Government learned of the matter from another
source prior to the qui tam filing, and then either filed a
criminal indictment or information, or launched an active fraud
investigation or audit either prior to the filing, or, if the
source was a media or congressional publication, with 90 days
of the publication. Importantly, the media report or
congressional matter must be the reason the Government opened
its investigation or audit. If the court's examination of the
relevant circumstances indicates that the Government actually
opened its investigation or audit as a response to the qui tam
filing, the qui tam case is not barred.
This new provision is designed to balance and further two
important public policies. First, it encourages relators to
come forward with information that will contribute in a
meaningful way to the United States ability to exercise its
remedies under section 3729. Second, it prevents relators from
pursuing cases that do no more than add to the administrative
workload of law enforcement and the judiciary. Accordingly,
while this provision should operate to bar cases that do no
more than replicate information that the Government already
obtained from independent sources in a still active
investigation, it should not discourage or bar qui tam cases
with important information that provides a new basis for
recovery.
To carry out these policies, amended section 3730(e)(4)
applies when the prior Government criminal indictment or
information, investigation, or audit, or the prior disclosure
in the media or in a congressional publication, is focused on
``the same wrongdoer'' and ``substantially the same matters.''
This means that the prior Government criminal indictment or
information, investigation or audit, or the prior disclosure in
the media or in a congressional publication, must concern the
same transactions, claims or communications as those at issue
in the qui tam complaint and must involve alleged violations of
the FCA or other law imposing liability or penalties for
knowing false claims or fraud.
For example, under Section 3730(e)(4), an investigation or
audit into specific information about misconduct leading to
false claims in one time period or at one company location does
not provide a basis to dismiss a qui tam with specific
information about the same type of conduct leading to false
claims in a different time period or a separate company
location. Likewise, an investigation or audit into particular
kickback transactions does not bar a qui tam alleging different
kickback transactions. Further, an investigation or audit into
alleged fraud in one contract does not bar a qui tam case
alleging fraud in a separate contract.
To help guard against the Government misusing the provision
to dismiss cases for political or other inappropriate reasons,
the amendment requires that the Government's investigation or
audit be open and active. The Committee anticipates that courts
will question and look critically at the Government's
representations that it is conducting an ``open'' and
``active'' investigation and audit of the matter. Courts should
ask for factual support for the Government's representation. In
some cases, courts may see merit in permitting such information
to be submitted under seal or pursuant to a protective order to
ensure that the Government investigation is not compromised.
The new provision acknowledges that even when the
Government is already looking into the same transactions,
claims or communications as possible violations of the FCA or
other false claims or fraud law, there will be instances in
which a qui tam plaintiff's information or evidence brings new
additional value to the case and that they should not be barred
because of the similar claims. The goal of this is to promote
and expedite the recovery for fraud and relators that add value
to any case are encouraged to come forward. Thus, the provision
states that a qui tam case shall not be dismissed when ``new
information'' provided by the person adds ``substantial grounds
for additional recovery.'' The application of this exception
should be fact-specific.
Finally, there is no basis for dismissal under new section
3730(e)(4) when the person filing the qui tam action brought
information to the Government prior to the Government
initiating its investigation or audit, or, in the case of a
Government investigation or audit prompted by a media or
congressional publication, prior to the publication in
question. This exception applies regardless of whether the
person's information prompted the Government's investigation or
audit. The qui tam relator has no control over the diligence or
competency of the particular Government official to whom they
disclose information and should not be penalized if that
official fails to follow up on the matter as required by their
job duties. On the other hand, the clause ``brought by the
person to the Government'' assumes that the person properly
brought the information to the Government by making a full and
comprehensible disclosure of the material facts to an office
within the Government charged with responsibility for
investigating fraud or false claims. This provision is designed
to ensure that qui tam relators are not mere opportunists who
file incomprehensible documents with the Government in the
hopes of evading the disclosure responsibility and trying to
obtain a windfall profit. The courts should view such actions
as parasitic and take all appropriate steps to prevent this
from occurring.
Section 5. Relief from retaliatory actions
The 1986 Amendments included Section 3730(h) which provides
a cause of action for individuals who faced retaliation in
response to bringing forth FCA claims of fraud against the
Government.\91\ Congress included this provision in the 1986
Amendments because, as the Committee noted, it recognized
``that few individuals will expose fraud if they fear their
disclosures will lead to harassment, demotion, loss of
employment, or any other form of retaliation.'' \92\ While this
provision was designed to protect employees from employer
retaliation, over the past 20 years courts have limited this
protection through various decisions narrowly interpreting the
definition of ``employee'' and thus leaving contractors and
subcontractors open to retaliation.
---------------------------------------------------------------------------
\91\ S. Rep. No. 99-345 supra note 1, at 5299.
\92\ Id.
---------------------------------------------------------------------------
For example, the Third and Fourth Circuits have held that
an independent contractor is not protected under section
3730(h).\93\ To correct this loophole, section 5 clarifies
section 3730(h) by simply including the terms ``government
contractor, or agent'' in addition to the term ``employee.''
The Committee believes that it is necessary to include these
additional terms to assist individuals who are not technically
employees within the typical employer-employee relationship,
but nonetheless have a contractual or agent relationship with
an employer. The Committee believes this is a vitally important
clarification that respects the spirit and intent of the 1986
Amendments while offering whistleblower protections to
contractors and agents who may come across fraud against the
Government and report it under the FCA.
---------------------------------------------------------------------------
\93\ See United States ex rel. Watson v. Connecticut Gen. Life
Ins., 2004 U.S. App. LEXIS 1736 (3d Cir. 2004); Vessell v. DPS Assocs.
of Charleston, Inc., 148 F.3d 407 (4th Cir. 1998).
---------------------------------------------------------------------------
Section 6. Statute of limitations
A. Statute of limitations period
The FCA currently contains a statute of limitation
provision in section 3731(b)(1) and 3731(b)(2). These
provisions provide that a FCA action may not be brought more
than six years after the date on which the violation is
committed,\94\ or not more than three years after the date when
facts material to the right of action are known or reasonably
should have been known by the official of the United States
charged with responsibility to act in the circumstances.\95\
That current statute of limitations also includes a 10-year
statute of repose that prohibits the filing of a FCA action,
``more than 10 years after the date on which the violation was
committed.'' \96\ This provision has been the subject of
significant litigation over the years and varying
interpretations of the statute of limitations have created
significant questions as to the true applicability of the
statute of limitations to certain provisions of the FCA.
---------------------------------------------------------------------------
\94\ 31 U.S.C. Sec. 3731(b)(1)(2000).
\95\ 31 U.S.C. Sec. 3731(b)(2)(2000).
\96\ Id.
---------------------------------------------------------------------------
Federal courts have taken two different approaches to
determining the application of the statute of limitations.\97\
One line of cases has taken the position that section
3731(b)(2), which contains the tolling provision, only applies
to cases the Government initiates, imposing a shorter statute
of limitations on cases that originate as qui tam actions.\98\
Other cases have stated that the section 3731(b)(2) applies to
suits brought solely by a qui tam relator, but that a relator
is also subject to the tolling provision same as the Government
and must file within three years of when they learn of the
fraud.\99\ The Supreme Court has also interpreted the statute
of limitations provisions contrary to the spirit and intent of
the 1986 Amendments.
---------------------------------------------------------------------------
\97\ See U.S. ex rel. El Amin v. George Washington Univ., 26
F.Supp.2d 162, 171 (D.D.C. 1998).
\98\ See, e.g., Id.; United States ex rel. Thistlewaite v. Dowty
Woodville Polymer, Ltd, 6 F.Supp.2d 263 (S.D.N.Y 1998) (holding three
year tolling provision only applies to the government); United States
ex rel. Sikkenga v. Regence BlueCross BlueShield of Utah, 2006 WL
3491784 (10th Cir. 2006) (holding 3731(b)(2) inapplicable to private
qui tam relators).
\99\ See United States ex rel. Hyatt v. Northrop, 91 F.3d 1211 (9th
Cir. 1996); cf. United States ex rel. Pogue, 474 F.Supp.2d 75 (D.D.C.
2007) (holding that in a qui tam case where the Government declined to
intervene, the three year tolling provision runs from the date the
Government official learned of the alleged violation, not the qui tam
relator).
---------------------------------------------------------------------------
In 2005, the Supreme Court held that the FCA statute of
limitations which applies to ``a civil action under section
3730'' \100\ is not available to individuals who file a claim
alleging retaliation in violation of section 3730(h).\101\ The
Supreme Court held that instead of utilizing the six year
statute of limitations proscribed in section 3731(b)(1) or even
the three-year tolling provision in 3730(b)(2), the plaintiff
must follow the most applicable State law statute of
limitations of a similar anti-retaliation statute. These
similar State law statutes for unlawful termination or
retaliation are usually shorter than the FCA statute of
limitations and vary from 90 days, to six months, or up to one
year after the alleged retaliation occurs.\102\ This decision
effectively renders the statute of limitations provision in
section 3731 inapplicable to claims filed under 3730(h) and
potentially incorporates 50 different State statute of
limitations provisions for Federal courts to consider. Further,
without clear guidance, Federal courts could mix and match
different statutes of limitations from different analogous
State law statutes on a case-by-case basis lending confusion to
individuals seeking relief from retaliatory actions. The
Committee believes that Congress did not intend to create such
uncertainty when it included this provision in 1986, and that
such uncertainty also frustrates the goal the Committee had in
seeking to protect individuals from ``harassment, demotion,
loss of employment or any other retaliation'' \103\ for coming
forward with claims of fraud and abuse of Government programs.
---------------------------------------------------------------------------
\100\ 31 U.S.C. Sec. 3731(b)(2000).
\101\ See Graham County Soil & Water Conservation Dist. v. United
States ex rel. Wilson, 545 U.S. 409 (2005).
\102\ See Graham County, 545 U.S. at 419, n3, citing Conn. Gen.
Stat 31-51m (2005) (90 days); Fla. Stat.112.3187(8)(a), 448.103 (2003)
(180 days); Mich. Comp. Laws Ann. 15.363(1) (West 2004) (90 days);
N.Y.C.P.L.R. 215(4) (West 2003) (one year); Ohio Rev. Code Ann.
4113.52(D) (Lexis 2001) (six months); and Tex. Gov't. Code Ann. 554.005
(West 2004) (90 days).
\103\ S. Rep. No. 99-345, supra note 1, at 5299.
---------------------------------------------------------------------------
In seeking to correct these interpretations that are
inconsistent with the intent of the 1986 Amendments, the bill
clarifies the statute of limitations in section 3731(b).
Section 6 of the bill addresses all of the aforementioned
problems by adopting a simple and straightforward 10-year
statute of limitations that begins when the violation occurs
for claims brought under section 3729 or 3730, brought by
either the United States or a qui tam relator on behalf of the
United States, and it exclusively applies the provision to
retaliation claims filed under section 3730(h), rejecting the
State law application favored by the Supreme Court in Graham
County.\104\
---------------------------------------------------------------------------
\104\ See Graham County, 545 U.S. at 409.
---------------------------------------------------------------------------
B. Relation back doctrine
The FCA is silent on the question of whether the United
States may amend a qui tam plaintiff's complaint or file its
own complaint upon intervention in a qui tam case subject to
the same rules that allow ``relation back'' of amended
complaints as if it were the Government's own complaint.
Federal Rule of Civil Procedure 15(c)(2) provides that a
party's amendment of a pleading will relate back to the date of
its original pleading when the claim, ``asserted in the amended
pleading arose out of the conduct, transaction, or occurrence
set forth or attempted to be set forth in the original
pleading.'' \105\ The Second Circuit recently ruled that the
United States cannot use Rule 15(c)(2) when amending a qui tam
plaintiff's complaint.\106\ The implication of this decision is
that the United States will be forced to forego a complete and
thorough investigation of the merits of a qui tam relators'
allegations in order to expedite a filing so as not to have an
action foreclosed upon due to the statute of limitations.
---------------------------------------------------------------------------
\105\ Fed. R. Civ. Pro. 15(c)(2).
\106\ United States v. Baylor Univ. Med. Ctr., 469 F.3d 263 (2d
Cir. 2006).
---------------------------------------------------------------------------
Section 6 of the bill clarifies that the Government's
complaint in intervention or amended complaint will relate back
to the date of the original qui tam complaint so long as the
conditions of Federal Rule of Civil Procedure 15(c)(2) are met.
Section 7. Civil investigative demands
Currently, the FCA allows the Attorney General to issue
CIDs for ``any documentary material or information relevant to
a false claims law investigation.'' The CID is authorized when
the Attorney General ``has reason to believe that any person
may be in possession, custody or control'' of the documents in
question. The Attorney General may issue a CID before
commencing a civil proceeding under the FCA. There are problems
with the CID provision as written that prohibit its effective
use by the Department of Justice in prosecuting FCA cases.
The CID is seldom-used because of two strict
interpretations by the Department of Justice of the CID
statute. First, the statute currently reads that only the
Attorney General may issue a CID, which has been interpreted to
mean that the Attorney General, Deputy Attorney General, or
Assistant Attorney General must personally sign off on the CID
order and that they cannot delegate that authority. This
procedure is cumbersome and limiting for Government attorneys
and as a result, CIDs are infrequently used. Second, the
Department of Justice has interpreted the CID statute to
prohibit discussions of information obtained from CIDs with qui
tam relators. This lack of ability to share information makes
FCA investigations more difficult and requires the utilization
of court orders.
This section of the bill resolves both issues, first by
inserting the phrase ``or designee'' after Attorney General to
clarify that the Attorney General may delegate his or her
authority to issue a CID. Second, this section states
explicitly that any information obtained by the Attorney
General under a CID may be shared with qui tam relators if the
Attorney General determines that doing so is a necessary part
of the investigation. Further, this section incorporates a new
definition of ``official use'' to allow the Department to share
information with Federal, State, and local government agencies
in furtherance of a Department of Justice investigation or
prosecution. This will allow the Department to properly
investigate FCA cases by coordinating with relators and
investigative entities.
Section 8. Severability
At the request of the Department of Justice, and out of an
abundance of caution, the Committee included a severability
clause that would ensure the integrity of the bill in the event
any provision is found to invalid by severing any invalid piece
from the rest of the Act. This amendment is consistent with the
intent of the Committee to provide narrowly tailored
clarifications to the FCA and ensures the integrity of the FCA
will remain even in the event of one section being held
invalid.
Section 9. Effective date and application
The original draft of S. 2041 was silent on the question of
what the effective date and application of the amendments would
be. However, the Department of Justice views letter pointed out
that after the 1986 Amendments, the Department spent
``substantial time and resources litigating the effective
date'' of the amendments.\107\ The Committee recognized the
concerns and incorporated a provision applying the amendments
contained in S. 2041 to ``all cases pending on the date of
enactment, and to all cases filed thereafter.'' \108\
---------------------------------------------------------------------------
\107\ DOJ Views Letter I supra note 96, at 16. See also Hughes
Aircraft Co. v. United States ex rel. Schumer, 520 U.S. 939 (1997).
\108\ See DOJ Views Letter supra note 96, at 16.
---------------------------------------------------------------------------
The Department of Justice filed a second views letter April
2, 2008, discussing additional views on the proposed substitute
amendment circulated prior to mark-up. In the second views
letter, the Department stated that it ``was not clear whether
the effective date should apply to all parts of the bill or
only to its procedural provisions.'' \109\ As such, the
Department revised its position on the effective date and
application and supported a tiered system for application of
the amendments.
---------------------------------------------------------------------------
\109\ United States Dept. of Justice, Comments on Manager's
Substitute Amendment to S. 2041 at 8 (April 2, 2008).
---------------------------------------------------------------------------
The sponsors of the legislation agreed with the
recommendation from the Department of Justice and incorporated
a three-tiered effective date and application in the substitute
amendment adopted by the Committee. First, section 9 of the
bill provides that the substantive liability provisions amended
in section 3729 take effect upon the date of enactment and
``shall apply to conduct occurring after that date of
enactment.'' Second, the bill states that amendments to section
3731(b)(1)--the statute of limitations provisions--apply upon
date of enactment and shall apply to civil actions filed after
the date of enactment and not revive claims that are time-
barred as of the date of enactment. Finally, section 9 of the
bill states that all remaining provisions take effect on the
date of enactment and apply to all civil actions before, on, or
after that date.
IV. Congressional Budget Office Cost Estimate
The Committee sets forth, with respect to the bill, S.
2041, the following estimate and comparison prepared by the
Director of the Congressional Budget Office under section 402
of the Congressional Budget Act of 1974:
April 21, 2008.
Hon. Patrick J. Leahy,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 2041, the False
Claims Act Correction Act of 2008.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Leigh Angres.
Sincerely,
Peter R. Orszag.
Enclosure.
S. 2041--False Claims Act Correction Act of 2008
S. 2041 would amend certain provisions of the False Claims
Act (FCA), which allows a private individual with knowledge of
past or present fraud committed against the government to file
qui tam claims against federal contractors. In qui tam claims,
such individuals (known as relators or whistleblowers) receive
a share of any recovered claims against the government. CBO
estimates that S. 2041 would have no significant effect on the
federal budget. S. 2041 contains no intergovernmental or
private-sector mandates as defined in the Unfunded Mandates
Reform Act and would not affect the budgets of state, local, or
tribal governments.
In most cases, the amendments that would be made by the
bill would take effect on the date of enactment and apply to
all civil actions filed before, on, or after such date.
Specifically, the legislation would:
Stipulate that individuals who present false
claims to contractors, grantees, and others can be held
liable under the FCA (under current law, that liability
exists only for false claims presented to government
employees);
Permit qui tam suits by government
employees, while allowing the government, under certain
circumstances, to dismiss actions brought by a qui tam
relator who is, or is related to, a federal employee;
Bar waivers or releases of claims except as
part of a court-approved settlement;
Authorize a court, upon a motion by the
Attorney General, to dismiss an action if, when it was
filed, the same matters were disclosed in federal
hearings or reports from the news media;
Expand the court's authority to reduce the
relator's share of proceeds under certain
circumstances;
Place a 10-year statute of limitations on
the filing of civil actions against individuals who
submit a false or fraudulent claim for payment; and
Permit the Attorney General to delegate
authority to other officials of the Department of
Justice (DOJ) to issue a civil investigative demand
against an individual possessing information relevant
to a false claims investigation.
According to information from DOJ, each year its attorneys
handle several hundred qui tam cases under the False Claims
Act. In the past two years, the government has recovered more
than $5 billion from settlements and judgements in such cases.
Because the proposed amendments would not appreciably change
the workload of DOJ attorneys nor the monetary recoveries in
such cases, CBO estimates that S. 2041 would have no
significant impact on the federal budget.
The CBO staff contact for this estimate is Leigh Angres.
This estimate was approved by Theresa Gullo, Deputy Assistant
Director for Budget Analysis.
V. Regulatory Impact Evaluation
In compliance with rule XXVI of the Standing Rules of the
Senate, the Committee finds that no significant regulatory
impact will result from the enactment of S. 2041.
VI. Conclusion
The False Claims Act Correction Act of 2008, S. 2041, will
bring much needed clarity to the FCA and will enhance the
efforts of the Federal Government in recovering monies lost to
fraud, waste, and abuse of Government programs. It will
streamline FCA litigation by clarifying the law and will reduce
unnecessary and costly litigation. It will expedite settlements
and will reward and protect qui tam relators for coming forward
to alert the Government to fraud. Finally, the legislation will
bring the FCA back into alignment with the 1986 Amendments and
the expressed intent of Congress that has been overlooked and
misinterpreted by some Federal courts.
VII. Changes to Existing Law Made by the Bill, as Reported
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
S. 2041, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
UNITED STATES CODE
TITLE 31--MONEY AND FINANCE
* * * * * * *
Subtitle III--Financial Management
* * * * * * *
CHAPTER 37--CLAIMS
* * * * * * *
Subchapter III--Claims Against the United States Government
* * * * * * *
Sec. 3729. False claims
(a) Liability for Certain Acts.--[Any person who--]
(1) In general.--Subject to paragraph (2), any person
who--
[(1)](A) knowingly presents, or causes to be
presented, [to an officer or employee of the
United States Government or member of the Armed
Forces of the United States] a false or
fraudulent claim for payment or approval;
[(2)](B) knowingly makes, uses, or causes to
be made or used, a false record or statement to
get a false or fraudulent claim paid or
approved [by the Government];
[(3)](C) conspires to commit a violation of
subparagraph (A), (B), (D), (E), (F), or (G) or
otherwise to defraud the Government by getting
a false or fraudulent claim paid or
approved[allowed or paid];
[(4)](D) has possession, custody, or control
of property or money used, or to be used, by
the Government and knowingly delivers, or
causes to be delivered, less than all of that
money or property;[, intending to defraud the
Government or willfully to conceal the
property, delivers, or cause to be delivered,
less property than the amount for which the
person receives a certificate or receipt;]
[(5)](E) is 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;
[(6)](F) 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; or
[(7)](G) 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 knowingly conceals, avoids, or
decreases an obligation to pay or transmit
money or property to the Government,
is liable to the United States Government for a civil
penalty of not less than $5,000 and not more than
$10,000, as adjusted by the Federal Civil Penalties
Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note;
Public Law 104-410), plus 3 times the amount of
[damages which the Government sustains] money or
property paid or approved because of the act of that
person [, except that if the court finds that--].
(2) Reduced damages.--If the court finds that--
(A) the person committing the violation of
this subsection furnished officials of the
United States responsible for investigating
false claims violations with all information
known to such person about the violation within
30 days after the date on which the defendant
first obtained the information;
(B) such person fully cooperated with any
Government investigation of such violation; and
(C) at the time such person furnished the
United States with the information about the
violation, no criminal prosecution, civil
action, or administrative action had commenced
under this title with respect to such
violation, and the person did not have actual
knowledge of the existence of an investigation
into such violation[,];
The court may assess not less than 2 times the amount
of [damages which the Government sustains] money or
property paid or approved because of the act of that
person. [A person violating this subsection shall also
be liable to the United States Government for the costs
of a civil action brought to recover any such penalty
or damages.]
(b) [Knowing and Knowingly Defined.--] Definitions.--For
the purposes of this section--
(1) the terms ``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[.];
[(c) Claim Defined.--For purposes of this section,
``claim'' includes] (2) the term ``claim''--
(A) means any request or demand, whether
under a contract or otherwise, for money or
property, [which] that--
(i) is presented to an officer,
employee, or agent of the United
States; or
(ii) is made to a contractor,
grantee, or other recipient if the
United States Government--
(I) provides or has provided
any portion of the money or
property [which is] requested
or demanded[,]; or
(II) [if the Government] will
reimburse such contractor,
grantee, or
other recipient for any portion of the
money or property which is requested or
demanded[.]; and
(B) does not include requests or demands for
money or property that the Government has paid
to an individual as compensation for Federal
employment or as an income subsidy with no
restrictions on that individual's use of the
money or property; and
(3) the term ``obligation'' means a fixed duty, or a
contingent duty arising from an express or implied
contractual, quasi-contractual, grantor-grantee,
licensor-licensee, fee-based, or similar relationship,
including customs duties for mismarking country of
origin, and the retention of any overpayment;
[(d)](c) Exemption From Disclosure.--Any information
furnished pursuant to [subparagraphs (A) through (C) of
subsection (a)] subsection (a)(2) shall be exempt from
disclosure under section 552 of title 5.
[(e)](d) Exclusion.--This section does not apply to claims,
records, or statements made under the Internal Revenue Code of
1986.
Sec. 3730. Civil actions for false claims
(a) Responsibilities of the Attorney General.--The Attorney
General diligently shall investigate a violation under section
3729. If the Attorney General finds that a person has violated
or is violating section 3729, the Attorney General may bring a
civil action under this section against the person.
(b) Actions by Private Persons.--
(1) A person may bring a civil action for a violation
of section 3729 for the person and for the United
States Government. The action shall be brought in the
name of the Government. The action may be dismissed
only if the court and the Attorney General give written
consent to the dismissal and their reasons for
consenting. No claim for a violation of section 3729
may be waived or released by any action of any person
who brings an action under this subsection, except
insofar as such action is part of a court approved
settlement of a false claim civil action brought under
this section. Nothing in this paragraph shall be
construed to limit the ability of the United States to
decline to pursue any claim brought under this
subsection, or to require court approval of a
settlement by the Government with a defendant of an
action brought under subsection (a), or under this
subsection, unless the person bringing the action
objects to the settlement under subsection (c)(2)(B).
(2) A copy of the complaint and written disclosure of
substantially all material evidence and information the
person possesses shall be served on the Government
pursuant to [Rule 4(d)(4)] rule 4 of the Federal Rules
of Civil Procedure. The complaint shall be filed in
camera, shall remain under seal for at least 60 days,
and shall not be served on the defendant until the
court so orders. The Government may elect to intervene
and proceed with the action within 60 days after it
receives both the complaint and the material evidence
and information.
(3) The Government may, for good cause shown, move
the court for extensions of the time during which the
complaint remains under seal under paragraph (2). Any
such motions may be supported by affidavits or other
submissions in camera. The defendant shall not be
required to respond to any complaint filed under this
section until 20 days after the complaint is unsealed
and served upon the defendant pursuant to Rule 4 of the
Federal Rules of Civil Procedure.
(4) Before the expiration of the 60-day period or any
extensions obtained under paragraph (3), the Government
shall--
(A) proceed with the action, in which case
the action shall be conducted by the
Government; or
(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.
(5) When a person brings an action under this
subsection, no person other than the Government may
intervene or bring a related action based on the facts
underlying the pending action.
(6)(A) Not later than 120 days after the date of
service under paragraph (2), the Government may move to
dismiss from the action a qui tam relator that is an
employee of the Federal Government, or that is a family
member of an employee of the Federal Government, if--
(i) the necessary and specific material
allegations contained in such action were
derived from a filed criminal indictment or
information or an open and active criminal,
civil, or administrative investigation or audit
by the Government into substantially the same
fraud alleged in the action;
(ii) the duties of the employee's position
specifically include uncovering and reporting
the particular type of fraud that is alleged in
the action, and the employee, as part of the
duties of that employee's position, is
participating in or has knowledge of an open
and active criminal, civil, or administrative
investigation or audit by the Government of the
alleged fraud;
(iii) 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, and either--
(I) in a case in which the employing
agency has an inspector general, such
person, before bringing the action has
not--
(aa) disclosed in writing
substantially all material
evidence and information that
relates to the alleged
violation that the person
possessed to such inspector
general; and
(bb) notified in writing the
person's supervisor and the
Attorney General of the
disclosure under division (aa);
or
(II) in a case in which the employing
agency does not have an inspector
general, such person, before bringing
the action has not--
(aa) disclosed in writing
substantially all material
evidence and information that
relates to the alleged
violation that the person
possessed, to the Attorney
General; and
(bb) notified in writing the
person's supervisor of the
disclosure under division (aa);
or
(iv) 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, made the
required disclosures and notifications under
clause (iii), and--
(I) less than 18 months (and any
period of extension as provided for
under subparagraph (B)) have elapsed
since the disclosures of information
and notification under clause (iii)
were made; or
(II) within 18 months (and any period
of extension as provided for under
subparagraph (B)) after the disclosures
of information and notification under
clause (iii) were made, the Attorney
General has filed an action based on
such information.
(B) Prior to the expiration of the 18-month period
described under subparagraph (A)(iv)(II) and upon
notice to the person who has disclosed information and
provided notice under subparagraph (A)(iii), the
Attorney General may extend such 18-month period by 1
additional 12-month period.
(C) For purposes of subparagraph (A), 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.
(D) A motion to dismiss under this paragraph shall
set forth documentation of the allegations, evidence,
and information in support of the motion.
(E) Any person against who the Government has filed a
motion to dismiss under subparagraph (A) 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 evidentiary material filed in
support or opposition of such motion shall 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.
(F) Upon granting a motion filed under subparagraph
(A), the court shall dismiss the qui tam relator from
the action.
(G) If the motion to dismiss under this paragraph is
granted, the matter shall remain under seal.
(H) Not later than 12 months after the date of the
enactment of this paragraph, and every 12 months
thereafter, the Department of Justice shall submit a
report to the Committee on the Judiciary of the Senate
and the Committee on the Judiciary of the House of
Representatives relating to--
(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 false claims civil
actions in which such motions are filed.
(I) Nothing in this paragraph shall be construed to
limit the authority of the Government to dismiss an
action or claim, or a person who brings an action or
claim, under this subsection for any reason other than
the grant of a motion filed under subparagraph (A).
(c) Rights of the Parties to Qui Tam Actions.--(1) If the
Government proceeds with the action, it shall have the primary
responsibility for prosecuting the action, and shall not be
bound by an act of the person bringing the action. Such person
shall have the right to continue as a party to the action,
subject to the limitations set forth in paragraph (2).
(2)(A) The Government may dismiss the action
notwithstanding the objections of the person initiating the
action if the person has been notified by the Government of the
filing of the motion and the court has provided the person with
an opportunity for a hearing on the motion.
(B) The Government may settle the action with the defendant
notwithstanding the objections of the person initiating the
action if the court determines, after a hearing, that the
proposed settlement is fair, adequate, and reasonable under all
the circumstances. Upon a showing of good cause, such hearing
may be held in camera.
(C) Upon a showing by the Government that unrestricted
participation during the course of the litigation by the person
initiating the action would interfere with or unduly delay the
Government's prosecution of the case, or would be repetitious,
irrelevant, or for purposes of harassment, the court may, in
its discretion, impose limitations on the person's
participation, such as--
(i) limiting the number of witnesses the person may
call;
(ii) limiting the length of the testimony of such
witnesses;
(iii) limiting the person's cross-examination of
witnesses; or
(iv) otherwise limiting the participation by the
person in the litigation.
(D) Upon a showing by the defendant that unrestricted
participation during the course of the litigation by the person
initiating the action would be for purposes of harassment or
would cause the defendant undue burden or unnecessary expense,
the court may limit the participation by the person in the
litigation.
(3) If the Government elects not to proceed with the
action, the person who initiated the action shall have the
right to conduct the action. If the Government so requests, it
shall be served with copies of all pleadings filed in the
action and shall be supplied with copies of all deposition
transcripts (at the Government's expense). When a person
proceeds with the action, the court, without limiting the
status and rights of the person initiating the action, may
nevertheless permit the Government to intervene at a later date
upon a showing of good cause.
(4) Whether or not the Government proceeds with the action,
upon a showing by the Government that certain actions of
discovery by the person initiating the action would interfere
with the Government's investigation or prosecution of a
criminal or civil matter arising out of the same facts, the
court may stay such discovery for a period of not more than 60
days. Such a showing shall be conducted in camera. The court
may extend the 60-day period upon a further showing in camera
that the Government has pursued the criminal or civil
investigation or proceeding with reasonable diligence and any
proposed discovery in the civil action will interfere with the
ongoing criminal or civil investigation or proceedings.
(5) Notwithstanding subsection (b), the Government may
elect to pursue its claim through any alternate remedy
available to the Government, including any administrative
proceeding to determine a civil money penalty. 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. Any finding of fact or conclusion
of law made in such other proceeding that has become final
shall be conclusive on all parties to an action under this
section. For purposes of the preceding sentence, a finding or
conclusion is final if it has been finally determined on appeal
to the appropriate court of the United States, if all time for
filing such an appeal with respect to the finding or conclusion
has expired, or if the finding or conclusion is not subject to
judicial review.
(d) Award to Qui Tam Plaintiff.--(1) If the Government
proceeds with an action brought by a person under subsection
(b), such person shall, subject to the second sentence of this
paragraph, receive at least 15 percent but not more than 25
percent of the proceeds of the action or settlement of the
claim, depending upon the extent to which the person
substantially contributed to the prosecution of the action. If
the person bringing the action is not dismissed under
subsection (e)(4) because the person provided new information
that adds substantial grounds for additional recovery beyond
those encompassed within the Government's existing indictment,
information, investigation, or audit, then such person shall be
entitled to receive a share only of proceeds of the action or
settlement that are attributable to the new basis for recovery
that is stated in the action brought by that person. [Where the
action is one which the court finds to be based primarily on
disclosures of specific information (other than information
provided by the person bringing the action) relating to
allegations or transactions 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, the court may award such
sums as it considers appropriate, but in no case more than 10
percent of the proceeds, taking into account the significance
of the information and the role of the person bringing the
action in advancing the case to litigation.] Any payment to a
person under the first or second sentence of this paragraph
shall be made from the proceeds. Any such person shall also
receive an amount for reasonable expenses which the court finds
to have been necessarily incurred, plus reasonable attorneys'
fees and costs. All such expenses, fees, and costs shall be
awarded against the defendant.
(2) If the Government does not proceed with an action under
this section, the person bringing the action or settling the
claim shall receive an amount which the court decides is
reasonable for collecting the civil penalty and damages. The
amount shall be not less than 25 percent and not more than 30
percent of the proceeds of the action or settlement and shall
be paid out of such proceeds. Such person shall also receive an
amount for reasonable expenses which the court finds to have
been necessarily incurred, plus reasonable attorneys' fees and
costs. All such expenses, fees, and costs shall be awarded
against the defendant.
(3)(A) Whether or not the Government proceeds with the
action, the court may, to the extent the court considers
appropriate, reduce the share of the proceeds of the action
which a 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), if the court finds
that person--[Whether or not the Government proceeds with the
action, if the court finds that the action was brought by a
person who planned and initiated the violation of section 3729
upon which the action was brought, then the court may, to the
extent the court considers appropriate, reduce the share of the
proceeds of the action which 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. 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.]
(i) planned and initiated the violation of section
3729 upon which the action was brought; or
(ii) derived the knowledge of the claims in 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, as that term is defined
in subsection (e)(4)(A), or that the Government
disclosed privately to the person bringing the action
in the course of its investigation into potential
violations of this subchapter.
(B) If the person bringing the action is convicted of
criminal conduct arising from the role of that person 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.
(4) If the Government does not proceed with the action and
the person bringing the action conducts the action, the court
may award to the defendant its reasonable attorneys' fees and
expense if the defendant prevails in the action and the court
finds that the claim of the person bringing the action was
clearly frivolous, clearly vexatious, or brought primarily for
purposes of harassment.
(e) Certain Actions Barred.--(1) No court shall have
jurisdiction over an action brought by a former or present
member of the armed forces under subsection (b) of this section
against a member of the armed forces arising out of such
person's service in the armed forces.
(2)(A) No court shall have jurisdiction over an action
brought under subsection (b) against a Member of Congress, a
member of the judiciary, or a senior executive branch official
if the action is based on evidence or information known to the
Government when the action was brought.
(B) For purposes of this paragraph, ``senior executive
branch official'' means any officer of employee listed in
paragraphs (1) through (8) of section 101(f) of the Ethics in
Government Act of 1978 (5 U.S.C. App.).
(3) In no event may a person bring an action under
subsection (b) which is based upon allegations or transactions
which are the subject of a civil suit or an administrative
civil money penalty proceeding in which the Government is
already a party.
(4) A court shall dismiss an action or claim or the person
bringing the action or claim under subsection (b), upon a
motion by the Government filed on or before service of a
complaint on the defendant under subsection (b), or thereafter
for good cause shown if--
(A) on the date of the action or claim was filed,
substantially the same matters, involving the same
wrongdoer, as alleged in the action or claim were
contained in, or the subject of--[No court shall have
jurisdiction over an action under this section based
upon the public disclosure of allegations or
transactions 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, unless the
action is brought by the Attorney General or the person
bringing the action is an original source of the
information.]
(i) filed criminal indictment or information,
or an open and active criminal, civil, or
administrative investigation or audit; or
(ii) a news media report, or public
congressional hearing, report, or
investigation, if within 90 days after the
issuance or completion of such news media
report or congressional hearing, report, or
investigation, the Department of Justice or an
Office of Inspector General opened a fraud
investigation or audit of the facts contained
in such news media report or congressional
hearing, report, or investigation as a result
of learning about the public report, hearing,
or investigation;
(B) any new information provided by the person does
not add substantial grounds for additional recovery
beyond those encompassed within the Government's
existing criminal indictment or information, or an open
and active criminal, civil, or administrative
investigation or audit; and [For purposes of this
paragraph, ``original source'' means an individual who
has direct and independent knowledge of the information
on which the allegations are based and has voluntarily
provided the information to the Government before
filing an action under this section which is based on
the information.]
(C) the Government's existing criminal indictment or
information, or an open and active criminal, civil, or
administrative investigation or audit, or the news
media report, or congressional hearing, report, or
investigation was not initiated or published after the
Government's receipt of information about substantially
the same matters voluntarily brought by the person to
the Government.
(f) Government Not Liable for Certain Expenses.--The
Government is not liable for expenses which a person incurs in
bringing an action under this section.
(g) Fees and Expenses To Prevailing Defendant.--In civil
actions brought under this section by the United States, the
provisions of section 2412(D) of title 28 shall apply.
(h) Relief From Retaliatory Actions.--
(1) In general.--Any employee, government contractor,
or agent shall be entitled to all relief necessary to
make that employee, government contractor, or agent
whole, if that employee, government contractor, or
agent [who] is discharged, demoted, suspended,
threatened, harassed, or in any other manner
discriminated against in the terms and conditions of
employment [by his or her employer] because of lawful
acts done by the employee, government contractor, or
agent on behalf of the employee, government contractor,
or agent or associated others in furtherance of efforts
to stop 1 or more violations of this subchapter. [an
action under this section, including investigation for,
initiation of, testimony for, or assistance in an
action filed or to be filed under this section, shall
be entitled to all relief necessary to make the
employee whole. Such relief]
(2) Relief.--Relief under paragraph (1) shall include
reinstatement with the same seniority status that
[such] employee, government contractor, or agent would
have had but for the discrimination, 2 times the amount
of back pay, interest on the back pay, 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 [employee may bring an
action] in the appropriate district court of the United
States for the relief provided in this subsection.
Sec. 3731. False claims procedure
(a) A subpoena requiring the attendance of a witness at a
trial or hearing conducted under section 3730 of this title may
be served at any place in the United States.
(b)[ A civil action under section 3730 may not be brought--
](1) A civil action under 3730 may not be brought more than [6]
10 years after the date on which the violation of section 3729
or 3730 is committed.[, or]
(2) Upon intervention, the Government may file its own
complaint in intervention or amend the complaint of a person
who has brought an action under section 3730(b) to clarify or
add detail to the claims in which the Government is intervening
and to add any additional claims with respect to which the
Government contends it is entitled to relief. For statute of
limitations purpose 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 claim of
the Government arises out of the conduct, transactions, or
occurrences set forth, or attempted to be set forth, in the
prior complaint of that person. [more than 3 years after the
date when facts material to the right of action are known or
reasonably should have been known by the official of the United
States charged with responsibility to act in the circumstances,
but in no event more than 10 years after the date on which the
violation is committed, whichever occurs last.]
(c) In any action brought under section 3730, the United
States shall be required to prove all essential elements of the
cause of action, including damages, by a preponderance of the
evidence.
(d) Notwithstanding any other provision of law, the Federal
Rules of Criminal Procedure, or the Federal Rules of Evidence,
a final judgment rendered in favor of the United States in any
criminal proceeding charging fraud or false statements, whether
upon a verdict after trial or upon a plea of guilty or nolo
contendere, shall estop the defendant from denying the
essential elements of the offense in any action which involves
the same transaction as in the criminal proceeding and which is
brought under subsection (a) or (b) of section 3730.
Sec. 3733. Civil investigative demands
(a) In General.--
(1) Issuance and service.--Whenever the Attorney
General, or a designee (for purposes of this section)
has reason to believe that any person may be in
possession, custody, or control of any documentary
material or information relevant to a false claims law
investigation, the Attorney General, or a designee,
may, before commencing a civil proceeding under section
3730(a) or other false claims law, or electing under
section 3730(b), issue in writing an cause to be served
upon such person, a civil investigative demand
requiring such person--
(A) to produce such documentary material for
inspection and copying,
(B) to answer in writing written
interrogatories with respect to such
documentary material or information,
(C) to give oral testimony concerning such
documentary material or information, or
(D) to furnish any combination of such
material, answers, or testimony.
The Attorney General may [not] delegate the authority
to issue civil investigative demands under this
subsection. Whenever a civil investigative demand is an
express demand for any product of discovery, the
Attorney General, the Deputy Attorney General, or an
Assistant Attorney General shall cause to be served, in
any manner authorized by this section, a copy of such
demand upon the person from who the discovery was
obtained and shall notify the person to whom the
discovery was obtained and shall notify the person to
whom such demand is issued of the date on which such
copy was served. Any information obtained by the
Attorney General or a designee of the Attorney General
under this section may be shared with any qui tam
relator if the Attorney General or designee determine
it is necessary as part of any false claims act
investigation.
(2) Contents and deadlines.--
(A) Each civil investigative demand issued
under paragraph (1) shall state the nature of
the conduct constituting the alleged violation
of a false claims law which is under
investigation, and the applicable provision of
law alleged to be violated.
(B) If such demand is for the production of
documentary material, the demand shall--
(i) describe each class of
documentary material to be produced
with such definiteness and certainty as
to permit such material to be fairly
identified;
(ii) prescribe a return date for each
such class which will provide a
reasonable period of time within which
the material so demanded may be
assembled and made available for
inspection and copying; and
(iii) identify the false claims law
investigator to whom such material
shall be made available.
(C) If such demand is for answers to written
interrogatories, the demand shall--
(i) set forth with specificity the
written interrogatories to be answered;
(ii) prescribe dates at which time
answers to written interrogatories
shall be submitted; and
(iii) identify the false claims law
investigator to whom such answers shall
be submitted.
(D) If such demand is for the giving of oral
testimony, the demand shall--
(i) prescribe a date, time, and place
at which oral testimony shall be
commenced;
(ii) identify a false claims law
investigator who shall conduct the
examination and the custodian to whom
the transcript of such examination
shall be submitted;
(iii) specify that such attendance
and testimony are necessary to the
conduct of the investigation;
(iv) notify the person receiving the
demand of the right to be accompanied
by an attorney and any other
representative; and
(v) describe the general purpose for
which the demand is being issued and
the general nature of the testimony,
including the primary areas of inquiry,
which will be taken pursuant to the
demand.
(E) Any civil investigative demand issued
under this section which is an express demand
for any product of discovery shall not be
returned or returnable until 20 days after a
copy of such demand has been served upon the
person from whom the discovery was obtained.
(F) The date prescribed for the commencement
of oral testimony pursuant to a civil
investigative demand issued under this section
shall be a date which is not less than seven
days after the date on which demand is
received, unless the Attorney General or an
Assistant Attorney General designated by the
Attorney General determines that exceptional
circumstances are present which warrant the
commencement of such testimony within a lesser
period of time.
(G) The Attorney General shall not authorize
the issuance under this section of more than
one civil investigative demand for oral
testimony by the same person unless the person
requests otherwise or unless the Attorney
General, after investigation, notifies that
person in writing that an additional demand for
oral testimony is necessary. [The Attorney
General may not, notwithstanding section 510 of
title 28, authorize the performance, by any
other officer, employee, or agency, of any
function vested in the Attorney General under
this subparagraph.]
(b) Protected Material or Information.--
(1) In general.--A civil investigative demand issued
under subsection (a) may not require the production of
any documentary material, the submission of any answers
to written interrogatories, or the giving of any oral
testimony if such material, answers, or testimony would
be protected from disclosure under--
(A) the standards applicable to subpoenas or
subpoenas duces tecum issued by a court of the
United States to aid in a grand jury
investigation; or
(B) the standards applicable to discovery
requests under the Federal Rules of Civil
Procedure, to the extent that the application
of such standards to any such demand is
appropriate and consistent with the provisions
and purposes of this section.
(2) Effect on other orders, rules, and laws.--Any
such demand which is an express demand for any product
of discovery supersedes any inconsistent order, rule,
or provision of law (other than this section)
preventing or restraining disclosure of such product of
discovery to any person. Disclosure of any product of
discovery pursuant to any such express demand does not
constitute a waiver of any right or privilege which the
person making such disclosure may be entitled to invoke
to resist discovery of trial preparation materials.
(c) Service; Jurisdiction.--
(1) By whom served.--Any such demand which is an
express demand for any product of discovery supersedes
any inconsistent order, rule, or provision of law
(other than this section) preventing or restraining
disclosure of such product of discovery to any person.
Disclosure of any product of discovery pursuant to any
such express demand does not constitute a waiver of any
right or privilege which the person making such
disclosure may be entitled to invoke to resist
discovery of trial preparation materials.
(2) Service in foreign countries.--Any such demand or
any petition filed under subsection (j) may be served
upon any person who is not found within the territorial
jurisdiction of any court of the United States in such
manner as the Federal Rules of Civil Procedure
prescribe for service in a foreign country. To the
extent that the courts of the United States can assert
jurisdiction over any such person consistent with due
process, the United States District Court for the
District of Columbia shall have the same jurisdiction
to take any action respecting compliance with this
section by any such person that such court would have
if such person were personally within the jurisdiction
of such court.
(d) Service Upon Legal Entities and Natural Persons.--
(1) Legal entities.--Service of any civil
investigative demand issued under subsection (a) or of
any petition filed under subsection (j) may be made
upon a partnership, corporation, association, or other
legal entity by--
(A) delivering an executed copy of such
demand or petition to any partner, executive
officer, managing agent, or general agent of
the partnership, corporation, association, or
entity, or to any agent authorized by
appointment or by law to receive service of
process on behalf of such partnership,
corporation, association, or entity;
(B) delivering an executed copy of such
demand or petition to the principal office or
place of business of the partnership,
corporation, association, or entity; or
(C) depositing an executed copy of such
demand or petition in the United States mails
by registered or certified mail, with a return
receipt requested, addressed to such
partnership, corporation, association, or
entity at its principal office or place of
business.
(2) Natural persons.--Service of any such demand or
petition may be made upon any natural person by--
(A) delivering an executed copy of such
demand or petition to the person; or
(B) depositing an executed copy of such
demand or petition in the United States mails
by registered or certified mail, with a return
receipt requested, addressed to the person at
the person's residence or principal office or
place of business.
(e) Proof of Service.-- A verified return by the individual
serving any civil investigative demand issued under subsection
(a) or any petition filed under subsection (j) setting forth
the manner of such service shall be proof of such service. In
the case of service by registered or certified mail, such
return shall be accompanied by the return post office receipt
of delivery of such demand.
(f) Documentary Material.--
(1) Sworn certificates.--The production of
documentary material in response to a civil
investigative demand served under this section shall be
made under a sworn certificate, in such form as the
demand designates, by--
(A) in the case of a natural person, the
person to whom the demand is directed, or
(B) in the case of a person other than a
natural person, a person having knowledge of
the facts and circumstances relating to such
production and authorized to act on behalf of
such person.
The certificate shall state that all of the documentary
material required by the demand and in the possession,
custody, or control of the person to whom the demand is
directed has been produced and made available to the
false claims law investigator identified in the demand.
(2) Production of materials.--Any person upon whom
any civil investigative demand for the production of
documentary material has been served under this section
shall make such material available for inspection and
copying to the false claims law investigator identified
in such demand at the principal place of business of
such person, or at such other place as the false claims
law investigator and the person thereafter may agree
and prescribe in writing, or as the court may direct
under subsection (j)(1). Such material shall be made so
available on the return date specified in such demand,
or on such later date as the false claims law
investigator may prescribe in writing. Such person may,
upon written agreement between the person and the false
claims law investigator, substitute copies for
originals of all or any part of such material.
(g) Interrogatories.-- Each interrogatory in a civil
investigative demand served under this section shall be
answered separately and fully in writing under oath and shall
be submitted under a sworn certificate, in such form as the
demand designates, by--
(1) in the case of a natural person, the person to
whom the demand is directed, or
(2) in the case of a person other than a natural
person, the person or persons responsible for answering
each interrogatory.
If any interrogatory is objected to, the reasons for the
objection shall be stated in the certificate instead of an
answer. The certificate shall state that all information
required by the demand and in the possession, custody, control,
or knowledge of the person to whom the demand is directed has
been submitted. To the extent that any information is not
furnished, the information shall be identified and reasons set
forth with particularity regarding the reasons why the
information was not furnished.
(h) Oral Examinations.--
(1) Procedures.--The examination of any person
pursuant to a civil investigative demand for oral
testimony served under this section shall be taken
before an officer authorized to administer oaths and
affirmations by the laws of the United States or of the
place where the examination is held. The officer before
whom the testimony is to be taken shall put the witness
on oath or affirmation and shall, personally or by
someone acting under the direction of the officer and
in the officer's presence, record the testimony of the
witness. The testimony shall be taken stenographically
and shall be transcribed. When the testimony is fully
transcribed, the officer before whom the testimony is
taken shall promptly transmit a copy of the transcript
of the testimony to the custodian. This subsection
shall not preclude the taking of testimony by any means
authorized by, and in a manner consistent with, the
Federal Rules of Civil Procedure.
(2) Persons present.--The false claims law
investigator conducting the examination shall exclude
from the place where the examination is held all
persons except the person giving the testimony, the
attorney for and any other representative of the person
giving the testimony, the attorney for the Government,
any person who may be agreed upon by the attorney for
the Government and the person giving the testimony, the
officer before whom the testimony is to be taken, and
any stenographer taking such testimony.
(3) Where testimony taken.--The oral testimony of any
person taken pursuant to a civil investigative demand
served under this section shall be taken in the
judicial district of the United States within which
such person resides, is found, or transacts business,
or in such other place as may be agreed upon by the
false claims law investigator conducting the
examination and such person.
(4) Transcript of testimony.--When the testimony is
fully transcribed, the false claims law investigator or
the officer before whom the testimony is taken shall
afford the witness, who may be accompanied by counsel,
a reasonable opportunity to examine and read the
transcript, unless such examination and reading are
waived by the witness. Any changes in form or substance
which the witness desires to make shall be entered and
identified upon the transcript by the officer or the
false claims law investigator, with a statement of the
reasons given by the witness for making such changes.
The transcript shall then be signed by the witness,
unless the witness in writing waives the signing, is
ill, cannot be found, or refuses to sign. If the
transcript is not signed by the witness within 30 days
after being afforded a reasonable opportunity to
examine it, the officer or the false claims law
investigator shall sign it and state on the record the
fact of the waiver, illness, absence of the witness, or
the refusal to sign, together with the reasons, if any,
given therefor.
(5) Certification and delivery to custodian.--The
officer before whom the testimony is taken shall
certify on the transcript that the witness was sworn by
the officer and that the transcript is a true record of
the testimony given by the witness, and the officer or
false claims law investigator shall promptly deliver
the transcript, or send the transcript by registered or
certified mail, to the custodian.
(6) Furnishing or inspection of transcript by
witness.--Upon payment of reasonable charges therefor,
the false claims law investigator shall furnish a copy
of the transcript to the witness only, except that the
Attorney General, the Deputy Attorney General, or an
Assistant Attorney General may, for good cause, limit
such witness to inspection of the official transcript
of the witness's testimony.
(7) Conduct of oral testimony.--(A) Any person
compelled to appear for oral testimony under a civil
investigative demand issued under subsection (a) may be
accompanied, represented, and advised by counsel.
Counsel may advise such person, in confidence, with
respect to any question asked of such person. Such
person or counsel may object on the record to any
question, in whole or in part, and shall briefly state
for the record the reason for the objection. An
objection may be made, received, and entered upon the
record when it is claimed that such person is entitled
to refuse to answer the question on the grounds of any
constitutional or other legal right or privilege,
including the privilege against self-incrimination.
Such person may not otherwise object to or refuse to
answer any question, and may not directly or through
counsel otherwise interrupt the oral examination. If
such person refuses to answer any question, a petition
may be filed in the district court of the United States
under subsection (j)(1) for an order compelling such
person to answer such question.
(B) If such person refuses to answer any question on
the grounds of the privilege against self-
incrimination, the testimony of such person may be
compelled in accordance with the provisions of part V
of title 18.
(8) Witness fees and allowances.--Any person
appearing for oral testimony under a civil
investigative demand issued under subsection (a) shall
be entitled to the same fees and allowances which are
paid to witnesses in the district courts of the United
States.
(i) Custodians of Documents, Answers, and Transcripts.--
(1) Designation.--The Attorney General shall
designate a false claims law investigator to serve as
custodian of documentary material, answers to
interrogatories, and transcripts of oral testimony
received under this section, and shall designate such
additional false claims law investigators as the
Attorney General determines from time to time to be
necessary to serve as deputies to the custodian.
(2) Responsibility for materials; disclosure.--(A) A
false claims law investigator who receives any
documentary material, answers to interrogatories, or
transcripts of oral testimony under this section shall
transmit them to the custodian. The custodian shall
take physical possession of such material, answers, or
transcripts and shall be responsible for the use made
of them and for the return of documentary material
under paragraph (4).
(B) The custodian may cause the preparation of such
copies of such documentary material, answers to
interrogatories, or transcripts of oral testimony as
may be required for official use by any false claims
law investigator, or other officer or employee of the
Department of Justice[, who is authorized for such use
under regulations which the Attorney General shall
issue]. Such material, answers, and transcripts may be
used by any such authorized false claims law
investigator or other officer or employee in connection
with the taking of oral testimony under this section.
(C) Except as otherwise provided in this subsection,
no documentary material, answers to interrogatories, or
transcripts of oral testimony, or copies thereof, while
in the possession of the custodian, shall be available
for examination by any individual other than a false
claims law investigator or other officer or employee of
the Department of Justice authorized under subparagraph
(B). The prohibition in the preceding sentence on the
availability of material, answers, or transcripts shall
not apply if consent is given by the person who
produced such material, answers, or transcripts, or, in
the case of any product of discovery produced pursuant
to an express demand for such material, consent is
given by the person from whom the discovery was
obtained. Nothing in this subparagraph is intended to
prevent disclosure to the Congress, including any
committee or subcommittee of the Congress, or to any
other agency of the United States for use by such
agency in furtherance of its statutory
responsibilities. [Disclosure of information to any
such other agency shall be allowed only upon
application, made by the Attorney General to a United
States district court, showing substantial need for the
use of the information by such agency in furtherance of
its statutory responsibilities.]
(D) While in the possession of the custodian and
under such reasonable terms and conditions as the
Attorney General shall prescribe--
(i) documentary material and answers to
interrogatories shall be available for
examination by the person who produced such
material or answers, or by a representative of
that person authorized by that person to
examine such material and answers; and
(ii) transcripts of oral testimony shall be
available for examination by the person who
produced such testimony, or by a representative
of that person authorized by that person to
examine such transcripts.
(3) Use of material, answers, or transcripts in other
proceedings.--Whenever any attorney of the Department
of Justice has been designated to appear before any
court, grand jury, or Federal agency in any 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 case or
proceeding as such attorney determines to be required.
Upon the completion of any such 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 such court, grand
jury, or agency through introduction into the record of
such case or proceeding.
(4) Conditions for return of material.--If any
documentary material has been produced by any person in
the course of any false claims law investigation
pursuant to a civil investigative demand under this
section, and--
(A) any case or proceeding before the court
or grand jury arising out of such
investigation, or any proceeding before any
Federal agency involving such material, has
been completed, or
(B) no case or proceeding in which such
material may be used has been commenced within
a reasonable time after completion of the
examination and analysis of all documentary
material and other information assembled in the
course of such investigation,
the custodian shall, upon written request of the person
who produced such material, return to such person any
such material (other than copies furnished to the false
claims law investigator under subsection (f)(2) or made
for the Department of Justice under paragraph (2)(B))
which has not passed into the control of any court,
grand jury, or agency through introduction into the
record of such case or proceeding.
(5) Appointment of successor custodians.--In the
event of the death, disability, or separation from
service in the Department of Justice of the custodian
of any documentary material, answers to
interrogatories, or transcripts of oral testimony
produced pursuant to a civil investigative demand under
this section, or in the event of the official relief of
such custodian from responsibility for the custody and
control of such material, answers, or transcripts, the
Attorney General shall promptly--
(A) designate another false claims law
investigator to serve as custodian of such
material, answers, or transcripts, and
(B) transmit in writing to the person who
produced such material, answers, or testimony
notice of the identity and address of the
successor so designated.
Any person who is designated to be a successor under
this paragraph shall have, with regard to such
material, answers, or transcripts, the same duties and
responsibilities as were imposed by this section upon
that person's predecessor in office, except that the
successor shall not be held responsible for any default
or dereliction which occurred before that designation.
(j) Judicial Proceedings.--
(1) Petition for enforcement.--Whenever any person
fails to comply with any civil investigative demand
issued under subsection (a), or whenever satisfactory
copying or reproduction of any material requested in
such demand cannot be done and such person refuses to
surrender such material, the Attorney General may file,
in the district court of the United States for any
judicial district in which such person resides, is
found, or transacts business, and serve upon such
person a petition for an order of such court for the
enforcement of the civil investigative demand.
(2) Petition to modify or set aside demand.--(A) Any
person who has received a civil Investigative demand
issued under subsection (a) may file, in the district
court of the United States for the judicial district
within which such person resides, is found, or
transacts business, and serve upon the false claims law
investigator identified in such demand a petition for
an order of the court to modify or set aside such
demand. In the case of a petition addressed to an
express demand for any product of discovery, a petition
to modify or set aside such demand may be brought only
in the district court of the United States for the
judicial district in which the proceeding in which such
discovery was obtained is or was last pending. Any
petition under this subparagraph must be filed--
(i) within 20 days after the date of service
of the civil investigative demand, or at any
time before the return date specified in the
demand, whichever date is earlier, or
(ii) within such longer period as may be
prescribed in writing by any false claims law
investigator identified in the demand.
(B) The petition shall specify each ground upon which
the petitioner relies in seeking relief under
subparagraph (A), and may be based upon any failure of
the demand to comply with the provisions of this
section or upon any constitutional or other legal right
or privilege of such person. During the pendency of the
petition in the court, the court may stay, as it deems
proper, the running of the time allowed for compliance
with the demand, in whole or in part, except that the
person filing the petition shall comply with any
portions of the demand not sought to be modified or set
aside.
(3) Petition to modify or set aside demand for
product of discovery.--(A) In the case of any civil
investigative demand issued under subsection (a) which
is an express demand for any product of discovery, the
person from whom such discovery was obtained may file,
in the district court of the United States for the
judicial district in which the proceeding in which such
discovery was obtained is or was last pending, and
serve upon any false claims law investigator identified
in the demand and upon the recipient of the demand, a
petition for an order of such court to modify or set
aside those portions of the demand requiring production
of any such product of discovery. Any petition under
this subparagraph must be filed--
(i) within 20 days after the date of service
of the civil investigative demand, or at any
time before the return date specified in the
demand, whichever date is earlier, or
(ii) within such longer period as may be
prescribed in writing by any false claims law
investigator identified in the demand.
(B) The petition shall specify each ground upon which
the petitioner relies in seeking relief under
subparagraph (A), and may be based upon any failure of
the portions of the demand from which relief is sought
to comply with the provisions of this section, or upon
any constitutional or other legal right or privilege of
the petitioner. During the pendency of the petition,
the court may stay, as it deems proper, compliance with
the demand and the running of the time allowed for
compliance with the demand.
(4) Petition to require performance by custodian of
duties.--At any time during which any custodian is in
custody or control of any documentary material or
answers to interrogatories produced, or transcripts of
oral testimony given, by any person in compliance with
any civil investigative demand issued under subsection
(a), such person, and in the case of an express demand
for any product of discovery, the person from whom such
discovery was obtained, may file, in the district court
of the United States for the judicial district within
which the office of such custodian is situated, and
serve upon such custodian, a petition for an order of
such court to require the performance by the custodian
of any duty imposed upon the custodian by this section.
(5) Jurisdiction.--Whenever any petition is filed in
any district court of the United States under this
subsection, such court shall have jurisdiction to hear
and determine the matter so presented, and to enter
such order or orders as may be required to carry out
the provisions of this section. Any final order so
entered shall be subject to appeal under section 1291
of title 28. Any disobedience of any final order
entered under this section by any court shall be
punished as a contempt of the court.
(6) Applicability of federal rules of civil
procedure.--The Federal Rules of Civil Procedure shall
apply to any petition under this subsection, to the
extent that such rules are not inconsistent with the
provisions of this section.
(k) Disclosure Exemption.--Any documentary material,
answers to written interrogatories, or oral testimony provided
under any civil investigative demand issued under subsection
(a) shall be exempt from disclosure under section 552 of title
5.
(l) Definitions.--For purposes of this section--
(1) the term ``false claims law'' means--
(A) this section and sections 3729 through
3732; and
(B) any Act of Congress enacted after the
date of the enactment of this section which
prohibits, or makes available to the United
States in any court of the United States any
civil remedy with respect to, any false claim
against, bribery of, or corruption of any
officer or employee of the United States;
(2) the term ``false claims law investigation'' means
any inquiry conducted by any false claims law
investigator for the purpose of ascertaining whether
any person is or has been engaged in any violation of a
false claims law;
(3) the term ``false claims law investigator'' means
any attorney or investigator employed by the Department
of Justice who is charged with the duty of enforcing or
carrying into effect any false claims law, or any
officer or employee of the United States acting under
the direction and supervision of such attorney or
investigator in connection with a false claims law
investigation;
(4) the term ``person'' means any natural person,
partnership, corporation, association, or other legal
entity, including any State or political subdivision of
a State;
(5) the term ``documentary material'' includes the
original or any copy of any book, record, report,
memorandum, paper, communication, tabulation, chart, or
other document, or data compilations stored in or
accessible through computer or other information
retrieval systems, together with instructions and all
other materials necessary to use or interpret such data
compilations, and any product of discovery;
(6) the term ``custodian'' means the custodian, or
any deputy custodian, designated by the Attorney
General under subsection (i)(1); [and]
(7) the term ``product of discovery'' includes--
(A) the original or duplicate of any
deposition, interrogatory, document, thing,
result of the inspection of land or other
property, examination, or admission, which is
obtained by any method of discovery in any
judicial or administrative proceeding of an
adversarial nature;
(B) any digest, analysis, selection,
compilation, or derivation of any item listed
in subparagraph (A); and
(C) any index or other manner of access to
any item listed in subparagraph (A)b[.]; and
(8) the term ``official use'' means any use that is
consistent with the law, and the regulations and
policies of the Department of Justice, including use in
connection with internal Department of Justice
memoranda and reports; communications between the
Department of Justice and a Federal, State, or local
government agency, or a contractor of a Federal, State,
or local government agency, undertaken in furtherance
of a Department of Justice investigation or prosecution
of a case; interviews of any qui tam relator or other
witness; oral examinations; depositions; preparation
for and response to civil discovery requests;
introduction into the record of a case or proceeding;
applications, motions, memoranda and briefs submitted
to a court or other tribunal; and communications with
Government investigators, auditors, consultants and
experts, the counsel of other parties, arbitrators and
mediators, concerning an investigation, case or
proceeding.