[House Report 111-97]
[From the U.S. Government Publishing Office]
111th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 111-97
======================================================================
FALSE CLAIMS ACT CORRECTION ACT OF 2009
_______
May 5, 2009.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Conyers, from the Committee on the Judiciary, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 1788]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the bill
(H.R. 1788) to amend the provisions of title 31, United States
Code, relating to false claims to clarify and make technical
amendments to those provisions, and for other purposes, having
considered the same, reports favorably thereon without
amendment and recommends that the bill do pass.
CONTENTS
Page
Purpose and Summary.............................................. 2
Background and Need for the Legislation.......................... 2
Hearings......................................................... 8
Committee Consideration.......................................... 8
Committee Votes.................................................. 8
Committee Oversight Findings..................................... 11
New Budget Authority and Tax Expenditures........................ 11
Congressional Budget Office Cost Estimate........................ 11
Performance Goals and Objectives................................. 13
Constitutional Authority Statement............................... 13
Advisory on Earmarks............................................. 13
Section-by-Section Analysis...................................... 13
Changes in Existing Law Made by the Bill, as Reported............ 15
Dissenting Views................................................. 27
Purpose and Summary
H.R. 1788 amends title 31, United States Code, to remove
judicially-created limitations and qualifications which have
undermined the effectiveness of the False Claims Act. The
central purpose of the False Claims Act is to enlist private
citizens in combating fraud against the United States. The
Act's qui tam provisions were crafted to provide clear
procedures and appropriate incentives for private citizens to
report fraudulent schemes and participate in the resulting
investigations and prosecutions.
Since the False Claims Act was amended in 1986, recoveries
under the Act have totaled nearly $22 billion,\1\ with qui tam
lawsuits responsible for about $14 billion of that amount.\2\
However, over the two decades since legislation last addressed
the False Claims Act, court decisions have created a complex
patchwork of procedural and jurisdictional hurdles that have
often derailed meritorious actions and discouraged private
citizens from filing qui tam actions.
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\1\See Department of Justice Fraud Statistics 1986-2008, available
at http://www.usdoj.gov/opa/pr/2008/November/fraud-statistics1986-
2008.htm.
\2\Id.
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An Arkansas Federal court recently invited Congress to take
legislative action to clarify misinterpretations of the False
Claims Act, stating: ``The Court sympathizes with anyone
litigating under the False Claims Act. Perhaps Congress will
elect at some point to give legislative attention to the FCA to
resolve some of the still unresolved questions about the Act's
application.''\3\ The False Claims Act Correction Act of 2009
responds to that request by clarifying the reach of the Act's
liability provisions, preventing dismissals of certain qui tam
actions, strengthening anti-retaliation protections, setting a
uniform statute of limitations, and modifying the requirements
for plaintiffs to bring qui tam actions.
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\3\United States ex rel. Montgomery v. St. Edward Mercy Medical
Center, 2008 WL 110858 (E.D. Ark. Jan. 8, 2008).
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This legislation is particularly relevant during this
period of increased reliance on private contractors to perform
what have traditionally been viewed as governmental functions.
These amendments to the False Claims Act will strengthen the
tools available to combat those who seek to pilfer Government
funds, resulting in a recovery of losses from fraud, as well as
deterring those who otherwise might consider defrauding the
Government.
Background and Need for the Legislation
A HISTORY OF THE FALSE CLAIMS ACT
The False Claims Act, often called ``Lincoln's Law,'' was
first enacted in 1863, as a means to remedy ``the frauds and
corruptions practiced in obtaining pay from the Government
during the [Civil] War.''\4\ During the Civil War, fraud by
Government contractors had become so prevalent that the United
States Army was often delivered decrepit horses, or sold the
same horse twice, and packages of gunpowder often arrived
filled with sawdust.\5\ President Lincoln implored Congress to
pass legislation to address these and other incidences of
fraud.
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\4\Cong. Globe, 37th Cong., 3d Sess. 952 (1863).
\5\See T.J. Halstead, Constitutional Aspects of Qui Tam Actions:
Background and Analysis of Issues in Vermont Agency of Natural
Resources v. United States ex rel. Stevens, CRS Report for Congress
RL30463 (Mar. 8, 2000).
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The False Claims Act offered ``a reward to the informer who
comes into court and betrays his coconspirator, if he be such;
but it is not confined to that class.''\6\ Pursuant to the Act,
private individuals, called qui tam relators, were authorized
to bring lawsuits on behalf of the United States to prosecute
fraud against the Government and to recover funds that were
wrongfully obtained.\7\ The Act provided for double damages and
a $2,000 civil penalty per false claim. Private individuals who
successfully pursued claims under the Act were entitled to half
of the Government's recovery, as an incentive to expose fraud
against the Federal Government.\8\ The Act did not authorize
the Government to intervene in the private individual's case,
nor did it preclude qui tam actions based upon the source of
the relator's information.\9\
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\6\Cong. Globe, 37th Cong., 3d Sess. 955 (1863).
\7\Qui tam lawsuits date back to medieval England. The term comes
from a longer Latin expression meaning ``he who sues in this matter for
the King as well as for himself.'' Black's Law Dictionary. The qui tam
procedure was brought to the colonies by English settlers, and included
in a number of colonial and early American laws, before being enacted
in the False Claims Act in 1863. See Department of Justice, False
Claims Act Cases: Government Intervention in Qui Tam (Whistleblower)
Suits, available at www.usdoj.gov/usao/pae/Documents/fcaprocess2.pdf;
Whistleblower Qui Tam Law Center, available at www.whistleblower-qui-
tam.com/pages/qui-tam-history.html.
\8\See Erickson ex rel. United States v. Amer. Inst. of Biological
Scis., 716 F.Supp. 908, 915 (E.D. Va. 1989).
\9\Act of March 2, 1863, 12 Stat. 696.
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Nearly eighty years later, in the midst of World War II,
Attorney General Francis Biddle requested that Congress amend
the False Claims Act to repeal the authorization for qui tam
lawsuits. Attorney General Biddle expressed concerns that qui
tam complaints were being filed based solely on information
contained in criminal indictments.\10\ He argued that such
cases did not contribute anything new, and could interfere with
the Government's criminal prosecutions.\11\
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\10\S. Rep. No. 1708, 77th Cong., 2d Sess. (1942) (reprinting
Biddle's letter to Congress).
\11\S. Rep. No. 1708, 77th Cong., 2d Sess. (1942) (reprinting
Biddle's letter to Congress).
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Both the House of Representatives and the Senate considered
Attorney General Biddle's request. The House passed legislation
to repeal the qui tam provisions.\12\ The Senate took a
different approach, and passed legislation providing that
jurisdiction would only be barred on qui tam suits based on
information in the possession of the Government, if the relator
was not an original source of that information. The final 1943
amendments to the False Claims Act included a ``government
knowledge bar'' which deprived courts of jurisdiction over qui
tam actions that were ``based upon evidence or information in
the possession of the United States, or any agency, officer or
employee thereof, at the time such suit was brought.''\13\
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\12\89 Cong. Rec. 2801 (1943).
\13\Act of December 23, 1943, ch. 377, 57 Stat. 608, codified as
amended at 31 U.S.C. Sec. Sec. 232-235 (1976); U.S. v. Pittman, 151
F.2d 851, 853-54 (5th Cir. 1945) (discussing the history of the 1943
amendments).
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The 1943 amendments also impacted suits under the False
Claims Act by authorizing the Department of Justice to take
over cases initiated by relators. The amendments required
relators to submit all of their supporting evidence to the
Department of Justice at the time they filed a complaint, and
gave the Department sixty days to decide whether or not to
intervene and take exclusive control of the suit. If the
Government elected to intervene, then the relator would have no
role in the case, and no voice in its resolution.
The 1943 amendments also reduced the amount of the
relator's share of any recovery: if the Government prosecuted
the suit, then the court could award the informer ``fair and
reasonable compensation'' not to exceed 10 percent of the
proceeds; if the Government did not intervene, then the
informer's award could not exceed twenty-five percent of the
proceeds.\14\ In neither case was there any assurance that the
relators would obtain even a minimum amount.
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\14\Act of December 23, 1943, ch. 377, 57 Stat. 608.
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As a result of the 1943 amendments, relators were far less
likely to come forward and expose fraud against the Government.
Indeed, from 1943 to 1986, only about six to ten False Claims
Act cases were brought each year.\15\ Notably, as the number of
qui tam suits decreased, fraud against the Government was again
rampant by the 1980's. In 1981, the General Accounting Office
reported that such fraud was ``widespread'' and was resulting
in monetary loss, diminished confidence in Government programs,
Government benefits diverted from intended recipients, and harm
to public health and safety.\16\ Additionally, the
effectiveness of the False Claims Act was weakened by some
court decisions in which judges interpreted the government-
knowledge bar broadly, holding that the bar precluded all qui
tam cases involving information already known to the
Government, even when the qui tam relator had been the source
of that information.\17\
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\15\Elleta Sangrey Callahan & Terry Morehead Dworkin, Do Good and
Get Rich: Financial Incentives for Whistleblowing and the False Claims
Act, 37 Will. L. Rev. 273, 318 (1992).
\16\General Accounting Office, Fraud in Government Programs: How
Extensive is It?--How Can It Be Controlled, ii (1981).
\17\E.g., United States ex rel. State of Wis. (Dep't of Health and
Soc. Servs.) v. Dean, 729 F.2d 1100 (7th Cir. 1984).
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Congress responded to the decrease in False Claims Act
suits. In 1985, the Senate conducted hearings on legislation to
reform the False Claims Act.\18\ The next year, the House
Subcommittee on Administrative Law and Governmental Relations
of the House Committee on the Judiciary held hearings on
similar legislation.\19\ These bills sought to empower private
citizens with knowledge of fraud or false claims to come
forward and bring the resources of private counsel to bear on
the Government's behalf under the Act.\20\
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\18\False Claims Reform Act: Hearing Before the Subcomm. on Admin.
Practice and Procedure of the Senate Comm. on the Judiciary, 99th
Cong., 1st Sess. (Sept. 17, 1985).
\19\Hearing Before the Subcomm. on Admin. Law and Gov't Rel. of the
House Comm. on the Judiciary, 99th Cong., 2d Sess. (Feb. 5, 1986).
\20\126 Cong. Rec. 4580 (1980); S. Rep. No. 615, 96th Cong. 2d
Sess. (1981).
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Following the hearings, the legislation was refined to take
into account concerns raised by the Department of Justice and
potential defendants, and the False Claims Amendments Act of
1986 was enacted on October 27, 1986.\21\ The 1986 amendments
made a number of changes to the False Claims Act.
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\21\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).
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The 1986 amendments increased the penalties from double
damages to treble damages. They also provided that qui tam
actions would be filed under seal for sixty days, and served on
the United States, but not the defendant, to provide the
Government time to determine whether to intervene in the
action. The amendments further provided the Government, upon a
showing of ``good cause,'' the option of intervening later in a
case that it had initially declined to join. They provided that
a qui tam relator could fully participate in cases in which the
Government intervened, but authorized courts to restrict the
role of relators, under specified circumstances. The amendments
eliminated purely discretionary awards to relators, and based
the relator's share on his or her contributions to the case,
such that, in most cases, relators would be guaranteed at least
a fifteen percent share of the Government's recovery.
The 1986 amendments also replaced the government-knowledge
bar with a ``public disclosure'' bar, barring qui tam actions
that were based on allegations or transactions in a Government
proceeding or investigation, or from the news media--but not
where the relator was an original source of the
information.\22\ The amendments created a new right of action
for any employee who was retaliated against for engaging in
lawful conduct in furtherance of False Claims Act proceedings.
Employees who suffered retaliation would be entitled to all
relief necessary to make them whole, including double back pay
and attorneys' fees. The amendments authorized the award of
attorneys' fees to a defendant prevailing in a False Claims Act
suit that ``the court finds . . . was clearly frivolous,
clearly vexatious, or brought primarily for purposes of
harassment.''\23\ Finally, the amendments authorized the
Department of Justice to use civil investigative demands as an
investigative tool to obtain documents and testimony.
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\22\In order to address the Department's concern about politically-
motivated suits, Congress retained the prior broader ban on information
in the possession of the Government for suits against top Government
officials. 31 U.S.C. Sec. 3730(e)(2)(A).
\23\31 U.S.C. Sec. 3730(d)(4).
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COURT DECISIONS SINCE 1986 HAVE DIMINISHED THE EFFECTIVENESS OF THE
FALSE CLAIMS ACT
Unfortunately, since the 1986 amendments were enacted,
several court decisions have limited the reach of the False
Claims Act, jeopardizing billions in Federal funds. For
example, in 2005, the D.C. Circuit ruled that the False Claims
Act does not reach false claims that are (i) presented to
Government grantees or contractors, and (ii) paid with
Government grant or contract funds.\24\ The Court indicated
that Congress's intent to include those claims under the law
was unclear. Several other courts have held similarly, which
has lead to widespread confusion regarding the scope of the
law.\25\
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\24\United States ex rel. Totten v. Bombardier Corp., 380 F. 3d 488
(D.C. Cir. 2005) (where a former Amtrak employee who filed suit against
two Amtrak contractors alleged that the contractors violated the False
Claims Act by supplying Amtrak with non-compliant goods).
\25\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. Rutz v. Village of River Forest, 2007
LEXIS 80506 (N.D. Ill. Oct. 25, 2007); United States ex rel. Arnold v.
CMC Engineering, 2007 WL 442237 (W.D. Pa. Feb. 7, 2007); 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).
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More recently, in 2008, the Supreme Court held that
plaintiffs must prove that the defendant intended for its false
statements to cause the Federal Government itself to rely on
the false statements as a condition for payment.\26\ With the
Federal Government increasingly relying on private entities to
disburse Federal funds, this situation would presumably become
increasingly rare.
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\26\Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct.
2123 (2008). For an analysis of the case, see Jennifer Staman, The
False Claims Act, the Allison Engine Decision, and Health Care Fraud
Enforcement, CRS Report for Congress RS22982 (Apr. 16, 2009).
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In 2006, another Federal court ruled that the False Claims
Act does not cover false claims for funds that are administered
by, but not owned by, the Government.\27\ Even though false
claims made against Government-administered funds harm
Government interests and frustrate Government programs and
purposes, the Act was read not to cover those claims--removing
protection of funds intended for the Iraq War, for example.
Similarly, although the Act prohibits conspiring to defraud the
Government, several courts have read the conspiracy provision
narrowly, applying it to some violations of the Act, but not
others.\28\
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\27\United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F.
Supp. 2d 617, 636-641 (E.D. Va. 2006) (holding that while the False
Claims Act protects funds ``presented to'' the Government, a $10
million verdict for fraud against a defense contractor in Iraq was
invalid on the ground that the money lost was not taxpayer money, but
rather Iraqi money under the control of the United States, and thus not
covered by the False Claims Act).
\28\See, e.g., United States ex rel. Huangyan Imp. & Exp. Corp. v.
Nature's Farm Prod., 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)).
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In 1998, the Tenth Circuit decided a case involving a
provision of the False Claims Act that imposes liability upon
those who wrongfully possess more Government money or property
than the amount for which they have a certificate or
receipt.\29\ In its decision, the court focused on the
technical element of whether the defendant had a receipt or
certificate for the property, not on whether the defendant
actually wrongfully possessed or converted the property. As a
result, a seemingly meritorious case was dismissed.
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\29\United States ex rel. Aakhus v. Dyncorp, Inc., 136 F.3d 676
(10th Cir. 1998)
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Similarly, several cases have greatly limited the ``reverse
false claims'' provision of the Act, which imposes liability on
those who make or use false records or statements to conceal,
avoid, or decrease an obligation to pay or transmit money or
property to the Government.\30\ Indeed, the provision has been
read so narrowly that the Government is presently able to
prosecute only those rare fraudfeasors who submit reports
concealing their wrongful retention of Government funds.
Without adequate prosecutorial tools, the ``finders, keepers''
mentality continues to infect Government contracting.
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\30\E.g., United States ex rel. Prawer & Co. v. Verrill & Dana, 946
F. Supp. 87 (D. Me. 1996); Am. Textile Mfrs. Inst., Inc. v. The
Limited, Inc., 190 F.3d 729 (6th Cir. 1999).
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When the 1986 amendments were enacted, Congress expressly
stated that the public disclosure bar was intended to bar only
truly parasitic qui tam lawsuits; the provision was not
intended 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, such as from a media
report.\31\ Congress drafted the public disclosure bar to
provide a balance between ``encouraging people to come forward
with information and preventing parasitic lawsuits.''\32\ Yet,
despite this clear congressional intent and Department of
Justice recommendations, courts have used the public disclosure
bar to dismiss relators who provided important information in
cases still being pursued by the Government.
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\31\132 Cong. Rec. H9382-03 (daily edition Oct. 7, 1986).
\32\False Claims Act Implementation: Hearing Before the Subcomm. on
Admin. Law and Gov't Rel. of the H. Comm. on the Judiciary, 101st
Cong., 2d Sess. 3, (1990) (statement of Sen. Grassley).
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For example, in 2007 the Supreme Court upheld the granting
of a defendant's motion to dismiss a relator from a lawsuit
after judgment against the defendant was entered, and despite
strong objections from the Department of Justice who had filed
a brief with the Court in support of the relator.\33\ Many
other courts have misapplied the public disclosure bar,
resulting in decisions that Congress never intended.\34\ The
confusing patchwork of public disclosure case law has not only
frustrated meritorious suits; it has discouraged relators from
even filing qui tam suits, removing a critical source of
assistance to Government investigations.
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\33\Rockwell Int'l Corp. v. U.S., 127 S. Ct. 1397 (2007).
\34\E.g., United States ex rel. Bly-Magee v. Premo, 470 F.3d 914
(9th Cir. 2006), cert. denied, 128 S.Ct. 1119 (2008); United States ex
rel. Fowler v. Caremark RX, LLC, 496 F.3d 730, 736 (7th Cir. 2007),
cert denied, 128 S.Ct. 1246 (2008); United States ex rel. Gear v.
Emergency Med. Assocs. of Illinois, Inc., 436 F.3d 726 (7th Cir. 2006);
United States ex rel. Paranich v. Sorgnard, 396 F.3d 326 (3d Cir.
2005); United States ex rel. Mathews v. Bank of Farmington, 166 F.3d
853 (7th Cir. 1999); United States ex rel. Mistick PBT v. Hous. Auth.
of City of Pittsburgh, 186 F.3d 376 (3d Cir. 1999); United States ex
rel. McKenzie v. BellSouth Telecomm., Inc., 123 F.3d 935 (6th Cir.
1997); United States ex rel. Doe v. John Doe Corp., 960 F.2d 318 (2d
Cir. 1992); United States ex rel. Stinson, Lyons, Gerlin & Bustamante,
P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1158 (3d Cir. 1991); United
States ex rel. Maxwell v. Kerr McGee Oil & Gas Corp., 486 F. Supp. 2d
1217 (D. Colo. 2007); United States ex rel. Montgomery v. St. Edwards
Mercy Med. Ctr., 2007 U.S. Dist. LEXIS 73376 (E.D. Ark. Sep. 28, 2007).
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Since the 1986 amendments, courts have also limited the
scope of the False Claims Act's anti-retaliation provisions.
For instance, several courts have read new limits into the Act
by holding that the protections of the Act's anti-retaliation
provisions apply only to ``employees,'' and not to independent
contractors, subcontractors, or agents.\35\
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\35\E.g., United States, ex rel., Watson v. Connecticut Gen. Life
Ins., 2004 U.S. App. LEXIS 1736 (3d Cir. Jan. 16, 2004) (independent
contractor held not protected); Vessell v. DPS Assocs. of Charleston,
Inc., 148 F.3d 407 (4th Cir. 1998) (landscaper of real estate agency
deemed not protected); cf. United States, ex rel., Conner v. Salina
Reg'l Health Ctr., 459 F. Supp. 2d 1981 (D. Kan. 2006) (concluding that
doctor adequately alleged that he was an ``employee'' of the hospital
even though the hospital did not pay him a salary).
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A 2005 Supreme Court decision has also complicated statute
of limitations questions even though the 1986 amendments
extended the False Claims Act's statute of limitations. In
interpreting the False Claims Act, the Supreme Court held that
the law's statute of limitations did not apply to retaliation
claims brought under the False Claims Act; rather, relators
must conform their claims to the most similar type of action
available under State law.\36\ Because many State false claims
statutes of limitations are short, the Court's decision created
a significant obstacle to recovery for legitimate retaliation
claims. Consequently, many whistleblowers who encounter
retaliatory tactics from their employers are now forced to file
their false claims actions within a narrow window in order to
obtain relief, or be limited to less attractive legal avenues
for relief.
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\36\Graham County Soil & Water Conservation Dist. v. United States,
ex rel., Wilson, 545 U.S. 409 (2005).
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Finally, many courts have overly strictly applied Rule 9(b)
of the Federal Rules of Civil Procedure to False Claims Act
suits. Rule 9(b) requires claims to be pled with particularity,
to ensure that defendants are given proper notice of any claims
that are being leveled against them so they can formulate a
vigorous defense.\37\ In False Claims Act suits, however, many
courts have required a degree of specificity that is not only
beyond what is necessary to give defendants notice of the
charges against them but goes far beyond the information
readily available at the pleading stage to many qui tam
relators with meritorious allegations.
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\37\Rule 9(b) states: ``In all averments of fraud or mistake, the
circumstances constituting fraud or mistake shall be state with
particularity. Malice, intent, knowledge, and other condition of mind
of a person may be averred generally.''
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A relator may have knowledge of the method of fraud
employed, for example, but not be in possession of detailed
records documenting precisely how the fraud was executed.
Courts have nevertheless ruled against relators who could not
provide the false invoices or phoney billing records, even
though they are not generally available to anyone outside a
company's billing department--often without even providing an
opportunity for discovery.\38\
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\38\E.g., United States ex rel. Bledsoe v. Community Health Sys.,
Inc., 501 F.3d 493 (6th Cir. 2007); United States ex rel. Joshi v. St.
Luke's Hosp., Inc., 441 F.3d 552, 559 (8th Cir. 2006); United States ex
rel. Sikkenga v. Bluecross, 472 F.3d 702 (10th Cir. 2006) (10th Cir.,
Dec. 5, 2006); Sanderson v. HCA, 447 F.3d 873, 877 (6th Cir. 2006);
United States ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220
(1st Cir. 2004); In re Genesis Health Ventures, Inc., 112 Fed. Appx.
140, 144 (3rd Cir. 2004); United States ex rel. Clausen v. Lab Corp. of
America, 290 F.3d 1301 (11th Cir. 2002), cert. denied, 537 U.S. 1105
(2003).
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Hearings
The Committee held a hearing on proposals to fight fraud
and to protect taxpayers on April 1, 2009. The Committee heard
testimony on H.R. 1788, among several other bills. Testimony on
H.R. 1788 was received from two witnesses--Joseph E. B. White,
President and CEO of Taxpayers Against Fraud; and Marcia
Madsen, an attorney with Mayer Brown LLP, who appeared on
behalf of the United States Chamber of Commerce and the United
States Chamber Institute for Legal Reform.
During the 110th Congress, the Committee's Subcommittee on
Commercial and Administrative Law and the Subcommittee on
Courts, the Internet, and Intellectual Property held a joint
hearing on substantially identical legislation, H.R. 4854, the
``False Claims Act Correction Act of 2007.'' Testimony was
received from Albert Campbell, a small business owner from
Florida; Shelley Slade, an attorney with Vogel, Slade, &
Goldstein, LLP; Peter B. Hutt, II, an attorney with Akin Gump
Strauss Hauer & Feld, LLP, who appeared on behalf of the United
States Chamber of Commerce and the United States Chamber
Institute for Legal Reform; and James B. Helmer, Jr., President
of the law firm Helmer, Martins, Rice & Popham Co., L.P.A.
Committee Consideration
On April 28, 2009, the Committee met in open session and
ordered the bill H.R. 1788 favorably reported without
amendment, by a rollcall vote of 20 to 6, a quorum being
present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
following rollcall votes occurred during the Committee's
consideration of H.R. 1788.
1. An amendment offered by Mr. Issa to explicitly require
the court to consider, in determining whether to reduce the
share of recovered proceeds that a relator receives, the value
to the relator of avoiding prosecution. Defeated 18 to 10.
ROLLCALL NO. 1
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Conyers, Jr., Chairman...................................... X
Mr. Berman...................................................... X
Mr. Boucher.....................................................
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren..................................................... X
Ms. Jackson Lee.................................................
Ms. Waters...................................................... X
Mr. Delahunt....................................................
Mr. Wexler......................................................
Mr. Cohen....................................................... X
Mr. Johnson..................................................... X
Mr. Pierluisi................................................... X
Mr. Gutierrez...................................................
Mr. Sherman.....................................................
Ms. Baldwin.....................................................
Mr. Gonzalez.................................................... X
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Ms. Wasserman Schultz...........................................
Mr. Maffei...................................................... X
[Vacant]........................................................
Mr. Smith, Ranking Member....................................... X
Mr. Sensenbrenner, Jr........................................... X
Mr. Coble....................................................... X
Mr. Gallegly....................................................
Mr. Goodlatte................................................... X
Mr. Lungren..................................................... X
Mr. Issa........................................................ X
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Franks...................................................... X
Mr. Gohmert.....................................................
Mr. Jordan...................................................... X
Mr. Poe.........................................................
Mr. Chaffetz.................................................... X
Mr. Rooney...................................................... X
Mr. Harper...................................................... X
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Total....................................................... 10 18
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2. An amendment offered by Mr. Issa to bar an employee from
bringing a qui tam suit against his or her employer without
first notifying the employer, and to bar anyone from bringing a
qui tam suit against any entity other than his or her employer
without first notifying the applicable agency's Inspector
General, and unless the employer or Inspector General fails to
take action within 90 days. Defeated 18 to 8.
ROLLCALL NO. 2
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Conyers, Jr., Chairman...................................... X
Mr. Berman...................................................... X
Mr. Boucher.....................................................
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren..................................................... X
Ms. Jackson Lee.................................................
Ms. Waters...................................................... X
Mr. Delahunt....................................................
Mr. Wexler......................................................
Mr. Cohen....................................................... X
Mr. Johnson..................................................... X
Mr. Pierluisi................................................... X
Mr. Gutierrez................................................... X
Mr. Sherman.....................................................
Ms. Baldwin.....................................................
Mr. Gonzalez.................................................... X
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Ms. Wasserman Schultz...........................................
Mr. Maffei...................................................... X
[Vacant]........................................................
Mr. Smith, Ranking Member.......................................
Mr. Sensenbrenner, Jr........................................... X
Mr. Coble....................................................... X
Mr. Gallegly.................................................... X
Mr. Goodlatte...................................................
Mr. Lungren..................................................... X
Mr. Issa........................................................ X
Mr. Forbes......................................................
Mr. King........................................................
Mr. Franks...................................................... X
Mr. Gohmert..................................................... X
Mr. Jordan...................................................... X
Mr. Poe.........................................................
Mr. Chaffetz.................................................... X
Mr. Rooney......................................................
Mr. Harper...................................................... X
-----------------------------------------------
Total....................................................... 8 18
----------------------------------------------------------------------------------------------------------------
3. The motion to report H.R. 1788 favorably, without
amendment, was approved 20 to 6.
ROLLCALL NO. 3
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Conyers, Jr., Chairman...................................... X
Mr. Berman...................................................... X
Mr. Boucher.....................................................
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren..................................................... X
Ms. Jackson Lee.................................................
Ms. Waters...................................................... X
Mr. Delahunt....................................................
Mr. Wexler......................................................
Mr. Cohen....................................................... X
Mr. Johnson..................................................... X
Mr. Pierluisi................................................... X
Mr. Gutierrez................................................... X
Mr. Sherman.....................................................
Ms. Baldwin.....................................................
Mr. Gonzalez.................................................... X
Mr. Weiner...................................................... X
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Ms. Wasserman Schultz...........................................
Mr. Maffei...................................................... X
[Vacant]........................................................
Mr. Smith, Ranking Member.......................................
Mr. Sensenbrenner, Jr........................................... X
Mr. Coble....................................................... X
Mr. Gallegly.................................................... X
Mr. Goodlatte...................................................
Mr. Lungren..................................................... X
Mr. Issa........................................................ X
Mr. Forbes......................................................
Mr. King........................................................
Mr. Franks...................................................... X
Mr. Gohmert..................................................... X
Mr. Jordan...................................................... X
Mr. Poe.........................................................
Mr. Chaffetz.................................................... X
Mr. Rooney......................................................
Mr. Harper...................................................... X
-----------------------------------------------
Total....................................................... 20 6
----------------------------------------------------------------------------------------------------------------
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 1788, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, May 5, 2009.
Hon. John Conyers, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1788, the False
Claims Act Correction Act of 2009.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Leigh Angres,
who can be reached at 226-2860.
Sincerely,
Douglas W. Elmendorf,
Director.
Enclosure
cc:
Honorable Lamar S. Smith.
Ranking Member
H.R. 1788--False Claims Act Correction Act of 2009.
H.R. 1788 would amend certain provisions of the False
Claims Act (FCA), which generally provides that a person who
knowingly submits a false or fraudulent claim for overpayments
to the U.S. Government may be subject to a civil action in a
federal court. The FCA also allows for private individuals 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 amounts recovered as a
result of such claims. The amendments in the bill would take
effect on the date of enactment and most would apply to cases
pending or filed on or after such date. Among other changes,
the bill would:
LStipulate 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);
LClarify that only actions where all the
essential parts of a case are derived from public
disclosure can be dismissed; and
LSet a uniform statute of limitations of eight
years for any claim brought under the FCA.
Each year, the Department of Justice's (DOJ's) docket
includes several hundred cases filed under the FCA. In 2008,
the Government recovered more than $1.3 billion from
settlements and judgments in such cases. Under H.R. 1788, the
Government would be able to initiate additional FCA cases that
it otherwise would not be able to pursue. Accordingly,
additional litigation activities could require more resources.
Funding needed for such activities would depend on the
complexity and number of cases DOJ chooses to pursue and would
be subject to the availability of appropriated funds.
More prosecutions also would result in the collection of
civil fines, which are recorded in the budget as revenues, and
additional recoveries, which are recorded as offsetting
receipts and collections to the Government. CBO cannot estimate
the magnitude of such amounts because the outcome of any new
FCA cases pursued as a result of this legislation is uncertain.
Furthermore, the outcome of cases that might be prosecuted
under other authorities if H.R. 1788 were not enacted is
unknown.
H.R. 1788 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.
The CBO staff contact for this estimate is Leigh Angres.
This estimate was approved by Theresa Gullo, Deputy Assistant
Director for Budget Analysis.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
1788 amends title 31, United States Code, to correct the effect
of unduly restrictive judicial opinions by clarifying that
Congress intends the law to reach all types of fraud concerning
Federal funds, regardless of the form of the transaction, and
to restore the intended incentives for whistleblowers to act
when they discover fraud against the United States Government.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in article I, section 8 of the Constitution.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 1788 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(d), 9(e), or 9(f) of Rule XXI.
Section-by-Section Analysis
The following discussion describes the bill as reported by
the Committee.
Sec. 1. Short Title. Section 1 sets forth the short title
of the bill as the ``False Claims Act Correction Act of 2009.''
Sec. 2. Liability for False Claims. Section 2 clarifies
liability under the False Claims Act. It clarifies that
liability 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 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. Section 2 amends the False Claims Act to apply to all
instances where there is unlawful conversion of Government
money to unauthorized uses or the knowing retention of
Government overpayments.
Section 2 specifies that conspiracy under the False Claims
Act arises whenever a person conspires to violate any of the
provisions of 31 U.S.C. Sec. 3729. Section 2 defines the term
``government money or property'' broadly, and redefines the
term ``claim'' to cover all requests or demands for Government
money or property, without regard to whether the United States
holds title to the money or property or is merely managing it.
Finally, section 2 also provides that all elements necessary to
state a claim under the False Claims Act are set forth in
Sec. 3729, and that no additional elements should be implied or
required.
Sec. 3. Civil Actions for False Claims. Subsection 3(a)(1)
streamlines the procedures under which a court may dismiss a
qui tam action on the plaintiff's motion. Subsection 3(a)(2)
provides that--absent a showing of extraordinary need--the
written disclosure of any material evidence and information and
any other attorney work product that the plaintiff provides to
the Department of Justice in anticipation of the Government
joining the case is not subject to discovery. Subsection
3(a)(3) crafts a uniform timetable for relators to decide to
either dismiss the case or move forward alone where the
Government declines to take up a case. Subsection 3(a)(4)
provides that the joinder of qui tam plaintiffs in similar
False Claims Act actions is permissible, and it bars an
individual from bringing a case that is based on the facts
underlying a similar pending action.
Subsection 3(c)(1) requires that awards withheld from
successful qui tam plaintiffs by the Government would accrue
interest at the Internal Revenue Service underpayment rate,
beginning 30 days after the Government obtains an award until
it is fully paid to the plaintiff. Subsection 3(c)(2) allows
successful relators to recover reasonable incurred expenses
from defendants, and subsection 3(c)(3) gives courts wide
discretion to reduce a relator's award in those instances where
the relator's case is derived primarily from public
disclosures.
Subsection 3(d) clarifies that the public disclosure bar
precludes only actions where all the essential elements of a
relator's case are derived from a public disclosure that has
been made on the public record or broadly disseminated to the
general public, and provides that only the Government, and not
a defendant, may move to dismiss an action based on the public
disclosure bar. This clarifying language should return the
meaning of the public disclosure bar to what Congress intended
in the 1986 amendments, while still preventing truly parasitic
suits.\39\
---------------------------------------------------------------------------
\39\See fn 32.
---------------------------------------------------------------------------
Subsection 3(e) would broaden protections for
whistleblowers by expanding the False Claims Act's anti-
retaliation provision to cover any retaliation against those
who planned to file an action (but did not), people related to
or associated with relators, and contract workers and others
who are not technically ``employees.''
Sec. 4. False Claims Procedures. Subsection 4(a) sets a
uniform statute of limitations of 8 years for any claim brought
under the False Claims Act, and clarifies that in cases where
the Government intervenes, its amended complaint relates back
to the date the initial action was filed. The uniform standard
addresses the divergence among the Federal circuits in
interpreting the statute of limitations, and takes into
consideration concerns expressed by potential defendants
regarding a 10-year statute of limitations period. Subsection
4(b) makes the standard of proof required under the statute the
same whether an action is pursued by the Government or by a
relator.
Subsection 4(c) specifies that a plaintiff need not
identify specific claims on alleged misconduct so long as the
facts alleged provide a reasonable indication that a False
Claims Act violation occurred and that the allegations
proffered by the relator provide adequate notice to the
Government and the defendant. Subsection 4(c) will not
encourage baseless suits, but instead still place defendants on
adequate notice of the claims against them. Subsection 4(c)
voids any contract, private agreement, or private term or
condition of employment intended to limit or circumvent the
ability of any individual to take part in a False Claims Act
action. Subsection 4(c) will ensure that qui tam relators will
not be prevented from bringing actions under the False Claims
Act.
Sec. 5. False Claims Jurisdiction. Section 5 adds a new
subsection to Sec. 3732 to clarify that, with respect to any
State or local government that is named as a co-plaintiff with
the United States in an action, a seal imposed by a Federal
court does not preclude the Government or a qui tam relator
from complying with State requirements to serve a complaint,
other pleadings, or the written disclosure of all material
evidence and information possessed by the person bringing the
action on the State or local authorities.
Sec. 6. Civil Investigative Demands. Section 6 amends
Sec. 3733 to permit the Attorney General to delegate his
authority to issue a civil investigative demand to a designee
and allows the Department of Justice to share any information
obtained through a civil investigative demand with a relator in
any case where the Attorney General or a designee deems it
necessary to a False Claims Act investigation.
Sec. 7. Effective Date. This section provides that the
amendments made by this bill take effect on the date of the
bill's enactment, and that they apply to both pending and
future cases, with the exception of the provisions dealing with
overpayments in Section 2, retaliation against associates in
Section 3(e), and the statute of limitations, which will apply
only to cases filed on or after the date of enactment.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, existing law in which no change
is proposed is shown in roman):
TITLE 31, UNITED STATES CODE
* * * * * * *
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) knowingly presents, or causes to be presented,
to an officer or employee of the United States
Government or a member of the Armed Forces of the
United States a false or fraudulent claim for payment
or approval;
[(2) 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) conspires to defraud the Government by getting a
false or fraudulent claim allowed or paid;
[(4) 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 or receipt;
[(5) 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) 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) 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,
is liable to the United States Government for a civil penalty
of not less than $5,000 and not more than $10,000, plus 3 times
the amount of damages which the Government sustains because of
the act of that person, except that if the court finds that--
the court may assess not less than 2 times the amount of
damages which the Government sustains because of the act of the
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.--For purposes of this
section, the terms ``knowing'' and ``knowingly'' mean that a
person, with respect to information--
[(1) has actual knowledge of the information;
[(2) acts in deliberate ignorance of the truth or
falsity of the information; or
[(3) 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 any request or demand, whether under a contract or
otherwise, 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.
[(d) Exemption From Disclosure.--Any information furnished
pursuant to subparagraphs (A) through (C) of subsection (a)
shall be exempt from disclosure under section 552 of title 5.
[(e) Exclusion.--This section does not apply to claims,
records, or statements made under the Internal Revenue Code of
1986.]
Sec. 3729. False claims
(a) Liability for Certain Acts.--
(1) In general.--Any person who--
(A) knowingly presents, or causes to be
presented for payment or approval, a false or
fraudulent claim for Government money or
property,
(B) knowingly makes, uses, or causes to be
made or used, a false record or statement to
get a false or fraudulent claim for Government
money or property paid or approved,
(C) has possession, custody, or control of
Government money or property and either--
(i) fails to comply with a statutory
or contractual obligation to disclose
an overpayment about which the person
is on actual notice, or
(ii) intending to--
(I) defraud the Government,
or
(II) knowingly convert the
money or property, permanently
or temporarily, to an
unauthorized use,
fails to deliver or return, or fails to
cause the return or delivery of, the
money or property, or delivers,
returns, or causes to be delivered or
returned less money or property than
the amount due or owed,
(D) authorized to make or deliver a document
certifying receipt of property used, or to be
used, by the Government and, intending to
defraud the Government, makes or delivers the
receipt without completely knowing that the
information on the receipt is true,
(E) knowingly buys, or receives as a pledge
of an obligation or debt, Government money or
property from an officer or employee of the
Government, or a member of the Armed Forces,
who lawfully may not sell or pledge the money
or property,
(F) knowingly makes, uses, or causes to be
made or used, a false record or statement to
conceal, avoid, or decrease an obligation to
pay or transmit money or property to the
Government, or
(G) conspires to commit any violation set
forth in any of subparagraphs (A) through (F),
is liable to the United States Government for a civil
penalty of not less than $5,000 and not more than
$10,000, plus 3 times the amount of damages that the
Government or its administrative beneficiary sustains
because of the act of that person, subject to
paragraphs (2) and (3).
(2) Lesser penalty if defendant cooperates with
investigation.--In an action brought for a violation
under paragraph (1), the court may assess not less than
2 times the amount of damages that the Government or
its administrative beneficiary sustains because of the
act of the person committing the violation if the court
finds that--
(A) such person provided to those officials
of the United States who are responsible for
investigating false claims violations, all
information known to the person about the
violation within 30 days after the date on
which the person first obtained the
information;
(B) such person fully cooperated with any
Government investigation of the violation; and
(C) at the time such person provided to the
United States the information about the
violation under subparagraph (A), no criminal
prosecution, civil action, or administrative
action had commenced with respect to such
violation, and the person did not have actual
knowledge of the existence of an investigation
into such violation.
(3) Assessment of costs.--A person violating
paragraph (1) shall, in addition to a penalty or
damages assessed under paragraph (1) or (2), be liable
to the United States Government for the costs of a
civil action brought to recover such penalty or
damages.
(b) Definitions.--For purposes of this section--
(1) the terms ``known'', ``knowing'', and
``knowingly'' mean that a person, with respect to
information--
(A) has actual knowledge of the information,
(B) acts in deliberate ignorance of the truth
or falsity of the information, or
(C) acts in reckless disregard of the truth
or falsity of the information,
and no proof of specific intent to defraud is required;
(2) the term ``Government money or property'' means--
(A) money or property belonging to the United
States Government;
(B) money or property that--
(i) the United States Government
provides or has provided to a
contractor, grantee, agent, or other
recipient, or for which the United
States Government will reimburse a
contractor, grantee, agent, or other
recipient; and
(ii) is to be spent or used on the
Government's behalf or to advance a
Government program; and
(C) money or property that the United States
holds in trust or administers for any
administrative beneficiary;
(3) the term ``claim'' includes any request or
demand, whether under a contract or otherwise, for
Government money or property; and
(4) the term ``administrative beneficiary'' means any
entity, including any governmental or quasi-
governmental entity, on whose behalf the United States
Government, alone or with others, serves as custodian
or trustee of money or property owned by that entity.
(c) Statutory Cause of Action.--Liability under this section
is a statutory cause of action all elements of which are set
forth in this section. No proof of any additional element of
common law fraud or other cause of action is implied or
required for liability to exist for a violation of subsection
(a).
(d) Exemption From Disclosure.--Any information that a person
provides pursuant to subparagraphs (A) through (C) of
subsection (a)(2) shall be exempt from disclosure under section
552 of title 5.
(e) Exclusion.--This section does not apply to claims,
records, or statements made under the Internal Revenue Code of
1986.
Sec. 3730. Civil actions for false claims
(a) * * *
(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.] The action
may be dismissed only with the consent of the court and the
Attorney General.
(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) 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. In the absence of a showing of extraordinary
need, the written disclosure of any material evidence and
information, and any other attorney work product, that the
person bringing the action provides to the Government shall not
be subject to discovery. 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.
* * * * * * *
(4) Before the expiration of the 60-day period or any
extensions obtained under paragraph (3), the Government shall--
(A) * * *
[(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.]
(B) notify the court that it declines to take over
the action, in which case the person bringing the
action shall have the right to conduct the action, and,
within 45 days after the Government provides such
notice, shall either--
(i) move to dismiss the action without
prejudice; or
(ii) notify the court of the person's
intention to proceed with the action and move
the court to unseal the complaint, and any
amendments thereto, so as to permit service on
the defendant and litigation of the action in a
public forum.
A person who elects to proceed with the action under
subparagraph (B)(ii) shall serve the complaint within 120 days
after the person's complaint is unsealed under such
subparagraph.
[(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.]
(5) When a person brings an action under this subsection, no
person other than the Government may join or intervene in the
action, except with the consent of the person who brought the
action. In addition, when a person brings an action that is
pled in accordance with this subsection and section 3731(e), no
other person may bring a separate action under this subsection
based on the facts underlying a cause of action in the pending
action.
(c) Rights of the Parties to Qui Tam Actions.--(1) * * *
* * * * * * *
(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.] An alternate remedy includes--
(A) anything of value received by the Government from
the defendant, whether funds, credits, or in-kind goods
or services, in exchange for an agreement by the
Government either to release claims brought in, or to
decline to intervene in or investigate, the action
initiated under subsection (b); and
(B) anything of value received by the Government
based on the claims alleged by the person initiating
the action, if that person subsequently prevails on the
claims.
If any such alternate remedy is pursued in another proceeding,
the person initiating the action shall have the same rights in
such proceeding as such person would have had if the action had
continued under this section, except that the person initiating
the action may not obtain an award calculated on more than the
total amount of damages, plus any fines or penalties, that
could be recovered by the United States under section 3729(a).
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 an award of 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.
[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 payment to a person under
this paragraph or under paragraph (2) or (3) shall be made from
the proceeds, and shall accrue interest, at the underpayment
rate under section 6621 of the Internal Revenue Code of 1986,
beginning 30 days after the date the proceeds are paid to the
United States, and continuing until payment is made to the
person by the United States. 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) 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.]
(3)(A) Whether or not the Government proceeds with the
action, if the court finds that the action was brought by a
person who either--
(i) planned and initiated the violation of section
3729 upon which the action was brought, or
(ii) derived his or her knowledge of the action
primarily from specific information relating to
allegations or transactions (other than information
provided by the person bringing the action) that the
Government publicly disclosed, within the meaning of
subsection (e)(4)(A), or that it disclosed privately to
the person bringing the action in the course of its
investigation into potential violations of section
3729,
then the court may, to the extent the court considers
appropriate, reduce the share of the proceeds of the action
that the person would otherwise receive under paragraph (1) or
(2) of this subsection, taking into account the role of that
person in advancing the case to litigation and any relevant
circumstances pertaining to the violation. The court shall
direct the defendant to pay any such person an amount for
reasonable expenses that the court finds to have been incurred,
plus reasonable attorneys' fees and costs.
(B) If the person bringing the action is convicted of
criminal conduct arising from his or her role in the violation
of section 3729, that person shall be dismissed from the civil
action and shall not receive any share of the proceeds of the
action. Such dismissal shall not prejudice the right of the
United States to continue the action, represented by the
Department of Justice.
* * * * * * *
(e) Certain Actions Barred.--(1) * * *
* * * * * * *
[(4)(A) 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.
[(B) 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.]
(4)(A) Upon timely motion of the Attorney General of the
United States, a court shall dismiss an action or claim brought
by a person under subsection (b) if the allegations relating to
all essential elements of liability of the action or claim are
based exclusively on the public disclosure of allegations or
transactions in a Federal criminal, civil, or administrative
hearing, in a congressional, Federal administrative, or
Government Accountability Office report, hearing, audit, or
investigation, or from the news media.
(B) For purposes of this paragraph, a ``public disclosure''
includes only disclosures that are made on the public record or
have otherwise been disseminated broadly to the general public.
An action or claim is ``based on'' a public disclosure only if
the person bringing the action derived the person's knowledge
of all essential elements of liability of the action or claim
alleged in the complaint from the public disclosure. The person
bringing the action does not create a public disclosure by
obtaining information from a request for information made under
section 552 of title 5 or from exchanges of information with
law enforcement and other Government employees if such
information does not otherwise qualify as publicly disclosed
under this paragraph.
* * * * * * *
[(h) Any employee 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 on behalf
of the employee or others in furtherance of 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 shall include
reinstatement with the same seniority status such employee
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
employee may bring an action in the appropriate district court
of the United States for the relief provided in this
subsection.]
(h) Relief From Retaliatory Action.--Any person who is
discharged, demoted, suspended, threatened, harassed, or in any
other manner discriminated against in the terms or conditions
of employment, or is materially hindered in obtaining new
employment or other business opportunities, by any other person
because of lawful acts done by the person discriminated against
or others associated with that person--
(1) in furtherance of an actual or potential action
under this section, including investigation for,
initiation of, testimony for, or assistance in an
action filed or to be filed under this section, or
(2) in furtherance of other efforts to stop one or
more violations of section 3729,
shall be entitled to all relief, from the person who has
engaged in the discrimination, that is necessary to make the
person whole. Such relief shall include reinstatement with the
same seniority status such person would have had but for the
discrimination, 2 times the amount of back pay or business
loss, interest on the back pay or business loss, and
compensation for any special damages sustained as a result of
the discrimination, including litigation costs and reasonable
attorneys' fees. An action under this subsection may be brought
in the appropriate district court of the United States for the
relief provided in this subsection.
(i) Damages Collected for Financial Losses Suffered by
Administrative Beneficiaries.--
(1) In general.--After paying any awards due one or
more persons who brought an action under subsection
(b), the Government shall pay from the proceeds of the
action to any administrative beneficiary, as defined in
section 3729(b), all amounts that the Government has
collected in the action for financial losses suffered
by such administrative beneficiary. Any remaining
proceeds collected by the Government shall be treated
in the same manner as proceeds collected by the
Government for direct losses the Government suffers
because of violations of section 3729.
(2) Alternative remedies.--Nothing in section 3729 or
this section precludes administrative beneficiaries
from pursuing any alternate remedies available to them
for losses or other harm suffered by them that are not
pursued or recovered in an action under this section,
except that if proceedings for such alternate remedies
are initiated after a person has initiated an action
under subsection (b), such person shall be entitled to
have such alternative remedies considered in
determining any award in the action under subsection
(b) to the same extent that such person would be
entitled under subsection (c)(5) with respect to any
alternate remedy pursued by the Government.
Sec. 3731. False claims procedure
[(a) A subpena] (a) Service of Subpoenas._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) more than 6 years after the date on which the
violation of section 3729 is committed, or
[(2) 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.]
(b) Statute of Limitations; Intervention by the Government.--
(1) Statute of limitations.--A civil action under
section 3730 (a), (b), or (h) may not be brought more
than 8 years after the date on which the violation of
section 3729 or 3730(h) (as the case may be) is
committed.
(2) Intervention.--If the Government elects to
intervene and proceed with an action brought under
section 3730(b), the Government may file its own
complaint, or amend the complaint of the person who
brought the action under section 3730(b), to clarify or
add detail to the claims in which it is intervening and
to add any additional claims with respect to which the
Government contends it is entitled to relief. For
purposes of paragraph (1), any such Government pleading
shall relate back to the filing date of the complaint
of the person who originally brought the action to the
extent that the Government's claim arises out of the
conduct, transactions, or occurrences set forth, or
attempted to be set forth, in the person's prior
complaint.
[(c) In] (c) Standard of Proof._In any action brought under
section 3730, the [United States] plaintiff shall be required
to prove all essential elements of the cause of action,
including damages, by a preponderance of the evidence.
[(d) Notwithstanding] (d) Estoppel._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.
(e) Notice of Claims.--In pleading an action brought under
section 3730(b), a person shall not be required to identify
specific claims that result from an alleged course of
misconduct if the facts alleged in the complaint, if ultimately
proven true, would provide a reasonable indication that one or
more violations of section 3729 are likely to have occurred,
and if the allegations in the pleading provide adequate notice
of the specific nature of the alleged misconduct to permit the
Government effectively to investigate and defendants fairly to
defend the allegations made.
(f) Void Contract, Agreements, and Conditions of
Employment.--
(1) In general.--Any contract, private agreement, or
private term or condition of employment that has the
purpose or effect of limiting or circumventing the
rights of a person to take otherwise lawful steps to
initiate, prosecute, or support an action under section
3730, or to limit or circumvent the rights or remedies
provided to persons bringing actions under section
3730(b) and other cooperating persons under section
3729 shall be void to the full extent of such purpose
or effect.
(2) Exception.--Paragraph (1) shall not preclude a
contract or private agreement that is entered into--
(A) with the United States and a person
bringing an action under section 3730(b) who
would be affected by such contract or agreement
specifically to settle claims of the United
States and the person under section 3730; or
(B) specifically to settle any discrimination
claim under section 3730(h) of a person
affected by such contract or agreement.
Sec. 3732. False claims jurisdiction
(a) * * *
* * * * * * *
(c) Service on State or Local Authorities.--With respect to
any State or local government that is named as a co-plaintiff
with the United States in an action brought under subsection
(b), a seal on the action ordered by the court under section
3730(b) shall not preclude the Government or the person
bringing the action from serving the complaint, any other
pleadings, or the written disclosure of substantially all
material evidence and information possessed by the person
bringing the action on the law enforcement authorities that are
authorized under the law of that State or local government to
investigate and prosecute such actions on behalf of such
governments.
Sec. 3733. Civil investigative demands
(a) In General.--
(1) Issuance and service.--Whenever the Attorney
General 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 may, before
commencing a civil proceeding under section 3730 or
other false claims law, issue in writing and cause to
be served upon such person, a civil investigative
demand requiring such person--
(A) * * *
* * * * * * *
(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 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 under this section may be shared with any a
person bringing an action under section 3730(b) if the
Attorney General determines that it is necessary as
part of any false claims law investigation.
(2) Contents and deadlines.--
(A) * * *
* * * * * * *
(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.]
* * * * * * *
(h) Oral Examinations.--
(1) * * *
* * * * * * *
(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' testimony.
* * * * * * *
(i) Custodians of Documents, Answers, and Transcripts.--
(1) * * *
* * * * * * *
[(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.]
(3) use of material, answers, or transcripts in false
claims actions and other proceedings.--Whenever any
attorney of the Department of Justice has been
designated to handle any false claims law investigation
or proceeding, or any other administrative, civil, or
criminal investigation, case, or proceeding, the
custodian of any documentary material, answers to
interrogatories, or transcripts of oral testimony
received under this section may deliver to such
attorney such material, answers, or transcripts for
official use in connection with any such investigation,
case, or proceeding as such attorney determines to be
required. Upon the completion of any such
investigation, case, or proceeding, such attorney shall
return to the custodian any such material, answers, or
transcripts so delivered that have not passed into the
control of a court, grand jury, or agency through
introduction into the record of such case or
proceeding.
* * * * * * *
(l) Definitions.--For purposes of this section--
(1) * * *
* * * * * * *
(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) * * *
* * * * * * *
(C) any index or other manner of access to
any item listed in subparagraph (A)[.]; and
(8) the term ``official use'' means all lawful,
reasonable uses in furtherance of an investigation,
case, or proceeding, such as disclosures in connection
with interviews of fact witnesses, settlement
discussions, coordination of an investigation with a
State Medicaid Fraud Control Unit or other government
personnel, consultation with experts, and use in court
pleadings and hearings.
(m) Delegation.--The Attorney General may delegate any
authority that the Attorney General has under this section.
* * * * * * *
Dissenting Views
INTRODUCTION
Since the False Claims Act was last amended in 1986, it has
become one of the Government's primary tools for recovering
taxpayer dollars lost to waste, fraud, and abuse. As the
Federal Government increases its spending through the stimulus
bill and increased annual budgets, the importance of the FCA
will increase as well. Congress thus has the responsibility to
ensure that the FCA is functioning properly.
Some of what is in H.R. 1788 will work toward that end. In
particular, section 2 of the bill, which strengthens the Act's
liability provisions, will help the Government to root out
fraud wherever the Federal Government commits taxpayer dollars.
In the roughly 22 years since the 1986 amendments, cases have
arisen in which liability under the FCA has been held not to
exist even though false claims may have ultimately resulted in
a loss to the Federal Government.
Although some of the provisions in this bill may be
beneficial, other provisions are highly problematic. While
section 2 may favorably address some issues that have arisen
since the 1986 amendments related to liability, the remaining
sections of the bill are generally aimed at helping private qui
tam plaintiffs and the qui tam plaintiffs' bar without, in some
instances, obvious benefits to the United States and the
taxpayers.
Certainly, suits brought by whistleblowers have been
invaluable to the Federal Government's efforts under the FCA.
Whistleblower assistance has allowed the Government to uncover
more fraud and pursue a larger number of cases than it
otherwise would have been able to. That said, the qui tam
provisions of this bill may lead to a greater number of
lawsuits by qui tam plaintiffs with questionable motives who
advance baseless claims, inadvertently make bad law, and
distract limited federal resources from meritorious claims to
frivolous ones. The amendments made by this bill will only
serve to displace the reasoned regime that governs
relationships between the Federal Government and recipients of
federal funds.
What is more, it is entirely unclear that an increased
number of qui tam cases will lead to increased recoveries under
the FCA. The Federal Government investigates every qui tam
filing and has consistently declined to intervene in about 80%
of the cases filed by private plaintiffs. This selectivity is
indicative of genuine discernment. Of the $21.5 billion in FCA
recoveries since 1986, only three percent was recovered in qui
tam cases in which the Department of Justice declined to
intervene.
Put differently, it is suspect that the qui tam provisions
in this bill will increase the Federal Government's ability to
recover taxpayer dollars. Rather, it is possible that these
provisions will encourage private plaintiffs to file unfounded
and parasitic lawsuits that benefit no one but the plaintiffs
and their attorneys.
By encouraging unfounded and parasitic qui tam suits, this
bill will actually make it harder for the Government to recover
funds under the FCA. These additional suits will add to the
Justice Department's burden and detract from its ability to
focus on meaningful cases. Simply put, the qui tam provisions
in this bill may, in fact, be counterproductive.
The False Claims Act, like so many other laws, is about
striking the proper balance between competing interests. The
interests here are between allowing the United States to
recover as much fraudulently obtained money as possible and
ensuring that innocent recipients of federal funds are not
hauled into court to defend lawsuits that are based on an
overly broad law. We believe the FCA currently strikes that
balance well. Although there may be room to improve the FCA, we
must be mindful in seeking to make improvements to continue to
strike the proper balance. Unfortunately, the changes proposed
in H.R. 1788, if enacted, might well throw that balance off.
The costs of Government programs and Government contracts
are already inflated by complex rules that are unknown in
private business transactions. This legislation will likely
generate additional costs for non-profits, hospitals,
universities and businesses of all sizes; it will increase the
burdens on the recipients of federal funds, remove safeguards
against unfounded lawsuits brought by qui tam plaintiffs, and
perhaps deter some from bidding on federal contracts, resulting
in increased costs to the Government and the taxpayers. Thus,
it appears that the benefits that its proponents argue H.R.
1788 may bring are outweighed by the costs that it will impose.
BACKGROUND
The FCA, 31 U.S.C. Sec. Sec. 3729-3733, is one of the
Government's primary tools for combating fraud on federally
funded programs. The statute imposes liability on persons who
(1) knowingly present false or fraudulent claims to the United
States, (2) knowingly make false records or statements to get
false or fraudulent claims paid, or (3) conspire to defraud the
Government by getting a false or fraudulent claim paid.\1\ The
statute provides for treble damages plus penalties of $5,000 to
$10,000 for each false claim.\2\
---------------------------------------------------------------------------
\1\131 U.S.C. Sec. Sec. 3729(a)(1)N(3).
\2\31 U.S.C. Sec. 3729(a).
---------------------------------------------------------------------------
In addition to allowing the Government to bring its own
lawsuits, the FCA also permits private citizens, known as qui
tam plaintiffs or ``relators,'' to hire attorneys and file
actions asserting violations of the FCA on behalf of the United
States. Actions brought by relators are filed under seal,
giving the Department of Justice the opportunity to investigate
the actions and decide whether to intervene in the lawsuits and
take the lead in prosecuting them. If the Government declines
to intervene, relators and their attorneys can proceed with
their actions. The incentive for relators and their attorneys
is financial--if their actions are successful, the relators
receive up to 30 percent of the proceeds awarded, and the
remainder goes to the U.S. Treasury.\3\
---------------------------------------------------------------------------
\3\See 31 U.S.C. Sec. 3730.
---------------------------------------------------------------------------
The FCA was enacted in 1863 to combat ``the massive frauds
perpetuated by large contractors during the Civil War.''\4\ It
has since been amended several times, most recently in 1986.
The 1986 amendments were intended in part ``to encourage more
private enforcement suits.''\5\ Thus, since the 1986
amendments, the FCA has sought to balance the twin goals of
encouraging prompt whistleblowing while discouraging claims
that do not help the Government protect the public fisc. So far
these goals have been met: total recoveries under the FCA have
exceeded $21.5 billion, $13.6 billion of which has come from
suits initiated by qui tam plaintiffs.\6\
---------------------------------------------------------------------------
\4\United States v. Bornstein, 423 U.S. 303, 309 (1976).
\5\S. Rep. No. 99N345, at 23N24 (1986).
\6\Of the $13.6 billion that has been recovered in lawsuits
initiated by qui tam plaintiffs, only $432 million has come from cases
in which the Government declined to intervene. Fraud Statistics
1986N2008, available at http://www.usdoj.gov/opa/pr/2008/November/
fraud-statistics1986-2008.htm.
---------------------------------------------------------------------------
DISCUSSION
The tremendous success the FCA has had over the past 22
years calls into question the need for reform--especially
reform as sweeping as that encompassed in H.R. 1788. As stated
above, certain parts of this legislation, especially section 2,
will be beneficial to the Federal Government's fight against
fraud and wasteful spending in Government contracts and
programs, and we support these proposals. On the other hand,
much of what is in this legislation will unnecessarily impose
significant burdens, for the benefit of qui tam plaintiffs, on
entities that received federal funds with few, if any,
countervailing benefits. Moreover, the legislation will
strengthen the hand of qui tam plaintiffs at the expense of the
Government and defendants to baseless actions. Therefore, it is
our considered view that any benefits this bill will provide to
the Federal Government's efforts to combat fraud and waste in
Government programs are outweighed by the costs and burdens of
this legislation.
A. More Qui Tam Lawsuits May not Lead to More FCA Recoveries
Despite supporters' claims that the FCA needs to be
amended, there are several reasons to be skeptical of the need
for amendment. First and foremost among those reasons is that
the FCA has worked well in the 22 years since the 1986
amendments. According to the Department of Justice, ``the FCA
in its present form has worked well and we have seen no
pressing need for major amendments.''\7\
---------------------------------------------------------------------------
\7\Letter from Keith B. Nelson, Principal Deputy Attorney General,
Office of Legislative Affairs, to John Conyers, Jr. (July 15, 2008)
(``Justice Dept. Views Letter'').
---------------------------------------------------------------------------
According to supporters of this legislation, reform is
needed to ensure that relators can bring forth meritorious
litigation. The amendments to the FCA contained in H.R. 1788
thus are intended to and certainly will encourage the filing of
more cases under the FCA, especially by qui tam plaintiffs. It
is not altogether clear, however, that more filings will lead
to more recoveries.
This result may seem counterintuitive, but we are confident
it is correct. We come to this conclusion because, as it
stands, the Government investigates every qui tam filing and
consistently over time has declined to intervene in about 80%
of the cases filed by relators. As suggested above, this
represents genuine discernment by the Government. More than 97%
of the amounts received in settlements and judgments in qui tam
cases have come in the 20% of the matters in which the
Government has intervened. In other words, fewer than 3% of
recoveries have been derived from the 80% of the total
investigative pool that the Justice Department has rejected.
Indeed, last year (through September 30, 2008), the Government
recovered about $1.043 billion in qui tam FCA cases; of that
total roughly $1.037 billion came from qui tam cases in which
the Justice Department intervened and only about $5.9 million
came from relators litigating declined cases. As two experts on
the FCA put it in a recent article, ``when DOJ examines the
case and decides not to intervene, the chances the relator
actually has a meritorious case are very low.''\8\
---------------------------------------------------------------------------
\8\Marcia G. Madsen & Cameron S. Hamrick, Proposed FCA Amendments:
A Recipe for Government Gridlock (Part II), Federal Contracts Report
(BNA) (April 21, 2009).
---------------------------------------------------------------------------
Accordingly, encouraging the filing of more FCA cases by
relators and allowing these cases to avoid dismissal under
traditional mechanisms, as this legislation would do, is
unlikely to confer any sizeable benefit on the Government's
fraud fighting activities. Maximizing the filings of qui tam
lawsuits, no matter how negligible the benefits, might be
acceptable in the name of rooting out all fraud against the
United States, except for the fact that unfounded and parasitic
FCA suits impose burdens on the Government, increase the costs
of Government programs and contracts, and negatively affect the
recipients of federal funds.
B. Government Burden and Cost to Government
As was discussed above, outside of the liability provisions
contained in section 2 of this legislation, many of the other
provisions are aimed at assisting qui tam plaintiffs. But, as
is discussed throughout these views, many of these provisions
will make it easier for qui tam plaintiffs to bring unfounded
or parasitic actions. Unfounded FCA actions drain Government
resources in at least four ways. First, they place a burden on
agencies whose contracts or grants are at issue. Agencies are
forced to expend resources--that would otherwise be available
for agency programs--on document discovery and production of
witnesses for depositions and trial. Thus, increasing the
number of unfounded and parasitic FCA cases and making it more
difficult for these cases to be dismissed will result in
greater burdens on the agencies.
Second, unfounded and parasitic qui tam cases take time and
resources away from the Department of Justice, which has to
review all qui tam filings regardless of their merit. One of
the primary goals of the qui tam provisions is to help the
Justice Department by supplementing its resources for
recovering money fraudulently taken from the Federal
Government. Accordingly, draining resources from the Department
to deal with unfounded and parasitic qui tam cases runs counter
to the purposes of the FCA.
Third, unfounded and parasitic cases needlessly cost
defendants money to litigate. The defendants in turn must pass
this cost back to the taxpayer the next time they bid on a
Government contract, request funding under a Government grant,
or provide services that are paid for by a Government program.
Fourth, unfounded and parasitic cases may have the effect
of driving out of the market for federal services bidders that
could do the work but fear the potential for litigation. This
effect is most likely to be considered by small businesses,
which are also disproportionately women- and minority-owned
businesses.
C. FCA Liability for Temporary Accounting Overpayments Will Burden Non-
profits, Hospitals, and Universities
H.R. 1788 will impose liability on recipients of federal
funds for inadvertent retention of overpayments of Government
funds, even if the recipients did not ``knowingly'' retain the
overpayment. This change in the law will negatively impact non-
profits, universities, and hospitals in particular.
According to the Greater New York Hospital Association,
``due to the nature of hospital payment systems and the
complexity of the Government reimbursement operations,
hospitals are constantly identifying and reconciling over- and
underpayments in the course of normal business.''\9\ Recipients
of federal grants, such as universities, face similar problems
with regard to over- and underpayments: ``it is understood that
during the term of a federally sponsored project there may at
any given time be undercharges and overcharges, and university
systems are designed to ensure that any incorrect charges are
adjusted, through cost transfers or otherwise, when they are
detected.''\10\ Put simply, non-profits, hospitals, and
universities have processes in place to discover and to correct
over- and underpayments.
---------------------------------------------------------------------------
\9\Memorandum from Kenneth E. Raske, President, Greater New York
Hospital Association.
\10\Letter from Robert M. Berdahl, President, Association of
American Universities, to John Conyers, Jr., Chairman, U.S. House
Committee on the Judiciary (July 15, 2008).
---------------------------------------------------------------------------
However, H.R. 1788 will allow relators to disrupt these
systems with qui tam lawsuits based on what amount to temporary
overpayments. And, because H.R. 1788 does not have a specific
knowledge requirement with regard to its overpayment provision,
these entities will be liable under the FCA even if the
overpayments were inadvertent rather than the result of a
conscious attempt to retain Government funds fraudulently.
Hospitals, universities, and non-profits should be subject to
the FCA just like any other recipient of federal funds; they
should not, though, be subject to liability for temporary
overcharges that are subject to correction through a
reconciliation process. Moreover, these entities should not
face treble damages and civil penalties for conduct that was
merely negligent rather than ``knowingly'' undertaken.
D. Evisceration of the Public Disclosure Bar Will Lead to Parasitic
Lawsuits
The FCA bars qui tam actions that are ``based upon the
public disclosure of allegations or transactions . . ., unless
. . . the person bringing the action is an original source of
the information.''\11\ Congress designed the public disclosure
bar to achieve the ``golden mean between adequate incentives
for whistle-blowing insiders with genuinely valuable
information and discouragement of opportunistic plaintiffs who
have no significant information to contribute of their
own.''\12\ Thus, the public disclosure bar has ensured that the
incentive given to qui tam plaintiffs (a share of any recovery)
only goes to those plaintiffs that are truly deserving-
whistleblowers who bring information regarding fraud to light.
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\11\31 U.S.C. Sec. 3730(e)(4)(A).
\12\United States ex rel. Springfield Terminal Rwy. Co. v. Quinn,
14 F.3d 645, 649 (D.C. Cir. 1994).
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Despite the fact that the public disclosure bar has worked
well since the 1986 amendments were adopted, H.R. 1788 would
eviscerate the bar. According to the Justice Department, the
bill ``severely restricts the circumstances where the bar would
apply in a way that would reward relators with no first hand
knowledge and who do not add information beyond what is in the
public domain, as well as relators in a broad range of cases
where the Government already is taking action.''\13\
Furthermore, the Department believes that ``[i]f these changes
were implemented, a relator could file suit and reduce the
taxpayers' recovery even though he or she has not contributed
anything new to the Government's case.''\14\
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\13\Justice Dept. Views Letter Appendix at 9.
\14\Id.
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The likely effect of the changes the legislation makes to
the public disclosure bar will be to kill the bar. While it is
true that the Justice Department would still theoretically be
able to seek dismissal of parasitic qui tam actions, according
to testimony before the committee ``in practice it does not
have the resources or inclination to do so, particularly in
light of the far more restrictive language in [H.R.
1788].''\15\ Accordingly, ``[r]elators and their attorneys will
have no reason to fear dismissal, and, as the history of the
qui tam provisions teaches, there will be a flood of cases
asserting claims based largely, and sometimes exclusively, on
information already known to the government.''\16\ As the D.C.
Circuit has noted, ``overly generous qui tam provisions present
the danger of parasitic exploitation of the public coffers, as
exemplified by the notorious plaintiff who copied the
information on which his qui tam suit was based from the
government's own criminal indictment.''\17\
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\15\H.R. 4854, the ``False Claims Act Correction Act'': Hearing
Before the H. Comm. on the Judiciary, 110th Cong. (2008) (testimony of
Peter B. Hutt, II, Partner, Akin Gump Strauss Hauer & Feld LLP).
\16\Id.
\17\Quinn, 14 F.3d at 649.
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Compounding the problem, in addition to eviscerating the
bar, the legislation goes a step further. The FCA currently
caps a qui tam plaintiff's share of any recovery at 10% if the
lawsuit is based on certain public disclosures. H.R. 1788,
however, will remove this cap, permitting parasitic
whistleblowers to recover more than a 10% share even where
their case is based on public information.
In short, this legislation will defeat the purpose of the
public disclosure bar--defending the U.S. Treasury against
parasitic qui tam actions brought by whistleblowers with
nothing new to offer.
E. Elimination of Pleading Requirements Under Rule 9(b) Will Lead to
Unfounded Qui Tam Lawsuits
H.R. 1788 exempts qui tam plaintiffs--but not the
Department of Justice--from the requirement of Rule 9(b) of the
Federal Rules of Civil Procedure that all persons asserting
fraud actions in federal court must plead the elements of fraud
with particularity. There is no basis for holding qui tam
plaintiffs in FCA actions to a lower pleading standard than
every other federal litigant.
Rule 9(b) provides that ``[i]n alleging fraud or mistake, a
party must state with particularity the circumstances
constituting fraud or mistake.'' Rule 9(b) has four purposes:
First, the rule ensures that the defendant has
sufficient information to formulate a defense by
putting it on notice of the conduct complained of.
Second, Rule 9(b) exists to protect defendants from
frivolous suits. A third reason for the rule is to
eliminate fraud actions in which all the facts are
learned after discovery. Finally, Rule 9(b) protects
defendants from harm to their goodwill and
reputation.\18\
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\18\Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784
(4th Cir. 1999) (quoting United States ex rel. Stinson, Lyons, Gerlin &
Bustamante, P.A. v. Blue Cross Blue Shield, Inc., 755 F. Supp. 1055,
1056N57 (S.D. Ga. 1990)).
In place of the Rule 9(b) standard, H.R. 1788 would allow
qui tam plaintiffs to plead facts that merely demonstrate a
``reasonable indication'' that a violation of the FCA is
``likely to have occurred.'' The Committee received testimony
that eliminating the Rule 9(b) standard for qui tam actions
will encourage relators ``to plead shallow speculative claims,
knowing that the potential exists to obtain more information if
the case can survive the discovery stage.''\19\ Indeed, as the
Fifth Circuit has written, ``[a] special relaxing of Rule 9(b)
is a qui tam plaintiff's ticket to the discovery process.''\20\
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\19\Proposals to Fight Fraud and Protect Taxpayers: Hearing Before
the H. Comm. on the Judiciary, 111th Cong. (2009) (testimony of Marcia
G. Madsen, Partner, Mayer Brown).
\20\United States ex rel. Russell v. Epic Healthcare Mgmt. Group,
193 F.3d 304, 309 (5th Cir. 1999).
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Thus, the result of the legislation's relaxation of the
Rule 9(b) standard will be to unleash a flood of unfounded and
speculative qui tam cases--cases that otherwise would be
dismissed for failure to plead with particularity--in hopes
that fraud will be uncovered during discovery. This is contrary
to the purposes of the qui tam provisions of the FCA, which
grant ``a right of action to private citizens only if they have
independently obtained knowledge of fraud.''\21\
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\21\Id.
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F. Alternative Remedy Provision Will Require U.S. Treasury to Fund
Relators Even When the Recovery was not Based on the FCA
This legislation will also allow qui tam plaintiffs an
expanded relator's share in ``alternative remedies'' the
Government recovers from non-FCA actions, such as contract
actions, other non-fraud actions, and even criminal
proceedings--though the relator is not a party, and the
proceeding does not involve liability for false claims. The
Act's current alternative remedy provision provides the United
States with the ability to pursue false claims against a
recipient of federal funds administratively rather than under
the FCA, while simultaneously ensuring that the relator is
entitled to any recovery for the FCA claims. The Department of
Justice is concerned, however, that this ``legislation's
proposed changes would unduly expand the scope of the
alternative remedy provision, and permit a relator to recover
in too many situations and in situations not contemplated by
the FCA.''\22\
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\22\Justice Dept. Views Letter Appendix at 6.
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The Department has opined that because a relator can
continue his qui tam action even if the Government receives
compensation on a non-fraud basis, ``there is no need to pay a
share of the Government's non-fraud recoveries as a means of
furnishing relators with appropriate incentives to disclose
allegations of fraud.''\23\ If the Government determines the
conduct was not fraudulent and is repaid administratively, the
purposes of the FCA are not furthered by requiring the
Government to compensate the relator out of those
administrative recoveries. As the Department has explained,
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\23\Id.
The purpose of the FCA was to induce those with
knowledge of fraud . . . to disclose that wrongdoing.
Such an inducement is unnecessary where a company may
owe money to the United States, but has done nothing to
hide that fact (for example, the defendant has not
knowingly submitted a false claim or knowingly retained
an overpayment). The law should encourage employees of
such a company to report the overpayment to their
employer in the first instance, and should not
encourage them to file a qui tam action against a
company that has not engaged in fraud.\24\
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\24\Id. (citations omitted).
The alternative remedy provision in H.R. 1788, however,
will encourage employees to file qui tam actions even if they
know their company did nothing wrong, because they will be
ensured a share of the administrative recovery. This backstop
will, of course, encourage the filing of unfounded qui tam
actions under the FCA. Simply put, the Government should not
pay relators at taxpayer expense in situations where no
violation of the FCA has occurred. Yet, that is precisely what
the alternative remedy provision of H.R. 1788 would do for the
benefit of relators over the taxpayers.
G. The Interests of the Broad Array of Entities that Receive Federal
Funds
In considering the wisdom of the changes H.R. 1788 will
make to the FCA, it is important to take into account the input
this Committee has received from those entities that will incur
the costs of any frivolous, unfounded and/or parasitic qui tam
suits that result from this legislation. Opposition to this
legislation has been raised by associations representing a
diverse group of entities. Among other groups, the following
have come out against H.R. 1788: Association of American
Universities, American Counsel of Engineering Companies,
American Hospital Association, American Tort Reform
Association, Association of American Medical Colleges, Greater
New York Hospital Association, National Association of
Manufacturers, Property Casualty Insurers Association of
America, and the U.S. Chamber of Commerce.
In a letter to members of the Judiciary Committee, the
Association of American Universities, which represents 60
leading U.S. research universities that together perform 60
percent of all federally funded university-based research,
expressed ``strong reservations about the pending bill's
unintended consequences.''\25\ The association further
explained that ``H.R. 1788, as currently drafted, will
frustrate our members' efforts to monitor their financial
relationships with the Government through strong internal
controls and well-established and rigorous compliance, audit
and reconciliation processes.''\26\
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\25\Letter from Robert M. Berdahl, President, Association of
American Universities, to John Conyers, Jr., Chairman, U.S. House
Committee on the Judiciary (April 20, 2009).
\26\Id.
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Moreover, the Greater New York Hospital Association noted
that ``[a]s written, the bill would allow qui tam plaintiffs
and their lawyers to profit at the expense of the Federal
Treasury, the United States Department of Justice, and
economically struggling hospitals in New York and around the
country.''\27\ Additionally, organizations such as the American
Hospital Association, the American Health Care Association, and
the U.S. Chamber of Commerce informed members of the Committee
that they believe that this legislation ``would expand the
scope of liability under the statute, increase its financial
penalties, and remove safeguards against unfounded qui tam
lawsuits.''\28\ These entities further explained that they
``believe these amendments are unnecessary and will impose
enormous burdens on non-profits, universities, hospitals, and
small businesses.''\29\
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\27\Memorandum from Kenneth E. Raske, President, Greater New York
Hospital Association.
\28\Letter from Multi-industry Coalition Opposed to H.R. 1788 to
John Conyers, Jr. and Lamar Smith, U.S. House Committee on the
Judiciary (April 21, 2009).
\29\Id.
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REPUBLICAN AMENDMENTS
Mr. Issa offered three amendments to H.R. 1788 at mark up;
none of Mr. Issa's amendments was adopted.
LRequiring employee disclosure. This amendment
provided that employees had first to report suspected
FCA violations to their employer's compliance officer
before filing a qui tam action under the FCA. If the
employer did not take corrective action within 90 days,
the employee would be free to file an FCA lawsuit.
LInevitable Discovery. This amendment provided
that qui tam plaintiffs would not be entitled to a
relator's share if the Attorney General determined that
the United States would have inevitably discovered the
false claims that were the basis for the qui tam suit.
This amendment would have protected taxpayer dollars
from unnecessary relator share payouts where the
relator simply beat the Department of Justice to the
courthouse.
LAvoidance of Prosecution. The amendment
provided explicit guidance to the courts that in cases
in which the relator had initiated or furthered the
fraud that was the basis for the qui tam action, the
court could reduce the relator's share of any recovery
by the value of the avoidance of prosecution.
CONCLUSION
The proposed ``corrections'' to the False Claims Act
contained in H.R. 1788 are a virtual rewrite of many provisions
of the FCA. The result of this rewrite will be not only to
extend the Act's liability provisions to allow the Government
to ensure that the FCA covers all Government spending, a change
we support, but to allow qui tam plaintiffs and their attorneys
unnecessarily to attempt to recover more money at the expense
of the federal Treasury and the taxpayers. The bill's qui tam
provisions will needlessly divert resources from the Treasury
and impose huge burdens on businesses of all sizes, hospitals,
universities, and non-profits.
H.R. 1788 includes many provisions that would help relators
to increase their recoveries under the FCA, even though there
is no evidence that Congress needs to provide additional
incentives for relators. Instead, these provisions simply
provide more money to relators at the expense of U.S. taxpayers
and strengthen the hand of relators at the expense of the
Justice Department. In sum, the benefits this legislation would
provide to the Federal Government's efforts at combating waste,
fraud, and abuse by extending the Act's liability provisions,
will be outweighed by the burdens and costs the qui tam
provisions in this bill will impose on the Federal Government
itself and entities such as non-profits, hospitals,
universities, and small businesses that receive federal funds.
Lamar Smith.
Darrell E. Issa.
Jim Jordan.