Senators Grassley (R), Leahy (D), Kennedy (R), Durbin (D) and Wicker (R) have introduced legislation to amend the False Claims Act, 31 U.S.C. §§ 3729-3731 (“FCA”) in order to “beef up the government’s most potent tool to fight fraud” according to Senator Grassley’s press release.1 This proposed legislation “clarifies the current law following confusion and misinterpretation of the Supreme Court decision in United Health Services v. United States ex rel. Escobar,” discussed below.2 If passed, the legislation will amend the FCA in substantive ways to include increasing the standard of proof imposed on defendants seeking to rebut evidence of materiality, making it easier for the government to seek reimbursement of discovery-related expenses and requiring the United States to demonstrate reasons for dismissal at a hearing, while also providing the qui tam plaintiff the opportunity to show why the government’s reasons for dismissal are arbitrary and capricious.3
In order to prevail in an FCA case, the relator or the government must prove the necessary elements enumerated in the FCA. Specifically, the government or a relator (i.e., the qui tam plaintiff) must prove (i) a person presented a false claim to the government; (ii) the person did so knowingly (i.e., actual knowledge, acting with deliberate ignorance or in reckless disregard of the truth or falsity of the information); and (iii) the falsity is material to the government’s decision to pay the claim. The Supreme Court in Escobar, 136 S.Ct. 1989 (2016), held that the materiality standard is “rigorous” and “demanding.” Further, Escobar held that the government continuing to pay claims after becoming aware of the alleged fraud is “strong evidence” that the alleged falsity was not material to the government’s decision to pay.
According to the legislation’s summary, the Escobar decision has “led companies accused of defrauding the government to go on fishing expeditions” to find some government bureaucrat who was “aware of the fraud” but took no action in order to argue that the alleged falsity was not material to the government’s decision to pay.4
The legislation’s co-sponsors assert that government bureaucrats are “highly segmented and often unable to make key decisions for their monolithic organizations” and that Escobar allows fraudsters to exploit this fact.5 Accordingly, the proposed legislation would amend the FCA to close this gap as detailed below.
The bill would make it more difficult for defendants to rebut evidence of materiality. While continuing to require the government or relator to prove materiality by a preponderance of the evidence, the bill would require defendants seeking to rebut the government’s or relator’s “argument of materiality” to do so by clear and convincing evidence.
Discovery-Related Expenses Reimbursable to the Government
In order to prevent a defendant’s fishing expedition “to see if someone, somewhere, in the government was aware of the fraud,” the bill would require that the court, upon motion from the government, order the requesting party to reimburse the government for discovery-related expenses unless the party can show the information requested is “relevant, proportionate to the needs of the case, and not unduly burdensome on the government.”6 Explicitly placing this burden on the requesting party may serve to increase the imposition on FCA defendants of discovery-related sanctions beyond those otherwise available under the Federal Rules of Civil Procedure (FRCP), see e.g., FRCP Rule 45, which requires that “a party . . . must take reasonable steps to avoid imposing undue burden or expense on a person subject to the subpoena. The court for the district where compliance is required must enforce this duty and impose an appropriate sanction—which may include lost earnings and reasonable attorney's fees—on a party or attorney who fails to comply.”
Dismissal of FCA Qui Tam Cases
The bill seeks to amend § 3730(c), which addresses the rights of the parties to qui tam actions. Currently, § 3730(c)(2)(A) provides that “the Government may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.” The bill would require, if the court provides a hearing, that the government has the burden to demonstrate its reasons for dismissal and would afford the relator an opportunity to “show that the [government’s] reasons are fraudulent, arbitrary and capricious, or contrary to law.”7
The bill does not address the standard for a court to grant or deny the government’s (c)(2)(A) motions, which means the circuit split on the standard likely will continue until the Supreme Court resolves it. In U.S. ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998), the Ninth Circuit adopted a two-part test: “(1) identification of a valid government purpose; and (2) a rational relation between dismissal and accomplishment of the purpose.” In Swift v. United States, 318 F.3d 250, 254 (D.C. Cir. 2003), however, the DC Circuit rejected the Sequoia Orange test and held that “the decision whether to bring an action on behalf of the United States is . . . a decision generally committed to the [government’s] absolute discretion” and “nothing in 3730(c)(2)(A) purports to deprive the Executive Branch of its historical prerogative to decide which cases should go forward in the name of the United States.”
FCA Whistleblower Retaliation
The bill broadens the scope of whistleblowers entitled to relief from retaliatory actions to not only current employees, contractors or agents but also former employees, contractors or agents as well.
Applicability and Efficacy
In order to assess the efficacy of the bill, which will apply to cases pending on or after the date of the bill’s enactment, the bill requires the U.S. Government Accountability Office to provide a report 18 months after the bill’s enactment describing the benefits and challenges of enforcement efforts and information on the amounts recovered by the government.
Mayer Brown will continue to report on this bill as it progresses through the legislative process.
1 https://www.grassley.senate.gov/news/news-releases/senators-introduce-of-bipartisan-legislation-to-fight-government-waste-fraud (last accessed on August 3, 2021)
3 Draft legislation accessible at the following link, ALB21C05 (senate.gov) (last accessed on August 3, 2021)
4 https://www.grassley.senate.gov/imo/media/doc/false_claims_amendments_act_summary.pdf (last accessed on August 3, 2021)
6 ALB21C05 (senate.gov) (last accessed on August 3, 2021)