STATEMENT: Anti-Fraud Senators Vote to Strengthen the Government’s Primary Fraud-Fighting Tool
WASHINGTON, DC (October 28, 2021) – Today, the Senate Judiciary Committee voted to strengthen the False Claims Act, the government’s primary weapon against fraud. Specifically, a bipartisan group of Senators voted the False Claims Amendments Act of 2021 (S.2428) out of Committee. The sponsors of this important legislation include Senate Judiciary Chairman Richard Durbin (D-Ill.), Senate Judiciary Ranking Member Charles Grassley (R-Iowa), Senator Patrick Leahy (D-Vt.), Senator John Kennedy (R-La.), and Senator Roger Wicker (R-Miss.). These amendments address judicial uncertainty that have left taxpayer dollars vulnerable to fraud and have discouraged whistleblowers from stepping forward.
“Today, the vast majority of the Senate Judiciary Committee decided to protect taxpayer dollars from fraud. With our country trying to recover from a pandemic, this is not the time for our elected officials to pander to the demands of the Fraud Lobby.”
JEB WHITE, TAF PRESIDENT & CEO
While government programs have grown exponentially, the False Claims Act (FCA) has not been amended in nearly a decade. Today’s bipartisan effort is a step toward updating the FCA to reach modern-day fraud schemes.
“Congress should make certain that taxpayer dollars are protected from fraud,” explained Taxpayers Against Fraud President Jeb White. “This legislation allows the federal government and whistleblowers to effectively stand guard against those who seek to steal from the United States Treasury.”
The legislative fixes found in S.2428 encourage more whistleblowers to come forward to assist the government and result in the recovery of billions of additional stolen taxpayer dollars. This legislation addresses three key issues.
The first issue involves the FCA’s “materiality” standard. The current FCA “materiality” standard is easy to understand—liability only results from “material” violations. The FCA explicitly defines “material” to mean “a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property” by the United States. Congress added this statutory definition in 2009 to clarify that liability attaches when the government could have rejected the fraudsters’ claims for payment.
Nonetheless, this clear-cut standard was recently undermined by dicta language in a Supreme Court decision, Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). In this case, the Supreme Court provided numerous factors that a court could consider for when determining whether fraud was “material” to the United States decision to pay a claim. On one such factor, the Court wrote: “[I]f the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.”
Although government knowledge was described as being “strong evidence” of immateriality, courts and defendants have made the government knowledge factor dispositive, stating that there must be proof that the government actually refused to pay the claim. This logic leaves no room for the government to pay a claim in an emergency situation and later bring an FCA case.
For instance, during the current COVID-19 pandemic, the government might make the decision to continue paying Medicare payments to a dishonest hospital that is the only available healthcare facility for a rural population. Under the wayward reading of the Supreme Court’s Escobar decision, such corrupt entities could use the government’s emergency payment decision to shield itself from FCA enforcement and drain government funds with impunity. The Government should not be deterred in recovering funds wrongfully taken from it simply because it is required to cut off payment to demonstrate materiality.
In these uncertain legal waters, litigation over materiality has exploded with extensive litigation battles over such questions as whether a violation of the criminal Anti-Kickback Statute is material to the Government, whether lying about price is material to the government’s payment decision, and whether the Government’s decision not to intervene means an alleged violation is material. The end result has been that whistleblowers are less likely to risk their careers to alert the government to fraud.
The proposed FCA amendment reduces this uncertainty and allows the government to make the real-world decision to pay a false claim without concerns that the payment will subsequently shield the wrongdoer from FCA liability. Specifically, the proposed amendment restores the balance upset by distorted readings of Escobar and clarifies that the government’s decision to continue paying a false claim is not dispositive as to the question of materiality. In effect, where the government has reasons to pay a false or fraudulent claim, the courts are not to dismiss the case based on continued payment. Of note, defendants are free, as they were before Escobar, to show that a requirement was minor or insubstantial. They also remain free to show that they did not “knowingly” violate the requirement.
The second issue involves clarification about when the government may dismiss whistleblower-initiated FCA cases. The FCA permits the government to dismiss whistleblower, or so-called “qui tam,” actions if the whistleblower “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.” 31 USC 3730(c)(2)(A).
Recognizing that whistleblower-initiated actions have recovered the bulk of FCA recoveries, the government has been reluctant to dismiss these actions. In fact, prior to 2018, the government had dismissed less than 50 cases in the 155-year history of the Act.
Then, in January 2018, the Justice Department released the so-called “Granston Memo,” which outlined the Department’s focus on dismissing whistleblower-initiated FCA actions. Since then, over 50 whistleblower actions have been silenced through dismissals, in less than four years. When challenged, the Justice Department has argued that it has “unfettered discretion” to dismiss these cases, notwithstanding the statutory requirement that the court provide the whistleblower with a “hearing.”
The prospect of having a case dismissed by the Government at any point without an opportunity to meaningfully challenge the motion, discourages whistleblowers from initiating cases and private counsel from investing in them, both of which are essential to the effective operation of the FCA. The primary purpose of the 1986 Reagan Amendments was to encourage more whistleblower suits and the investment of resources by the private bar. S.Rep. 99-345, at 24 (“The Committee’s overall intent in amending the qui tam section of the False claim Act is to encourage more private enforcement suits.”). The current interpretation of the dismissal authority that has been urged by the Department of Justice and adopted by some courts undermines that goal. The proposed amendment seeks to correct the balance by clarifying when a whistleblower-initiated action may be dismissed by the court. At the same time, it provides the Government additional tools to address efforts by defendants to encourage the Government to dismiss non-intervened cases by imposing discovery burdens on the Government.
With our country spending trillions of dollars in the current pandemic and through new spending under the infrastructure and reconciliation proposals, now is not the time to silence whistleblowers with backroom dismissals. Clarifying when a whistleblower-initiated action may be dismissed by the court, the proposed Amendments provide a level of assurances to would-be whistleblowers.
The third issue involves False Claims Act anti-retaliation protection for whistleblowers who have been blackballed by their former employer. Under current law, the FCA protects an “employee” from retaliation for efforts to stop violations of the FCA. Although most courts recognize that the provision applies to “former employees” in the sense that most individuals who bring retaliation cases have been terminated and are “former employees,” courts have disagreed over whether the statute applies to post-termination retaliation. See United States ex rel. Felton v. William Beaumont Hospital, 993 F.3d 428 (6th Cir. 2021). For example, it is not uncommon for a former employer to make negative comments about a former employee to future potential employers, thereby preventing the former employee from obtaining new employment, a practice sometimes referred to as “blackballing.” Although blackballing is the most common form of post-termination retaliation, such retaliation takes other forms as well. The proposed amendment removes any uncertainty about whether the FCA reaches any post-termination retaliation by explicitly stating that the protections found in 31 U.S.C. § 3730(h) apply to any “current or former employee.”
If Congress adopts these three amendments, it will strengthen the FCA and remove the judicial uncertainty that is deterring would-be whistleblowers from coming forward. Now is the time to make sure the government’s primary fraud-fighting weapon is effectively reaching modern-day fraud schemes.
