Transcript 1100 2nd-Copeland LEGAL UPDATES

The New False Claims Act
FERA: The Fraud Enforcement and Recovery Act of
2009
Impetus for FERA
 Several relatively recent court decisions
narrowed, or threatened to narrow, the
scope of the FCA
 Congress became concerned that the
effectiveness of the FCA had become
impaired, a concern that was
heightened by the passage of TARP and
stimulus legislation
 To underscore this point, Congress
labeled the FCA Amendments of FERA
“Clarifications to the False Claims Act
to Reflect the Original Intent of the
Law.”
Impetus for FERA cont.
 One of the most successful tools for combating waste
and abuse in Government spending has been the False
Claims Act (FCA) … . The effectiveness of the FCA has
recently been undermined by court decisions limiting
the scope of the law and allowing subcontractors and
non-governmental entities to escape responsibility for
proven frauds. In order to respond to these decisions,
certain provisions of the FCA must be corrected and
clarified in order to protect the Federal assistance and
relief funds expended in response to the current
economic crisis.
S. Rep. No. 111-10, 111th Cong., 1st Session 10 (March 23, 2009) (Senate Report)
FERA
 In May of 2009, Congress
passed, and President
Obama signed, the
Fraud Enforcement and
Recovery Act (“FERA”)
United States ex rel. Totten v. Bombardier Corp., 380
F.3d 488 (D.C. Cir. 2004)
 FACTS: defective rail cars provided to Amtrak
 Defendant argued that the present requirement of old
§ 3729(a)(1) was not satisfied because Amtrak is not the
Government
 The relator argued that a claim to a grantee like Amtrak
is “effectively presented to the United States”
 HELD: No FCA liability because “claims were
presented only to Amtrak for payment, which is not
the Government.”
 Holding seemingly approved by SC in Allison Engine.
Allison Engine Co. v. United States ex rel. Sanders, 128
S.Ct. 2123 (2008)
 FACTS: subcontractor submitted certifications of
compliance with Navy specifications to prime
contractor
 Defendant subcontractor argued that it did not intend
the government to pay a false claim
 HELD: A subcontractor violates old Sections
3729(a)(2) and (a)(3) only if it specifically intends to
get the Government to pay a false claim
 Also held that, unlike Section (a)(1), Section (a)(2) lacked a
presentment requirement (implicitly approving Totten’s treatment of
Section (a)(1) as including a hard presentment requirement).
United States ex rel. DRC, Inc. v. Custer Battles, LLC, 444
F.Supp.2d 678 (E.D. Va.), rev’d, 562 F.3d 295 (4th Cir.
2009)
 FACTS: false claims submitted to Coalition Provisional
Authority (CPA) by Iraqi contractors. United States
administered the funds on behalf of Iraqi people.
 Defendants argued that no U.S. funds were paid,
because payments were from the CPA
 HELD: FCA liability does not apply to claims for funds
over which the U.S. is merely a custodian. Also, could
not prove presentment because CPA not U.S. entity.
 Although reversed by 4th Cir. one month prior to FERA, case is
specifically noted in Senate Report detailing purposes of FERA
United States ex rel. Cosens v. Baylor Univ. Med. Ctr.,
469 F.3d 263 (2d. Cir. 2006)
 FACTS: False claims submitted no later than 1995,
Government complaint in intervention filed in 2002,
relator’s complaint was under partial seal since 1994.
 Defendant argued 6-year statute of limitations
 HELD: the Government could only go back to 1996
claims (six years from 2002)
 Even prior to FERA, Baylor was not being followed by
most courts. See United States ex rel. Serrano v. The
Oaks Diagnostics, Inc., 568 F.Supp.2d 1136 (C.D. Cal.
2008) (listing other cases). But still animated FERA.
Case Law Questions Addressed by FERA
1. Presentment: Does FCA liability attach only to
claims presented to an officer or employee of the
United States? (Totten/Allison Engine)
2. Intent: Is a defendant liable for making a false
statement even where it is made without any specific
intent to get a false claim paid? (Allison Engine)
3. Federal Funds: Does the FCA require that the
Government hold title to the funds used to pay a
claim? (Custer Battles)
4. Relation Back: Is the Government’s relation back of
claims limited by the statute of limitations? (Baylor)
SPOILER ALERT
the answer is NO to each
1. PRESENTMENT
 FERA functionally eliminates presentment
requirement; focus now on purpose/source of funds
 Section 3729(b)(2) defines “claim” to include a request
or demand presented to:
 An “officer, employee, or agent” of the United States; or
 A “contractor, grantee, or other recipient, if the money or
property is to be spent or used on the Government’s behalf or to
advance a Government program or interest” and

U.S. provided/will provide any portion of the money paid; or

U.S. will reimburse the contractor, grantee, or recipient
2. INTENT
 FERA overrules Allison Engine’s holding that liability
under old Sections 3729(a)(2) and (a)(3) exists only
where a defendant intends TO GET the Government to
pay a false claim.
 New Sections 3729(a)(1)(A) and (a)(1)(B) omit the
terms “get” and “getting,” replacing them with the term
“material”
 “Material” is defined as “having a natural tendency to
influence, or to be capable of influencing, the payment
or receipt of money or property”
INTENT cont.
 Thus, new Section (a)(1)(B) provides liability for any
person who:
 “knowingly makes, uses, or causes to be made or used, a
false record or statement material to a false or
fraudulent claim” (emphasis added)
 Significantly, the materiality requirement is a “soft”
materiality … need only be capable of influencing
payment decision.
 Arguably eviscerates conditions of payment v.
conditions of participation dichotomy. See United
States ex rel. Connor v. Salina Reg. Health Ctr., Inc., 543
F.3d 1211 (10th Cir. 2008) (drawing distinction)
INTENT cont. (still more?! What the …)
 Important to emphasize that even before
FERA, the terms “knowing” and “knowingly”
are explicitly defined so as to make clear that
“no proof of specific intent to defraud is
required.”
 Deliberate ignorance is sufficient for liability
to attach
3. FEDERAL FUNDS
 FERA endorses the 4th Circuit’s opinion in Custer
Battles
 Definition of “claim” makes it clear that FCA liability
attaches even where the U.S. administers funds,
“whether or not the United States takes title to the
money or property.” (Section 3729(b)(2))
 Thus, claims for funds administered by U.S. are
actionable, subject to restrictions noted previously
(gov. purpose and provision/reimbursement of funds)
FEDERAL FUNDS Cont.
 Interesting Questions For Future Litigation …
 What are and how do you measure the damages (as
opposed to penalties) for false claims on funds merely
administered by the Government?
 What about block grants or stimulus that merely
supplement a recipient’s funds (e.g., funds provided to
supplement budget shortfalls—revenue sharing)? Is the
purpose anything other than revenue sharing? What is
the proof?
4. RELATION BACK
 FERA rejects the Second Circuit’s Baylor Decision
 Provides for relation back of the Government’s
complaint for statute of limitations purposes
 Adds to Section 3731(b): “For statute of limitations
purposes, [the Government’s complaint in intervention]
shall relate back to the filing date of the complaint of the
person who originally brought the action, to the extent
that the claim of the Government arises out of the
conduct, transactions, or occurrences set forth, or
attempted to be set forth, in the prior complaint of that
person.”
FERA … is this stuff exciting or what?!
Stay calm, more fun to come
OTHER CHANGES TO FCA
FERA also
 Expands Conspiracy
Provisions
 Expands Reverse False
Claims Provision
 Permits Service of
Relator’s Complaint on
State or Local Entity
 Expanded CIDs
EXPANDED CONSPIRACY PROVISIONS
 FERA makes the conspiracy provision applicable to
all theories of FCA liability
 Under old FCA, conspiracy provision did not apply
to reverse false claims.
 Now, Section 3729(a)(1)(C) attaches liability to any
person who
 “conspires to commit a violation of
subparagraphs (A), (B), (D), (E), (F), or (G)”
EXPANDED REVERSE FALSE CLAIMS
PROVISION
 FERA expands the reverse false claims provision to
encompass the knowing avoidance of an obligation—
without any false statement or record required for
liability
 Section 3729(1)(a)(G) now attaches liability to any
person that “knowingly conceals or knowingly and
improperly avoids or decreases an obligation to pay or
transmit money or property to the Government”
 Significantly, Section 3729(b)(3) defines “obligation” to
include “the retention of an overpayment”
EXPANDED REVERSE FALSE CLAIMS Cont.
 Collectively, these changes mean that a person who
knowingly (which includes deliberate ignorance) and
improperly retains an overpayment by the Government
is in violation of the FCA. No act of concealment is
necessary.
 INTERESTING ISSUES:
 When pursue administrative remedies rather than FCA
litigation?
 Reverse exhaustion requirement?
 Of note, many programs (including Medicare) do not
have any general requirement that overpayments be
returned.
SERVICE OF QUI TAM COMPLAINT ON
STATES OR LOCALITIES
 Section 3732(c) allows for service of a relator’s
complaint on State or local governments if named as
co-plaintiff’s in the suit
 Such service does not violate the seal and does not
require court permission.
EXPANDED CIDs
 Authorizes the Attorney General to delegate authority
to issue Civil Investigative Demands (CIDs)
 Permits CID information to be used for any official
use. “Official Use” is defined to be any use that is
consistent with law, DOJ regulations and policies, and
use in connection with communications between DOJ
and a Federal, State, or local government agency, as
well as communications with Government
investigators, auditors, consultants and experts,
among others.
Effective Date and Retroactive
Application
 Amendments apply prospectively (i.e. to conduct
occurring after the date of enactment), except:
 Amendments relating to Relation Back, Service on Local
and State Governments, and CID provisions

Applies to all “cases” pending on the date of enactment
 Amendments correcting Allison Engine’s Intent
Requirement (changing old Section 3729(a)(2) by
inserting “material” instead of “to get”)

Effective June 7, 2008 (two days before Allison Engine) and
applies to all “claims” then pending
Effective Date and Retroactive Application (Cont)
 Two Issues:
 Difference between retroactive application to “cases” v.
“claims”

Courts have thus far indicated “claims” means those claims
submitted to the Government, not claims pending in court.
See, e.g., United States ex rel. Hopper v. Solvay Pharm., Inc.,
588 F.3d 1318 (11th Cir. 2009); United States v. Science
Applications Int’l Corp., 653 F.Supp.2d 87 (D. D.C. 2009)
 Does retroactive application violate Ex Post Facto and
Due Process Clauses of the Constitution (clarification v.
making conduct illegal after the fact)?
QUESTIONS?