The federal False Claims Act, the big gun wielded by private citizens and the government for rooting out government fraud, soon may be retooled, triggering a classic confrontation between business and the trial bar.
Both the House and Senate now have very similar bills pending final action that would make the most substantive changes in the law in 22 years.
Known as the "Lincoln Law," the False Claims Act was enacted in 1863 to combat fraud by companies that sold supplies to the Union Army. The law contains "qui tam" provisions that allow private citizens -- qui tam plaintiffs, also called "relators" and whistleblowers -- to sue on the government's behalf those companies or individuals defrauding the government.
The sponsors of the 1986 amendments -- Sen. Charles Grassley, R-Iowa, and Rep. Howard Berman, D-Calif. -- are back with bipartisan support for the proposed False Claims Corrections Act which, they say, is intended to correct U.S. Supreme Court and lower court decisions that have misinterpreted and weakened the powerful anti-fraud tool.
If the opposing parties in this legislative debate agree on anything, it is that the FCA has been an effective tool. Since the act was amended in 1986, the government has recovered more than $20 billion, with recoveries steadily increasing and culminating in settlements and judgments of more than $5 billion in the past two years, according to the U.S. Department of Justice.
"The statute is not perfect, but I think the headline point -- and just about everybody agrees -- is that the statute has been extraordinarily effective over the last 22 years," said FCA expert Peter Hutt II, a partner in Akin Gump Strauss Hauer & Feld's Washington office. "I take that as a starting point. Don't fix what ain't broke."
From the business community's perspective, the House and Senate bills are designed to strengthen the hands of qui tam plaintiffs and their lawyers, often at the expense of defendants and equally often at the expense of the government and taxpayer, said Hutt, who has testified in Congress against the bills for the U.S. Chamber of Commerce.
"The law has been effective, but it can be so much more effective," said qui tam litigator Shelley Slade, a partner at Washington's Vogel, Slade & Goldstein, who has testified in favor of the bills.
The proposed amendments are needed, she said, to overrule judicial opinions that have made it unreasonably difficult for qui tam plaintiffs to bring meritorious allegations that the government could not or would not have uncovered and pursued on its own. And, she added, the bills contain important changes that update the law to address new types of fraudulent schemes.
"We shouldn't rest on our laurels," said Slade, noting that estimates of government fraud in Iraq and the health care field dwarf the $20 billion recovered under the act during the past two decades.
'A BETTER RAT TRAP'
Dubbed "A Better Rat Trap" by the nonprofit organization Taxpayers Against Fraud, the legislation -- H.R. 4854 and S. 2041 -- includes several provisions, the most controversial of which essentially do the following:
• Broaden the liability of individuals who present false claims to contractors, grantees and others that receive federal money or property (under current law, that liability applies only for false claims presented to government employees or officials).
• Permit qui tam suits by government employees under certain circumstances (courts generally have barred those employees from acting as relators because they have a duty to report fraud).
• Clarify that qui tam plaintiffs with detailed knowledge of a fraudulent scheme may bring cases even when they lack access to the defendant's false billing documentation (some courts apply Federal Rule of Civil Procedure 9(b) and require qui tam plaintiffs to have specifics of some individual invoices that have gone to the government).
• Allow only the Department of Justice, and not defendants, as is currently allowed, to move to dismiss a qui tam suit because the information on which it is based has been publicly disclosed in the media, government hearings or reports.
• Change the damages provision from liability for treble "the amount of damages which the government sustains" as a result of the defendant's actions to treble "the amount of money or property paid or approved because of the act of the defendant."
• Impose a single 10-year statute of limitations on qui tam filings, and if the government intervenes, any additional grounds it asserts relate back to the date of the original qui tam action.
Hutt and FCA expert John Boese, a partner in the Washington office of New York's Fried, Frank, Harris, Shriver & Jacobson, contend that both bills are seriously flawed, making it difficult to say which is worse. But both lawyers homed in on the provisions freeing plaintiffs from pleading their claims with Rule 9(b) specificity (a requirement, they say, that the government itself must meet), the new damages provision, government employees as relators and the public-disclosure provisions.
On Rule 9(b), "Just about every court has said the action must be pleaded with particularity; it is not a controversial proposition," insisted Hutt.
But qui tam litigator Mark Allen Kleiman of the Law Offices of Mark Allen Kleiman in Santa Monica, Calif., countered, "There is nothing in the statute that imposes the 9(b) requirement, which a number of courts have used to deal a death blow to qui tam suits. Just about every really experienced relator's lawyer will have one or more horror stories of some court saying, 'No, you have to show up with a bill in hand.' "
After 22 years, Boese said, "We now have terms and issues defined. When you change this law, especially with the kind of loose language being thrown about, we won't know what the law says again. We'll go through another 20 years of litigation."
But the amendments deal with procedure, insisted Kleiman. "None of them deals with substance. Nothing changes what I have to prove. All they do is increase the likelihood we'll actually be able to talk to a judge and jury about what the defendants did."