A Brief History of the False Claims Act and the Challenges for a Qui Tam Whistleblower: What to Expect

The False Claims Act provides a generous reward for the successful whistleblower. But when you blow the whistle on a cheater – on a company that is cheating the Government on a Government contract – whether it’s a health care provider, a defense contractor, or any one of hundreds of corporations that receive payments from the United States – and when you file a qui tam complaint and sue the cheater in Federal Court to force the cheater to pay for the fraud it has committed, you are taking on Corporate America. So you should be aware of the following history.

Corporate America hires the best lawyers at the most expensive law firms. Corporate America has been fighting the battle against the False Claims Act for more than 150 years. And quite often, it has been winning.

Abraham Lincoln decided to stop war profiteers from selling sawdust for gunpowder during the Civil War, and he passed the first False Claims Act. In the early history of the FCA, many cases required either “proof beyond a reasonable doubt,” or proof by “clear, unequivocal and convincing evidence.” During the first 120 years of the False Claims Act, Corporate America succeeded in chipping away at the FCA, finding all sorts of loopholes in the law to get False Claims cases thrown out of court.

With concerns about recurring fraud in Government procurement, and after concluding that the False Claims Act had been rendered virtually meaningless during those 120 years, a group of Senators and Congressmen decided to do something about it. In 1986 the False Claims Act underwent major revisions. Congress passed Amendments that eliminated some of the loopholes in the law that Corporate America and its clever lawyers had successfully taken advantage of. The aim of the 1986 Amendments was to close the loopholes and strengthen the FCA.

Before 1986, the FCA was considered on the same footing as a federal fraud statute with its “heightened pleading standards.” In 1986, the FCA was dramatically modified – qui tam cases were in no way disfavored as were actual fraud claims, and language was put into the Act that attempted to make the Courts understand that a False Claim is not on the same footing as fraud with regard to proof. In other words, something like specific intent – which was required when proving a “fraud” claim, now was eliminated in the FCA. Congress took the extraordinary step of saying, in the statute, the specific elements of a False Claim that Relators did not have to prove:  “Knowingly” the amendment said “require[s] no proof of specific intent to defraud”. Thus, not only was the word “intent” omitted from the language defining “knowingly,” but “specific intent to defraud” also was eliminated. With this language and other language in the 1986 Amendments, Congress was attempting to distance the proof required in False Claims matters from the proof required when ‘fraud’ was alleged.

But Corporate America didn’t give up so easily, and for the past twenty five years it has continued its fight to weaken the Government’s efforts to expose cheating and make the cheaters pay. Defendants in qui tam cases achieved some levels of success in parsing the language of the False Claims Act – convincing judges that the old strict way of pleading fraud still had to be put into a complaint – or the case was thrown out. And the judges who were doing the throwing out were taking the side of the lawyers from Corporate America, who successfully argued that the new rules – even after the 1986 Amendments, were not exactly what Congress intended when it passed the amendments. The District Court (the Federal) judges – some of them – still adhered to the old way of thinking, and, disregarding the motivation, the impulse, and the rationale behind the 1986 Amendments, once again listened to the lawyers from Corporate America and once again began the process of throwing False Claims Act cases out of court.

The most striking example of this happening centers on the phrase “presentment of a false claim.” This phrase in the False Claims Act was interpreted by the courts to mean that an actual “claim for payment” had to be directly “presented to an agent for the United States.” In Totten v. Bombardier Corp., a Federal Appeals Court found that the language of the FCA required direct presentment of the claim to the Government, and held that, because the (Corporate America) defendants presented claims to Amtrak, which was a non-Government entity (although most of its funding came from the Government and although money provided by the Government paid the bills), the False Claims Act did not apply.  In another case – Allison Engine – the same issue went all the way up to the United States Supreme Court, and the Supreme Court supported the lower courts and said the same thing:  For liability to occur under the FCA, it ruled, a plaintiff was required to show the claim was submitted directly to the Government.” The Supreme Court in effect ruled that Congress, even after it passed the 1986 Amendments, did not intend the False Claims Act to be so broadly applicable.

Thus, the lower courts and the United States Supreme Court took the side of Corporate America and succeeded, once again, in reducing the effectiveness of the False Claims Act. The lower courts, as well as the United States Supreme Court all pronounced, in all their decisions, that “this was not what Congress intended.”

Once again, Corporate America was winning. Or was it?

Seeing what was happening and unwilling to wait another 120 years, Congress decided to act again. In 2009, members of Congress saw an opportunity – when the Economic Recovery Act was passed – to take control, and they passed another series of amendments to the False Claims Act. While discussing the purpose of the “Fraud Enforcement and Recovery Act” (FERA) in 2009, and on the floor of Congress, several U.S. Senators addressed some of the “whittling away” by Corporate America that had taken place in the few short years since the 1986 amendments were passed. The purpose of the 2009 Fraud Enforcement Recovery Act, the Senators said, was specifically to “amend the FCA to clarify and correct erroneous interpretations of the law…” On the floor of the United States Senate, Senator Charles Grassley stated in the Congressional Record: “We are trying to just, in this bill, in a very rifle shot way, correct some court opinions that have been detrimental and weaken the False Claims Act.” Senator Specter stated “[T]here were also judicial interpretations of the False Claims Act which this legislation will correct.” and Senator Kyl stated that“[T]he purpose of the new definition of ‘claim’ is to overrule the Totten and Allison Engine cases.”

When it acted, Congress once again was reminding the Courts that, when qui tam matters were brought forth, they did not come with the same draconian pleading standards as when fraud qua fraud was being alleged. And for Congress, it didn’t seem to matter whether it was the district courts and circuit courts of appeal or the United States Supreme Court that had seriously misread Congressional intent, or whether the intent of Congress was lost in the language of a poorly drafted 1986 statute – in either event, when Congress enacted the 2009 Amendments, it did so to correct misinterpretations and make painfully clear what Congress meant when the 1986 Amendments were enacted. The effective date of the FERA amendments was made retroactive to June 7, 2008, two days before the United States Supreme Court announced its decision in Allison Engine, in order to ensure that no subcontractor or grantee claims would be dismissed because of the courts’ erroneous interpretations of congressional intent expressed in Allison Engine and Totten.

Thus, with the subtext of “how many times do we have to tell you,” Congress eliminated the statutory language that the lower courts all the way up to the Supreme Court had construed to require that a claim be submitted directly to the Government. Congress also revolutionized completely what was required in the second section of the statute. Gone from the main text was the requirement that a claim must be “a false record or statement paid or approved by the government.” Congress stated – instead of the word “paid” – that a False Claim would arise when someone “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.”

Thus, effective June 7, 2008, qui tam plaintiffs were (and are) no longer required to allege specifically that, in order for there to be a False Claim, there also must be a False Claim for “payment paid or approved by the Government.” Now they simply are required to allege facts showing that a defendant “knowingly made, used or caused to be made or used a statement material to a false or fraudulent claim.” The change represents a significant difference, with the key word being ‘material.’ Its definition distances the Relator from the requirement that specific allegations relating to money or to payments need be made; instead, all that is required are the circumstances that demonstrate “a natural tendency to influence, or be capable of influencing the payment or receipt of money.” There is a world of difference.

And, although the law was passed in 2009, Congress included in the Act language that would make the new laws applicable all the way back to 2008, to the week before the Supreme Court made its decision in Totten.

So here was an instance where Corporate America didn’t get its way.

But that hasn’t stopped it from trying. And all across the country, cases are still being dismissed because the district courts are slow to catch up with what Congress has decided, and they still are applying the decisions made by the Circuits, who still were following the old, pre 2009 language of the 1986 Amendments.

The struggle continues. And if I’m your attorney, I will see that your rights, and the Government’s rights are protected.