Obama And Congress Get Serious About Fighting Fraud

We are happy to announce that President Obama signed the Fraud Enforcement And Recovery Act of 2009 yesterday. The House and Senate passed the bill with overwhelming majorities and the bill presented to the President included the best of the House and Senate versions. The new law makes much needed improvements to the False Claims Act. It is good to see Both Houses of Congress and the President have taken the very kind of action we have been advocating for years.

In 2008, we noted that the funding available to the Department of Justice to investigate these cases was inadequate to handle the many qui tam actions filed. Now both houses of Congress have responded to our concerns with legislation.

The new law provides $165 million a year for two years to investigate and prosecute fraud actions. This is important because we need more lawyers and more investigators to work on these cases. The backlog of qui tam cases under seal stood at 900 at last check and it could take the Department four years to investigate a single case with that many still waiting. Keep in mind that the full cost of this legislation could be paid by a couple of successful cases. Many worthy issues can be lost for lack of resources or time to investigate because leads can get stale. If only a few more good cases get the attention they deserve and survive, that money will have been a great investment.

The bill also includes important provisions to prevent contractors from escaping liability under the False Claims Act.

Significantly, the Supreme Court’s decision in the Allison Engine case is overturned. In that decision, the Court held it was not enough to show subcontractors merely made false statements or certifications, which resulted in their obtaining money. Instead the Court required proof, ” …that the defendant intended that the false record or statement be material to the government’s decision to pay or approve the false claim.”

That means the Court requires a demonstration that the sub-contractor made a false statement with specific intent to get the government to pay money. This extremely high burden, requiring “specific intent” frustrates the whole point of the False Claims Act. Should a sub-contractor making knowingly false statements and defrauding taxpayer be able to escape liability?

Under the old law, the sub-contractor can make a false statement to the prime contractor. The prime contractor can then bill the government and no matter what the government’s specifications were on the product involved, no matter even if the sub-contractor said the product would work when it did not, everybody escapes liability unless the plaintiff can show the sub-contractor intended to defraud the government directly.

Major government contracts have many specifications and sub-contractors make numerous certifications and they know that the ultimate payor of the contract is the government. However, showing such certifications are false was not enough for the Allison Court.

The new law also fixes a related problem created by the Totten v. Bombardier case. Supreme Court Justice John Roberts was on the DC Court of Appeals when he decided that a bill had to be presented to the government and that government money had to be directly involved in any case under the False Claims Act. Judge Roberts ruled, “Amtrak is not the government.” While Roberts was technically correct that Amtrak is not a government agency, it does receive almost all of its money from the government.

So, while Amtrak is the nation’s railway it is not a direct agency of the U.S. Government. Roberts did not dispute whether or not Amtrak got defrauded. What he did decide was if the government gave money to Amtrak and not directly for train products, just as operational or capital funds and THEN Amtrak went got defrauded, the money no longer was government money. So no liability existed as far as a False Claims Act case was concerned. Roberts decided somebody had to directly present a bill to an officer or employee of the government and without this “presentment” there is no False Claims Act case.

Additionally, the new law, re-defines the term “claim” under the Act. It is now possible to sue when the government provides the money even if the user of the money is not a direct government agency like Amtrak. This will greatly expand the ability of whistleblowers to make new and important cases under the Act.

Back in December of 2007, we reminded everyone that the False Claims Act is at its heart a whistleblower law. Now the law extends true protection to those most likely to be retaliated against for reporting fraud. Under the old law only employees can sue for retaliation under the False Claims Acts section 3730(h).

This means a small contractor or an agent or an independent contractor could not. For example, say a family owned grass seed business has their contract terminated because they contest the way their prime contractor is handling the overall job. Now that sub-contractor would be able to sue for retaliation under the False Claims Act.

Sub-contractors are often small mom and pop operations and they can certainly lose the ability to obtain new business or be fired from a big project if they confront their prime contractor. Shouldn’t the small business or independent contractor have the same right to sue for retaliation as an employee? Now they will.

These amendments to the False Claims Act are an important first step towards stronger whistleblower protection for all employees. We look forward to continued improvements in this area.

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