History of the FCA

History of the FCA

Attempting to curb a rash of fraud against the government, Congress passed a law that created incentives for private individuals to report government fraud. President Lincoln signed the law, called the False Claims Act (FCA) on March 2, 1863. Also known as the “Informer’s Act” or “Lincoln’s Law,” the original FCA prohibited various acts designed to fraudulently obtain money from the government. Congress initially adopted the FCA with the intention of combating fraud against the United States Army during the Civil War. Although the legislative history of the FCA focused specifically on fraud committed by military contractors, the FCA also applied to fraud committed by all government contractors. Under the original FCA, defendants were subject to both civil and criminal penalties. There was a $2000 fine for each fraudulent claim in addition to a penalty of double the government’s actual damages. Under the 1863 FCA, private individuals known as “relators” could pursue this remedy through a “qui tam” action, and the informer was entitled to half the total recovery. The justification for allowing qui tam litigation was to encourage citizens to report wrongdoing against government that would otherwise go unnoticed. In short, the government hoped that economic incentives would promote private enforcement of federal legislation.

The 1986 Amendments

Over the years, Congress has amended the FCA three times. In 1986, the amendments were designed to “promote incentives for whistleblowing insiders [but also to] prevent opportunistic plaintiffs.” As one court stated, “Congress wanted to reward private individuals who take significant personal risks to bring wrongdoing to light, to break conspiracies of silence among employees of malfeasors, and to encourage whistleblowing and disclosure of fraud.” Although the percentage recovery provisions were reduced, the new changes as a whole created greater incentives for private citizens to “blow the whistle” against unlawful conduct. The key changes to the FCA consist of the following: 1) Congress reduced the potential financial recovery available to qui tam plaintiffs to between fifteen and twenty-five percent of the action if the government intervenes plus reasonable expenses and attorney’s fees; If the government does not intervene, the qui tam plaintiff may recover between twenty-five to thirty percent of the action plus reasonable expenses and attorney’s fees; Congress increased the statutory penalty provisions of the FCA to a minimum of $5000 and a maximum of $10,000 for each violation, plus treble the government’s actual damages; Congress eliminated the old “government knowledge bar” which precluded recovery on any violation which the government already possessed information, and instituted a “public disclosure” bar; Congress restored the normal civil action “preponderance of the evidence” standard of proof; Congress eliminated the need to prove specific intent and made defendants liable for acting with “deliberate ignorance” or “reckless disregard” of the truth; Congress lengthened the statute of limitations from six years to a variable ten; and Congress created a cause of action for any employee who is “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment” as a result of involvement in a qui tam suit.

FERA Amendments 2009

In 2009, Congress passed the Fraud Enforcement and Recovery Act (“FERA”) to amend the FCA and substantially broaden its reach, expand and extend liability, and increase its anti-retaliation protections. FERA became effective on May 20, 2009 and is a paradigm shift in the law. FERA changed the FCA law by rewriting both the liability and anti-retaliation provisions of the FCA.

FERA Broadened the FCA’s Liability Provisions by Redefining “Claims”

Before FERA, many courts, including the United States Supreme Court, refused to impose FCA liability on government grantees or contractors unless the false claim was presented directly to the United States Government. Moreover, in the pre-FERA Allison Engine case, “the Supreme Court held that plaintiffs must show that the fraudfeasor ‘intended’ for its false statements to cause the ‘Government itself’ to ‘rely’ on the false statements as a ‘condition of payment.’” With FERA, Congress overruled Allison Engine, removed the intent interpretation and broadly redefined “claim” to include any request for money or property, irrespective of whether it was submitted directly to the United States Government, or to a contractor or a grantee.

  • By removing from Section 3729(a)(1) language that can be narrowly read to limit liability to persons who present false claims directly ‘to an officer or employee of the Government, or to a member of the Armed Forces,’ the amendments finish the job Congress intended to complete in 1986, when it defined actionable ‘claims’ in the current Act to include ‘any request or demand . . . for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded, or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.”

Post FERA, the FCA contains no intent requirement and liability attaches so long as the defendant’s conduct is capable of influencing receipt of Government money or property. “Congress intended for the amended provision to eliminate any intent requirement and instead for liability to attach when a record or statement has ‘a natural tendency to influence’ or ‘is capable of influencing[ ] the payment or receipt of money or property.’”

FERA also broadened the definition of “claims” to include such conduct as concealing an obligation to pay back money that would be owed to the United States, as well as wrongful possession, custody or control of Government property. As one example, the FCA pre-FERA lacked a provision “that expressly imposes liability on a person who wrongfully avoids a duty to return funds or property to the United States by remaining silent.” With FERA, Congress made clear that such conduct constitutes a false claim:

  • The amendments address this issue by expressly imposing liability on anyone who ‘knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the United States.’ This language is intended to make clear that a person who retains an overpayment, while avoiding a duty to disclose or return the overpayment that arises from a statute, regulation or contract, violates the False Claims Act. Indeed, to address any potential confusion among the courts as to what is intended to be encompassed within the term ‘obligation’ as used in Section 3729(a)(7), the amendments define that term in new Section 3729(b)(3) as encompassing legal duties that arise from the retention of any overpayment.
  • A legal obligation to disclose or refund an overpayment can arise in various ways. Examples include, but are not limited to: (i) Government contracts that incorporate a rule of the Federal Acquisition Regulations that requires disclosure of an overpayment . . . .

Post FERA, even if a company learns after-the-fact that it owes the Government money based on a billing rule, the Federal Acquisition Regulations (“FAR”), or its contract, and yet fails to disclose that fact to the Government, such company is liable under the FCA. For example, if a corporation learns after-the-fact that it has been violating a billing rule or a contract requirement in its billing, and it nonetheless fails to comply with a legal obligation to disclose the resulting overpayments, this amendment renders the corporation liable under the Act for all overpayments resulting from the violation of the billing rule or contract requirement, even those not specifically identified or quantified.

  • We use the term ”disclose” in this provision to mean full disclosure of all the pertinent facts concerning the overpayment to the appropriate Government officials with authority to determine what actions, if any, the recipient of the overpayment should take to remedy the situation.

FERA Broadened Anti-Retaliation Protections Under 3730(h)

In addition to its sweeping changes to the FCA’s substantive liability provisions, FERA broadened the anti-retaliation protections under 3730(h) with the following revisions:

  • (h) Relief from retaliatory actions.--
    • (1) In general.--Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee, contractor, agent or associated others in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter.
    • (2) Relief.--Relief under paragraph (1) shall include reinstatement with the same seniority status that employee, contractor, or agent would have had but for the discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys' fees. An action under this subsection may be brought in the appropriate district court of the United States for the relief provided in this subsection.

For clarity, the text from the 2009 revised section 3730(h) is double underlined and the previous text, from the 1986 amendments, which was removed, is struck through in the following comparison.

  • (h) Relief from retaliatory actions.—
    • (1) In general.--Any employee, contractor, or agent who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee, contractor, agent or associated others in furtherance of an action under this sectionor other efforts to stop 1 or more violations of this subchapter.
    • (2) Relief.--Such relief Relief under paragraph (1) shall include reinstatement with the same seniority status such employee, contractor, or agent would have had but for the discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys' fees. An action employee under this subsection may be brought bring an action in the appropriate district court of the United States for the relief provided in this subsection.

The amendments expanded 3730(h) to protect not only employees, as the prior section did, but all persons affected by a company’s retaliatory actions.

  • This section needs to be amended so that it is clear that it covers the following types of retaliation that whistleblowers commonly have faced over the course of the last twenty years: (i) retaliation against not only those who actually file a qui tam action, but also against those who plan to file a qui tam that never gets filed, who blow the whistle internally or externally without the filing of a qui tam action, or who refuse to participate in the wrongdoing; (ii) retaliation against the family members and colleagues of those who have blown the whistle; and, (iii) retaliation against contractors and agents of the discriminating party who have been denied relief by some courts because they are not technically ‘employees.’

Importantly, FERA expanded 3730(h) to cover 1) whistleblowers who internally or externally report wrongdoing and never file an FCA action; 2) whistleblowers who refuse to participate in the wrongdoing and never file an FCA action; 3) colleagues of whistleblowers; and 4) contractors or agents who are not actual employees. Going further, FERA expanded the definition of “protected activity” to include all “lawful acts done . . . in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter.

  • To address the need to widen the scope of protected activity, Section 4(d) of S. 386 provides that Section 3730(h) protects all “lawful acts done” . . . in furtherance of . . . other efforts to stop 1 or more violations” of the False Claims Act. This language is intended to make clear that this subsection protects not only steps taken in furtherance of a potential or actual qui tam action, but also steps taken to remedy the misconduct through methods such as internal reporting to a supervisor or company compliance department and refusals to participate in the misconduct that leads to the false claims, whether or not such steps are clearly in furtherance of a potential or actual qui tam action.
  • To address the concern about indirect retaliation against colleagues and family members of the person who acts to stop the violations of the False Claims Act, Section 4(d) clarifies Section 3730(h) by adding language expressly protecting individuals from employment retaliation when “associated others” made efforts to stop False Claims Act violations. This language is intended to deter and penalize indirect retaliation by, for example, firing a spouse or child of the person who blew the whistle.

FERA, set off the new clause expanding the scope of protected activity from the old one by using the word “or.” Under the new law, an employer may not retaliate against an employee who acts “in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter.” The statute’s plain language shows that while the old FCA anti-retaliation provision contemplated activity “in furtherance of an action”—litigation—the new clause addresses “other efforts” excluding litigation. In reversing and remanding the district court’s dismissal of a 3730(h) claim, the Fourth Circuit in Young recently held that “[t]o survive CHS’s motion to dismiss, the Youngs needed to plead that they engaged in protected activity, i.e., that they acted “in furtherance of an action under” the False Claims Act or undertook “other efforts to stop 1 or more violations” of the False Claims Act. 31 U.S.C. § 3730(h).”

FERA’s global changes to 3730(h) even protect a person who helps perpetuate the defendant’s wrongful conduct and fails to actually report the wrongdoing internally. “An individual who participates in the fraud, and who for whatever reason does not challenge the misconduct within his or her organization, is still entitled to a relator’s award and the protections of Section 3730(h) unless he or she is otherwise barred by a specific provision in the law.”

Following the passage of FERA, the FCA’s liability provisions cast a much wider net and capture not only “acts done ‘in furtherance of an action’ but also ‘other efforts to stop 1 or more violations’ of, the” FCA. “[O]r other efforts” means steps taken to remedy an FCA violation through other means, including internal reporting to a supervisor or compliance department, or refusals to participate in unlawful activity. In stark contrast to pre-FERA 3730(h) claims, where some courts narrowly limited “protected activity” to situations where the employee’s complaints raised a “distinct possibility” of FCA qui tam litigation, post-FERA 3730(h) eliminated the “distinct possibility” requirement. Now, “sufficiently pleading the protected activity prong of an FCA retaliation claim . . . [of] “other efforts” . . . is subject to a broader standard” and is satisfied by investigations, internal reporting, or refusal to participate standing alone. “Logically, if making false implied staffing certifications to the government can constitute a False Claims Act violation, acts undertaken to, for example, investigate, stop, or bring an action regarding such false implied staffing certifications can constitute protected activity for purposes of a retaliation claim. 31 U.S.C. § 3730(h).”

The FCA has become a strong deterrent for those who defraud the federal government. The 1986 and 2009 amendments have resulted in a dramatic increase in the number of qui tam actions filed and the amounts recovered by relators. The price of defrauding the government is rising, the likelihood of being caught is increasing, and the consequences are more severe.

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