Earlier this year, Senator Chuck Grassley and a bipartisan group of senators introduced the False Claims Amendment Act of 2021, which attempts to revise and “beef up” the False Claims Act to help the government continue to combat fraud.
The initial draft of the legislation had amendments that resulted in more protection to qui tam relators, but not much benefit to any other involved parties. In October 2021, the Senate Judiciary Committee marked the legislation up, striking some of the more relator-friendly provisions, but still making huge changes to the False Claims Act, passing the legislation to the full Senate on a 15-7 vote.
What Has Changed
There were essentially four substantive changes in the original proposed legislation: (1) the addition of a materiality burden-shifting mechanism; (2) a discovery cost-shifting provisions; (3) a clarification that resolves a federal circuit split on the standard the Department of Justice (DOJ) must meet to dismiss a relator’s complaint; and (4) a clarification that resolves a federal circuit split regarding whether the anti-relation provisions apply in the post-employment context.
Materiality Burden-Shifting
The proposed legislation initially changed the False Claims Act materiality element. Under the materiality element of a case, the relator (or the government) must to show that the false statement that is the subject of the complaint had an impact on the government’s decision to purchase the good or service. The government must prove that it would not have paid for the good or service if it knew the false certification was in fact false.
In the 2016 Supreme Court case, United Health Services, Inc. v. United States ex rel. Escobar, the materiality element was clarified, including different factors that court should consider in making the determination. The Escobar court found “if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.” This standard has been difficult for the government and private relators.
The proposed changes originally included a burden-shifting mechanism that once the relator or government proves materiality by a preponderance of the evidence, defendants may “rebut” that initial showing “only by clear and convincing evidence that the Government regards the matter as immaterial.”
The version that came out of the Senate Judiciary Committee, however, seems to rebut the Escobar decision, saying that the government’s decision to forego a refund or pay a claim despite actual knowledge of fraud is not dispositive if other reasons exist for the government’s decision.
Discovery Cost-Shifting
The original proposal would have made an exception to the general rule that parties bear their own costs for responding to discovery requests in federal civil actions. It required courts to order defendants to pay the government’s costs and attorneys’ fees for responding to discovery requests unless the defendant provides that the information sought is “relevant and proportionate to the needs of the case.”
However, in the version of the legislation that passed the Senate Judiciary Committee, this provision is eliminated.
Standard for DOJ Dismissal
The amendment that would codify the standard for DOJ dismissals in United States ex el. Sequoia Orange Company v. Baird-Neece Packing Corporation remains. This would mean that the government would need to show both a valid governmental purpose and a rational relationship between the requested dismissal and that valid governmental purpose.
Anti-Retaliation Provision
Additionally, the amendment that clarified the anti-retaliation provision remains in the legislation. The legislation clarifies that the False Claims Act does apply in the post-employment retaliation context, including blacklisting a whistleblower or bringing a retaliatory suit against the whistleblower in an attempt to force them to drop the qui tam suit.
Retroactivity
The Senate Judiciary Committee also made it so that, if passed, the legislation is no longer considered retroactive, based on concerns raised by Committee members about the fairness of changing False Claims Act standards as a case is pending.
What to Expect
The House Judiciary Committee has yet to consider similar legislation and given that Republicans seem to continue raising concerns about the legislation, passage of the bill will heavily rely on Democrats to be successful.
While the legislation continues to work its way through Congress, the proposed amendments may result in changes to various state false claims acts across the country, which often are more aggressive than the federal law.