False Claims Amendments Act: Groundbreaking or Ineffectual?
Four key aims of the proposed legislation, detailed below, are to: (1) increase the burden on the defendant to rebut a plaintiff’s showing that a false claim was material; (2) provide a mechanism by which the government can seek reimbursement from parties for responding to burdensome discovery requests; (3) resolve a circuit split over the degree of deference courts should give the government in granting government motions to dismiss qui tam complaints; and (4) extend the whistleblower anti-retaliation protections to former employees, not just current employees. The proposed changes would apply not just to future FCA litigation, but also retroactively to any pending litigation. As noted below, however, the bill as currently drafted may have less practical effect on FCA cases than the sponsors intend.
The False Claims Amendments Act of 2021 follows the Supreme Court’s decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), where the Court ruled that the FCA’s “materiality” requirement is “rigorous” and “demanding,” and may not be satisfied in situations where the government continues to pay claims despite its knowledge of an alleged fraud. The Court explained in part: “[P]roof of materiality can include, but is not necessarily limited to, evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement. Conversely, 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.
Since Escobar, defendants have often prevailed at the motion to dismiss or summary judgment stage by convincingly arguing that the government or relator failed to establish materiality consistent with Escobar. In promoting the bill, Sen. Patrick Leahy (D-Vt.) argued that the Escobar decision “weakened [the FCA] by making it more difficult for plaintiffs and whistleblowers to succeed in lawsuits against government contractors engaged in fraud” and that “amending the FCA [will] address the fallout from that decision.”
Section 2(a) of the bill, if enacted, seeks to blunt the force of Escobar. While the bill would not change the existing definition of materiality, it attempts to shift the burden of proof to the defendant to prove “by clear and convincing evidence” that a false claim was not material. Specifically, section 2(a) states: “In an action under this section, the Government or relator may establish materiality by a preponderance of the evidence. … A defendant may rebut an argument of materiality … by clear and convincing evidence.” The actual impact of such a provision is unclear, however, as the bill provides no clarification of what is or is not “material.” Moreover, the plaintiff would likely still have the burden of proving materiality in the first instance, and the defendant arguably would not need to meet its higher rebuttal burden if it could convincingly demonstrate that the plaintiff failed to satisfy its initial burden.
The bill also provides a mechanism in section 2(b) by which the government can seek reimbursement from parties for responding to discovery requests, unless the party can demonstrate that the information sought is relevant, proportionate to the needs of the case, and not unduly burdensome to the government. The impact of such a provision also remains to be seen. For instance, if the government fails to object to the discovery requests on this basis, has it waived its ability to later seek reimbursement? On the other hand, if the government does object, and the court nonetheless compels the government to respond to the discovery requests, arguably the requester has a good faith basis to later argue that the court found the discovery requests to be appropriate, such that reimbursement is unwarranted.
Section 3 of the bill aims to resolve a circuit split over whether and when the court should grant a section 3730(c)(2)(A) government motion to dismiss a qui tam complaint. These types of dismissals have become more frequent in recent years, and defendants have often urged the government to move for such dismissals, using the DOJ’s 2018 Granston Memo as a roadmap in arguing why dismissal is appropriate. (See here for Arent Fox’s past coverage of the Granston Memo.) The federal courts of appeals have split, however, over what standard of review and level of deference courts should apply when reviewing a government motion to dismiss. Some courts, such as the D.C. Circuit, have adopted the standard that the government has an “unfettered right” to use its dismissal authority, and there is a general presumption that the government has a right to end a prosecution. See Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003).
Other courts have adopted the “rational relation” standard, whereby the government must demonstrate that the dismissal is rationally related to a valid government purpose, as in Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998). The Seventh Circuit, meanwhile, linked a motion to dismiss with a motion to intervene, when it held in United State ex rel. Cimznhca, LLC v. UCB, Inc., 2020 WL 4743033 (7th Cir. 2020), that intervention is required prior to the exercise of a dismissal.
Section 3 would resolve this split by providing that the relator would “have . . . to show that the reasons [for dismissal] are fraudulent, arbitrary and capricious, or contrary to law.” Section 3 would therefore provide a standard less deferential to the government than the standard some courts have applied. Nevertheless, such an amendment may be unlikely to have an impact on the number of section 3730(c)(2)(A) dismissals, given that the government generally has valid reasons to dismiss a case, and can be expected to avoid seeking dismissal for arbitrary, capricious, or illegal reasons. Section 3 also clarifies that the original language of 3730(c)(2)(A) entitling the relator to “an opportunity for a hearing” means an evidentiary hearing during which the relator has the opportunity to demonstrate the reasons against dismissal.
Finally, section 4 of the bill would amend section 3730(h)’s anti-retaliation provision so that it protects not just current employees, but also former employees, from retaliation. In Potts v. Center for Excellence in Higher Education, the Tenth Circuit held “that the False Claims Act’s anti-retaliation provision unambiguously excludes relief for retaliatory acts occurring after the employee has left employment.” 908 F.3d 610 (10th Cir. 2018) (see here for our coverage of the case). In contrast, in United States ex rel. Felten v. William Beaumont Hospital, the Sixth Circuit held that “the anti-retaliation provision of the FCA may be invoked by a former employee for post-termination retaliation by a former employer.” 993 F.3d 428, 435 (6th Cir. 2021). The bill would seek to resolve this circuit split by adding “current or former” before “employee,” presumably in an effort to extend protections from retaliation to former employees.
The bill is co-sponsored by Sens. Patrick Leahy (D-Vt.), John Kennedy (R-La.), Dick Durbin (D-Ill.), and Roger Wicker (R-Miss.). It is reportedly endorsed by Taxpayers Against Fraud, the National Whistleblower Center, the Project on Government Oversight, and the Government Accountability Project.
Senator Grassley’s press release and a full copy of the proposed legislation are available here.
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