Never stir up litigation. A worse man
can scarcely be found than one who does this. Who can be more
nearly a fiend than he who habitually overhauls the register of
deeds in search of defects in titles, whereon to stir up strife,
and put money in his pocket?
Invoking the name and legacy of Abraham Lincoln--who in 1863
championed the adoption of the original federal False Claims Act
(FCA) to stop fraudulent military suppliers in the Civil
War--supporters of the False Claims Act Corrections Act have argued
that this legislation would fix the "problems" allegedly affecting
the way the federal courts interpret the existing act. But the
Fraud Enforcement and Recovery Act of 2009 (S. 386), Section Four
of which contains the current Congress's supposed "clarifications"
to the False Claims Act, destroys the balance in the FCA between
protecting federal taxpayer funds while not encouraging abusive and
S. 386, which was passed by Congress on May 18 and signed into
law by President Barack Obama on May 20, 2009, unnecessarily expands the
ability of individuals acting as private attorneys general
(so-called qui tam plaintiffs) to sue--supposedly on behalf of the
government--defendants who have allegedly submitted false claims
for money or property. This legislation turns the FCA from a
statute protecting the government against fraud to "an all-purpose
anti-fraud statute." By losing track of the FCA's original
purpose--assisting the work of federal officials in safeguarding
and recovering funds belonging to the federal treasury--S. 386
ignores Lincoln's own philosophy on the practice of law and his
admonition to other lawyers: Avoid needless litigation.
From start to finish, the new law reduces the primacy in FCA
litigation of government prosecutors, investigators, and other
disinterested professionals working in the public interest. It will
manufacture needless litigation brought by private plaintiffs and
plaintiffs' lawyers who are enticed by prospects of striking it
rich through FCA lawsuits, not protecting the American taxpayer.
Contrary to its supporters' assertions that all of the changes to
the FCA are either "narrowly tailored" or merely "technical and
correcting amendments," the new law will greatly expand the ability
of individuals to bring such suits--without government involvement
or oversight--against private entities only tangentially related to
the public interest. In addition to reversing a unanimous opinion
of the Supreme Court interpreting the FCA, the law will:
- Increase the number of lawsuits and potential targets of such
lawsuits by allowing punitive FCA actions to be brought against
private entities--such as hospitals, universities, and other
non-governmental organizations--for private, non-government money,
just because they have received unrelated federal funds.
- Unfairly permit the government to assert claims that would
otherwise be time-barred by effectively circumventing ("tolling")
the statute of limitations by relating back the government's
intervention to the date that the individual plaintiff filed the
original qui tam complaint, thereby undermining the ability
of a defendant to defend himself.
- Greatly increase the number of individuals and organizations
that can bring secondary lawsuits (as well as the number of
individuals who may be made defendants in those lawsuits) claiming
that they were retaliated or discriminated against even if they
took no steps to actually bring an FCA lawsuit.
- Allow the Justice Department to provide information obtained
using the federal government's law enforcement authority and
resources to private parties for use in FCA suits against other
If nothing else, the new law illustrates how--in their hunt for
easy lawsuits generating big money-- powerful trial lawyers and
their lobbyists influence Washington. Fortune magazine
ranked the Association of Trial Lawyers of America, which changed
its name to the American Association for Justice ("AAJ"), fifth on
its list of the most powerful lobbying groups. The magazine also
identified the trial lawyers as one of the three lobbying groups in
Fortune's top ten that "owe[d] their high rankings to their
substantial campaign contributions." Since that time, the power and influence
that lobbyists for trial lawyers and other attorneys wield in
Washington has greatly increased. Trial lawyers' lobbyists and
other attorneys contributed more than $232 million to candidates in
the 2007-2008 election cycle, over 75 percent to Democrats, making
them the top ranking industry group in total contributions. AAJ's political
arm alone ranked 14th in contributions to political campaigns in
As a result of FCA lawsuits, from 1987 to 2008 the federal
government was awarded $21.6 billion. Private attorneys
general (qui tam plaintiffs) took home $2.2
billion. S. 386 is tailor-made to ensure that from
now on plaintiffs, their lawyers, and members of the AAJ receive
even greater FCA paydays at the expense of individuals, private
businesses, and charitable organizations.
The False Claims Act applies to every company, foundation, other
organization, or individual who receives from or pays money to the
federal government. It imposes civil liability and stiff penalties
on anyone who knowingly uses a "false record or statement to get a
false or fraudulent claim paid or approved by the Government." It also
imposes liability on any person who "conspires to defraud the
Government by getting a false or fraudulent claim allowed or
Over 99 percent of FCA cases end up settling before trial "because
of the enormously punitive nature of the FCA." Anyone held liable is
penalized between $5,500 and $11,000 for each false claim, but that is
not all. What makes the FCA so attractive to trial lawyers is that
it gives qui tam plaintiffs the possibility of cashing in on
treble damages--i.e., "3 times the amount of damages which the
Government sustains" because of the allegedly false claim.
If a court finds even a single statement on which a contractor's
primary agreement with the government was based to be false or
fraudulent, all claims submitted under the contract can be
considered false. Thus the damages awarded can be as much as three
times the amount of every dollar the government paid the contractor
under the contract. Each and every request for payment--whether
invoice, regular bill, or even expense request--under the contract
will incur an additional penalty of $5,500 to $11,000.
The Justice Department may pursue false claims itself, or any
person may hire a plaintiff's lawyer and bring a qui tam
suit under the FCA. The theory underlying qui tam suits is
that private citizens are often in a better position to know of
fraud than are the federal officials responsible for assessing
claims submitted for payment to the government. Wrongdoers
thus are more likely to be punished, the theory goes, and the
losses are more likely to be recovered and repaid to the federal
treasury, if individuals are given a financial incentive to uncover
the false claims.
Private qui tam plaintiffs (also known as "relators"
under the language of the FCA) must serve the Department of Justice
with any FCA suit they file and must also provide a "written
disclosure of substantially all material evidence and information
the person possesses." Upon notification, the Department has 60
days (which is typically extended) to assess the merits of the case
and determine whether it will intervene and conduct the lawsuit
The Justice Department intervenes in less than 25 percent of qui
tam lawsuits. Whenever the government declines to
intervene, the plaintiff and his trial lawyer get to conduct the
Qui tam plaintiffs are rewarded handsomely. Even if the
government intervenes, takes responsibility for prosecuting the
lawsuit, and incurs all costs and expenses, a qui tam
plaintiff still receives up to 25 percent of the total damages
awarded. If the government declines to intervene in the case, the
qui tam plaintiff receives up to 30 percent. The remainder
goes to the U.S. Treasury. In either case, the plaintiff will also
receive reasonable attorneys' fees and costs. Yet trial lawyers often
agree to take FCA cases on a contingency basis in exchange for a
percentage of the money awarded to the qui tam plaintiff,
meaning that qui tam plaintiffs are freed from having to pay
any attorneys' fees unless and until they win the money to do
Expanding "Federal" False Claims to
Cover Money Belonging to Private Parties
For the past 146 years, in order for a plaintiff to maintain a
False Claims Act suit, the allegedly false claim must have been
made to obtain federal money. This caveat makes good sense since it
keeps the FCA from becoming a general purpose anti-fraud statute.
The objective of the FCA has always been to protect the public
fisc--i.e., taxpayer funds in the U.S. Treasury. If the allegedly
false claim is not for federal funds, there is no federal interest
for the FCA to vindicate. The intent of Congress in the FCA was "to
protect the Government from loss due to fraud" while ensuring that
"a defendant is not answerable for anything beyond the natural,
ordinary, and reasonable consequences of his conduct."
A false invoice or false bill for goods or services is the
"paradigmatic example of a false claim under the FCA," but the term
false claim "applies more generally to other demands for
government funds." In all cases, however, the claim must
have been made with the purpose and effect of extracting funds
from the government. Accordingly, under the FCA as it existed
before Congress's new expansion, the kinds of things a defendant
must have done in order for an FCA lawsuit to be maintained
- Presenting a false or fraudulent claim to an officer or
employee of the United States for payment or approval (the
so-called presentment requirement);
- Knowingly making or using a false record or statement "to get a
false or fraudulent claim paid or approved" by the federal
- Conspiring to defraud the federal government "by getting a
false or fraudulent claim allowed or paid."
False claims between private parties, by contrast, have for
centuries been remedied by civil actions between the parties under
state contract and tort law.
As the unanimous Supreme Court said just last year in Allison
Engine Co. v. United States ex rel. Sanders, until Congress's
latest expansion of the FCA it was not sufficient for a plaintiff
to show merely that a false statement resulted in getting payment
of a claim or that government money was used to pay it. Instead, a
plaintiff had to "prove that the defendant intended that the
false record or statement be material to the Government's decision
to pay or approve the false claim." A defendant must have intended "that the
Government itself pay the claim," not just that the false claim may
have been paid using government funds. In other words, the
Supreme Court clarified that, under the prior language of the FCA,
it was not enough to show that a fraud scheme had "the effect of
causing a private entity to make payments using money obtained from
the Government. Instead, it must be shown that the conspirators
intended 'to defraud the Government.'" Under any conditions other
than these, "the direct link between the false statement and
Government's decision to pay or approve a false claim is too
attenuated to establish liability." This straightforward, commonsense
interpretation furthered the FCA's stated purpose of protecting the
U.S. Treasury and the federal taxpayer.
Section Four of S. 386, however, reverses the Allison
Engine holding and virtually eliminates the FCA's
requirement that a direct connection exist between the false claim
and government money. The newly expanded FCA eliminates the
requirement in the first two provisions of the FCA that false
claims be used "to get" payment from "the government." These
provisions would instead subject to liability any person who:
(A)knowingly presents, or causes to be presented a false or
fraudulent claim for payment or approval; or
(B) knowingly makes, uses, or causes to be made or used, a false
record or statement material to a false or fraudulent claim.
The new law expands the definition of a "claim" to mean "any
request or demand...for money or property and [sic] whether or
not the United States has title to the money or property." Some have
argued that including the requirement that, in order to be
actionable, any false record or statement must be "material" to a
false or fraudulent claim will properly limit the ability of qui
tam plaintiffs to receive FCA awards for claims that have only
an attenuated or tangential connection to federal funds. But under
the new law's overly broad definition of the term, "material" only
means "having a natural tendency to influence, or be capable of
influencing, the payment or receipt of money or property," an
extremely weak and almost meaningless materiality requirement.
All that is now required under S. 386 is for the party who
receives an allegedly false claim to have also received (or expect
to receive) federal funds to pay some portion of the claim as long
as the funds are to be spent on the government's behalf or to
advance a government program or interest. Arguably under S. 386,
even undesignated federal funds given to a general operating
account would suffice. As the Supreme Court warned in the
Allison Engine decision, this will expand the FCA well
beyond its intended role of combating fraud against the government
into a general all-purpose anti-fraud statute. Under this
amendment, allegedly false claims made to a 501(c)(3) organization
that receives grants from federal employees' charitable donations
could expose the claimant to an FCA suit. Or "liability could
attach for any false claim made to any college or university, so
long as the institution has received some federal grants--as most
of them do."
This one major change transforms the FCA into an essentially
different law altogether. If a private hospital, university, or
contractor doing business with the government receives a false or
fraudulent claim for unrelated products or services, that private
entity already has existing rights under state contract and tort
law. Private parties have used the state and federal courts to
vindicate those rights for centuries. However, S. 386 reshapes the
existing provisions of the FCA into a general federal law on fraud,
even in cases where the real federal interest at stake--if
any--is only tenuously related to the false claim. The bill
over-federalizes claims historically and adequately addressed at
the state level and will allow the FCA to be used to advance claims
against any private organization or corporation that receives
federal funds. It opens up huge swaths of the economy to FCA
litigation, especially in today's post-TARP (Troubled Asset Relief
Program), post-bailout, post-"stimulus" world where federal funds
are being injected even into large private institutions that do not
Using the Law Enforcement Power of the
Justice Department to Benefit Private Parties
In order to give the government the ability to investigate a
possible fraud, the FCA grants the attorney general the ability to
serve a "civil investigative demand" on anyone who "may be in
possession, custody, or control of any documentary material or
information relevant to a false claims law investigation." Previously,
the attorney general could not delegate this law enforcement
authority, and information and documentation obtained as fruits of
the Justice Department's exercise of this authority could not be
shared with qui tam plaintiffs and their counsel unless
"consent is given by the person from whom the discovery was
However, the new law as amended by S. 386 gives the attorney
general the authority to delegate this law enforcement
investigative power and to share any information obtained "with any
qui tam relator." This exceedingly plaintiff-friendly
amendment will allow the attorney general or his designee within
the Justice Department to give private individuals and private
trial lawyers documents and information obtained using the law
enforcement authority of the federal government. The amendment
places the U.S. government in the position of helping one private
party in litigation against another, instead of conducting its own
objective, impartial investigation to try to ascertain the truth of
whether a violation of the law actually occurred.
The potential reward for a successful qui tam claim is
enormous; the incentive for private plaintiffs is not to
investigate impartially whether a fraud actually occurred, but to
win a case at all costs. This amendment eliminates a sensible
safeguard against frivolous litigation and the misuse of
governmental power by private plaintiffs and invites them to abuse
the due process rights of other private citizens. Moreover, this
provision turns the qui tam mechanism on its head--the
proffered justification for generous payoffs to qui tam
plaintiffs is that they are supposed to bring information about
fraud to the government. There is simply no reason for the
government to give information to individual plaintiffs and their
trial lawyers so that they can prosecute qui tam suits they
would otherwise lack the knowledge to bring.
Multiplying the Number of FCA
The FCA has long provided protection for a plaintiff who is
discriminated against by his employer for pursuing an FCA qui
tam suit. If the qui tam plaintiff's employer allegedly
discriminates against him in the workplace, he may bring a separate
suit for reinstatement to his same position at the same pay grade,
double the amount of back pay, and interest. He may also be awarded
his litigation costs and his attorney's fees. Although he may sue
his employer, under the FCA before it was expanded by Congress he
could not sue his individual supervisors or co-workers, nor was he
able to sue any third party.
The new law opens up the door to innumerable possibilities for
additional lawsuits by allowing non-employees--including
subcontractors, independent contractors, and other agents--to sue
for retaliation without requiring the allegedly retaliatory act to
have been taken by an "employer." Contractors already have rights to sue
for any breaches of, or tortious interference with, their
contractual rights that result from their lawfully pursuing FCA
qui tam suits. However, this amendment will expand liability
to a broad range of circumstances that do not involve employment
relationships. It is unnecessary to open up this additional avenue
for suing under the FCA other than to give contractors and others
an incentive to bring, not state-law contracts and torts lawsuits
in state courts, but FCA lawsuits in federal courts that offer the
potential for a monetary windfall of double the amount of alleged
damages. The amendments to the FCA made by S. 386 guarantee that
the litigation industry with all of its associated costs to U.S.
society will expand substantially.
Additionally, supervisors and fellow employees are now no longer
protected from becoming a defendant in an FCA retaliation lawsuit.
Any person who "discharged, demoted, suspended, threatened,
harassed, or in any other manner discriminated against" the
plaintiff can now be sued. This will be a tremendous disincentive to
other employees or contractors coming forth to correct false
allegations being made by a plaintiff in a qui tam suit
since it will expose them to potential liability and litigation.
Further, an unscrupulous plaintiff or plaintiff's lawyer can simply
add as defendants in any retaliation suit any individual with
significant knowledge of the facts who might otherwise testify on
behalf of the defendant in the qui tam suit. This
will provide significant leverage to influence, intimidate, and
coerce those individuals to "cooperate" with the qui tam
plaintiff and his lawyers.
Effectively Tolling the Statute of
The statute of limitations for FCA claims has always been quite
generous. Unlike state civil fraud actions which typically must be
brought between three to five years after the fraud is committed or
two to three years after the facts of a hidden fraud are
discovered, the FCA currently limits suits to those initiated up to
six years after the violation of the act or three years after the
material facts of the false claim are known (or should have been
known) to a government official. But one of the FCA amendments made by S.
386 can be used to circumvent the six-year statute of limitations.
This amendment provides that if the government intervenes in a
qui tam lawsuit, the government's pleading "shall relate
back to the filing date of the complaint of the person who
originally brought the action."
This amendment effectively gives the government the ability to
toll (i.e., suspend) the statute of limitations without requiring
that a defendant be given sufficient or adequate notice of a
complaint. For example, in United States v. Baylor University
Medical Center, the government obtained repeated extensions of
the 60-day period in the FCA that a complaint remains under seal. The FCA
provides that the initial complaint and written disclosure is to be
filed under seal in a federal court in order to give the government
60 days to decide whether to intervene--the defendant receives no
notice of the lawsuit. The government can repeatedly request
extensions of this 60-day period, which are almost always granted
as a matter of course, and during each extension period the
complaint remains under seal.
In the Baylor University case, the government
finally decided to intervene in the lawsuit after eight years.
However, the Court of Appeals for the Second Circuit determined
that the six-year statute of limitations had run out because the
government's complaint did not relate back to the original date the
lawsuit was filed. As the court noted in discussing a
federal rule of civil procedure on this issue, the "touchstone for
relation back...is notice, i.e., whether the original pleading gave
a party 'adequate notice of the conduct, transaction, or occurrence
that forms the basis of the claim or defense.'" Since the "under
seal" requirement of the FCA prevents a defendant from having any
notice at all, "any relation back of subsequent filings to the
original complaint is incompatible with the core requirement of
notice...[and] continued running of the statute of limitations is
A fundamental purpose of any statute of limitations is to
encourage cases to be brought when evidence is still fresh. Over
time, witnesses move, fall out of contact, die, or simply forget
important facts. Statutes of limitations also reduce the costs and
burden of litigation. It almost always becomes more difficult,
expensive, and time-consuming for a defendant to find documents and
other related information for alleged violations of the law the
older the events are and the further in the past the supposed
violations occurred. The amendment in S. 386 violates the
fundamental requirements of fairness and due process holding that a
defendant must be given adequate notice of a claim. Congress should
not have granted the federal government the ability to stretch out
the statute of limitations through a relations-back doctrine while
a defendant's ability to defend himself deteriorates and the
government's possible losses--and a qui tam plaintiff's
potential award--pile up.
Regardless of what the supporters of the Fraud Enforcement and
Recovery Act of 2009 might have intended, from start to finish the
FCA amendments in S. 386 were crafted to expand the ability of
individual plaintiffs and trial lawyers to use False Claims Act
litigation, not to protect the American taxpayer, but as an
all-purpose and highly punitive fraud statute against private
industry and nonprofit organizations. Qui tam plaintiffs are
considered to be acting as "private attorneys general," which is
itself problematic given that a "private attorney general is
understood to be someone who is suing on behalf of the public, but
doing so on his own initiative, with no accountability to the
government or the electorate." The prior provisions of the FCA attempted
to strike a balance between the benefits of allowing private
attorneys general to develop fraud claims otherwise unknown to the
government and the great potential for abuse by such private
The Fraud Enforcement and Recovery Act's amendments to the FCA
dispense with even the aspects of this balance that recent Supreme
Court decisions clarifying the FCA's language helped to achieve.
The act's changes throw open the door to new classes of frivolous
and unscrupulous litigation for personal gain, ostensibly for the
benefit of the government but controlled by individual plaintiffs
and trial lawyers.
Given the current recession and economic uncertainty, when the
costs of abusive litigation to the American economy are even more
important, it makes no sense to increase the number of expensive,
inefficient lawsuits or to place the fruits of the government's
coercive law enforcement power in the hands of private litigants.
No safeguards are in place to prevent misuse of such law
enforcement authority, nor is there any reliable evidence that more
litigation is needed. Congress and President Obama should not have
created new and unnecessary litigation claims for the benefit of
trial lawyers, claims which serve to undermine the U.S. economy and
expose private parties to expanded liability and still more
vexatious and frivolous litigation.
Hans A. von Spakovsky is a Legal Scholar, and
Walsh is Senior Legal Research Fellow, in the Center for Legal
and Judicial Studies at The Heritage Foundation.
legislation's supporters were at that time addressing S. 2041, the
then-pending version of the False Claims Act Corrections Act, 110th
Cong. (2008) (as reported by Senate Comm. on the Judiciary, Apr. 3,
2008). A closely related measure was introduced in the House on
December 12, 2007 by Representative Howard Berman (D-Cal.). False
Claims Act Corrections Act of 2007, H.R. 4854, 110th Cong. (2007).
The primary sponsor of the False Claims Act Corrections Act (S.
386) in the 111th Congress was Senator Patrick Leahy (D-Vt.), and
Representative Berman sponsored a related House measure, H.R.
Enforcement and Recovery Act of 2009, Pub. L. No. 111-21
the Justice Department, "qui tam" is from a Latin phrase
meaning "he who brings a case on behalf of our lord the King, as
well as for himself." SeeU.S. Department of Justice, False
Claims Act Cases: Government Intervention in Qui Tam
(Whistleblower) Suits (undated document), www.usdoj.gov/usao/pae/Documents/fcaprocess2.pdf.
Allison Engine Co. v. United States ex rel. Sanders, 128 S.
Ct. 2123, 2130 (2008) (holding that the False Claim Act's
prohibition against using a false record to induce government
payment requires a showing that the defendant intended that the
government itself pay the claim, rather than merely showing that a
false statement resulted in the use of government funds to pay a
Plaintiffs Bar Pushes Hill Agenda, Legal Times, March 30,
§ 3729(a)(2) (2009).
Id. § 3729(a)(3) (2009).
§ 85.3(9) (1999) (increasing the statutory minimum from $5,000
to $5,500 and the maximum from $10,000 to $11,000 to adjust for
§ 3729 (2009).
e.g., United States v. Krizek, 111 F.3d 934, 940 (D.C. Cir.
1997) (counting each instance in which a doctor used a
later-invalidated billing method as a separate False Claims Act
offense punishable by the statutory monetary penalty); United
States v. Ehrlich, 643 F.2d 634 (9th Cir. 1981) (counting each of
76 monthly vouchers submitted by a builder as a separate False
Claims Act offense punishable by the statutory monetary
§ 3730(b)(2). The complaint is "filed in camera" and remains
"under seal for at least 60 days, and shall not be served on the
defendant until the court so orders." Thus, defendants receive no
notice of a claim unless and until the court unseals the
Engine, 128 S. Ct. at 2130 (citing Anza v. Ideal Steel Supply
Corp., 547 U.S. 451, 470 (2006)).
States v. Rivera, 55 F.3d 705, 709 (1st Cir. 1995).
See Allison Engine, 128 S. Ct.at 2126;
United States v. Neifert-White Co., 390 U.S. 228, 230 (1968).
§ 3729(a) (2009). Other grounds for maintaining an FCA suit
include delivering to the federal government "less property than
the amount for which the person receives a certificate of payment"
or using a false statement or document to undermine a financial
obligation to the federal government. Id.
Engine, 128 S. Ct. at 2126 (emphasis added).
Id. at 2128 (emphasis added).
Illustrating just how far the trial lawyers
lobby would like to expand the FCA litigation industry, the
original version of the False Claims Act Corrections Act would have
made any false claim presented to anyone who receives any federal
funds actionable under the FCA. See S. 2041, 110th Cong.
§ 2(1) (2007) (as introduced in the U.S. Senate on Sep. 12,
2007). Thus, if a plumber, painter, or other small contractor
submitted an allegedly false claim for payment to anyone who earns
a federal salary or anyone who receives any federal subsidy or
Social Security payment, that contractor could have been the target
of an FCA suit by a qui tam plaintiff. The current version
closes this particular avenue for litigation by including a narrow
exception for "compensation for federal employment or as an income
subsidy with no restrictions on that individual's use of the money
or property." S. 386, sec. 4(b)(2)(B), 111th Cong. (2009).
Id. Sec. 4(b)(2)(A) (emphasis added).
In non-legal terms, a legislative provision stating that it makes
no difference whether the United States "has title to" something is
not much different than one stating that it makes no difference
whether the United States owns it.
Engine Co., 128 S. Ct. at 2128.
sec. 4(d). The proposed language gives this right to any
"employee, government contractor, or agent." Id.
States v. The Baylor University Medical Center, 469 F.3d 263 (2d
Baylor University Medical Center, 469 F.3d at 265.
Id. at 270. Similarly, in another
case, the original complaint was filed in 1996 yet the government
waited until 2003 to intervene in the lawsuit. See United States
ex rel. Health Outcomes Technologies v. Hallmark Health
System, Inc., 409 F. Supp. 2d 43 (D. Mass. 2006).
Rabkin, The Secret Life of the Private Attorney General, 61
Law & Contemporary Problems 179, 179 (Winter 1998) (emphasis
See United States ex rel.
Springfield Terminal Ry. v. Quinn, 14 F.3d 645, 651 (D.C. Cir.
1994) ("The history of the FCA qui tam provisions
demonstrates repeated congressional efforts to walk a fine line
between encouraging whistle-blowing and encouraging opportunistic