By Andy Liu, Robert Rhoad, and Haaleh Katouzian
August 27, 2021
On July 22, a bipartisan group of Senators, led by Senator Chuck Grassley (R-IA), introduced a bill to amend the False Claims Act (“FCA”).[1] According to Senator Grassley’s press release, the proposed False Claims Amendments Act of 2021 (the “Bill”) seeks to “clarif[y] the current law following confusion and misinterpretation of the Supreme Court decision in United Health Services v. United States ex rel. Escobar . . . .”[2]
The Bill’s amendments focus on 1) reigning in Government dismissals of qui tam actions; 2) shifting the costs of discovery from the Government in non-intervened cases; and 3) shifting the burden of proof in establishing the materiality standard under the FCA.[3] In Senator Grassley’s summary of the Bill, he states, “[t]he False Claims Act is the government’s most powerful tool in deterring fraud and protecting taxpayer dollars” and that the “changes [to the FCA] are needed to correct misinterpretations of the Supreme Court decision and ensure that the government has the tools needed to recover the billions of dollars lost annually to fraud.”[4] The proposed amendments, however, would do little to further the FCA’s legitimate purpose of protecting the public fisc. Indeed, in several respects, they are likely to further waste taxpayer dollars.
Dismissals
Under 31 U.S.C. § 3730(c)(2)(A), the Government can dismiss qui tam actions if the relators have been 1) notified and 2) given the opportunity for a hearing.
The Bill would amend this Section to add:
“, at which the Government shall have the burden of demonstrating reasons for dismissal, and the qui tam plaintiff shall have the opportunity to show that the reasons are fraudulent, arbitrary and capricious, or contrary to law.”
The issue of Government dismissals of qui tam actions has gained much attention since 2018, when the then Director of the Commercial Litigation Branch, Fraud Section, Michael Granston, prepared an internal memorandum (“Granston Memo”) outlining seven factors the Government should consider when seeking 31 U.S.C. 3730(c)(2)(A) dismissals.[5] Senator Grassley, in a letter to then Attorney-General William Bar, addressed “concerns” with DOJ’s “implementation of the Granston Memorandum,” stating that DOJ’s “efforts [at dismissal] rely at least in part on vague and at times questionable concerns over prerogatives or limited government resources to handle the cases.”[6]
As a practical matter, this seems much ado about nothing because the Government rarely moves to dismiss qui tam actions. DOJ, in a letter to Senator Grassley on December 19, 2019, stated that, of the 1,170 qui tam actions filed since January 1, 2018, the Government had only moved to dismiss 45 (or less than 4 percent), many of which were cases filed by a single relator.[8]
Nonetheless, as we explained 13 years ago, dismissal of qui tam suits in appropriate circumstances actually protects the public fisc.[9] The factors in the Granston Memo are designed to further that purpose by offering legitimate considerations for dismissals. Litigation is time-consuming and expensive, and even when the Government declines to intervene, it still “expends significant resources in monitoring these cases and sometimes must produce discovery or otherwise participate.”[10] And, when a Government contractor prevails in defeating a meritless case, the cost of litigating that suit is likely to be considered allowable costs under the FAR’s cost allowability provisions which means that the costs are not borne by the relator or the defendant, but by the taxpayer.
If this amendment makes it into the FCA, it will be counter to the law’s purpose – protecting the public fisc.
Cost Shifting
The Bill also seeks to add a “Costs” section to section 3731 of the FCA. The amended section would state:
“(f) If the Government elects not to intervene in an action brought under section 3730(b), the court shall, upon a motion by the Government, order the requesting party to pay the Government’s expenses, including costs and attorneys’ fees, for responding to the party’s discovery requests, unless the party can demonstrate that the information sought is relevant, proportionate to the needs of the case, and not unduly burdensome on the Government.”
The proposed amendment, however, adds nothing to the Government’s ability to prevent a party from inappropriately obtaining discovery from it. It would only further burden the Government by needlessly injecting additional motions practice into FCA suits. As it already stands, under Fed. R. Civ. P. 26, the Government can preclude a party from obtaining discovery by arguing that the information sought is irrelevant, disproportionate to the needs of the case, and unduly burdensome. Moreover, the government already holds an unfair advantage in withholding relevant information through its application of the so-called Touhy regulations.[11]
The Materiality Standard
The FCA defines “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”[12] In Escobar, the Supreme Court held that “[a] misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government’s payment decision in order to be actionable under the False Claims Act.”[13] Should the Government “pay[] 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.”[14]
After Escobar, there have been disagreements as to the application of this material standard under the FCA. The Bill proposes a new section be added to section 3729, stating:
“(e) Proving Materiality. ––
(1) In General. –– In an action under this section, the Government or relator may establish materiality by a preponderance of the evidence.
(2) Rebuttal. –– A defendant may rebut an argument of materiality under paragraph (1) by clear and convincing evidence.”
To succeed in an FCA action, however, the Government (or in qui tam actions, the relator) is already required to prove the materiality of the fraud alleged by a preponderance of the evidence. As such, we do not see how or why the burden would shift to the defendant after the Government or relator has already established the element of materiality by a preponderance of the evidence. Presumably, in determining whether the Government or relator has met its burden, the Court has taken into consideration the defendant’s arguments to the contrary. In addition, the Bill seeks to impose on defendants, in order to avoid treble damages, the duty to prove a negative – that the alleged fraud was not material. The Government would no longer have the responsibility to prove each element of the alleged fraud, a concept that seemingly would go against the core values of our legal system.
In short, the False Claims Amendments Act of 2021 does little to further the purpose of the FCA.
Endnotes
[1] Daniel Seiden, Grassley Moves to Stop Contractors from Holding U.S. ‘Hostage’, Bloomberg Law (July 29, 2021, 6:01 AM), https://news.bloomberglaw.com/federal-contracting/grassley-moves-to-stop-contractors-from-holding-u-s-hostage; see False Claims Amendments Act of 2021, S. 2428, 117th Cong. (2021), https://www.grassley.senate.gov/imo/media/doc/117s2428_-_false_claims_amendments_act.pdf.pdf.
[2] News Release, Chuck Grassley, Senators Introduce Bipartisan Legislation to Fight Government Waste, Fraud, (July 26, 2021), https://www.grassley.senate.gov/news/news-releases/senators-introduce-of-bipartisan-legislation-to-fight-government-waste-fraud. The Supreme Court in Escobar defined and analyzed the FCA’s “materiality” standard. See Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).
[3] See S. 2428, 117th Cong. (2021). The other amendments are meant to “clarif[y] that the existing anti-retaliation provisions of the False Claims Act apply to post employment retaliation” and that the “changes would be applied to all pending and future litigation to ensure that it covers the trillions of dollars spent on COVID relief.” Chuck Grassley, False Claims Act Amendments of 2021, https://www.grassley.senate.gov/imo/media/doc/false_claims_amendments_act_summary.pdf (last visited Aug. 26, 2021) (summary of the Bill found on Senator Grassley news release).
[4] Chuck Grassley, False Claims Act Amendments of 2021, https://www.grassley.senate.gov/imo/media/doc/false_claims_amendments_act_summary.pdf ((last visited Aug. 26, 2021) (summary of the Bill found on Senator Grassley news release).
[5] See Memorandum, Michael D. Granston, Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A) (Jan. 10, 2018), https://nicholsliu.com/wp-content/uploads/2021/08/Memo-for-Evaluating-Dismissal-Pursuant-to-31-U-S.pdf (hereafter “Granston Memo”). Michael Granston is now the Deputy Assistant Attorney General for the Commercial Litigation Branch. https://www.justice.gov/civil/staff-profile/deputy-assistant-attorney-general-0.
[6] Letter from Senator Charles E. Grassley, to Attorney General William Barr (Sept. 4, 2019), https://www.grassley.senate.gov/imo/media/doc/2019-09-04%20CEG%20to%20DOJ%20(FCA%20dismissals).pdf
[7] Letter from Assistant Attorney General Stephen E. Boyd, to Senator Charles E. Grassley (Dec. 19, 2019), https://nicholsliu.com/wp-content/uploads/2021/08/doj-response-to-senator-grassley.pdf
[8] See Jason Lynch, Bob Rhoad, and Andy Liu, Feature Comment: When the King No Longer Wants You Suing in His Name: The NHAG Saga and Its Implications for DOJ’s Ability to Dismiss Qui Tam Suits (May 1, 2019), https://nicholsliu.com/when-the-king-no-longer-wants-you-suing-in-his-name/
[9] Brian C. Elmer, Andy Liu, and Ann M. Mason, The Government’s Overlooked Weapon in Protecting the Public Fisc: Dismissals Under 31 U.S.C. § 3730(c)(2)(A), (2008), https://nicholsliu.com/wp-content/uploads/2018/12/FCA-Govt-Dismissal-Article.pdf
[10] Granston Memo at 1.
[11] These regulations are named after the Supreme Court’s 1951 decision in United States ex rel. Touhy v. Ragen. Touhy allows executive agencies to adopt housekeeping regulations preventing or restricting the Court’s ability to compel agency evidence in litigation where the Government is not a party. See United States ex rel. Touhy v. Ragen, 340 U.S. 462 (1951). But, of course, the Government is actually the real party in interest in all qui tam suits, whether it intervenes in them or not.
[12] 31 U.S.C. § 3729(b)(4).
[13] Escobar, 136 S. Ct. at 1996.
[14] Id. at 2003.
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