Member Article

For the second time in three years, amendments to the False Claims Act have been proposed in the U.S. Senate. If enacted, the amendments would create uncertainty for FCA defendants and expand the scope of the FCA’s anti-retaliation provision to cover post-employment retaliation.

In late July, a group of senators proposed the False Claims Amendments Act of 2023.[1] Championed by Sen. Charles Grassley, the self-proclaimed “father” of the modern FCA due to his authorship of the 1986 FCA Amendments,[2] the current amendments are the second attempt in three years to introduce relator-friendly revisions to the FCA.

Senator Grassley had most recently proposed similar FCA amendments in 2021.[3] That proposal died without going to a vote, and it is not apparent that the need—or support—for revising the FCA is any greater now. The 2023 version includes some noteworthy differences, although (unsurprisingly) again has relator-favoring aspects. Most notably, the proposed amendments could weaken a FCA defendants’ ability to negate the materiality element through evidence of government knowledge, and would resolve the current circuit split over the anti-retaliation provision by making post-employment retaliation actionable.

Materiality

Likely the most significant of the proposed amendments concerns the materiality element—a crucial statutory guardrail against “onerous and unforeseen” liability [4] for “minor or insubstantial” noncompliance with law or regulation,[5] or other infractions not meriting the FCA’s “essentially punitive” treatment.[6] The bill would create a new subsection, § 3729(e), under which the government’s decision “to forego a refund or to pay a claim despite actual knowledge of fraud or falsity shall not be considered dispositive if other reasons exist” for the government’s decision.[7]

This plaintiff-favoring provision seems aimed at limiting the Supreme Court’s observation that such government payment decisions are “very strong evidence” of immateriality.[8] Some courts have already noted that the “strong evidence” test is not dispositive,[9]  but they have largely done so in the context of the Twombly/Iqbal pleading standard.[10] The proposed amendment seems calculated to undermine the strength of evidence defendants may marshal showing that the government paid with knowledge of the alleged false statements. Courts would presumably be free to weigh the government’s proffered “other reasons” against the fact of its continuing payments, but that approach would seemingly make it more likely for courts to find factual disputes exist, necessitating trial on the materiality element. 

The materiality provision of the 2021 version as originally introduced did not include this language. Instead, it proposed a burden-shifting test skewed towards plaintiffs, who could establish materiality by a preponderance of the evidence, while defendants would have to marshal clear and convincing evidence in rebuttal.[11] The 2021 proposal also provided for cost-shifting of discovery requests served on the government in non-intervened cases unless the requesting party could satisfy an exacting three-part test.[12] It is not yet clear why the drafters of the 2023 bill decided to take a different approach.

Retaliation

The other significant proposal would insert “current or former” after “Any” at the beginning of the statute’s anti-retaliation provision,[13] establishing entitlement to relief for “[any] current or former employee . . . .”[14] Courts have diverged on whether the existing FCA reference to “[a]ny employee” encompasses retaliation against former employees.[15] The amendment—as with its 2021 counterpart—would resolve the issue in favor of the broader interpretation.[16]

Miscellaneous

The proposed amendments would create a one-off requirement for the Comptroller General to report to Congress within 18 months of enactment of the amendments.[17] The document would inform lawmakers about “the effectiveness” of the FCA, including benefits and challenges of enforcement, and amounts recovered under the statute.[18] This requirement is unchanged from the 2021 proposal.

One proposed change that would be limiting on the scope of potential FCA actions is the provision on the applicability of the amendments as a whole.[19] Under its terms, the amendments would be applicable to cases newly filed on or after the date of the amendments’ enactment.[20] This represents a narrowing from the 2021 proposal, which would have also applied the amendments to all FCA cases pending on the date of enactment.[21]

Finally, the 2023 proposal does not address the government’s power to dismiss non-intervened cases. The 2021 bill would have required the Department of Justice (DOJ) to “demonstrate reasons for dismissal” and given the relator an opportunity to show that “the reasons are fraudulent, arbitrary and capricious, or illegal.”[22] That provision is likely a casualty of the Supreme Court’s intervening decision in U.S. ex rel. Polansky v. Executive Health Resources, Inc., validating the DOJ’s right to move to dismiss an FCA action even after declination, so long as it intervened at some subsequent point in the litigation, and mandating deferential adjudication of such motions under the federal rule governing voluntary dismissals, Fed. R. Civ. P. 41(a).[23]

Conclusion

Major Supreme Court decisions this summer have been both heartening[24] and challenging[25] for FCA defendants. If enacted, the proposed amendments would create additional uncertainty as lower courts would be forced to resolve the meaning of the new materiality subsection and address what constitutes post-employment retaliation. It remains to be seen whether the bill gains any traction in the Senate and beyond. Dinsmore’s FCA Team will keep a close eye on its progress and report on key developments.

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[1] https://www.grassley.senate.gov/imo/media/doc/false_claims_amendments_act_of_2023.pdf (“Proposed 2023 FCA Amendments”). Senators Charles Grassley (R-Iowa), Dick Durbin (D-Ill.), John Kennedy (R-La.), and Roger Wicker (R-Miss.) have co-sponsored the bill.

[2] See https://uslaw.link/citation/stat/100/3153; https://www.grassley.senate.gov/news/news-releases/grassley-receives-honest-abe-award-work-root-out-fraud.

[3] See https://www.congress.gov/117/bills/s2428/BILLS-117s2428is.pdf (“Proposed 2021 FCA Amendments”).

[4] U.S. ex rel. Thomas v. Black & Veatch Special Projs. Corp., 820 F.3d 1162, 1170 (10th Cir. 2016) (quoting United States v. Triple Canopy, Inc., 775 F.3d 628, 637 (4th Cir. 2015)).

[5] See Universal Hlth. Servs. v. U.S. ex rel. Escobar, 136 S. Ct. 1989, 2003 (2016); U.S. ex rel. Foreman v. AECOM, Inc., 19 F.4th 85, 109 (2d Cir. 2021) (citing Escobar, 136 S. Ct. at 2003).

[6] Escobar, 136 S. Ct. at 1996 (quoting Vt. Agency of Nat. Res. v. U.S. ex rel. Stevens, 529 U.S. 765, 784 (2000)). To be actionable under the FCA, rather, an alleged misrepresentation must have gone “to the very essence of the bargain.” Id. at 2003 n.5 (quoting Junius Constr. Co. v. Cohen, 178 N.E. 672, 674 (N.Y. 1931)).

[7] See Proposed 2023 FCA Amendments, § 2.

[8] See  Escobar, 136 S. Ct. at 2003–04. 

[9] See, e.g., U.S. ex rel. Cimino v. IBM, 3 F.4th 412, 423 (D.C. Cir. 2021) (holding it “plausible” that the government might have continued to pay “for any number of reasons that do not render [the] fraud immaterial” but noting that “evidence of the IRS’s continued payment . . . might be used to demonstrate that [the] false audit was not material” at the summary judgment stage) (alterations added).

[10] See, e.g., id. at 421–22.

[11] However, the marked-up version reported out of the Judiciary Committee to the full Senate did contain the newer language regarding the evidentiary weight to be attached to the government’s payment decision. See https://www.congress.gov/117/bills/s2428/BILLS-117s2428rs.pdf, § 2.

[12] To avoid paying the government’s discovery costs, the requesting party would have had to show the information sought was [i] relevant, [ii] proportionate to the needs of the case, and [iii] not unduly burdensome on the government to produce. See Proposed 2021 FCA Amendments, § 2(b) (alterations added). In a media release, Senator Grassley framed this provision as a measure to reduce “fishing expeditions” by FCA defendants hoping to discover “someone, somewhere, in the government [who] was aware of the fraud,” in order to buttress an argument for immateriality. See https://www.grassley.senate.gov/imo/media/doc/false_claims_amendments_act_summary.pdf (alteration added).

[13] 31 U.S.C. § 3730(h)(1).

[14] Proposed 2023 FCA Amendments, § 3 (emphasis and alteration added).

[15] Compare U.S. ex rel. Felten v. Wm. Beaumont Hosp., 993 F.3d 428, 433–35 (6th Cir. 2021) (holding FCA’s anti-retaliation provision protects ex-employees from post-termination retaliation) with Potts v. Ctr. for Excell. in Higher Educ., 908 F.3d 610, 618 (10th Cir. 2018) (holding provision only protects against retaliatory conduct plaintiff suffered while still employed by defendant). Clearly, both interpretations allow former employees to bring actions under § 3730(h) for retaliation they experienced during their employment with defendant.

[16] Proposed 2023 FCA Amendments, § 3. While the provision’s language is not particularly clear as to the scope of the change, Senator Grassley’s purpose is evident in the section title: “Post-Employment Whistleblower Retaliation.”  See id.

[17] Id. § 4.

[18] The reporting provision can be seen as a higher-profile and enlarged-scope version of DOJ’s annual release of fraud recovery statistics.  See, e.g., Justice Department’s False Claims Act Settlements and Judgments Exceed $5.6 Billion in Fiscal Year 2021 (Feb. 1, 2022), https://www.justice.gov/opa/pr/justice-department-s-false-claims-act-settlements-and-judgments-exceed-56-billion-fiscal-year.

[19] See Proposed 2023 FCA Amendments, § 5.

[20] Id.

[21] See Proposed 2021 FCA Amendments, § 6.

[22] See id. § 3.

[23] Polansky, 143 S. Ct. 1720 (2023). The Dinsmore FCA Team’s analysis of the decision is here.

[24] See Polansky, 143 S. Ct. 1720.

[25] See U.S. ex rel. Schutte v. SuperValu Inc., 143 S. Ct. 1391 (2023) (clarifying that “knowingly” under the FCA includes a defendant’s contemporaneous subjective beliefs about its conduct, despite existence of an objectively reasonable interpretation of an ambiguous legal obligation). We analyzed the Supreme Court’s decision here, and examined two post-Schutte remands by the Court here.

 

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