The Only Thing to Fear is FERA Itself

By Michelle L. Butler –

On May 20, 2009, the President signed the Fraud Enforcement and Recovery Act of 2009 (“FERA”), which is purported to be aimed at improving enforcement of fraud, including fraud related to Federal assistance and relief programs.  Among other things, this legislation included substantial amendments to the Federal False Claims Act (“FCA”), 31 U.S.C. §§  3729-3333.

Section 4 of FERA is titled “Clarifications to the False Claims Act to Reflect the Original Intent of the Law.”  These amendments are described by Congress as being primarily directed at closing loopholes made by recent court decisions that have undermined and limited the scope of the law (see, e.g., Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008) (holding that 31 U.S.C. § 3729(a)(2) of the FCA requires the Federal government to prove that a defendant intended the government itself to pay a claim, resulting in no liability under the FCA unless a subcontractor intended to defraud the Federal government, not just the general contractor to whom the subcontractor submits claims for payment from government funds); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004) (holding that the “presentment clause” limits recovery for frauds committed by a government contractor when the funds are expended by a government grantee).

The most significant changes made by section 4 of FERA relate to when liability attaches.  To address the “presentment clause” issue presented by Totten and other court decisions, FERA deleted from the FCA the “presentment clause” that required direct presentation of a claim to the government in order for liability to attach.  See 31 U.S.C. § 3729(a)(1)(A).  The Senate Report accompanying this legislation identified FCA liability for Medicaid claims as an example of where defendants have argued that the presentment clause precluded liability.  The Report stated that removal of the presentment clause clarifies that “the FCA reaches all false claims submitted to State administered Medicaid programs.”  S. Rep. No. 111-10, at 11 (2009).  To address the issues presented by the decision in Allison Engine, FERA also amended the FCA to remove language that was interpreted by the Supreme Court to require an intent by a subcontractor that its false statement to be used by the prime contractor to get the government to pay the claim.  Specifically, FERA removed the language requiring a person use a false statement “to get” a false claim “paid or approved by the government” and replaced it with a requirement that the false statement be “material to” a false claim.  FERA also amended the definition of a “claim” and added a definition for “material.”  See 31 U.S.C. § 3729(a)(1)(B).

Section 4 of FERA also made changes, among other things, to procedural matters when the government intervenes, including providing that, for statute of limitations purposes, any government pleading (either a complaint or an amendment of the relator’s complaint) relates back to the filing date of the relator’s complaint, to the extent that the government’s claims arise out of the conduct, transactions, or occurrence set forth, or attempted to be set forth, in the prior complaint; civil investigative demands for information relevant to a FCA investigation; and relief for employees, contractors, or agents subject to retaliatory action because of lawful acts done by such employees, contractors, or agents in attempting to stop violations of the FCA.

The amendments to the FCA by FERA take effect on the date of enactment of FERA and apply to conduct on or after such date (May 20, 2009), with certain exceptions.  Specifically, 31 U.S.C § 3729(a)(1)(B) takes effect as if enacted on June 7, 2008 and applies “to all claims under the [FCA] that are pending on or after that date.”  In addition, certain of the procedural changes apply to cases pending on the date of enactment.