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By Reuben Guttman
Since the Civil War, the Federal False Claims Act (FCA), now codified at 31 U.S.C. 3729 et seq., has provided a means of redress against private entities whose “false or fraudulent” conduct caused the loss of taxpayer dollars. While the Federal FCA was promulgated to recover federal monies squandered as a result of wrongdoing, today twenty-three states, including New York, California, Texas, Florida and Michigan, have their own state False Claims Acts which provide parallel means of redress allowing for the recovery of state monies lost through fraud or fraudulent conduct. An individual with independent knowledge of false or fraudulent claims made to secure government money may bring suit in the name of the federal government even where that person does not have the traditional “injury in fact” needed to satisfy U.S. Constitution Article III standing requirements. Subject to certain statutory restrictions, they need not have sustained personal injury; rather they need only have independent knowledge of the wrongdoing Because these individuals have been assigned a portion of the claim through bounty provisions of the FCA, the Supreme Court, see Vermont v. Stevens, 529 U.S. 765 (2000), has held that as a partial assignee of the claim through a bounty award, whistleblowers, known as relators, have standing to sue on behalf of the government. The efforts of relators have led to the recovery of billions of dollars for federal and state governments. While a substantial portion of this money has been recovered on behalf of Medicare and Medicaid systems, dollars have also been returned to an array of other government agencies or programs. The False Claims Acts have even been used to go after contractors that make representations about compliance with statutes and regulations including those addressing unfair competition, the environment, and labor practices. For example, a false certification of independent pricing attached to a competitive bid may give rise to liability under the False Claims Act where treble damages and civil penalties of between $5,000 and $11,000 can be accorded. In U.S. ex rel. Bunk v. Birkart et al., the Justice Department, acting in conjunction with “Relators,” successfully sought recovery under the FCA for predicate violations of competition requirements attached to a bidding process. Under new legislation, the federal False Claims Act (“FCA”), will take an even more prominent role in protecting from fraud the increase of federal spending to meet the nation’s financial crisis. With federal funds going to a range of projects-- from state infrastructure “shovel ready” road building to Internet connectivity, green energy innovation and high-tech transportation solutions—there are simply more federal expenditures in the pipeline for the FCA to cover. Specifically, on May 20, 2009, President Obama signed into law Senate Bill 386, the Fraud Enforcement and Recovery Act (“FERA”), which makes important amendments to the FCA. Most significantly, the new legislation clarifies what was known as the “presentment requirement.” The prior version of the False Claims Act, 31 U.S.C. 3729(a)(1) attached liability for any person who “knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval.” Those defending false claims cases argued that the claim had to be presented to the government itself. In Allison Engine Co. v. U.S., 123 S. Ct. 2128 (2008), the Supreme Court picked up on this argument and to some extent narrowly interpreted the scope of the FCA to potentially exclude from the orbit of liability situations where false claims for payment or approval were presented to private contractors using or intending to use government money. Recognizing that an extension of this logic could potentially preclude whistleblowers from seeking redress where false claims were presented to private sector agents of the government, or the wrongdoing involved the use of government monies in the hands of a private actor, Congress clarified the intent of the statute by modifying the presentment language. The amended version of the statute now makes it unlawful to “knowingly present, or cause to be presented, a false or fraudulent claim for payment or approval.” Thus, the amended statute eliminates the phrase “to an officer or employee of the United States government […]”. The amended statute thus places greater importance on the word “claim” itself and defines “claim”, 31 U.S.C. 3729(b)(2), to essentially encompass any false or fraudulent claim made to a private sector entity operating or using government money. A false claim can now occur even where the private actor is operating on behalf of the government and has not yet but will be reimbursed with government monies. Under the new law, bailout-fund recipients’ potential liability under the FCA is clear. Upon passage of the legislation, the President stressed the importance of protecting taxpayer dollars needed for economic recovery under the Troubled Asset Relief Plan (“TARP”), run by the U.S. Treasury to shore up financial institutions, and other stimulus programs. The new legislation has confirmed the ability of private whistleblowers to take action against lenders whose false or fraudulent conduct implicates the misuse of federal dollars. For those legal practitioners who do not specifically practice under the False Claims Act, it is important to understand that the statute can be a means to seek redress where obligations under a myriad of other laws, a condition of receipt of federal funds, have not been met.
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