CBO Reports on Grassley Bill That Would Modify Escobar Materiality and Impose Rational Relation Test on Granston Dismissals

On July 15, 2022, the Congressional Budget Office (CBO) issued a cost estimate concerning the False Claims Amendments Act of 2021, a bill sponsored by Senator Grassley.  The bill would alter the False Claims Act in three important ways.

First, the bill would modify the FCA’s materiality standard.  In Escobar, the Supreme Court determined that if the government pays a claim (or regularly pays a type of claim) despite knowing about a statutory, regulatory, or contractual violation, that payment is very strong evidence that the misrepresentation on the violation was not material to the government’s decision to pay.  Amending this aspect of Escobar’s materiality analysis, Senator Grassley’s bill would add the following to the FCA:

In determining materiality, the decision of the Government 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 decision of the Government with respect to such refund or payment.

The CBO estimated that this amendment would mean that “DOJ would succeed in about three FCA cases each year that would not otherwise have been won.”  There is no basis offered—and none we can infer—for this statement.

Second, the bill would impose a standard for courts to employ when evaluating whether to grant government motions to dismiss qui tams over relators’ objections.  As we have previously written, the Supreme Court has granted certiorari to resolve the circuit split on the appropriate standard.  The bill would itself resolve the circuit split, adopting the Ninth Circuit’s requirement that the government identify a valid government purpose and a rational relation between dismissal and accomplishment of the purpose, while also imposing on the relator the burden of demonstrating that dismissal would be fraudulent, arbitrary and capricious, or illegal.

Third, the bill would specify that the FCA’s whistleblower protections cover both current and former employees.

With little time left in this legislative session, it is unclear whether and when this bill might become law.

We will monitor for and report on any further legislative developments.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.