26 July 2021

Bipartisan Legislation Introduced To Overhaul FCA To Further Hamstring Defendants

A bipartisan group of senators, led by Senators Grassley (R-IA), Leahy (D-VT), Wicker (R-MI), Durbin (D-IL), and Kennedy (R-LA), has introduced the False Claims Amendments Act of 2021.  This legislation is worth watching not just because it would significantly amend the FCA, but because Senator Grassley has a successful track record of shepherding through to passage legislation reversing gains made by defendants in FCA cases.

The bill has four major components:

  1. Materiality. Unlike early drafts of the legislation we have seen, the bill does not propose to amend the existing definition of “material” (§ 3729(b)(4)).  Instead, it would purport to apply a bizarre burden-shifting approach on materiality.  The FCA would be amended to provide that the government or relator “may establish materiality by a preponderance of the evidence” (which is the current standard), but that the “defendant may rebut an argument of materiality . . . by clear and convincing evidence.”  It is not clear how this would work as a practical matter.  While the general concept of burden-shifting is well-established, we are not aware of any other statute in which such a concept applies to the exact same legal issue (materiality).  Though not clear from the text, whistleblower groups who worked on the legislation have asserted that this change is intended to establish a heightened presumption of materiality whenever the government “could have” denied payment.  The defendant could then defeat materiality only by a showing (by clear and convincing evidence) that the alleged violation was not in fact material to the government’s payment of the claim(s).  While that is not clear from the legislation, what is clear is that the amendment is intended to make it harder for defendants to prevail on the issue of materiality.
  2. Discovery Cost-Shifting. The legislation would require a litigant seeking discovery from the government in any non-intervened case to pay the government’s expenses, including costs and attorneys’ fees, on the filing of a motion for such reimbursement, unless the party seeking such discovery “can demonstrate that the information sought is relevant, proportionate to the needs of the case, and not unduly burdensome on the Government.”  On its face, this provision would apply equally to both relators and defendants who subpoena the government for information.  But coupled with the change to the materiality burden of proof, this will further increase the costs and burdens on defendants, for whom discovery against the government is typically necessary to obtain discovery on materiality, as well as other elements of an FCA violation.
  3. Granston Hearings. The legislation would amend the provision allowing DOJ to seek dismissal of a qui tam over the relator’s objection by providing that at the required “hearing,” “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.”  While the “arbitrary and capricious” language is the standard currently applied by most courts of appeal, it is not clear whether the additional phrase “contrary to law,” is intended to provide relators with ground to oppose dismissal where the government’s request for dismissal, even if not “arbitrary or capricious,” is based on a view of the relevant legal standards with which the relator (or a reviewing court) might disagree.  The other significant aspect of this legislative change is that it would appear to require an actual evidentiary hearing on any such motion – intended, undoubtedly, to further reduce the already infrequent exercise of dismissal authority by DOJ.
  4. Retaliation. The bill would amend the FCA’s retaliation provision (§ 3730(h)) to cover action taken against any former (as well as current) “employee, contractor, or agent,” resolving an existing circuit split on the issue.

If enacted, the legislation provides that these changes would apply retroactively to any case pending on the date of the legislation’s enactment.  We will continue to monitor this legislation and report on further developments.

A copy of the proposed legislation can be found here.

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