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ABA Health eSource
August 2009 Volume 5 Number 12

FCA Amendments Broaden Government’s Investigative Power

By Brian A. Hill and Josephine Nelson Harriott, Miller & Chevalier, Washington, DC 1

AuthorAuthorThe Fraud Enforcement and Recovery Act of 2009 2 (“FERA”), signed into law by President Obama on May 20, significantly expanded the scope of conduct for which persons and organizations can be liable under the False Claims Act (“FCA”). 3 In addition to attaching FCA liability to overpayments, Congress acted to explicitly overturn court decisions that excluded from FCA liability claims that were paid by grantees or contractors from money provided by the U.S. Government, and claims made directly to the government that were paid from funds administered by the government. 4 In addition to expanding the types of prohibited conduct, FERA also broadened the government’s FCA investigative powers in a way that may fundamentally change the way FCA cases develop.

The civil investigative demand

A civil investigative demand (“CID”) requires persons to provide documentation or information relevant to an FCA investigation. 5 Similar to discovery in a civil case, CIDs may require production of documents, written responses to interrogatories, or oral testimony under oath. CIDs, however, may be issued after a qui tam relator 6 has filed a complaint but before the government intervenes in such a suit or initiates a suit of its own. 7

FERA has made substantial changes to the CID provisions of the F C A by increasing the number of officials authorized to issue CIDs, authorizing disclosure of documents within the government without a court order, and specifically allowing disclosure to relators. Taken together, the changes evidence Congressional intent to make CIDs a more powerful tool for the Justice Department.

Before the FERA amendments, only the Attorney General had the authority to issue a CID -- an authority that could not be delegated. 8 On a practical level, this limited the use of CIDs to cases that warranted elevation to the highest levels of the Justice Department. 9 Under the amended statute, however, the Attorney General can delegate this authority to any designated official, making it likely that lawyers in the Justice Department’s Civil Fraud Section and U.S. Attorney’s offices will have greater access to internal information from the targets of their FCA investigations.

Access to documents obtained through a CID was previously strictly limited to Justice Department employees, Congress, or other federal agencies. Disclosure to other agencies could occur only by order from a federal district court upon a showing that the agency had a substantial need for the information in furtherance of its statutory duties. FERA, however, deleted not only the substantial need standard, but also eliminated the requirement to seek the permission of a district court before sharing information with other agencies 10 . Thus, future CID responses are likely to be more widely disseminated within the federal government than prior responses, which may lead other agencies to initiate inquiries, audits or investigations related to issues unrelated to the FCA.

In addition to allowing greater disclosure to federal agencies, FERA also permits FCA investigators to share information with qui tam relators if it is necessary to the investigation. 11 Unlike the one-way flow of information from realtors to the government under the prior law, future FCA investigations may become more of a collaboration between the relator and -government with the relator assisting in the review and assessment of CID responses.

How the changes affect FCA cases

Taken together, the CID amendments have the potential to fundamentally change the way qui tam cases develop. Before the amendments, a relator filed a complaint under seal and then sent a copy to the Justice Department along with all of the material evidence and information in his possession. 12 With limited access to CIDs, an assistant U.S. Attorney or Civil Fraud Section attorney investigated the allegations by analyzing the relator’s documents supplemented by information from other government agencies, including agency-issued subpoenas, and public sources. If the government decided not to intervene, the relator proceeded with the case (unless the government subpoenaed a defendant or approached it for possible settlement) and a defendant might not even know a case had been filed until after an intervention decision had been made and the complaint unsealed. After the complaint is unsealed and served, defendants could move for dismissal if the complaint didn’t contain the requirements for specificity required by Federal Rule of Civil Procedure 9(b). 13

The FERA changes to Section 3733 have the potential to dramatically change both the conduct and outcome of an FCA case. Under the FERA amendments, a government attorney with CID authority can now issue a demand for information based on a relator’s complaint and supporting information, share CID results with both the relator and other federal agencies, and thereby conduct a more far-reaching inquiry into the alleged false claims than in the past. In such circumstances, the defendant will learn of the FCA investigation, if not the actual complaint, when the CID arrives, and will incur the legal and operational costs associated with producing documents, responding to interrogatories, and providing statements without the benefit of knowing the relator’s allegations in the complaint, which remains under seal. Future government intervention decisions may thus be based on more comprehensive information than was routinely available before the FERA amendments. And even if the government doesn’t intervene, a relator who has access to the documents resulting from the CID may be armed with enough detailed information to amend the complaint while still under seal with an eye to meeting the Rule 9(b) pleading standards and surviving a motion to dismiss.

It is too early to predict how the Attorney General will delegate CID authority, or how information will be shared outside of the Justice Department. But it is clear that Congress intended to make CIDs a more integral part of the FCA investigation process. 14 This may have the long term affect of allowing more non-intervened actions to proceed beyond initial motions to dismiss and into formal discovery with consequential increases in the time and money incurred by defendants.


1 Brian Hill, a member at Miller & Chevalier Chartered in Washington, D.C., practices complex business litigation and has extensive experience with the False Claims Act. Josephine Harriott, an associate in Miller & Chevalier’s Litigation and Government Contracts practice, was a government contracts administrator and compliance officer before becoming an attorney.
2 Pub. L. No. 111-21, 123 Stat. 1617 (2009).
3 31 U.S.C. § 3729 et seq. (2009).
4 S.R. 111-10 at 10-12 (2009), citing Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008) (no subcontractor FCA liability for false statements to prime contractor), United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C.Cir. 2004) (claims presented to prime contractor not presented to the government), and United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617 (E.D. Va. 2006) (Iraqi funds administered by United States not government funds).
5 31 U.S.C. § 3733.
6

The False Claims Act allows private citizens known as “ qui tam relators” to sue on behalf of the government and receive up to 30% of money ultimately recovered by judgment or settlement of the lawsuit. § 3730(b).

7 Id.; see also Avco Corp. v. United States Dep't of Justice, 884 F.2d 621 (D.C. Cir. 1989).
8 § 3733(a)(1) (2008).
9 See United States v. Witmer, 835 F. Supp. 208, 218 (M.D. Pa. 1993) (“Congress clearly did not intend the CID to be used routinely.”).
10 FERA also included an expansive definition of “official use” that allows use of CID responses in communications with state and local governments and with government contractors. § 3733(l)(8)
11 § 3733(a)(1)(D).
12 § 3730(b)(2)
13 See United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997) (FCA claims must comply with Rule 9(b) and “at minimum . . . set forth the who, what when where and how of the alleged fraud.”).
14 In contrast to the extensive discussion of how FERA addresses court decisions, the Senate Report doesn’t even mention the changes in § 3733.

 


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