Increased False Claims Act ("FCA") Enforcement Likely as Department of Justice ("DOJ") Expands Use of Key Investigative Tool; Supreme Court to Rule on Public Disclosure Bar
November 30, 2009
George J. Terwilliger III, Darryl S. Lew, Daniel Levin
On November 20, 2009, the DOJ introduced new policies under the Fraud Enforcement and Recovery Act of 2009 ("FERA"), which amended important sections of the FCA. The FERA authorized the Attorney General to delegate his authority to issue civil investigative demands ("CIDs"), which provide agencies with subpoena-like powers to compel document collection and witness depositions—key investigative tools. Attorney General Eric Holder has given Tony West, Assistant Attorney General for the Civil Division, the authority to issue CIDs, and West has stated that he is "anxious to use that authority in appropriate ways." This new use of the CIDs is expected to be expansive, especially in light of the DOJ's recent announcement that in the fiscal year ending on September 30, 2009, the United States secured US$2.4 billion in settlements and judgments related to FCA cases, the second highest annual amount ever. Of the total amount recovered by the DOJ, nearly US$2 billion resulted from lawsuits filed by whistleblowers (qui tam suits). Whistleblowers themselves were awarded US$255 million in the past fiscal year. The single largest industry affected was health care—the United States recovered US$1.6 billion from health care fraud settlements.
West announced:
Rooting out fraud and safeguarding taxpayers from illegal conduct are among the Justice Department's highest priorities. I applaud the dedication of the public servants who investigate and prosecute fraud, and the courage of the many private citizens who risk their careers by reporting fraud. The cases that the department pursued this year illustrate the government's commitment to maintaining the integrity of the health care system, ensuring the members of our military and law enforcement community are safe, and protecting consumers from fraudulent schemes. The extraordinary success of this public-private partnership goes far beyond the US$2.4 billion recovered to additional billions saved through deterrence and vigilance.
West also noted the collaborative efforts made by the DOJ with other federal agencies and state enforcement agencies.
Supreme Court to Hear Case Regarding Public Disclosure Bar That May Limit FCA Recoveries
On November 30, 2009, the Supreme Court will hear oral argument on a major issue affecting FCA litigation—the extent of the public disclosure bar and whether disclosures made by state and local government agencies preclude federal courts from exercising jurisdiction over qui tam whistleblower FCA suits. In Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson, the whistleblower plaintiff claimed that the county conservation district had submitted false claims for payments from a federal disaster relief program. However, prior to her suit, details about those payments had been made public as part of an audit report commissioned by the county and an investigation report prepared by a state agency. The defendants sought to dismiss the case based on the public disclosure bar of the FCA, which prohibits suits based on the "public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media." 31 U.S.C. 3730(e)(4)(A). The Fourth Circuit determined that the rule only applied to federal administrative audits and reports, not those conducted by state or local entities. The court relied on the fact that the word "administrative" was placed between "congressional" and "Government Accounting Office"—terms that clearly involve only federal reports. The United States filed an amicus brief agreeing with the Fourth Circuit, arguing that the statutory language is meant to apply only to federal reports, hearings, audits and investigations. According to the United States, that reading would serve the main goals of the statutory section, "promoting qui tam actions alleging possible fraud that the federal government is not publicly pursuing and may be unaware of, while precluding relator actions when the government is already on the way toward prosecuting its own suit."
The DOJ's new CID policy confirms the agency's continuing focus on corporate fraud, and the announcement about FCA settlements highlights the ever-increasing fines resulting from fraudulent activity. The new investigative tools provided by CIDs will help the DOJ in its quest to investigate fraud allegations. Additionally, the government has made clear the importance of the collaborative efforts of the DOJ, other federal agencies and state authorities in fighting fraud. These statements, in conjunction with the FERA amendments to the FCA, the recent creation of the Interagency Financial Fraud Task Force, and the Government's position in Graham County, make clear that the administration's focus on combating fraud and scrutinizing corporate compliance will continue in the new year. The harsh treble damages available in FCA cases highlight the need for increased awareness about potential liability.
Those FCA damages commonly result from whistleblower suits and the Supreme Court's decision in Graham County will affect how often corporations will be subject to such suits. Often, companies are subject to a number of state and local regulations and laws that may result in public reports. If those reports fall outside of the FCA's public disclosure bar, opportunistic qui tam relators would be able to bring FCA suits based on information contained in those reports on behalf of the federal government. Such reports would represent a significant source of FCA risk as to which companies would have to remain aware.
White & Case's White Collar Practice Group will continue to provide updates regarding emerging white collar enforcement actions.
Contacts
George J. Terwilliger III
Partner, Washington, DC
1 202 626 3600
Darryl Lew
Partner, Washington, DC
1 202 626 3674
Daniel Levin
Partner, Washington, DC
1 202 626 3634
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