Amendments to False Claims Act Become Law

We’ve previously posted about the progress through Congress of bills to amend the False Claims Act.  Despite a fierce lobbying campaign by the government contractor and health industries, the Fraud Enforcement and Recovery Act of 2009, or FERA, was signed into law by President Obama on May 20, 2009.  FERA includes the first major amendments to the False Claims Act in more than 20 years, and significantly strengthens the law.   Here are the major provisions of FERA, as it relates to the False Claim Act:

1.  FERA effectively overturns the Supreme Court’s decision in Allison Engine Co. v. United States ex rel. Sanders, a case that established additional barriers for attaching False Claims Act liability to subcontractors who commit fraud, but who do not have directly contractual obligations to the government.  FERA amends the False Claims Act to explicitly cover any claims for money that “is to be spent or used on the Government’s behalf or to advance a Government program or interest.”

2.  Under the False Claims Act, fraud must be “material” to the government’s decision to pay money, but the exact meaning of the term “material” has been a subject of dispute among the lower courts.  FERA adopts a specific definition of “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”  That standard had been adopted by many courts, and is now incorporated into the text of the False Claims Act.

3.  FERA expands liability for so-called “reverse false claims.”  False Claims Act liability now extends to “knowingly and improperly avoid[ing] or decreas[ing] an obligation to pay or transmit money or property to the Government.”  In other words, under this provision, if a company owes money to the government, and knowingly falls to pay that money, it violates the False Claims Act.

4.  The False Claims Act’s anti-retaliation provision has also been expended by FERA.  It now applies not only to employees, but also to “contractors” and “agents.”  And it defines “retaliation” to include any adverse action taken against an employee, contractor or agent because of that person’s “efforts to stop” a violation of the False Claims Act.  This is now one of the broadest anti-retaliation provisions in federal law.

These and other changes and clarifications made by FERA are long overdue, and should be welcomed by anyone concerned about fraud on the federal fisc.  The government, and the qui tam whistleblowers who help the government fight fraud, have some new arrows in their quiver.

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