Written Statement Of The Chamber Of Commerce And The U.S Chamber Institute For Legal Reform In Opposition To S.2041 The False Claims Act Corrections Act Of 2007- Part Two

Part Two

4. The Committee Should Reject The Amendment Encouraging Federal Employees To Abuse Their Government Positions By Filing Qui Tam Suits

   A.Summary

   The Senate should not, under any circumstances, pass Section 3 of S. 2041, which allows former and current Government employees to enrich themselves by filing qui tam cases based on information gained as Government employees. This is bad public policy. Such suits destroy any respect and deference given to Government employees who interact with the American public and who demand and receive the most confidential and sensitive information on individual citizens, companies, and institutions. Allowing Government employees to misappropriate that information to enrich themselves is the best way to degrade and undermine Government functions.

   Courts have long recognized, and the DOJ consistently agrees, that this is bad public policy. The proposal to "clarify" existing law by explicitly allowing Government employees to act as relators is an open invitation to suits by Government accountants, auditors, investigators, attorneys, and technical staff, creating clear conflicts of interest, perpetuating perverse incentives, undermining the credibility of Federal employees, and advancing the personal financial interest of Government employees and their lawyers ó all at the public's expense. The proposed "safeguards" set forth is S. 2014 to avoid abuse are unworkable and restrictive, to the point that any protections they offer are illusory. The American public will understand only one thing: They are being sued by a Government employee using Government information for personal gain. That is toxic.

   Instead of barring qui tam suits by Government employees, this bill for the first time explicitly allows such suits. The proposed legislation strips defendants of their standing to challenge suits by Government employee relators, instead granting this right only to the Government and then making it practically impossible for the Government to prevail on such a motion.

   Under this flawed scheme, the Government would only have 60 days to move to dismiss a Government employee relator, even where the relator's action is derived from an "open and active fraud investigation by the Government" and then only if "all the necessary and material allegations" were derived from that investigation. S. 2041, ß 3 (emphasis added). The other ground for the DOJ to seek dismissal is if the relator failed to first notify his agency's Inspector General, the Attorney General, and his supervisor before filing. Based on these requirements, only the most egregious cases of interference with a Government investigation ó where the qui tam allegations were derived directly from an active Government investigation that had elicited a high degree of specific information ó would subject a qui tam suit to dismissal. Under the great number of other circumstances, the Government lacks the ability to challenge a Government employee's attempt to use Government information gained on the job to enrich herself and destroy the Government's relationship with the American people.

   The "protections" in the proposed amendment are woefully inadequate to avoid the harm that will come by allowing Government employees to use Government information to enrich themselves. Instead of protecting those who are regulated by the Government and expect Government employees to act in good faith, the amendment practically encourages auditors, investigators, and regulators to file such suits.

   B. Current Law

   1. Pre-1986 law

      Prior to the 1986 Amendments, Government employees could not file qui tam suits because of a jurisdictional prohibition in the law. In 1943, in response to the filing of parasitic qui tam actions based upon publicly disclosed indictments and hearings, Congress amended the False Claims Act to prohibit suits based upon information already possessed by the Government. See, e.g., Pettis ex rel. United States v. Morrison-Knudsen Co., 577 F.2d 668, 671 (9th Cir. 1978). This 1943 amendment effectively barred Government employees from filing qui tam actions by prohibiting actions "based upon evidence or information in the possession of the United States, or any agency, officer, or employee thereof, at the time such suit was brought." 31 U.S.C. ß 232(C) (1976).

      Recognizing that this provision unduly restricted qui tam enforcement by true whistleblowers, Congress eliminated this provision in 1986 and replaced it with the "public disclosure/original source" limitation found in the current law, 31 U.S.C. ß 3730(e)(4). The legislative history to the 1986 Amendments contains no indication that Congress intended ó for the first time ó to allow Government employees to bring qui tam cases, for their own financial benefit, based on information learned on the job. In fact Congress never intended to allow Government employees to bring qui tam actions by abusing their positions.

   2. The law after the 1986 Amendments

      While there was no indication in 1986 that Congress intended to change prior law with regard to qui tam suits by Government employees, the result of the change in statutory language had an unintended result. Despite vigorous and consistent opposition by the Government since 1986, most courts have reluctantly allowed qui tam suits by Government employees to proceed. Although many judges have severely criticized this result (see below), most courts have held that the current language of Section 3730(e)(4) left them no choice. For this reason, challenges to Government qui tam relators then shifted to other defenses. Importantly, current law gives both defendants and the Government latitude to challenge the right of Government employees to bring qui tam cases.

      Where a qui tam action is based upon publicly disclosed allegations, the relator must be an "original source" of that information. 31 U.S.C. ß 3730(e)(4); United States ex rel. Fine v. Chevron, U.S.A., Inc., 72 F.3d 740, 741 (9th Cir. 1995). To qualify as an "original source," the relator must voluntarily provide the information forming the basis of the claim to the Government prior to filing the suit. Chevron, 72 F.3d at741. Where a Government employee provides the information underlying his claims as part of his job responsibilities, courts have held that such a disclosure is not made "voluntarily" within the meaning of the False Claims Act and the relator therefore is not an original source. Id.

      The Ninth Circuit in Chevron premised its decision on this logic. There, the putative relator was an auditor within the Office of Inspector General of the Department of Energy. Id. His job required him to supervise audits that other employees had conducted and to edit audit reports that others had written; as many as 97% of the audit reports from the Western Region Audit Office came from employees under his supervision. Id. As the court wrote, "he was a salaried Government employee, compelled to disclose fraud by the very terms of his employment. He no more voluntarily provided information to the Government than we, as Federal judges, voluntary hear arguments and draft dispositions." Id. at 743-44.

      In finding that a Government employee was ineligible to act as a relator, the First Circuit, in United States ex rel. LeBlanc v. Raytheon Co., 913 F.2d 17 (1st Cir. 1990), based its decision on different reasoning, but reached the same result. There, the court said that the Government employee's knowledge could not qualify as "independent" since his employment was conditioned on the duty to uncover fraud, rendering the "fruits of his effort" the property of his employer.

      Existing law, however, by no means provides an absolute jurisdictional bar to Government employees acting as relators under many circumstances. The rationale for the dismissal of the Government employee relators in the cases referenced above only occurred because the allegations had been "publicly disclosed." Without such disclosure, the case proceeds. In United States ex rel. Williams v. NEC Corp., 931 F.2d 1493 (11th Cir. 1991), for example, an Air Force attorney discovered suspected bid rigging on Federal contracts in Japan. He reported the allegations to his superiors and then filed a qui tam suit. Because the allegations had not been made public and the Air Force attorney/relator complied with the procedural requirements of the FCA, the Eleventh Circuit ruled that he was a proper qui tam plaintiff. Mr. Williams therefore became eligible for as much as $30 million, or 30% of the settlement.

      As the Williams case demonstrates, courts have reluctantly allowed some Government employees to bring qui tam cases under very limited circumstances despite DOJ's efforts. Even these limited circumstances, however, have been criticized by judges and commentators as improper.

      C. Analysis of the Proposed Amendment

   1. Sound public policy requires rejection of this Amendment

      No matter how they arrive at their conclusion, courts generally tend toward the same result: Government employees should not be permitted to receive a financial windfall for merely doing their jobs. See United States ex rel. Biddle v. Board of Trustees of Leland Stanford, Jr. Univ., 147 F.3d 821, 829 (9th Cir. 1998). According to one editorial discussion of certain Government employee suits, "the conflict of interest here is as clear as it would be if judges were empowered to set fines and keep a percentage of everything they collect." Qui Tam Scam, WASH. POST, Dec. 26, 1991, at A22.

      Citing a brief by the Government, the Chevron court offered a persuasive and comprehensive statement on the relator status of Government employees, and the perverse incentives that unfettered relator status creates:

      To spend work time looking for personally remunerative cases . . . rather than...