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 One

I appreciate the opportunity to submit my views on behalf of the u.s. chamber of commerce and the u.s. chamber institute for legal reform in opposition to s. 2041. For the last 25 years, i have had the privilege of representing a wide variety of defendants in false claims act cases. My clients have included large and small companies in healthcare, oil and gas, technology and defense, as well as colleges and universities, municipal airports, churches, individuals, and local government agencies ? precisely the diverse group that this proposed legislation threatens to affect most dramatically. In addition to my practice, i have also taught and studied the false claims act for many years. My two-volume treatise, civil false claims and Qui Tam actions, was originally published in 1993 and is now in its third edition. It was the first treatise on the false claims act and Qui Tam enforcement and remains the leading authority cited by academics and practitioners as well as by federal district and appellate courts on this topic.

The chamber fully supports the department of justice's efforts to remedy fraud on the government and does not countenance or support those who defraud the federal treasury. The chamber recognizes the importance of an appropriate use of the false claims act in those efforts. The chamber opposes s. 2041, however, because it will not assist the doj in its fraudfighting efforts, it will not increase the monies returned to the treasury, and it will not encourage more whistleblowers to bring new allegations of real fraud to the attention of the government.

We oppose this bill because it would:

Greatly expand the scope of the act to private contract disputes which do not affect the treasury;

Cost the treasury far more than it might gain by rewarding those who bring no new allegations of fraud to the attention of the government;

allow government employees to abuse government information for personal profit;

Create an administrative nightmare for any person, company, or institution that pays or receives federal money;

Disassociate the whistleblower protection provisions of the act from any activities regarding Qui Tam enforcement; and

Encourage private counsel access to information obtained under a civil investigative demand to supplement Qui Tam complaints that do not state a claim under the act.

In short, the amendments in s. 2041 would increase the possibility that false claims act enforcement will be abused by Qui Tam relators' counsel, particularly in the 80% of Qui Tam cases in which the doj declines to intervene because the cases are meritless.

The concerns being expressed by the chamber on behalf of the business community are supported by more distant experience with Qui Tam enforcement. In fact, another country's experience with a very broad Qui Tam enforcement system provides an excellent preview of things to come if the proposed amendments are enacted. That history is described in a scholarly study published in 2000 by professor randy beck, who traced the decline and ultimate repeal, in 1951, of england's Qui Tam laws. See j. Randy beck, the false claims act and the english eradication of Qui Tam legislation, 78 n.c. l. Rev. 539 (2000). Professor beck describes a country plagued by malicious and harassing Qui Tam prosecution and reports that public sentiment turned against Qui Tam enforcement in england because of "the obnoxious practices of common informers," who were widely perceived to be practicing a "form of legalized blackmail." Id. At 603-04. As professor beck notes:

A further defect in the system of Qui Tam enforcement related to selection of targets for prosecution. Ideally, a public prosecutor exercises discretion in choosing prosecution targets in order to avoid applying a statute in ways that undermine the public interest. A Qui Tam statute eliminates any incentive for a benevolent exercise of prosecutorial discretion. The common informer has little reason to consider broader issues of public policy raised by a particular prosecution, and in fact has a strong financial incentive not to take such considerations into account. The result is that informers pursue litigation that disinterested prosecutors would consider contrary to the public good.

Id. At 583 (internal citations omitted). Adoption of the amendments in s. 2041 will likewise undermine public support for the goals of the false claims act in this country.

Table of contents page

1. The amendments will expand Qui Tam enforcement, which has been abused by the plaintiffs' bar

   A. Qui Tam enforcement does not result in large recoveries

   B.Qui Tam enforcement does not target only large american businesses

   C. Innocent companies and institutions are adversely affected by Qui Tam enforcement of the FCA

   D. Many Qui Tam cases are inconsistent with government policy and the public interest

   E. Extravagantly excessive bounties encourage frivolous Qui Tam litigation.

2. The committee should reject the new definition of "government money or property" to cover private contract and tort disputes with no loss to the federal treasury

   A. Summary

   B. Current law

   1. The FCA currently requires a call upon the public fisc

   2. Courts have properly concluded that wages paid to federal employees are not federal funds once they vest in the employee, even if the federal government processes those funds

      C. Analysis of the proposed amendment

   1. The proposed legislation would disassociate FCA liability from the act of submitting claims to the federal government.

   2. The proposed amendments would federalize disputes between private parties

   3. The proposed legislation intrudes on rights traditionally reserved to the states

   4. The proposed legislation is a gross overreaction to a small number of cases involving unusual facts

   5. The proposed legislation would be vulnerable to constitutional challenges that are very likely to be successful

3. The committee should reject the amendment allowing non-whistleblowers to bring Qui Tam cases by eliminating the "public disclosure/original source" defense

   A. Summary

   B. Current law

   C. Analysis of the proposed amendment

   1. The definition of "public disclosure" is far too narrow

   2. The elimination of the defendant's ability to dismiss parasitic cases is unwarranted

   3. The grounds for dismissal are too narrow

   4. The "source" of the public information should be irrelevant

   5. The amendment further erodes the constitutionality of Qui Tam enforcement

   In part two

4. The committee should reject the amendment encouraging federal employees to abuse their government positions by filing Qui Tam suits

   A. Summary

   B. Current law

   1. Pre-1986 law

   2. The law after the 1986 amendments

      C. Analysis of the proposed amendment

   1. Sound public policy requires rejection of this amendment

   2. The POGO case

   3. The "exceptions" in s. 2014 would allow more government employees to file Qui Tam cases

5. The committee should reject the amendment creating an administrative nightmare for american businesses and federal grantees by extending the statute of limitations and the tolling provisions

   A. Summary

   B. Current law

   C. Analysis of the proposed amendment

   1. The limitations period unfairly burdens defendants

   2. The limitations period is unworkable for the Government

   3. The limitations period is unprecedented

6. Expansion of the whistleblower retaliation definition provision is unnecessary

   A. Summary

   B. Current law

   C. Analysis of the proposed amendment

   VII. The changes to the civil investigative demand process are unnecessary and would encourage abuse by relators

   A. Summary

   B. Current law

   C. Analysis of the proposed amendment

   Conclusion

   I the amendments will expand Qui Tam enforcement, which has been abused by the plaintiffs' bar

   Before I address the amendments themselves, i believe it is important to address five (5) common misconceptions about the false claims act ("FCA" or "the act"), and particularly Qui Tam enforcement in FCA cases declined by the DOJ.1 this, after all, is the focus of the vast majority of these amendments, and this discussion should inform the committee's view of the amendments that benefit those Qui Tam relators and their lawyers.

   Some background information on FCA litigation will also help the committee better understand why the proposed legislation poses a grave threat to the economic viability of many businesses, non-profit groups, and local governmental entities. It is against this background that the committee should exercise great caution before expanding a statute that threatens such severe consequences for so many.

   A.Qui Tam enforcement does not result in large recoveries

   There is a common misconception, perpetuated by the plaintiffs' bar, that these particular amendments are necessary for private attorneys to combat major fraud by the big corporate interests who outgun DOJ attorneys. The opposite is true: of the $20 billion recovered under the false claims act since the 1986 amendments, only 1.4% was recovered in Qui Tam cases in which the doj did not intervene.2 these amendments, designed only to expand this type of litigation with such a low track record for success, benefit only Qui Tam relators and their attorneys, not the u.s. taxpayer.

   The fact is, the FCA works best when the government investigates, intervenes, and determines whether or not a case has merit and, if so, prosecutes the case. These declined cases3 are, by and large, meritless, and are focused on questionable cases or small businesses and institutions which can ill afford to defend themselves. They involve violations of regulations without loss to the treasury and are contrary to public policy and common sense.

   B. Qui Tam enforcement does not target only large american businesses

   A second common misconception, perpetrated by the plaintiffs' bar that profits from these cases, is that whistleblowers need the amendments so they can pursue big corporate frauds. While some Qui Tam cases are filed against large companies, the majority of defendants in Qui Tam ...