On July 22, 2021, a bipartisan group of senators led by Chuck Grassley (R-IA) introduced the False Claims Amendments Act of 2021 (S.B. 2428). As the name suggests, the bill proposes certain amendments to the False Claims Act, 31 U.S.C. §§ 3729, et. seq. (FCA), including imposing a burden of proof on the defendant with respect to materiality and providing the Government with the ability to recover its costs and attorneys’ fees in connection with certain discovery.1 The bill proposes that all amendments would apply to future and pending FCA actions.
According to the bill’s sponsors, S.B. 2428 is intended to combat the purported “confusion and misinterpretation of the Supreme Court decision in United Health Services v. United States ex rel. Escobar, [136 S. Ct. 1989 (2016)].”2 The sponsors contend that Escobar “made it all too easy for fraudsters to argue that their obvious fraud was not material simply because the government continued payment.”3 The sponsors also argue that these “fraudsters” now use costly “fishing expeditions to see if someone, somewhere, in the government was aware of the fraud.”4 Regardless whether these concerns are valid, it is unclear if the bill adequately addresses them or generates any meaningful changes to the statute.
The False Claims Act and Escobar
The FCA imposes civil liability on any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.”5 A violation of the statute requires “(1) a false statement or fraudulent course of conduct, (2) made with the scienter, (3) that was material, causing (4) the government to pay out money or forfeit moneys due.”6 The Government or relator must prove each of these elements by a preponderance of the evidence.7
The Supreme Court in Escobar held that a defendant may violate the FCA under an implied certification theory—i.e., when a claim fails to disclose a defendant’s violation of material statutory, regulatory or contractual requirements—in certain circumstances.8 The Court held that “[t]he materiality standard is demanding,” and clarified that “if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated,” it is “very strong evidence that the requirements are not material.”9 Similarly, “if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position,” it is “strong evidence that the requirements are not material.”10
S.B. 2428’s Proposed Response to Escobar
In an attempt to respond to Escobar, S.B. 2428 imposes a “clear and convincing” burden of proof on the defendant with respect to rebutting materiality. The bill specifies that the Government or relator may establish materiality by a preponderance of the evidence, and the defendant may rebut materiality by clear and convincing evidence.
Notably, however, the bill does not substantively change Escobar’s interpretation of materiality. The bill does not define materiality,11 limit the type of evidence that may prove or disprove it, or create any evidentiary presumptions. Under the bill as currently drafted, it appears that a defendant could still establish a lack of materiality with clear and convincing evidence that the Government paid claims with actual knowledge that certain requirements were violated.
Nor does the bill expressly prohibit a defendant from seeking discovery regarding the Government’s prior claims treatment, which remains relevant to the materiality inquiry. The bill’s proposed amendment, which grants the Government the right to recover its attorneys’ fees and costs “for responding to discovery requests, unless the party can demonstrate that the information sought is relevant, proportionate to the needs of the case, and not unduly burdensome on the Government,” does not alter the scope of discovery available under the statute or add any additional protections against “fishing expeditions.”
The text of the bill limits this fee-and-cost-shifting amendment to instances when the Government does not intervene in an action brought by a relator. If the Government does intervene, this procedure presumably does not apply. The bill also threatens to impose fees and costs on the propounding party only when the Government responds to the discovery requests and the requested discovery was outside the scope of discovery permitted by Federal Rule of Civil Procedure Rule 26. If the propounded discovery was within the proper scope of discovery, then there is no fee or cost shifting.
It is unclear what practical effect, if any, this amendment will have. If the Government believes it has been served with discovery outside the scope of Rule 26, it can already reduce “financial burdens” associated with responding to that discovery by objecting. Rule 45 also protects nonparties, like the Government when it declines to intervene, from “undue burden or expense.” In certain circuits, the Government has also relied on the Administrative Procedure Act to protect itself from discovery. Finally, the Government and the propounding party can seek guidance from the court before the Government must respond, thereby protecting the Government from responding to irrelevant, disproportionate and unduly burdensome discovery without the need for this post-response fee-shifting procedure.
Key Takeaways
As currently drafted, S.B. 2428 does not appear to substantively change the FCA’s materiality requirement or available discovery under the statute. The bill, however, is not final and is slotted to be heard by the Senate Judiciary Committee. If it survives, it will be important to see if amendments to the bill address these issues.
1 The bill proposes other amendments to the FCA, including amendments that (1) require the Comptroller General to provide a report on the FCA, (2) purport to clarify the parties’ respective burdens if the Government seeks to dismiss a qui tam action and (3) purport to clarify that the antiretaliation provision applies to former employees.
2 Senators Introduce Bipartisan Legislation To Fight Government Waste, Fraud, Grassley.Senate.gov, https://www.grassley.senate.gov/news/news-releases/senators-introduce-of-bipartisan-legislation-to-fight-government-waste-fraud.
3 Id.
4 False Claims Act Amendments of 2021, Grassley.Senate.gov, https://www.grassley.senate.gov/imo/media/doc/false_claims_amendments_act_summary.pdf.
5 31 U.S.C. § 3729(a).
6 United States ex rel. Campie v. Gilead Scis., Inc., 862 F.3d 890, 899 (9th Cir. 2017).
7 31 U.S.C. § 3731(d).
8 Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 1999 (2016).
9 Id. at 2003.
10 Id. at 2003–04.
11 The FCA defines “material,” which is used in connection with false record or statement claims under 31 U.S.C. § 3729(a)(1)(B), as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” 31 U.S.C. § 3729(b)(4). In Escobar, the Supreme Court did not need to decide if this statutory definition applied to implied certification theory cases under 31 U.S.C.
§ (a)(1)(A), because the definition was consistent with the common law definition of the term. 136 S. Ct. at 2002.