New Congressional Bill Clarifies False Claims Act’s Materiality Standard
The False Claims Act law firm of Brown, LLC is hailing the introduction of bipartisan legislation to improve an important process for reducing fraud against the government, which results in hundreds of millions of dollars of whistleblower awards each year. In July 2021, senators introduced Senate Bill 2428, or the “False Claims Amendments Act,” which, if signed into law, could further energize whistleblower litigation brought under the Federal False Claims Act, 31 U.S.C. §§ 3729 et seq., by neutering defense tactics that procedurally seek to dismiss righteous actions.
The False Claims Act (“FCA”) allows whistleblowers (or “Relators”) to bring suit, on behalf of the government, to recover taxpayer monies that were improperly paid out to a defendant as a result of fraud or falsehoods which were “material”to the government’s decision to pay. Through the use of a whistleblower law firm, successful whistleblowers can receive up to 30% of what the government recovers from the whistleblower action. In each of the last ten years, FCA litigation has resulted in over two billion dollars in recovery, with aggregate whistleblower awards totaling several hundred million dollars annually. It is commonly estimated that each year, hundreds of billions of dollars of fraud against the government go undetected. During the COVID-19 pandemic alone, it is believed that hundreds of billions in emergency loans were paid out under fraudulent pretexts, leading to its own epidemic of PPP loan fraud.
The Supreme Court’s 2016 decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016), indicated the FCA was not meant to address merely clerical issues or gotcha type of lawsuits, and further opined the materiality standard was not satisfied by just stating the government would be entitled to refuse payment had they known of the fraud/falsehood. The nation’s highest court further held that failure to comply with a rule or regulation the government labeled as a “condition of payment” was also not per se material. However, the decision did not offer much guidance on how this standard should be applied in practice, resulting in uncertainty and divergent rulings from the lower courts.
Senate Bill 2428 establishes a new burden-shifting process for establishing materiality. The bill allows the Relator to first establish materiality by a preponderance of the evidence. Then the defendant is given an opportunity to rebut the Relator’s showing, but at a higher burden of proof—clear and convincing evidence. Although it is not presently clear how this burden-shifting framework will be applied, the proposed law is certain to relax the standard applied by certain courts due to Universal Health Services. Possibly, the new framework will prevent False Claims Act defendants from arguing that Relator failed to establish materiality just because Relator could not adduce sufficient past examples where the government refused to pay or clawed back overpayments after learning of the fraud.
Speak with the Lawyers at Brown, LLC Today!
Over 100 million in judgments and settlements trials in state and federal courts. We fight for maximum damage and results.
Senate Bill 2428 contains several additional provisions beneficial to whistleblowers. First, the law requires the government to provide reasons for dismissal when the government seeks dismissal of a False Claims Act case brought by a Relator. Second, the law allows the government to recoup costs when a party requests unduly burdensome discovery from the government, which may encourage the government to be more willing to cooperate with Relators in litigating and prosecuting False Claims Act cases. This would address a bootstrapping argument the defendants try to use to kill FCA cases in which they serve voluminous discovery requests upon the government (often times for documents they already have) and then move to dismiss the case arguing the cost to the government to continue is prohibitive.
Finally, the bill, if passed into law, would apply retroactively to all False Claims Act cases pending as of the date of enactment. Therefore, if you have a whistleblower case, you should not wait until this bill is passed just to take advantage of its new materiality standard. Because whistleblower cases take years to resolve, any case filed today will likely be still pending when Senate Bill 2428 is enacted.
To find out if you potentially have a viable False Claims Act case regarding systemic Medicare Fraud, Medicaid Fraud, PPP loan fraud, defense contractor fraud, or any other systemic fraud against the government, call the whistleblower lawyers at Brown, LLC today, for a free, confidential, whistleblower consultation.
 Text of the bill available at https://legiscan.com/US/text/SB2428/id/2426352/US_Congress-2021-SB2428-Introduced.pdf.