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FCA Update from Morgan Lewis Team Recognized as Most Active FCA Defense Counsel

October 29, 2021

In a move that threatens to undermine some key defenses to liability under the False Claims Act, a bipartisan group of senators voted to advance the False Claims Amendments Act of 2021 (SB 2428) out of the Senate Judiciary Committee, paving the way for a vote by the full Senate. In this LawFlash, our FCA team—the most active FCA defense law firm over the last five years as reported by Law360—discusses how the proposed amendments, though spanning barely two pages, would significantly alter the landscape of FCA litigation and liability.

Specifically, the proposed amendments would effectuate four key changes to the False Claims Act:

  1. Most critically, the proposed amendments would change the statutory definition of “materiality.” Under the False Claims Act, only material violations can form the basis for liability. The False Claims Act defines material as having “a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property” by the government. 31 USC § 3729(b)(4). Courts, including the Supreme Court in Universal Health Services v. United States ex rel. Escobar, logically interpreted that definition to mean that, if the government pays a particular claim, despite actual knowledge of the violation of a certain requirement or law, that violation was likely not material. The proposed amendments would undo this line of cases so the government’s continued payment of a claim despite actual knowledge of falsity or fraud could not be used to show lack of materiality “if other reasons exist for the decision of the Government with respect to such refund or payment.” In other words, the amendment would make it easier for the government or a relator to survive a motion to dismiss or summary judgment motion based on materiality when the government has continued to pay the underlying claims.
  2. The proposed amendments would burden defendants with the costs of taking discovery from a government agency—the alleged victim of the fraud—in non-intervened qui tam cases unless they can “demonstrate that the information sought is relevant and proportionate to the needs of the case.” On its face, the proposed amendment merely restates the current standard for discovery under the Federal Rules of Civil Procedure. However, in practice, it may operate as an additional barrier that defendants must clear in the already time-consuming process of obtaining relevant discovery from the government and create additional discovery disputes over relevance and proportionality.
  3. The proposed amendments make it more difficult for the government to obtain dismissal of a qui tam action over the relator’s objections. Currently, the government can dismiss a qui tam if the whistleblower “has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.” 31 USC § 3730(c)(2)(A). The proposed amendments place the evidentiary burden on the government to demonstrate that there is a sufficient reason for dismissal that is not “fraudulent, arbitrary, capricious, or contrary to law.” While courts are currently split on what standard to apply, the majority, recognizing that the government—not the relator—is the real party in interest in a qui tam lawsuit, afford great deference to a government request for dismissal.
  4. The proposed amendments expand the scope of anti-retaliation protections to former employees. On its face, the False Claims Act protects an “employee” from retaliation and courts generally acknowledge that former employees who have been terminated for being whistleblowers are covered. 31 USC § 3730(h)(1). The proposed amendments, however, expand current protections to post-employment whistleblower retaliation (i.e., alleged “retaliation” that occurs after an employee quits or is fired).

Critically, these changes would apply not only to new filed False Claims Act cases, but also to any case that is “pending on the date” the amendments are enacted. That provision is of particular concern given that the proposed amendment to the materiality provision would change the legal effect of long-past and deliberate agency conduct.

These proposed amendments would make it much more difficult to stem the tide of qui tam lawsuits, which, according to the Department of Justice, are on the rise—with 672 whistleblower actions filed in 2020 alone.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors or any of the following Morgan Lewis lawyers:

Chicago
Megan R. Braden
Tinos Diamantatos

Dallas
Sheila A. Armstrong
Danny S. Ashby
Steve Korotash

Houston
B. Scott McBride
John W. Petrelli

Miami
Alison Tanchyk

New York
Kelly A. Moore
Martha B. Stolley
Daniel B. Tehrani

Philadelphia
Meredith S. Auten
John C. Dodds
Lisa C. Dykstra
Rebecca J. Hillyer
Ryan P. McCarthy
Zane David Memeger
John J. Pease, III
Shevon L. Scarafile
Amy C. Schuh
Eric W. Sitarchuk

Washington, DC
Douglas W. Baruch
Giovanna M. Cinelli
Brad Fagg
Kathleen McDermott
Scott A. Memmott
Sandra Moser
Kenneth J. Nunnenkamp
Amanda B. Robinson
Stephen E. Ruscus
Jennifer M. Wollenberg
Howard J. Young