On May 20, 2009, President Barack Obama signed the Fraud Enforcement and Recovery Act of 2009 (FERA) into law. The legislation amends a number of criminal anti-fraud statutes to broaden their reach and sweeps in mortgage lenders and companies receiving economic stimulus funds. In addition, FERA revises the civil liability provisions of the False Claims Act (FCA). The FCA grants a cause of action to the United States and qui tam relators for civil damages and penalties against any entity that makes a fraudulent claim for payment to the federal government. The FERA amendments will expand the scope of the FCA, making it easier to recover against FCA defendants. The law also includes within its scope parties that have no direct contractual or other relationship with the federal government.

The FCA revisions in FERA will enable the government—and whistleblowers acting under the FCA's qui tam provisions—to pursue wrongdoing related to a federal program, regardless of whether there is actually a false claim made to the government. Some of the specific changes that will make recovery easier and broader include the following:

  • Removing the requirement that an alleged false claim be presented to a government employee. The elimination of the presentment requirement overturns the seminal decision in U.S. ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004). In that case, false claims submitted to Amtrak were ruled not to fall within the FCA, despite the fact that Amtrak is federally funded, because the claims were not presented directly to an officer or employee of the government.
  • Clarifying that specific intent to defraud is not an element of Section 3729(a)(2), which imposes liability for making a false statement or using a false record to get a false claim paid by the government. This change eviscerates the Supreme Court's unanimous holding in Allison Engine Co. v. United States ex rel. Sanders, 128 S.Ct. 2123 (2008). Following the statutory language, that decision limited liability under the FCA to false statements made in order "to get" false claims paid by the government. The Supreme Court noted that, without requiring a link between the false claim and payment by the government, FCA enforcement would effectively become "boundless." FERA replaces the phrase "to get" in the statute with the looser term "material." The section (now renumbered Section 3729(a)(1)(B)) imposes liability for knowingly making or using a false record or statement material to a false or fraudulent claim. "Material" is defined as "having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." This language appears open to broad interpretation.
  • Expanding the definition of "claim" to include any request or demand for money, whether or not the government has title to that money or property, and including situations where the defendant submits the request or demand either directly to the government or to a contractor, grantee, or any other recipient of government funds used to advance a government program.
  • Expanding the definition of "obligation" that triggers reverse False Claims Act liability (Section 3729(a)(7) to be renumbered 3729(a)(1)(G)). The reverse FCA provision makes it illegal for a defendant to misrepresent facts to avoid paying an "obligation" owed to the government. Under FERA, the "obligation" that triggers reverse FCA liability now means "an established duty, whether or not fixed" that can arise from virtually any type of relationship with the government, including contractual, licensee, grantee, or fee-based. Liability arises from "knowingly and improperly avoid[ing] or decreas[ing] an obligation to pay or transmit money or property" to the government, without regard to whether or not there was a false record or statement used.

Given the government's current focus on alleged fraud, waste, and abuse, and the expansion of FCA liability created by the new law, we can expect a very high level of FCA enforcement. An effective corporate compliance program is more important now than ever before. To inquire about the effectiveness of your company's compliance program or about the ramifications of these changes to you or your organization, please contact Henry E. Hockeimer, Jr, Partner, White Collar Defense/Investigations Group, at 215.864.8204 or hockeimerh@ballardspahr.com.

Copyright © 2009 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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This newsletter is a periodic publication of Ballard Spahr LLP and is intended to alert the recipients to new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and specific legal questions you have.