Fraud Enforcement and Recovery Act ups false claim enforcement

Daily Record (Rochester, NY), Jun 12, 2009 by Elizabeth Stull

A new law that vastly expands the federal government's power to prosecute fraud will help the Justice Department uncover the truth faster, protect whistle-blowers and obtain better results for taxpayers, according to an assistant U.S. attorney for the Western District of New York.

The Fraud Enforcement and Recovery Act of 2009 aims first to protect the un-precedented expenditures of taxpayer money distributed through economic stimulus and rescue packages.

But it also makes significant changes to the federal False Claims Act and overturns several recent court cases that had circumscribed the reach of the 146-year-old law.

Congress enacted the False Claims Act in 1863 after discovering that profiteering defense contractors had billed the Union government for nonexistent or worthless goods. A qui tam provision allows citizens to sue on behalf of the government and receive a percentage of the recovery. Since the Act was amended in 1986, more than $22 billion has been remitted to the U.S. Treasury, according to Assistant U.S. Attorney Robert Trusiak, chief of the Affirmative Civil Enforcement Unit for the Western District of New York.

"A significant amount is due to the courageous efforts of whistleblowers," Trusiak said.

FERA should put all companies on notice to review and enforce their corporate compliance policies, defense attorney Carolyn Nussbaum, a partner at Nixon Peabody LLP, said.

One of the most important changes, according to Trusiak, allows prosecutors to make civil investigatory demands (CIDs) before formally intervening in a complaint.

The Western District is investigating more than 350 defendants nationwide in qui tam cases, Trusiak said. Previously, the attorney general had to approve prosecutors' CID requests to obtain oral testimony.

Under FERA, the attorney general will designate authority to approve CID requests, which is expected to increase prosecutors' ability to depose and interrogate corporate witnesses who are under investigation.

"We'll be able to get to the truth much quicker through the ability to depose individuals prior to intervention," Trusiak said.

"Quick" is a relative term in federal investigations. False Claims Act investigations typically involve multiple defendants who are spread out across the country, and can take four to five years to complete, according to Trusiak. He has worked on hundreds of such cases, he said, including scores of cases involving qui tam whistleblowers.

The government's interest in being thorough has at times butted up against statutes of limitation. In U.S. v. Baylor University Medical Center, 469 F3d 263 (Second Cir. 2006), for instance, the Second Circuit ruled that the government had to intervene before the statute of limitations had run.

FERA overturns Baylor. The new law provides that the government's intervention in a suit relates back to the date a whistleblower's complaint was filed, essentially preserving the complaint until the government completes its investigation -- even if it takes longer than the statute of limitations for the alleged crime.

But from a defense attorney's perspective, the biggest change imposed by FERA is to eliminate the requirement that a false claim be presented directly to a government employee, Nussbaum said.

That requirement was upheld by the Court of Appeals for the District of Columbia in U.S. Ex rel. Totten v. Bombardier Corp. 380 F3d. 4 ADA. (CADC 2004). The Totten court declined to apply the False Claims Act because Amtrak, not the government, paid false claims for federal money.

Under the new law, FERA is implicated as long as federal funds are involved -- regardless of who disburses the money.

The second biggest change, Nussbaum said, is that FERA legislatively overrules the U.S. Supreme Court's holding in Allison Engine Co. Inc. v. U.S. (2008).

In Allison Engine the court held that a plaintiff must prove a defendant intended a false statement be material to the government's decision to pay or approve the false claim.

FERA eliminates the intent requirement, creating liability for knowingly making or using a false record or statement to make a false or fraudulent claim. Congress made this change retroactive to the Allison Engine decision.

"There is at least the possibility that there would be some [legal] challenge" to this change, Nussbaum said.

Another source of litigation is the fact that the law was applied to all pending cases, rather than cases filed after the date FERA was enacted.

The issue is whether it represents an ex post facto violation, Trusiak said.

"You have to look at FERA not in isolation but in the context of what has happened in the last six months and the increase in federal spending," Trusiak said. "FERA occurs in a situation in which the federal government knows, that through ... the various stimulus packages there's going to be fraud."

Nussbaum, who will be speaking next month about FERA with respect to the financial services industry, said the law affects virtually every corporation in America.

"False Claims Act enforcement depends largely on whistleblowers - - that means most companies get turned in by their own employees. That means it's essential to have a good and current compliance program and policy, to make it accessible to everyone, and to actually enforce and monitor it," Nussbaum said.