Congressional Action May Open The Door To A New Wave Of Fraud and False Claims Act Litigation

Driven by increasing pressure to halt financial fraud and prevent misuse of government stimulus money, as well as continued concern about reported government contractor and Medicare abuses, Congress is revamping the False Claims Act for use as a serious fraud-fighting weapon. 

On May 6, the "Fraud Enforcement and Recovery Act" (FERA) passed the House and it is expected to be signed into law by President Obama soon. 

FERA contains provisions extending the coverage of the FCA to any false or fraudulent claim for government money or property, whether or not the claim is presented to a government official or employee, whether or not the government has title to the money, whether or not a contract exists, whether or not the claimant specifically intended to defraud the government, and -- in the case of reverse false claims -- whether or not any statement about the obligation is submitted to the government at all.  FERA also codifies the lower materiality standard ("natural tendency to influence") recently affirmed by the Supreme Court in the Brouseau case and broadens the definition of a government "claim" to include any request for money "to be spent or used on the Government's behalf or to advance a Government program or interest." 

The net effect of the pending FERA changes is a sweeping increase in the power of the government and private whistleblowers to pursue alleged fraud using the FCA. 

Other pending legislation -- particularly the "False Claims Act Clarification Act of 2009" -- also aims to increase the tools available to investigate and prosecute financial fraud.  These congressional efforts are likely to usher in a new era of increasing fraud and False Claims Act litigation by both the government and private plaintiffs. 

Given the pending changes to the FCA, it is more important than ever that companies receiving government money educate their employees regarding the Act and institute strict internal controls to safeguard against the submission of inaccurate claims or statements to the government.  Combined with regular FCA monitoring, the money and time spent on these internal efforts represent the best way to avoid the much more costly consequences of becoming a FCA target in the government's new war on fraud.

About the Author:  Stephanie Skaff is a partner in the firm's Business Litigation Group and is well-known for her experience litigating high-profile fraud and False Claims Act cases.  Ms. Skaff served as co-lead counsel in connection with a multi-million dollar false claims action involving the construction of the San Francisco International Airport and, prior to that, helped negotiate what continues to be the largest recovery to date under the California False Claims statute -- a $187.5 million settlement of a fraud and false claim action against a large national bank on behalf of a qui tam plaintiff, the State of California and numerous California cities, counties and local government agencies.  Ms. Skaff's current false claim practice focuses on advising companies on FCA compliance and defending against FCA claims brought by the government and/or private plaintiffs.  Ms. Skaff may be reached at [email protected].