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THE WHITE HOUSE
Jeremy look what
WASHINGTON
I found
FEBRUARY 22, 1993
BR
MEMORANDUM FOR BRUCE REED
FROM: TOM EPSTEIN, POLITICAL AFFAIRS q
SUBJECT: FALSE CLAIMS ACT
As I mentioned to you in the communications meeting this
morning, reinvigorating the federal government's commitment to
the False Claims Act would fit well into the President's planned
assault on waste in government.
The False Claims Act protects and compensates whistleblowers
who identify fraud against the government. A bipartisan
Congressional effort (Congressman Berman, Senator Grassley)
strengthened the law in 1986 to encourage private citizens to
bring false claims actions either on their own or in cooperation
with the Justice Department. For whatever reason, the Bush
Justice Department was openly hostile to whistleblowers and their
attorneys, greatly reducing the effectiveness of the act. If the
President were to instruct the Justice Department to vigorously
enforce the False Claims Act and to work cooperatively with
whistleblowers, it is likely billions of dollars in fraudulent
billings could be saved, primarily in health and defense.
Attached for your information are two memoranda from
attorneys who represent whistleblowers summarizing the key
issues, a memo to the transition team from Congressional staff on
this subject, an Op-Ed by Senator Grassley, and a news article
about a recent $111 million settlement paid by a Medicare
contractor pursuant to a whistleblower lawsuit. Please let me
know if you need any additional material.
CC: Rahm Emanuel
SENT BY:
2-22-93 ; 11:48 ;
4567929;# 2
MEMORANDUM
TO:
Mr. Tom Epstein
FM:
John R. Phillips
DATE:
February 22, 1993
RE:
FALSE CLAIMS ACT - WHISTLEBLOWER PROVISIONS
1.
How the False Claims Act Whistleblower Provisions ("Qui
Tam") work.
-
Anyone with knowledge of froud against the Government
may initiate a case in federal court against the
wrongdoer.
-
The Act provides for treble damages and penalties to
the United States.
-
Once the case is filed, the Department of Justice
investigates. The Government may decide to join the
case and lead the prosecution effort, or it may decide
to allow the whistleblower to proceed alone.
-
The Act protects a whistleblower who sues his or her
employers from retaliation.
-
The whistleblower is entitled to a minimum 15% of any
recovery to the Treasury.
2.
History of the False Claims Act.
-
The Act was initially passed in Abraham Lincoln's first
Administration to deal with Civil War profiteers, so it
has been commonly referred to as the "Lincoln Law".
-
In 1986, Congress was very concerned with explosion of
fraud resulting from Reagan defense build up and the
inability of Department of Justice to combat that
fraud.
-
Congress strengthened and modernized the old Lincoln
Law with 1986 amendment package authored by
Representative Howard Berman and Senator Charles
Grassley.
SENT BY:
2-22-93 ; 11:48 ;
4567929:# 3
Mr. Tom Epstein
Memorandum
February 22, 1993
Page 2
-
These 1986 amendments had three primary objectives:
(i)
To encourage whistleblowers to come forward
with information of fraud against the
Government that would otherwise be difficult,
if not impossible, to detect.
(ii)
To expand the Government's capacity to
prosecute fraud without expanding bureaucracy
by encouraging the private bar to commit its
time and resources to recovering money for
the United States Treasury.
(iii)
To ensure that allegations of fraud are taken
seriously and fully investigated by the
Federal Government.
3.
How successful has the law been and what is its potential?
-
Despite lack of support for whistleblowers by the
Department of Justice, the law has begun to recover
hundreds of millions of dollars for U.S. taxpayers.
Almost a quarter of a billion dollars has been
recovered in the last seven months alone, including
$100 million paid by one company for defrauding the
Medicare program.
-
These record recoveries to the Government and the
whistleblowers are undoubtedly deterring other
potential wrongdoers, saving vastly greater sums to the
taxpayers.
-
By 1992, whistleblower false claims suits (as distinct
from false claims suits initiated by the Government
itself) recovered more to the Treasury than false
claims suits initiated by the Department of Justice.
The gap between whistleblower suit recoveries and
Government initiated suits will continue to grow as
more people are encouraged to take the risks inherent
in being a whistleblower and stepping forward.
SENT BY:
2-22-93 ; 11:49 ;
4567929:# 4
Mr. Tom Epstein
Memorandum
February 22, 1993
Page 3
4.
How the Department of Justice has thwarted the potential of
the False Claims Act.
-
Refused to defend whistleblower provisions against
constitutional challenges by the defense industry. As
a result, House and Senate legal counsel have been
forced to defend law in courts around the country.
Thus far, all challenges have been unsuccessful and the
law has been upheld.
-
Refused to permit highly qualified counsel representing
whistleblowers to assist actively in prosecution of
cases. As a result cases have languished virtually
unprosecuted for years.
-
Instead of supporting and encouraging whistleblowers,
Department of Justice has sought to diminish and
discourage recoveries to whistleblowers after
successful case settlements. This prompted a federal
judge recently to state:
"[The] pattern of behavior in these cases by the
Department of Justice has always been a mystery.
The use of a [whistle-blower] is nothing new
In view of their widespread use, it is worthy of
note that the Department of Justice has considered
such individuals as adversaries rather than
allies. This is not the first case where this
court has noted the antagonism of the Justice
Department to a whistle-blower. The reason
continues to be unknown, but the attitude is
clear."
4
Bush administration's Justice Department repeatedly
sought to undercut whistleblower provisions with
proposed amendments and by advocating legal positions
in court directly counter to congressional intent.
3104747083
HALL & PHILLIPS
1-562 P-007
FEB 22 '93 12:42
MEMORANDUM
TO:
Peter Edelman
Bernard Nussbaum
Victoria Radd
FROM: Bari Schwartz (Rep. Berman)
Melissa Patack (Sen. Grassley)
Christopher Brown (Sen. Grassley)
RE:
The False Claims Act, 31 U.S.C. $ 3729 et seq.
DATE: December 11, 1992
We write to give you some background on an important issue
in which Sen. Chuck Grassley and Rep. Howard Berman have had a
long-standing interest -- the False Claims Act -- and in an
effort to change the posture of the Department of Justice on this
issue. In 1986, Grassley and Berman succeeded in getting
amendments passed which revitalized this important law. The
False Claims Act Amendments of 1986 (P.L. 99-562) provide an
extremely effective tool in deterring fraud against the United
States government by allowing individuals who have evidence of
fraud committed by government contractors to sue those
contractors on behalf of the government and share in the
government's recovery.
The law has proved very successful, and its importance is
underscored in this era of strained fiscal resources. To date,
more than a quarter-billion dollars in damages have been
collected through qui tam lawsuits. Another $100 million is
likely to be recovered before the and of the year in a case under
seal. That will bring the total qui tam recoveries in the past
recovered
six years to nearly a half billion dollars.
Dowden
Approximately half of the total recoveries to date were the
car
result of just two settlements this past summer. In July,
General Electric agreed to pay the United States $59.5 million in
a civil settlement for a conspiracy between GE executives and an
Israeli general to charge the U.S. for goods and services never
provided. This fraud was brought to light by Chester Walsh, a GB
employee in Israel who recognized the fraud conspiracy between
his U.S. superiors and the Israeli general, and sued on behalf of
the United States. A week before the GB settlement, the
successor to the Singer Corporation agreed to pay $55.9 million
for overbilling on more than $1 billion worth of contracts for
flight simulators. This money would never have been recovered
without the whistleblower lawsuit of auditor Christopher Urda.
The continued effectiveness of the Act is, however,
undermined by the almost adversarial stance the Department of
Justice has taken toward qui tam relators. In many cases, the
Department raises issues better left to defendants, arguing for
diamissal of the gui tam relator's claim on jurisdictional
3104717083
HALL ? PHILLIPS
T-562 P-008
FEB 22 '93 12:11
*
grounds. If this is unsuccessful, the Department generally
tries to limit as much as possible the relator's recovery in the
case. The Department routinely attempts to reduce the total
amount available for derivation of the relator's share, urges
relators to take a lower share than they are statutorily entitled
to as part of settlement agreements, and urges the Court to give
relators the minimum possible reward. The Department also
strictly limits the relator's role in the case, and is slow to
disclose information about the case to a relator.2 The
Department conducts cases in this manner, despite the reality
that but for the relator's great personal risk, the Department
would not even have the information about the fraud.
This history of DOJ hostility to qui tem relators was
discussed by Chief Judge Rubin of the Southern District of Ohio
in a recent order in the GE case. Ruling against GE's argument
that the relator's share in the case should be reduced based on
factors not enumerated in the statute (a position that was
supported by DOJ in pleadings and press releases), Judge Rubin
noted that
[t]he pattern of behavior in these [whistleblower] cases by
the Department of Justice has always been a mystery. The
use of a qui tam plaintiff is nothing new. In view of
their widespread use, it is worthy of note that the
Department of Justice has considered such individuals as
adversaries rather than allies. This is not the first case
1
See, e.q., United States ex rel. Doe V. John Doe Corp.,
960 F.2d 318, 320 (2d Cir. 1992); United States ex rel. Williams
V. NEC Corp., 931 F.2d 493 (11th Cir. 1991); United States ex
rel. Haqood V. Sonoma County Water Agency, 929 F.2d 1416 (9th
Cir. 1991); United States ex rel. LeBlanc V. Raytheon Corp., 913
F.2d 17 (1st Cir. 1990) ; United States ex rel. Weinstein V. CAC-
Ramsay, Inc., 744 F. Supp. 1158 (S.D. Fla. 1990).
2 For discussion of these and other adversarial practices
by the Department, see Hearing on H.R. 4563: Subcommittee on
TE-
Administrative Law and Governmental Relations, Committee on the
I
can
Judiciary, House of Representatives, 102d Congress, 2d Session,
April 1, 1992; False Claims Act Implementation: Hearing before
get
this,
the Subcommittee on Administrative Law and Governmental
materia
Relations, Committee on the Judiciary, House of Representatives,
101st Congress, 2d Session, April 4, 1990, Ser. 74;
Correspondence between Sen. Charles Grassley and Assistant
you
Attorney General Stuart Gerson, May 21-July 6, 1992; "Whistle-
want
blower blues," Los Angeles Daily News, June 28, 1992, B-1;
"Popularity of Qui Tem Grows Despite Significant Obstacles,"
JLG
Inside Litigation, March 1991; "Anti-Fraud Law's Merits Debated,"
Los Angeles Times, August 21, 1989, p.3 (Discussing desire of
lawyers in Frauds Section of Civil Division's Commercial
Litigation Branch to have Act held unconstitutional),
3104747083
HALL & PHILLIPS
T-562 P-009
FEB 22 '93 12:47
where this Court has noted the antagonism of the Justice
Department to a whistleblower.' The reason continues to be
unknown, but the attitude is clear.4
The adversarial stance toward whistleblowers who expose
fraud that would otherwise likely go undetected is not limited to
litigation. The Department also takes an anti-whistleblower
stance in its positions on False Claims legislation. In the 102d
Congress, Rep. Berman and Sen. Grassley advocated legislation,
H.R. 4563, to clarify the law regarding qui tam suits by
government employees and suits based on publicly disclosed
information.3 The Department took what we considered an
unreasonable position on both issues, arguing for a complete ban
on suits based on information acquired in government employment
and pushing for a rollback of the parasitic suit bar to pre-1986
law.
The qui tam provisions of the False Claims Act are among the
taxpayers' most effective weapons for recovering money stolen
from the United States by public contract fraud. To best utilize
this weapon in a time of fiscal strain, it is necessary to have
leaders in the Justice Department -- especially the Civil
Division -- who make constructive use of qui tam, rather than
taking such an adversarial stance that future qui tam plaintiffs
are deterred.
We hope you will keep this important issue in mind as you
consider Justice Department policy on this issue under the
Clinton Administration. We would be happy to discuss this issue
further.
$ See Gravitt ex rel. United States V. General Electric,
680 F. Supp. 1162 (S.D. Ohio 1988).
4 United States V. General Electric, No. C-1-90-792, Dec. 4,
1992 (S.D. Ohio), 8-9.
5 We believe clarification of the ban on suits based on
publicly disclosed information (the "parasitic suit" bar) is
necessary to correct a number of clearly erroneous judicial
decisions which undermine Congressional intent in the '86
amendments. E.G., Wang V, FMC Corp., 975 F.2d 1412 (9th Cir.
1992) ; United States ex rel. Precision Company V. Koch
Industries, Inc., 971 F.2d 548 (10th Cir. 1992) ; United States ex
rel. Doe V. John Doe COID., 960 F.2d 318 (2d Cir. 1992) ; United
States ex rel. Stinson, Lvons, Gerlin & Bustamante, P.A. y.
Prudential Ins. Co., 944 F.2d 1149 (3rd Cir. 1991); United States
V. Rockwell International Corp., 730 F.Supp. 1031 (D.Colo. 1990).
3104747083
HALL & PHILLIPS
T-563 P-002
FEB 22 '93 13:06
Memorandum
To:
Tom Epstein
From:
Janet Goldstein
Date:
February 22, 1993
Re:
Effectiveness of the False Claims Act in combatting
health care fraud.
The "whistle-blower" provisions of the False Claims
Act, which authorize private citizens to prosecute fraud claims
on behalf of the United States, promise to be an effective tool
to combat the rising cost of health care to the Government.
This promise is made clear by a recent settlement in which
National Health Laboratories ("NHL") agreed to pay over $100
million to the government Lu settle claims brought forward by Я
whistle-blower, who gave information to the government that NHL
defrauded Medicare, Medicaid and the Civilian Health and Medical
Program. 1 This $100 million plus settlement alone more than
quadrupled the $24 million in health care fraud recoveries that
the Civil Division of the Justice Department achieved during a
two year period (fiscal years 1990 and 1991) 2
It is not surprising that a single recovery in a
lawsuit filed by a whistle blower could 00 dramatically exceed
two years of efforts by the Justice Department alone. The False
Claims Act's effectiveness stems from enlisting the support of
private citizens who have access to information about corrupt
practices that could never be discovered through traditional
'see "How a Whistle-Blower Found Blood-Test Fraud, " New
York Times, Monday, December 21, 1992, at A13.
2 See "Report to Attorney General on Enhanced Health Care
Fraud Initiative, February 3, 1992, at 7.
3104747083
HALL & PHILLIPS
T-563 P-003
FEB 22 '93 13:07
Memorandum to T. Epstein
February 22, 1993
Paye-2
government investigations, because these individuals often are
asked to participate in the very fraudulent schemes they reveal
to the government. Moreover, the False Claims Act brings the
resources of private attorneys to bear in the fight against
dishonest contractors; this use of the private bar to aid the
Justice Department ensures that the government can match the
litigation resources of defendants in major fraud actions.
Despite the recent promise and success of some
whistle-blower suits, the full effectiveness of the False Claims
Act has not yet been realized. The Justice Department under the
Bush Administration failed to work cooperatively with many
whistle-blowers and their counsel. Indeed, Senator Charles
Grassley of Iowa has documented numerous instances of the
Justice Department blatantly otifling the will of Congroce and
working against rather than with whistle-blowers. 3
Specifically, the Justice Department has refused to publicize
the False Claims Act, thereby failing to inform citizens that
there is a tool available for individuals to help the United
States combat fraud; 4 the Justice Department has attempted to
cut whistle-blowers out of cases from the outset or refused to
keep them informed of case progress, thereby depriving the
3 See "Abe Lincoln VS. the Justice Department," New York
Times OP-ED page, Saturday, January 16, 1993. See also
Memorandum from Offices of Senator Grassley and Representative
Berman to DOJ Transition Team, December 11, 1992.
"See supra n.1.
3104747083
HALL & PHILLIPS
T-563 P-004
FEB 22 '93 13:07
Memorandum to T. Epstein
February 22, 1993
Page 3
government of the help of private attorneys;5 and, the Justice
Department has attempted to limit whistle-blower rewards below
their statutorily mandated share, thereby sending the message to
future whistle-blowers that bringing a False Claims Act suit may
not be worth the personal sacrifice of blowing the whistle on a
major corporation. 6
The False Claims Act will result in increasingly large
government recoveries and will deter future fraud as soon as the
Juctico Dopartmont chows that it ic corious about working with
private citizens. The Justice Department must work with
whistle-blowers, must fully utilize the resources of private
attorneys and must reward private citizens in the manner
dictated by Congress. Such efforts will not only substantially
lessen the serious cost of health care fraud, but also will go a
long way towards stopping the rampant fraud and abuse in all
arenas of the federal government.
5 See supra n.3.
6See supra n.3.
SENT BY:
2-22-93
11:49
4567929:# 5
Ehe New York Times
THE NEW YORK TIMES
OP-ED
SATURDAY, JANUARY 16, 1993
Abe Lincoln VS. the Justice Department
By Charles E. Grassley
WASHINGTON
ne of America's largest
defense contractors that "police"
has considered such individuals as
O
medical companies,
themselves. She also helped argue
adversaries rather than allies. This is
National Health Lab-
that whistle-blower lawsuits are un-
not the first case where this court has
oratories, agreed last
constitutional, claiming they infringe
noted the untagonism of the Justice
month to pay the Gov-
on the Government's "exclusive
Department 10 a whistle-blower. The
ernment $110 million
right" to protect tax dollars.
reason continues to be unknown, but
10 settle a lawsuit for unnecessary
Despite the Justice Department's
the attitude is clear."
medical tests billed to Medicaid and
antagonism, the amendments have
Medicare. In July, General Electric
One reason for the department's
been a great success. Overall recov-
agreed to pay a $59.5 million civil
antagonism may be a legitimate con-
eries to the Treasury have increased
cern that whistle-blowers take a
settlement stemming from a conspir-
from $35 million a year to $350 million
share of the Government's award.
acy between G.E. executives and an
a year since 1986 - a total of nearly
Israeli general to charge the U.S. for
Even SO, the department cannot ig.
one-half billion dollars. Last year,
goods and services that were never
nore Congress's findings: awarding a
more money was recovered in whis-
previded. In June, the successor to
share of the damages is necessary to
tle-blower suits than in all other suits
attract whistle-blowers who would
the Singer Corporation, the CAE-Link
brought by the Justice Department.
otherwise remain silent.
Corporation. agreed to pay $55.9 mil-
Even more money would come in if
Perhaps the Justice Department
the Government had a better attitude.
lion for overbilling the Pentagon on
doesn't want to acknowledge Con-
more than $1 billion worth of con-
The Justice Department. which has a
gress's conclusion that the depart-
tracts for flight simulators.
statutory right to join these suits by
ment is unable to uncover all the
These tax dollars were restored to
whistle-blowers as a co-plaintiff, reg.
fraud that taxpayers suffer. And per-
the Treasury not because of any Jus-
ularly attempts to cut the whistle
haps the executive branch dislikes
tice Department prosecutorial zeal
blower out of the case. There is noth-
citizens interfering in the cozy rela-
but in spite of the department's ef.
ing the whistle-blower can do about IL
tionships it has with defense compa-
forts. The cases were brought by cou-
Often the department argues at the
nies and other public contractors. In
rageous employees of the companies.
outset for the whistle-blower's dis-
October, Attorney General William
Using a modern version of a law
Barr complained in a speech to the
drafted in 1863 by Abraham Lincoln
American Corporate Counsel Associ-
to combat war profiteers, they sued
their employers on behalf of the Unit-
Federal lawyers
ation that whistle-blower lawsuits
"constitute a burden - and a severe
ed States in return for 3 share of the
burden we believe - on contractors
Government's reward.
often undermine
who are defending them."
Unfortunately, since Representa-
Obviously, Bill Clinton and his At-
live Howard Berman, Democrat
whistle-blowers.
torney General need a new policy that
from California, and I rewrote the
aids whistle-blower lawsuits. If Ms.
whistle-blower provisions of the
Baird is confirmed. she must resist
False Claims Act in 1986 to make
any prejudice from her years at G.E.
them a better weapon against fraud
missal from the case. If that's unsuc-
Her new clients. the taxpayers. ex-
during the defense buildup of the
cessful. Government lawyers often
pect vigorous prosecution of public-
1980's, the Justice Department has
try to limit the plaintiff's recoveries.
contract fraud.
been consistently nostile to whistle-
Justice Department policy keeps the
blowers. This attitude confirms the
whistle-blower in the dark about the
Charles E. Grassley. Republican of
cynicism that brought Lincoln to
case's progress.
lowa, is a member of the Senate
make. possible for citizens to sue:
This hostility was summarized by
Judiciary Committee.
you can't count on the bureaucracy to
Federal District Judge Carl B. Rubin
protect the taxpayer.
President-elect Clinton's nominee
of Cincinnati last month. In a ruling
for Attorney General, Zoe Baird, may
against G.E., he wrote that the "pat-
have a defense contractor's perspec-
tern of behavior in these cases by the
Live on whistle-biowers. As counsel to
Department of Justice has always
General Electric, she lobbied for
been a mystery. The use of a whistle-
broader exemptions to the False
blower) is nothing new
In view of
Claims Act including a loophole for
their widespread use, st IS worthy of
note that the Department of Justice
How a Whistle-Blower
Found Blood-Test Fraud
By CALVIN SIMS
Special 10 The New York Times
LOS ANGELES, Dec. 20 - Three
But the Justice Department recently
years ago, C. Jack Dowden, a former
expressed reservations in cases is
sales manager for a large California
which it believed the whistie-blower
blood-testing concern. was under the
might have delayed taking action in
gun: he was rapidly losing business to
order to receive a larger award.
his main competitor, National Health
No one has suggested that Mr. Dow
Laboratories, which was offering doc-
den had delayed coming forward in this
tors what seemed an incredible bar-
case, but curiously. the Justice Depart-
gain.
ment made no mention of Mr. Dowden
For the price of a basic blood screen-
in announcing the settlement last week:
ing. National Health, one of the nation's
largest diagnostic testing companies,
would at no extra charge perform tests
for cholesterol and serum ferritin, or
iron in the blood.
Puzzled as to bow National Health
could offer the additional tests without
charge, Mr. Dowden had a doctor take
a sample of his own blood and send it to
National Health. Mr. Dowden said that
when he got the bill for his blood tests,
National Health had charged him for
one of the additional tests. He said this
confirmed his suspicions that un-
beknownst to doctors, National Health
was charging some private customers
and Government health insurance pro-
grams about $18 for each of the tests it
claimed 10 be conducting for free.
2-Year Inquiry
Under pressure from his own compa-
ny to engage in similar practices, Mr.
Dowden went to the Federal authori-
ties, who began a two-year investiga-
tion that on Friday resulted in a guilty
plea by National Health to two charges
of submitting false claims to Govern-
ment health insurance programs. The
company agreed to refund $111 million
to Medicaid, Medicare and the Civilian
Health and Medical Program.
Mr. Dowden, who stands to gain at
least $15 million of the Government
settlement under a Federal whistle-
blower law, said in an interview today
that he had notified the Government of
National Health's practices mainly to
prevent his own company, which he
declined to identify, from also engaging
in such practices. Prosecutors also re-
fused to identify Mr. Dowden's former
employer.
"I went to the Government investi-
gators myself to stop my own company
Extended Page 10. 1
from doing 1t," said Mr. Dowden, WIIU
IS 45. "I thought it was wrong. It's
fraud. I had arguments with my super-
visor that we would be crazy to do it."
But the supervisor ignored the warn-
Ing, Mr. Dowden said, and sent doctors
a letter offering blood testing deals
similar to National Health's. Federal
officials say fraudulent practices like
those by National Health, based in La
Jolla, Calif., are pervasive in the medi-
cal-testing industry and that other labs
are under investigation Mr. Dowden
has left the blood-testing business.
It is unclear just how much money
Mr. Dowden will receive for assisting
the Government Under the Federal
False Claims Act, whistle-blowers may
15 75 percent of a settlement
THE WHITE HOUSE
WASHINGTON
July 21, 1994
MEMORANDUM FOR BRUCE LINDSEY
BO CUTTER/JOHN GOODMAN
JOEL KLEIN
CHRISTINE VARNEY/JENNIFER O'CONNOR
BRUCE REED/JEREMY BEN-AMI
MICHAEL WALDMAN
FROM:
STEPHEN NEUWIRTH
AN
ASSOCIATE COUNSEL TO THE PRESIDENT
SUBJECT:
MEETING ON DOJ QUI TAM (WHISTLEBLOWER) PROPOSALS
We are scheduled to meet this Friday, July 22, at 1:00 p.m.
in the Roosevelt Room, to discuss DOJ's draft proposed amendments
to the qui tam provisions of the False Claims Act. Senior
officials from DOJ and DOD will also attend.
* * *
The qui tam provisions of the False Claims Act permit
private individuals -- whistleblowers, or "relators" -- to
commence lawsuits in federal court, technically on behalf of the
United States, against government contractors and other entities
alleged to have committed fraud against the United States. The
government can choose to pursue the claim itself, in which case
the "relator" is generally entitled to a portion of any monies
recovered. If the government chooses not to pursue the claim,
the private "relator" may do so.
A relator is generally entitled to commence actions or
participate in any monetary recovery only if he or she has
provided new information to the government that has not already
been provided from another source. The statute, for example,
bars claims based on information included in a government
contractor's voluntary disclosure of fraud, or information
obtained from an ongoing government investigation or from the
news media.
Approximately $697 million has been recovered in qui tam
actions since enactment of the qui tam amendments to the False
Claims Act in 1986. Approximately $688 million 99 per cent of
the total -- has been recovered in cases in which DOJ obtained a
judgment or entered into a settlement agreement with the
defendant. Only $9 million has been recovered in cases that DOJ
chose not to pursue and were litigated solely by private
plaintiffs. Last year, recoveries from qui tam actions rose to
record levels.
* * *
The current DOJ qui tam proposal was developed in response
to legislation introduced by Senator Grassley in the Senate
Judiciary Committee. The Grassley bill is intended to facilitate
qui tam litigation by making it more difficult to dismiss qui tam
suits and by expanding the circumstances under which private
parties can become qui tam relators.
The current DOJ proposal has two especially significant
features that reverse the position of the Bush Administration.
First, the proposal would take away from private defendants,
and reserve to DOJ, the right to move to dismiss qui tam claims
based on the source of the relator's information -- e.g., where
information was voluntarily disclosed by the defendant, or was
publicly available. DOJ has taken this position notwithstanding
that almost all of the relators who have been dismissed on this
basis to date have been dismissed on motions made by private
defendants, not the government. Given DOJ's limited resources,
and given that defendants normally are in the best position to
assess the source of a relator's information, this proposal would
be an obvious boon to qui tam relators and their attorneys. It
is also reasonable to assume that defendants would be forced to
assume substantial litigation costs in cases where a relator is
not entitled to bring a claim, but where DOJ has not moved to
dismiss the suit. Qui tam relators and their attorneys would
thus have an economic incentive to bring "strike" suits that lack
legal merit, but are filed with the goal of obtaining a
settlement payment from a defendant that wishes to avoid the
expense of litigating.
Second, DOJ proposes to agree for the first time that most
government employees would be allowed to bring qui tam suits,
although the DOJ proposal would place various restrictions on the
type of employees who could make qui tam claims and under what
circumstances. The current statute is silent on this issue, and
the majority of appeals courts to have addressed the issue have
ruled that federal employees may bring qui tam suits. Senator
Grassley proposes that all federal employees be permitted to
bring such suits; the DOJ proposal is intended to be a more
reasonable approach that would, among other things, ensure that
employees comply with existing obligations to disclose fraud and
prohibit lawyers, inspectors general and contract officers from
participating in qui tam suits.
It is, of course, still an option to seek legislation that
would prohibit any federal employees from bringing qui tam
claims. Historically, DOD has opposed federal employee qui tam
suits on at least two grounds. First, government employees have
an existing fiduciary duty to disclose fraud, and it is
inappropriate to offer a monetary bounty for complying with that
existing obligation. Second, the opportunity to bring a qui tam
2
claim can create perverse incentives -- for example, for a
federal employee to let a fraud continue unreported so that
damages will accumulate and the employee will gain access to a
"pot of gold."
* * *
As you will see, several members of the Senate Armed
Services Committee have expressed concern to Senator Biden about
the DOJ proposals.
Attachments:
Draft DOJ letter to Senator Biden
Correspondence from Senators
3
U.S. Department of Justice
Civil Division
Office of the Assistant Attorney General
Washington, D.C. 20530
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2013-0854-5
DETERMINED TO BE AN
CONFIDENTIAL
Revised 7/15/94
ADMINISTRATIVE MARKING
INITIALS: MA DATE: 8/16/13
Honorable Joseph R. Biden, Jr.
Chairman
Committee on the Judiciary
United States Senate
Washington, D.C. 20510
Dear Mr. Chairman:
This provides the Department's views on S. 841, the False
Claims Amendments Act of 1993, as reported by the Subcommittee on
Courts and Administrative Practice. The Department supports the
Act's goal of facilitating qui tam litigation to further augment
the Government's war against fraud. We and the staff of the
Subcommittee on Courts and Administrative Practice have been
engaged in productive and worthwhile discussions aimed at reaching
a consensus on this legislation. Our discussions have been
productive, and WE have candidly exchanged ideas to refine the
areas of agreement and disagreement. We believe that those
discussions have produced a markedly improved bill.
At the outset, let me reiterate this Administration's strong
commitment to an effective and vigorous qui tam mechanism. In a
clear break with the policies of previous Administrations, we have
made a concerted effort to recognize the significant contribution
of relators and whistleblowers to the Government's fight against
fraud. We have encouraged the Department's litigators to make
every effort to work cooperatively with relators to maximize the
Government's recovery. We have scrutinized the legal arguments
advanced to ensure that, in protecting the government's recoveries,
we do not impair the incentives which are necessary to ensure that
relators come forward, especially in light of the large personal
hardships many must endure in bringing these suits. The Department
and its client agencies have dedicated enormous resources to the
investigation and prosecution of these cases.
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Our success in acquiring the evidence to support these cases
and in litigating them has been noteworthy. Ultimately our
aggressive involvement -- through investigation, litigation and
negotiation -- is the most important incentive for relators,
because when we succeed, they share in that success. As a result
of the 1986 amendments to the False Claims Act, the most important
factors in determining the outcome of these cases are the
government's active involvement in the development of the
investigation, its resolution of cases before a formal election is
made, and its decisions to intervene in matters and prosecute cases
on behalf of the government and the relator.
of the approximately $697 million recovered in qui tam actions
since the enactment of the amendments to the Act in 198€, about
$688 million (almost 99% of the total) has been recovered in cases
which the Department of Justice pursued, by negotiating a
settlement prior to intervention or obtaining a settlement or
judgment after it intervened and prosecuted the case. To date, in
fiscal year 1994, the Department of Justice is on the verge of
recovering a record breaking $1 billion in False Claims Act cases.
So far in fiscal year 1994, $278 million of the recoveries have
come from qui tam actions. This follows a record breaking year in
1993 when the Department recovered $372 million in settlements and
judgments in civil fraud cases, of which $180 million was obtained
in qui tam cases. These results reflect the resources which the
government has devoted to these cases, including the 43, 112
attorney hours which just the Civil Division of the Department of
Justice devoted to qui tam suits in 1993. This allocation of
attorney resources was augmented by the vast array of other
government personnel involved in these cases, including prosecutors
and civil attorneys in the Offices of the United States Attorneys,
and investigative, audit, and program personnel throughout the
government's agencies.
In addition to the Administration's demonstrated resolve to
give these cases the highest priority, in our discussions on
pending legislation we have made two significant changes in the
policies of the last Administration. First, we have agreed that
motions to dismiss relators based upon the source of relators'
information should be made only by the government. This is a major
gain for relators. Under the current law, motions to dismiss on
this basis can be made by defendants. In fact, as the current case
law reflects, almost all of the relators who have been dismissed or
this basis have been dismissed on motions made by defendants, not
by the government.
We believe that the decision whether a relator should be
allowed to participate in a suit and share in the recovery is a
matter that is of primary concern to the government, and that,
accordingly, it is the government that should decide whether such
a motion should be made, based upon the statutory criteria. Under
current law, defendants have too often made these motions simply as
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a routine litigation tactic to increase the expense and time
required for a relator to bring these suits. We have agreed that
this weapon needs to be removed from the defendant's arsenal. In
doing so, we will neasurably increase the incentives for relators
to bring gui tam actions.
Second, we have agreed for the first time that most government
employees should be allowed to bring qui tam suits as long as they
follow the reporting procedures provided and the government is
given a reasonable amount of time to act on the fraud first. This
is a major reversal of the previous Administration's opposition to
government employees bringing suit under any circumstances.
We believe, however, that there are certain classes of
government employees whose duties are so integral to the decision
making process in a fraud investigation that it is important to
ensure that their decisions are made solely on the basis of the
public's interest and that there be no taint of personal financial
motivations. This policy concern is acknowledged in the pending
legislation which prohibits qui tam suits by government employees
who work for the Department of Justice and the Inspector General's
Offices of the various agencies. We believe that this bar needs to
be expanded to other limited classes of government employees who
play an equally integral role in these decisions.
We believe that the Department's willingness to reverse the
positions of previous Administrations on the two major issues
discussed above amply demonstrates our agreement with the sponsors
of this legislation on the overall goal of strengthening the
ability of the government and private citizens to fight fraud
against the government. There are certain aspects of the pending
legislation, however, which we believe should be modified to
improve the statutory qui tam process.
The qui tam provisions create a mechanism by which private
citizens may not orly assert claims against those who defraud the
government, but also effectively assert monetary claims against the
United States Treasury. The Department must assess and
occasionally challenge these claims. A major component of the
statutory scheme of the False Claims Act is to provide private
financial incentives to individuals to bring these actions. While
the interests of the United States in these actions obviously are
at odds with those of defendants, they are also sometimes
unavoidably in conflict with the private financial interests of the
relators as well. While we are committed to working with and
minimizing conflict with qui tam relators, it must be remembered
that in the end only Department of Justice attorneys are legally
and ethically charged with protecting the interests of the United
States. Some of the provisions included in the pending legislation
should be amended to better ensure that the interests of the
taxpayers of the United States are kept paramount.
JUL-18-94
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Pursuant to our discussions with the Subcommittee, we prepared
a substitute bill that proffered certain changes to the
Subcommittee's draft proposal. We attach that substitute
("Substitute") (Attachment A), for your consideration and urge its
adoption in lieu of S. 841.
1. Government: Right to Dismiss Certain Actions:
We are particularly concerned with the amendment to the public
disclosure bar (Sec. 3). We completely agree with the primary
legislative goals that: 1) only the government may move to dismiss
relators who have brought parasitic suits; and 2) such motions
should be filed early to conserve time and money by relators whose
cases will be dismissed so that other relators will be encouraged
to come forward. Other provisions of the bill will have the
opposite effect, however, and will undermine these goals: they
will simultaneously discourage relators from coming forward, and
will unnecessarily deplete the Treasury by paying rewards to
individuals when the government would have taken action without a
qui tam suit.
Under the bill in its current form, a relator could file suit
and recover even if the relator had contributed nothing to an
ongoing and active government investigation or audit of the same
matter. Dismissal of the relator would be allowed only if the
relator "first learned" all or substantially all the information
from a governmental investigation or from the news media. (Sec. 3,
(e) (6) (A) (i)) This provision unnecessarily disadvantages the
government, and thus the taxpayer, in the recovery process. The
government may be put in the unfair position of having to split the
recovery with a private relator who has not contributed anything to
the case. 1 We urge the Committee to adopt language that would bar
1 To illustrate, suppose that the government commences an
investigation of a government contractor based on a tip, and that
investigation proceeds as the government gathers evidence of
fraud. The government prepares to indict and file suit against
the company. However, before it is prepared to do so, either a
news report is published discussing the government's allegations
or the existence of the government's investigation otherwise
becomes known (neither is an uncommon scenario where large
contractors are under investigation). John Doe, who worked at
the company and was aware of the wrongdoing when it occurred (but
never reported it to the government) becomes aware of the
investigation and realizes he can file a qui tam suit, charging
the very same allegations as those already being investigated.
He would not be dismissed under the bill because he did not
"first learn" of the allegations from the investigation. Yet
this opportunistic relator has in no manner contributed to the
government's prosecution of the fraud.
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recovery in this situation, regardless of where the person derived
the information, as suggested in the substitute bill.2
One specific example of such noncontributing suits is the qui
tam action that virtually mirrors a company's voluntary disclosure
to the government. Our proposed revision bars an action where
substantially the same matters have been disclosed and accepted
into an established voluntary disclosure program and are the
subject of an active investigation or audit. These actions, which
do nothing more than make the very allegations that a company has
already disclosed and that the government is pursuing through an
existing enforcement mechanism, add nothing to the government's
anti-fraud effort.
We also suggest additional language at Sec. 3 (e) (4) (i) to
protect relators who bring valuable new information to the
government's active investigation or audit, which significantly
increases the government's recovery. Such a relator should be
authorized to recover where the new information provides
substantial grounds for additional recovery beyond those
encompassed within the Government's existing indictment,
information, investigation or audit. (Substitute, Sec. 3,
(e) (4) (i) ) The Substitute limits the relator's recovery to the
"proceeds of the action or settlement that are attributable to the
new basis for recovery that is stated in the action brought by that
person." (Substitute, Sec. 4, (3) (c) ) These safeguards would also
apply to qui tam actions which go beyond the matters revealed in a
company's voluntary disclosure. Thus, where the qui tam action
alleges that the voluntary disclosure itself is false or fraudulent
or the action provides additional facts that are not substantially
the same as those disclosed, such a case would not be subject to
dismissal under this section.
Additionally, we are concerned that the bill does not protect
the person who reports fraud to the government before filing a qui
tam suit, while permitting suits by other relators who file suit
first but add nothing to the government's knowledge. We would
correct this oversight with language to permit the relator who
alerted the government to file suit, even if the government, as a
result of the publicity of the fraud from the Congress or the news
media, opens an investigation first. (Substitute, Sec. 3,
(e) (4) (i))
2 In our view, mere information in the government's
possession should not bar a qui tam suit. If the government was
not utilizing that information in an active investigation or
audit or had closed its consideration of a matter, a qui tam suit
should be permitted. Ultimately, it would be up to the court to
decide if the government's investigation was sufficiently active
to bar the relator's suit.
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Thus, the Department proposes language to better accomplish
several goals underlying this legislation. First, this language
would reward those who are sources of information in the first
place and voluntarily provide it to the Department or to a media or
congressional source before they file a case. Second, our language
would encourage those with information about fraud to report it to
the government promptly, thus advancing the taxpayers' interests
and maximizing our ability to develop and prosecute these cases.
Without this encouragement, we are concerned that individuals would
wait to file their own lawsuits instead of coming forward, relying
on the argument that they did not "first learn of" the allegations
as a result of the investigation but on their own. Third, it has
been our experience that many relators and counsel find it in their
interest to report their information to the government before they
file to facilitate a working relationship and to validate the
information. We think that the bill in its present form will
discourage this process entirely, because it would allow witnesses
who learn of the investigation to recover and displace the original
source from recovery if they beat the original source to the
courthouse door in filing these suits.
2. Other Aspects of Dismissal Provision:
a. Court's Dismissal: We believe that as currently
drafted, the bill would improperly allow the court to exercise
discretion in deciding whether or not to dismiss actions under
(e) (6) (A) (where the relator obtained substantially all of the
allegations from a government investigation or the news media or
Congress). The bill should explicitly state that the court "shall
dismiss" the actions under these circumstances.
b. Period to Move to Dismiss the Relator: We have
agreed to limit the ability to file motions to dismiss the relator
to the government, eliminating the possibility of defendants moving
to dismiss. However, the 90 day period within which the government
could file such a motion is insufficient. We understand that it is
preferable for the motions to be filed early in the lawsuit rather
than later, after the relator has participated in the suit.
However, we urge the Committee to adopt a more workable limitation,
as set forth in the Substitute, so that the government will have an
opportunity to acquire essential evidence regarding the relator's
status, e.q., whether the relator learned of the information from
an active investigation, and, if not, whether he otherwise can
proceed as a relator. Either investigation or discovery, or both,
will be necessary. Such a procedure causes no prejudice because,
during the early stage after filing a gui tam case, the relator
typically does not invest significant resources in the litigation.
Moreover, the Department's time and limited resources
following the filing of the complaint should be used to investigate
whether the defendant has committed a fraud and whether the
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government should intervene. Once those decisions are made, the
government then can turn its attention to determining whether a
motion to dismiss the relator is appropriate.
c. Basis for Dismissal: The current language of the
bill would bar only relators who learned substantially all of the
facts underlying the material allegations from active
investigations or the news media. We suggest additional language
to extend the bar to those who learned the "basis" for those
allegations from the public sources listed. This is meant to
clarify that relators' attorneys who simply fashion their claims in
legal language that differs from that used by perhaps non-lawyer
government investigators (or made public by non-lawyer reporters)
cannot avoid the bar if the basis for those claims was learned from
those sources. (Substitute, Sec. (4) (ii) We urge you to include
this language.
d. "Fraud" Investigation: In its present form, the bill
would bar suits only where the relator learned of the facts from an
active and ongoing "fraud" investigation, which is an unduly narrow
provision. Investigations cannot be easily labeled "fraud"
investigations at the early stages -- we investigate allegations
that could give rise to a finding of fraud, depending upon the
evidence developed. The touchstone should be whether a-government
inquiry into the matters alleged in the qui tam suit is pending,
whether or not that inquiry is termed a "fraud" investigation.
Similarly, although the current language does not include
"audit", the government's inquiry into allegations of fraud
typically begin with a government audit. Whether a particular
government action I.S called an "audit" or an "investigation" is
often just a matter of nomenclature. Audit action without any
separate inquiry termed an "investigation" often constitutes the
entire basis for a False Claims Act case. Thus, an active audit is
government action on the matter just as an investigation is
government action (and, under the Substitute as well as the Senate
bill, if the government does not take action and the audit is
closed, a qui tam suit can be filed). We urge the Committee to add
"audit" to the existing language in section (6) (A) (i) (I), as does
the Substitute.
e. Proceedings to which the government is a party:
Section 3 of the bill does not bar the relator who derives his
information from a filed criminal indictment or information or
other proceedings to which the United States is a party. This bar
is necessary because there may be no formal investigations pending
once criminal charges have been filed, even though the Government
intends to proceed civilly once the criminal action is concluded.
Moreover, a relator who derives his information from the
government's proceeding but adds nothing to the government's case,
has no legitimate basis for recovery. We suggest language to
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address this oversight. (Substitute, Sec. 3, (e) (4) (i) (a) and
(e) (4) (ii) (I)
f. Government Employees:
1. Exclusions of certain employees. As mentioned
above, under the bill, only DOJ employees and employees of the
offices of Inspectors General are barred from becoming relators.
(Sec. 3, (e) (6) (c)) This exclusion category should also cover
federal employees whose responsibilities include the detection and
investigation of fraud (investigators, auditors, agency contracting
personnel and attorneys), as set forth in the Substitute at Sec.
2 (5) (E). These employees are not confined to the Offices of
Inspectors General but include auditors who are charged by law with
the responsibility of auditing for potential fraud and abuse. For
instance, the Defense Contract Audit Agency audits both DOD
procurements and selected agencies' contracts, has subpoena
authority as well as document inspection authority pursuant to
contract, and conducts audits of government contracts, contract
proposals, and other contract actions. DCAA, furthermore, is
charged with the responsibility to report suspected fraud to the
Office of Inspector General. Similarly, the General Accounting
Office is charged broadly by statute to investigate "all matters
relating to the receipt, disbursement, and use of public money" and
assist the Congress in obtaining information about federal
expenditures. 31 U.S.C. $ 712.
The Substitute would also exclude agency contracting personnel
from those eligible to file qui tam suits. Contracting personnel
are the employees who are the most familiar with the award and
administration of a contract, and thus often the government
employees most familiar with a contractor's practices, including
its negotiations, charging of costs, and production or delivery of
the procured items or services. Thus, they are among those most
likely to uncover procurement fraud and be responsible for deciding
to initiate fraud investigations. Likewise, attorneys employed by
government agencies also are charged with the responsibility to
pursue, and to refer to the Department of Justice, allegations of
fraud in connection with government contracts and programs.
Attorneys, of course, are also under an ethical obligation not to
profit personally based on information belonging to their clients.
Without the expanded exclusion, the same government employees
who are given the responsibility to decide whether the government
should open an investigation and pursue fraud claims could profit
personally if they decide not to do so. This would create
disincentives for the government to investigate fraud and obvious
conflicts of interest. We also are concerned that criminal cases
could be jeopardized because government employee witnesses would be
subject to impeachment based on their financial interests in the
outcome of the fraud investigation.
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2. Suits based on information learned in the course
and scope of government employment: The bill's current language
does not correct a potential problem of the laundering of
governmental employees' information to others outside the
government. We urge the Committee to correct this significant
loophole by barring suits based "in whole or in part, upon
information obtained in the course and scope of federal
employment." (Substitute, Sec. 3, (e) (5) (A))
3. Continuing obligation to disclose:
The bill requires full cooperation but does not provide for the
continuing obligation of the government employee to disclose
information obtained after reporting the fraud. (Sec. 3,
(e) (6) (A) (ii) (II) This provision, as set forth in the
Substitute, is necessary to ensure that the employee does not
withhold relevant information in order to pursue a personal claim.
(Substitute, Sec. 3 (5) (A) (2)
4. Extension of 12 month period:
The bill does not allow for any extension of the 12-month period in
which the government may file suit after disclosure by the
government employee. The Substitute reduces the extension period
to 12 months upon notice to the relator. (Substitute, Sec. 3,
(e) (5) (A) (B) This extension period is necessary because it is
very difficult to predict the complexity and duration of an
investigation. A total period not to exceed 24 months is wholly
reasonable.
5. Obligation of government employees to report
fraud: We have added language to the Substitute to make clear that
notwithstanding the ability of a government employee to file suit
under section 3730 where that employee has satisfied the
requirements of the statute and is not otherwise excluded, that
nothing in the statute is intended to eliminate or lessen the
employee's independent and existing obligations to report fraud.
(Substitute, Sec. 3, (e) (5) (F)) For example, Executive Order 12674
(April 12, 1989) and federal regulations (5 C.F.R. $ 2635.101)
require that every government employee must disclose "waste, fraud,
abuse and corruption to appropriate authorities." We would expect
that the legislative history should clarify this point further.
g. Protection of Information in Support of Motions to
Dismiss: The bill does not afford the government clear protection
for its investigative information supporting its motions to dismiss
a relator. Hence, our entire investigative file can be disclosed
to a defendant, endangering a subsequent False Claims Act case. We
suggest a revision to protect against such a disclosure by keeping
the motion to dismiss and supporting information under seal. The
motion itself may be disclosed to the relator, although the court,
in its discretion and where the interests of justice require (for
instance, where disclosure of investigative information would
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compromise an active investigation or would reveal classified
information), may limit disclosure of the supporting evidence.
(Substitute, Sec. 3, (e) (6))
3.
Extension of the Investigative Period to 120 Days:
Although we appreciate the bill's extension of the investigative
period from 60 to 90 days, we would urge an increase to 120 days.
(Substitute, Sec. 2) In our experience, the 60 days is simply
insufficient to conduct the investigation required in these
typically complex, fact-intensive cases. For example, agency
Inspectors General often issue Inspector General subpoenas for
documents, or we issue Civil Investigative Demands. Depending upon
the company's compliance, the process of obtaining and reviewing
the documents can consume months. Witness interviews or testimony
pursuant to CIDs are generally also necessary, which consume
additional time. Significantly, many cases are delayed because of
the pendency of a parallel criminal investigation and premature
decisions on intervention caused by qui tam deadlines can seriously
disrupt the criminal proceeding. While 90 days is an improvement
over the current 60 day period, 120 days is not unreasonable and is
a more realistic measure of the minimal time required to
investigate a fraud case.
4. Provisions Relating to Actions Barred and Qui Tam Awards:
The bill amends $ 3730 (d) to allow 15-25% of "all of the proceeds
of the action or settlement", dropping "of the claim". (Sec. 4)
Arguably, this would allow relators to obtain shares of non-fraud
recoveries (where the government elects not to pursue the fraud
claims, but resolves them as a matter of contract).
The qui tam statute and the diversion of federal funds to the
private citizen have historically been justified by the compelling
need for information about fraud against the government. There is
no similar justification to allow the private plaintiff a share of
taxpayer dollars for providing information about a contract
dispute, where the government is entitled only to compensatory
damages (as opposed to False Claims Act multiples and penalties)
and will not be made whole if up to 30% of that must be diverted to
a relator.
5. Waiver of Private Right of Action: Given the definition
of "person" in section 5 of the bill, we do not think it is enough
to rely on the legislative history to clarify that the waiver
section deals only with private parties and is not intended to
affect the rights of the Government. We propose a change in the
language. (Substitute, Sec.4, (2) )
6. "Person" Definition: Based upon discussions with
subcommittee staff, we had understood that the relator's status
should be defined by that of the person who provided the
information. However, the bill does not amend the language
accordingly. The Substitute would preclude a third party, for
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example, recovery where the individual providing the underlying
information is otherwise barred, as would be the case if that
latter person were criminally convicted for the underlying fraud.
31 U.S.C. 3730 (d) (3). (Substitute, Sec. 6) We believe that this
should be clarified in the bill.
7. Statute of Limitations: We support the equitable tolling
of the six-year statute of limitations contained in the bill; this
provision is consistent with the law providing for equitable
tolling of fraud and other tort actions during the period when
discovery of the fraud or tort has not occurred and is also
consistent with the six-year equitable tolling of the general
contract statute of limitations in Title 28 of the U.S. Code. The
DOJ had obtained favorable case law under the pre-1986 6 year
statute of limitations to the effect that the government had 6
years from its discovery of the fraud to file suit. The 1986
Amendments essentially cut this back to allow only a 3 year tolling
period. The amendment will certainly improve the DOJ's ability to
assert the government's claims and recover our losses. We do not
object to the addition of the ten year statute of repose.
8. CID Authority: While we support the concept of amending
the CID statute to extend the Attorney General's authority to other
officials within the Department, we believe that the statute should
provide that the Attorney General's authority may be exercised not
only by an Assistant Attorney General, but officials above the
Assistant Attorney General, that is, the Associate and Deputy
Attorneys General. The Substitute accomplishes this result.
9. Retroactivity: We regret that the bill does not expressly
make the 1986 and 1988 amendments retroactive. While the district
courts have generally applied the 1986 amendments (including
increased damages and penalties, lower burden of proof, etc.)
retroactively, two courts of appeals have disagreed, and thus, the
state of the law is unclear. The amendment is necessary to make
clear Congress' intent so that additional resources are not
consumed in litigating this issue. A number of large cases are
still pending which include damages for conduct occurring pre-1986,
and millions of dollars are at stake.
The bill also makes the statute of limitations amendment
prospective only. Since the courts have held that amendments to
limitations periods are procedural and may be immediately applied,
as a matter of law this amendment can be made retroactive. Given
the extreme practical difficulty in applying two different statutes
of limitation to claims in the same case depending on whether they
arise before or after the date of the amendments, the change to the
limitations period should be made retroactive. The Substitute
makes all of the amendments retroactive.
10. Reporting: The current bill imposes an even more onerous
reporting requirement than the original S. 841. (Sec. 9). Many of
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the categories of data (e.g., nature and number of investigations
and "related proceedings" (A), and results achieved, including
"related recoveries" (F)) are so vague as to be impossible to
satisfy, and would require us to disclose nonpublic information
concerning existing investigations that would prejudice our ability
to bring False Claims Act cases based on that information. We
neither maintain nor do we have the mechanisms to collect much of
the other data listed in this section. We have drafted a reporting
provision which can be satisfied without unduly affecting our
resources adversely (Substitute, Sec. 9).
We believe the ongoing discussions that we have had with
members of the Senate Judiciary Committee have been most
productive. We look forward to working with you further on this
important bill.
Sincerely,
Sheila F. Anthony
Assistant Attorney General
Attachment
CC: Honorable Orrin Hatch
Ranking Minority Member
Honorable Howell Heflin
Chairman
Subcommittee on Courts and
Administrative Practice
Honorable Charles Grassley
Ranking Minority Member
JUL-20-94 WED 11:07
OAAG/CIVIL
FHA NO. 2025148071
P.02
REVISED 6/1/94
A BILL
TO amend chapter 37 of title 31, United States Code, relating to
false claims actions, and for other purposes.
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the "False Claims Amendments Act
of 1993".
SECTION 2. TECHNICAL AMENDMENT TO SECTION 3730 (b).
Section 3730 (b) of title 31, United States Code, is amended
by striking the number "60" whenever it appears and inserting
"120".
SECTION 3. JURISDI CTIONAL BAR FOR CERTAIN ACTIONS INCLUDING
ACTIONS BASED ON INFORMATION OBTAINED IN THE COURSE AND SCOPE OF
FEDERAL GOVERNMENT EMPLOYMENT.
Section 3730 (e) of title 31, United States Code, is
amended--
(1) by deleting subsection (e) (4) in its entirety, and
by substituting the following:
(4) The Court shall dismiss the person bringing the action
on motion by the Government and such person shall not share in
any recovery obtained under section 3730 (d) (1) if:
(i) on the date of the filing (a) there exists a filed
criminal indictment or information or an active
investigation or audit by the Government into substantially
the same matters as set out in the complaint, including an
investigation or audit into matters disclosed and accepted
into the Department of Defense's Voluntary Disclosure
Program or any other voluntary disclosure program
established by the head of an agency or department of the
United States Government, and (b) any new information
provided does not add substantial grounds for additional
recovery beyond those encompassed within the Government's
existing indictment, information, investigation or audit and
(c) the Government's indictment, information, investigation
or audit was not initiated based on information provided by
that person, voluntarily and prior to filing the action, to
the Government, or to a news media or congressional source
of the information to the Government, or
(ii) such person learned the basis for substantially all of
the material allegations contained in the action from
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(I) an active investigation or audit by the executive
branch of Government, a filed criminal information or
indictment, or a proceeding to which the Government is
a party; or
(II) a news media report, congressional hearing or
report, cr congressional investigation, if within 60
days of issuance of such news media report or
congressional hearing, or completion of such
investigation, the executive branch of the Government
commenced an active investigation or audit of the facts
contained in such hearing, report or investigation.
(2) Subsection (e) is further amended by adding the
following new subsections (e) (5) and (e) (6) --
" (5) (A) The court shall dismiss from the action the person
bringing the action on motion by the Government where the action
brought under subsection (b) is based, in whole or in part, upon
information obtained in the course and scope of federal
employment, unless all of the following has occurred:
" (1) Such person, before bringing an action--
" (i) where the employing agency has an
Inspector General, such person disclosed in
writing substantially all material evidence
and information that relates to the alleged
violation that the person possessed to such
inspector general, and notified in writing
such person's supervisor and the Attorney
General of the disclosure under this
subparagraph (a) (i) i or
"(ii) where the employing agency does not
have an Inspector General, such person
disclosed in writing substantially all
material evidence and information
that relates to the alleged violation that
the person possessed to the Attorney
General, and notified in writing the person's
supervisor of the disclosure under this
subparagraph (a) (ii) i and
"(2) Such person, before bringing the action,
disclosed to the persons set forth in (A) (1) (i) or (ii) all
material evidence and information which came to the person's
attention after the initial disclosure and fully cooperated with
the Attorney General and other officials in the Government's
investigation of the alleged violation, and
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"(3) Eighteen months (and any period of extension
as provided for under subparagraph (B) ) have elapsed since the
disclosures of information and notification under either
subparagraph (A) (1) (i) or (ii) were made and the Attorney General
has not filed an action based on such information.
(B) Prior to the expiration of the 18-month period
described under subparagraph (A) (3) the Attorney General may
provide written notice to the person who has disclosed
information and provided notice under subparagraph (A) (1) (i) or
(ii) that the Attorney General has elected to extend the 18-month
period for an additional 6 months.
"(C) For purposes of subparagraph (A) (1), a person's
supervisor is the officer or employee who--
"(i) has supervisory authority over such
person; and
"(ii) such person believes is not culpable
in connection with the violation upon which
the action under this subsection is based,
and
"(iii) is in a position of the next immediate
non-culpable supervisor of such person.
"(D) A person who is dismissed from an action under
subsection (e) (5) shall not share in any recovery under section
3730 (d) (1).
"(E) No employee of any investigatory or audit agency
of the United States Government, including, but not limited to,
an Office of Inspector General, the Defense Contract Audit
Agency, the General Accounting office, the Department of Justice,
nor persons whose responsibilities relate to contract award or
performance, nor any individual acting as an attorney for the
United States or any of its agencies shall be eligible for an
award under subsection (d).
"(F) Nothing in this Act shall derogate from the
obligation of a federal employee, imposed by law or otherwise, to
disclose fraud to the appropriate authorities.
" (6) The Government may move to dismiss an action under
subparagraph (e) (4) (i) prior to a date that is 60 days after the
complaint is unsealed and served upon the defendant pursuant to
subsection (b) (3), and later for good cause shown. The
Government may move to dismiss an action under subparagraph
(e) (4) (ii) prior to a date that is 120 days after the complaint
is unsealed and served upon the defendant pursuant to subsection
(b) (3), and later for good cause shown. Any person bringing a
civil action under subsection (b) shall be provided an
opportunity to cortest a motion to dismiss under subsection (e).
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Any motion to dismiss and supporting information shall be filed
under seal and shall not be disclosed to the defendant. The
court may, upon the Government's request, restrict the access of
the person bringing the civil action tc evidentiary materials
filed in support of a motion to dismiss as the interests of
justice require. Where a motion to dismiss is based upon
subsection (e) (5), it shall be the burden of the person bringing
the civil action tc demonstrate that all of the conditions set
forth in subparagraphs (e) (5) (A) (1) through (3) have occurred.
SECTION 4. PROVISIONS RELATING TO DISMISSAL, PRIVATE WAIVER OF
RIGHT OF ACTION AND RELATOR'S SHARE.
Section 3730 of title 31, United States Code, is amended--
(1) in subsection (b) (1) by striking the last sentence
and substituting the following: "An action brought under this
section, including an action in which the United States has
declined to intervene, may be dismissed only if the court and the
Attorney General give written consent to the dismissal and their
reasons for consenting."
(2) and by further amending subsection (b) (1) by
adding the following at the end thereof: "A private person may
waive or release a right of action under this subsection (b) only
as part of a court approved settlement of a civil action brought
under this section. ";
(3) in subsection (d) (1) --
(A) in the first sentence--
(i) by striking out subject to the second
sentence of this paragraph,' and
(B) in the third sentence by striking out "or the
second sentence"; and
(C) by striking out the second sentence and
substituting therefore the following: "If the
person bringing the action is not dismissed under
subsection (e) (4) (i) because the person provided
new information that adds substantial grounds for
additional recovery beyond those encompassed
within the Government's existing indictment,
information, investigation or audit, then such
person shall be entitled to receive a share,
pursuant to the first sentence of this paragraph,
only of proceeds of the action or settlement that
are attributable to the new basis for recovery
that is stated in the action brought by that
person."
SECTION 5. WHISTLEBLOWER PROTECTION.
Section 3730 (h) of title 31, United States Code, is
amended--
(1) by striking out "(h) and inserting in lieu thereof
"(h) Whistleblower Protection. -- (1) and
(2) by adding at the end thereof the following new
paragraphs:
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" (2) (A) In any action brought by an employee under
paragraph (1), the employee shall be entitled to relief if, based
upon a preponderance of the evidence, the employee demonstrates
that a lawful act described under paragraph (1) was a
contributing factor in the action by the employer against the
employee that is alleged in the complaint.
"(B) Notwithstanding subparagraph (A), an employee who
brings an action under paragraph (1) shall not be entitled to
relief if the employer demonstrates by clear and convincing
evidence that the employer would have taken the same action
against the employee in the absence of the lawful act
that was a contributing factor described in subparagraph (A) .".
" (3) For purposes of this subsection, the term "employer"
includes any defendant in an action brought under section 3729,
but does not include the United States Government."
SECTION 6. DEFINITION OF PERSON.
Section 3730 of title 31, United States Code, is further
amended by inserting at the end thereof the following new
subsection:
" (i) Definition. For purposes of this section, the term
'person' means any natural person, partnership, corporation,
association, or other legal entity, including any State or
political subdivision of a State. The rights of any person under
this section shall be the same as those of the natural person
providing the information underlying the action.
SECTION 7. STATUTE OF LIMITATIONS.
Section 3731(b) of title 31, United States Code, is amended
to read as follows:
" (b) (1) A civil action under section 3730 may not be
brought more than 6 years after the date on which the violation
of section 3729 is committed.
" '(2) For the purpose of computing the period described
under paragraph (1), there shall be excluded all periods during
which facts material to the right of action are not known and
reasonably could not be known by the official of the United
States charged with the responsibility to act in the
circumstances."
SECTION 8. AUTHORITY TO ISSUE INVESTIGATIVE DEMANDS.
Section 3733 of title 31, United States code, is amended--
(1) in subsection (a) (1) in the matter following
subparagraph (D), second sentence, by striking ",
the Deputy Attorney General, or an Assistant
Attorney General";
(2) in subsection (h) (€) by striking out ", the Deputy
Attorney General, or an Assistant Attorney
General";
(3) by inserting at the end thereof the following new
subsection:
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" (m) The authority of the Attorney General in
this section 3733 may be exercised by the Deputy Attorney
General, the Associate Attorney General, or an Assistant Attorney
General."
SECTION 9. ANNUAL REPORT.
Section 3730 of title 31, United States Code, is further amended
by inserting at the end thereof the following new subsection:
"(j) ANNUAL REPORT. -- No later than 6 months after the date
of the enactment of this Act, and at the end of each fiscal
year thereafter, The Department of Justice shall report to
the Committee on the Judiciary of the Senate and the
Committee on the Judiciary of the House of Representatives
concerning --
(A) the number of qui tam actions brought for
violations of section 3729;
(B) the number of qui tam actions brought for
violations of section 3729 in which the Government has
elected to proceed;
(C) the number of qui tam actions brought for
violations of section 3729 in which the Government has
elected not to proceed;
(D) the total amount of recoveries obtained for
violations of section 3729 in qui tam actions;
(E) the amount of recoveries obtained for violations
of section 3729 in qui tam actions in which the
Government elected not to proceed;
(F) the amount awarded to persons pursuant to section
3730.
SECTION 10. APPLICABILITY AND EFFECTIVE DATE.
This Act shall apply to all cases pending on the date of
enactment, and to all cases filed thereafter. All other
amendments to the False Claims Act since 1986, to the extent they
are not repealed by this Act, shall apply to all cases pending on
the date of enactment of this Act, and to all cases filed
thereafter, including the following: Pub. L. No. 99-562, §§ 1-
6(a), Oct. 27, 1986, 100 Stat. 3153; Pub. L. No. 100-700, §9,
Nov. 19, 1988, 102 Stat. 4638; Pub. L. No. 101-280, $ 10(a), May
4, 1990, 104 Stat. 162.
JUL-20-1994
5.6/12
Hnited States Senate
WASHINGTON, 00 80610-0204-
February 2. 1994
Honorable Joseph R. Biden, Jr.
Chairman, Committee on the Judiciary
United States Senate
224 Dirkson Office Building
Washington, DC 20510
Dear Mr. Chairman:
In response to several constituents with whom I met in California over the recess,
I have written to Senator Clrasaley (letter attached) requesting that he and 1 work together,
and with Sen. Heflin, to address possible further changes to 9. 841, the Fulse Claims
Amondments Act of 1993.
It is my hope that the issues raised in my letter can be resolved prior to
consideration of the bill by the full Judiciary Committee. In the event that is not possible,
however, 1 wanred you to be aware that I may elect to circulate and offer amendments to
the bill at the Executive Meeting at which it is ultimately considered.
Please feel free to call me directly regarding this legislation. or to put your staff in
touch with Adam Eisgrau, my Committee counsel, at 224-3918.
Sincerely,
Disnue Feinstein
United States Sensior
Attachment
P.7/12
United: States:
WASHINGTON BU
February 2. 1994.
Honorable Charles E. Grassley
United States Senate
135 Hart Office Building
Washington, DC 20510
Dear Senator Grassley:
While in California over the winter recess, I had the opportunity to speak with a
number of constituents involved in both the contracting and citrus communities regarding
S. 841, your "False Claims Amendments Act of 1993." The legislation, Tm pleased to
say, is generally highly regarded in those quarters. Both industries, however, asked that
I carefully review it and work with you to address, if possible, a number of their
remaining concerns.
First, as you know from your work in the Courts Subcommittee this fall, sitrus
growers believe it important to clarify that the False Claims Act was not and is not
intended to encompass "reverse hypothetical claims" arising under agricultural marketing
orders. They seek the same clarification in the Senate provided by the House in the 102d
Congress.
I believe that the statute should be clarified in this regard and can be narrowly
modified without undermining its philosophical integrity. Rather than offer an amendment
to the bill in an Executive Meeting, however, I would prefer to work with you to develop
mutually acceptable language in the newr term.
Second, a number of major government-contractors believe that the False Claims
Act needs to be strengthened in several respects not accomplished by S. 841, the
substitute legislation crafted by the Courts Subcommittee. Specifically, their continued
concerns relate to:
(1)
the ability of government employees outside the Department of Justice and
Inspector Generals' offices to file false claims actions;
(2)
the degree to which courts may reduce the recovery of relators who
participate is fraud; and
(3)
suits brought by relators which raise the same issues as those presented by
information already voluntarily disclosed to the government by defendants.
or otherwise known.
Hon. Charles E Grassley
February 2. 1994
Page Two
Because I do not yet know enough about the intent and potential Impact: of the
changes to your legislation proposed by the contractors' confition, 1 take:no-position-on:
the merits of their requests at this time. I am auger, however: to accept your invitation
to talk together and look forward to our meeting. Adam Eirgrau, my Judislary counsel,
will continue to work with your staff to assure that I have all the material that 1 need to
make that an informed discussion.
In the interim, thank you again for your courteous and generous offer to defer-
consideration of S. 841 until the next Judiciary Committee Executive Meeting after
February 3rd.
Sincerely,
Diagns Feinstain
United States Senator
co:
Chairman Joseph R. Biden, Jr.
Committee on the Judiciary
Chuck,
Chairman Howell Heflin
Subcommittee on Courts &
Lei me Know, at
Administrative Practice
Committee on the Judiciary
you wide to meet
your convinience, when
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Hinited States Senate
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884-4021
WASHINGTON, BC 20810-4608
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Via
1 February 1994
The Honorable Joseph Biden
Chaircan
Committee on the Judistary
United States Senate
Washington, DC 20510
Dear Mr. Chairman:
We are writing to you regarding S. 841, a bill recently reported favorably by the
Senste Subcommittee on Courts and Administrative Practice, which would make certain
changes in the qui tem provisions of the Federal Civil False Claims Ace We are sware
that this bill has been placed CB the full Committee agenda for mark-up on Thursday.
As members of the Armed Services Committee, who represent many federal
employees and government contractors, WE are very interested to tits topic It has
important implications for detecting and receivering damages resulting from fraud. We
are aware of many concerns with the proposed reforms of the Committee substitute. It
is in the best interests of all to reach u workable comprumise before the bill
reaches she Senuts Door. We would vary much like the opportunity to explore same
unresolved issues to party derail and would respectfully nek that you hold off
temporarily on any further action on the bill
We understand that reform of the cui lam provisions are necessary and want to
work with you and Senstor Grassley on this issue to find a satisfactory compromise.
We appreciate your time and consideration in this maner.
Sincerely,
Charletter
DoCoration Bob Graham
Charles S. Robb
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February 1, 1994
The Monorable Senator Joseph Biden, It,, Chairman
The Honorable senator Orrin Hatch, Ranking Minority Member
Consittee on the Judiciary
United states Senate
Washington, D.C. 20510
Dear Joe and Orrin:
we understand that in the near future the Judiciary
Committee will consider S. 841, a bill to make certain changes in
the qui tare provision of the Federal Civil False Claims Act.
Because this issue has an important impact on the federal
acquisition process, we would like to share our views with you at
this time.
As you know, the Administration has emphasized the
Importance of acquisition reform legislation 08 a key element of
the "reinventing government initiative. We have been urged by
representatives of both the public and private sectors to include
qui tam reform in the legislation. In view of the initiatives
that have been undertaken by the Judiciary Committee, however. 15.
would be our preference to work with you in developing
appropriate changes to the legislation. Accordingly, we
respectfully request that you consider the following
recommendations. These recommendations are based upon our view
as to how best 50 fulfill the purposes of the qui tam provisions
in the context of comprehensive acquisition reform.
First, we are concerned about the relationship between qui
tam and voluntary disclosure. Under the current law, even when
companies make voluntary disclosures of possible wrongdoing under
a formal government voluntary disclosure program, qui tam suit
may still be filed covering the same information as provided in a
voluntary disclosure. In such circumstances, . qui tam relator
could recover one quarter of the money due CO the government.
This means that funds due to the maxpayers would be diverted to A
private individual even though the information was initially
disclosed by a company, rather than the Individual. The
legislation should make it clear that such a recovery is not
authorised.
Second, we are concerned about the fact that the current law
has been interpreted to permit employees to lile suits based on
information gained through their government employment. Public
officials OWN their loyalty to the government. There are
significant opportunities for individuals to disclose information
about fraud, waste, and abuse to the Inspector General, the
General Accounting Office, and Cohgress. The very large
financial rewards available in qui tam suits gives government
employees a significant incentive to not report matters to
appropriate government officials in order to pursue the matter
for private gain. Permitting a government employee to receive s
bounty as & qui can relator is double payment for the same
services, since the government employee has already received his
government pay for properly acting on information as to possible
fraud he may receive. We should put a complete end to qui tard
suits by government employees when they gain the information for
the suit from their government employment.
Third, we are concerned about the relationship between the
False Claims Act and the Contract cisputes Act. Under the
Contract Disputes Act, disputes batween the Government and
contractors are resolved in I specialized forum .. either the
Court of Federal Claims or an agency board of contract appeals.
when a False Claims Act case is filed, however, the matter,
including any related contract dispute, goes solely to 8 Federal
district court. we urge you to provide an appropriate means for
removing contract dispute matters to the Court of Federal Claims
DE the agency boards of contract appeals.
Fourth, we are concerned that under present law, an active
participant in d fraud scheme can receive a full qui tam reward.
Federal courts should be given the discretion to reduce the
reward earned by 4 qui tam relator when the relator participated
in the fraud.
we urge you to take there concerns into account prior to
reporting any legislation concerning the qui tam provisions of
the False Claims Act. We appreciate your consideration of our
views.
sincerely,
M.Dia Jeff Singamen
Bob Smith
Bob Smith
Challman
Ranking Member
Subcommitts on Defense
Subcommittes on Defense
Technology, Acquisition
Technology, Acquisition
and Industrial Base
and Industrial Base
CHARLES S. ROBB
VIRGINIA
ARMED SERVICES
WASHINGTON OFFICE
COMMERCE SCIENCE
Russell Senzie Office Building
AND TRANSPORTATION
Flest and Constitution Avenue. NE. Room 483
United States Senate
FOREIGN RELATIONS
Washington DC 205:0
Chairman Can ALW and
(202) 224-4024
WASHINGTON. DC 70510-4503
Pacific Affeirs Suree -
JOINT ECONOMIC COMMITTI
9 June 1994
Visa Che-mar.
Democratic Parkey Commiso
The Monorable Joseph Biden
Chairman
Committee on the Judiciary
United States Senate
Washington, DC 20510
Dear Mr. Chairman:
We are writing regarding S. 841, a bill under consideration
by your Committee, which would make certain changes in the qui
tan provisions of the Federal Civil Faase Claims Act (FCA). We
would like to take this opportunity to bring a few of our
concerns to your attention as the full Judiciary Committee
considers FCA reform in the context of S. 841.
AS you are aware, this matter was carefully considered in
the report of the Section 800 Panel, a group of distinguished
government procurement authorities that was statutorily created
by PL 101-510, the FY93 Defense Authorization bill.
In addition to recommendations on acquisition reform, the
Section 800 Panel made important suggestions regarding needed
changes in FCA. It is our hope that we can come up with a
compromise on FCA reform which incorporates some of the Panel's
recommendations.
It is our understanding that the Department of Justice (DOJ)
is now circulating its own draft of proposed changes to the qui
tam provisions. While the DOJ draft recognizes some of the
concerns of the Section 800 Panel, we believe that its
recommendations can be improved. Major concerns with the DOJ's
proposals remain:
Any bar on gui tem suits following a voluntary
disclosure should be jurisdictional, not based on a
government motion alone; and such a bar should operate
when the disclosure is made;
The categories of government employees who cannot file
suit is too narrow; it should include government
employees involved in investigations, audit, or
contractor oversight;
the Office:
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FOR 310-2006
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FAX NO. 2025148071
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Page Two
The Honorable Joseph Biden
The proposed standard for lowering the reward for
dilatory relaters should not be subjective, as the DOJ
draft suggests. It basis its judgement on a relator's
state of mind. An objective standard, such as "with
the effect of increasing damage to the government,"
would be much easier for a court to apply;
The DOJ draft does not grant discretion for courts to
reduce remedies for relaters who participate in frauds;
the conduct of such relaters should be subject to the
same review as the DOJ would provide for dilatory
realtors;
The period of time for government reaction to a public
disclosure of possible fraud (sixty days) is too short;
The Section 800 Panel concerns related to potential
disproportionate penalties under certain circumstances
and the need to maintain integrity of the Contract
Disputes are not addressed at all in the DOJ proposals.
we are interested in finding sound and equitable compromises
on these issues and are prepared to work with your Committee to
reconcile our concerns with the legislation. We would like to
work with you to obtain the best possible legislation in this
important area.
Sincerely,
Clink Roll
BobGraton
Charles S. Robb
Bob Graham
FAX NO. 2025148071
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FAX NO. 2025148071
P.02
U.S. Department of Justice
PATED
Civil Division
Office of the Assistant Attorney General
Wushington, D.C. 20530
July 15, 1994
VIA FACSIMILE
(202) 456-1647
Mr. Stephen Neuwirth
Associate Counsel to the President
old Executive Office Building, Room 128
Washington, D.C. 20501
RE: False Claims Amendments - Letter to Senator Biden
Dear Stephen:
This letter will confirm the meeting for next week on
Thursday, July 21, 1994, at 3:00 p.m. to discuss the
Administration's policy concerning the pending Amendments to the
False Claims Act. This meeting, of course, is subject to being
rescheduled should conflicts arise for certain participants.
In reviewing the proposed letter to Senator Biden setting out
the Administration's position, I realized that the statistics set
out in the second paragraph of the second page were outdated. I
have amended this paragraph to reflect the updated statistics.
Otherwise this letter should be identical to the last draft.
Attached is the updated draft.
sincerely
George J. Phillips
Counselor to the
Assistant Attorney General
Enclosure
CC: Jeremy Ben-Ami - VIA FACSIMILE (202) 456-7028
Ingrid Schroeder - VIA FACSIMILE (202) 395-3109
Stephen Preston - VIA FACSIMILE (703) 693-7278
Frank W. Hunger
Robert Brink
Amy Jeffress
Faith Burton
JUL-15-94 FRI 17:32
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FAX NO. 2025148071
P.03
U.S. Department of Justice
Civil Division
Office of the Assistant Attorney General
Washington. D.C. 20530
DRAFT
CONFIDENTIAL
Revised 7/15/94
2013-0854-5
DETERMINED TO BE AN
Honorable Joseph R. Biden, Jr.
Chairman
ADMINISTRATIVE MARKING
Committee on the Judiciary
INITIALS: MA DATE: 8/16/13
United States Senate
Washington, D.C. 20510
Dear Mr. Chairman:
This provides the Department's views on S. 841, the False
Claims Amendments Act of 1993, as reported by the Subcommittee on
Courts and Administrative Practice. The Department supports the
Act's goal of facilitating qui tam litigation to further augment
the Government's war against fraud. We and the staff of the
Subcommittee on Courts and Administrative Practice have been
engaged in productive and worthwhile discussions aimed at reaching
a consensus on this legislation. Our discussions have been
productive, and we have candidly exchanged ideas to refine the
areas of agreement and disagreement. We believe that those
discussions have produced a markedly improved bill.
At the outset, let me reiterate this Administration's strong
commitment to an effective and vigorous qui tam mechanism. In a
clear break with the policies of previous Administrations, we have
made a concerted effort to recognize the significant contribution
of relators and whistleblowers to the Government's fight against
fraud. We have encouraged the Department's litigators to make
every effort to work cooperatively with relators to maximize the
Government's recovery. We have scrutinized the legal arguments
advanced to ensure that, in protecting the government's recoveries,
we do not impair the incentives which are necessary to ensure that
relators come forward, especially in light of the large personal
hardships many must endure in bringing these suits. The Department
and its client agencies have dedicated enormous resources to the
investigation and prosecution of these cases.
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Our success in acquiring the evidence to support these cases
and in litigating them has been noteworthy. Ultimately our
aggressive involvement -- through investigation, litigation and
negotiation -- is the most important incentive for relators,
because when we succeed, they share in that success. As a result
of the 1986 amendments to the False Claims Act, the most important
factors in determining the outcome of these cases are the
government's active involvement in the development of the
investigation, its resolution of cases before a formal election is
made, and its decisions to intervene in matters and prosecute cases
on behalf of the government and the relator.
of the approximately $697 million recovered in qui tam actions
since the enactment of the amendments to the Act in 1986, about
$688 million (almost 99% of the total) has been recovered in cases
which the Department of Justice pursued, by negotiating a
settlement prior to intervention or obtaining a settlement or
judgment after it intervened and prosecuted the case. To date, in
fiscal year 1994, the Department of Justice is on the verge of
recovering a record breaking $1 billion in False Claims Act cases.
So far in fiscal year 1994, $278 million of the recoveries have
come from qui tam actions. This follows a record breaking year in
1993 when the Department recovered $372 million in settlements and
judgments in civil fraud cases, of which $180 million was obtained
in qui tam cases. These results reflect the resources which the
government has devoted to these cases, including the 43, 112
attorney hours which just the Civil Division of the Department of
Justice devoted to qui tam suits in 1993. This allocation of
attorney resources was augmented by the vast array of other
government personnel involved in these cases, including prosecutors
and civil attorneys in the Offices of the United States Attorneys,
and investigative, audit, and program personnel throughout the
government's agencies.
In addition to the Administration's demonstrated resolve to
give these cases the highest priority, in our discussions on
pending legislation we have made two significant changes in the
policies of the last Administration. First, we have agreed that
motions to dismiss relators based upon the source of relators'
information should be made only by the government. This is a major
gain for relators. Under the current law, motions to dismiss on
this basis can be made by defendants. In fact, as the current case
law reflects, almost all of the relators who have been dismissed on
this basis have been dismissed on motions made by defendants, not
by the government.
We believe that the decision whether a relator should be
allowed to participate in a suit and share in the recovery is a
matter that is of primary concern to the government, and that,
accordingly, it is the government that should decide whether such
a motion should be made, based upon the statutory criteria. Under
current law, defendants have too often made these motions simply as
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a routine litigation tactic to increase the expense and time
required for a relator to bring these suits. We have agreed that
this weapon needs to be removed from the defendant's arsenal. In
doing so, we will measurably increase the incentives for relators
to bring qui tam actions.
Second, we have agreed for the first time that most government
employees should be allowed to bring qui tam suits as long as they
follow the reporting procedures provided and the government is
given a reasonable amount of time to act on the fraud first. This
is a major reversal of the previous Administration's opposition to
government employees bringing suit under any circumstances.
We believe, however, that there are certain classes of
government employees whose duties are so integral to the decision
making process in a fraud investigation that it is important to
ensure that their decisions are made solely on the basis of the
public's interest. and that there be no taint of personal financial
motivations. This policy concern is acknowledged in the pending
legislation which prohibits qui tam suits by government employees
who work for the Department of Justice and the Inspector General's
Offices of the various agencies. We believe that this bar needs to
be expanded to other limited classes of government employees who
play an equally integral role in these decisions.
We believe that the Department's willingness to reverse the
positions of previous Administrations on the two major issues
discussed above amply demonstrates our agreement with the sponsors
of this legislation on the overall goal of strengthening the
ability of the government and private citizens to fight fraud
against the government. There are certain aspects of the pending
legislation, however, which we. believe should be modified to
improve the statutory qui tam process.
The qui tam provisions create a mechanism by which private
citizens may not only assert claims against those who defraud the
government, but also effectively assert monetary claims against the
United States Treasury. The Department must assess and
occasionally challenge these claims. A major component of the
statutory scheme of the False Claims Act is to provide private
financial incentives to individuals to bring these actions. While
the interests of the United States in these actions obviously are
at odds with those of defendants, they are also sometimes
unavoidably in conflict with the private financial interests of the
relators as well. While we are committed to working with and
minimizing conflict with qui tam relators, it must be remembered
that in the end only Department of Justice attorneys are legally
and ethically charged with protecting the interests of the United
States. Some of the provisions included in the pending legislation
should be amended to better ensure that the interests of the
taxpayers of the United States are kept paramount.
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Pursuant to our discussions with the Subcommittee, we prepared
a substitute bill that proffered certain changes to the
Subcommittee's draft proposal. We attach that substitute
("Substitute") (Attachment A), for your consideration and urge its
adoption in lieu of S. 841.
1. Government Right to Dismiss Certain Actions:
We are particularly concerned with the amendment to the public
disclosure bar (Sec. 3). We completely agree with the primary
legislative goals that: 1) only the government may move to dismiss
relators who have brought parasitic suits; and 2) such motions
should be filed early to conserve time and money by relators whose
cases will be dismissed SO that other relators will be encouraged
to come forward. Other provisions of the bill will have the
opposite effect, however, and will undermine these goals: they
will símultaneously discourage relators from coming forward, and
will unnecessarily deplete the Treasury by paying rewards to
individuals when the government would have taken action without a
qui tam suit.
Under the bill in its current form, a relator could file suit
and recover even if the relator had contributed nothing to an
ongoing and active government investigation or audit of the same
matter. Dismissal of the relator would be allowed only if the
relator "first learned" all or substantially all the information
from a governmental investigation or from the news media. (Sec. 3,
(e) (6) (A) (i)) ) This provision unnecessarily disadvantages the
government, and thus the taxpayer, in the recovery process. The
government may be put in the unfair position of having to split the
recovery with a private relator who has not contributed anything to
the case. 1 We urge the Committee to adopt language that would bar
1 To illustrate, suppose that the government commences an
investigation of a government contractor based on a tip, and that
investigation proceeds as the government gathers evidence of
fraud. The government prepares to indict and file suit against
the company. However, before it is prepared to do so, either a
news report is published discussing the government's allegations
or the existence of the government's investigation otherwise
becomes known (neither is an uncommon scenario where large
contractors are under investigation). John Doe, who worked at
the company and was aware of the wrongdoing when it occurred (but
never reported it to the government) becomes aware of the
investigation and realizes he can file a qui tam suit, charging
the very same allegations as those already being investigated.
He would not be dismissed under the bill because he did not
"first learn" of the allegations from the investigation. Yet
this opportunistic relator has in no manner contributed to the
government's prosecution of the fraud.
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recovery in this situation, regardless of where the person derived
the information, as suggested in the substitute bill.2
One specific example of such noncontributing suits is the qui
tam action that virtually mirrors a company's voluntary disclosure
to the government. Our proposed revision bars an action where
substantially the same matters have been disclosed and accepted
into an established voluntary disclosure program and are the
subject of an active investigation or audit. These actions, which
do nothing more than make the very allegations that a company has
already disclosed and that the government is pursuing through an
existing enforcement mechanism, add nothing to the government's
anti-fraud effort.
We also suggest additional language at Sec. 3 (e) (4) (i) to
protect relators who bring valuable new information to the
government's active investigation or audit, which significantly
increases the government's recovery. Such a relator should be
authorized to recover where the new information provides
substantial grounds for additional recovery beyond those
encompassed within the Government's existing indictment,
information, investigation or audit. (Substitute, Sec. 3,
(e) (4) (i) ) The Substitute limits the relator's recovery to the
"proceeds of the action or settlement that are attributable to the
new basis for recovery that is stated in the action brought by that
person." (Substitute, Sec. 4, (3) (c)) These safeguards would also
apply to qui tam actions which go beyond the matters revealed in a
company's voluntary disclosure. Thus, where the qui tam action
alleges that the voluntary disclosure itself is false or fraudulent
or the action provides additional facts that are not substantially
the same as those disclosed, such a case would not be subject to
dismissal under this section.
Additionally, we are concerned that the bill does not protect
the person who reports fraud to the government before filing a qui
tam suit, while permitting suits by other relators who file suit
first but add nothing to the government's knowledge. We would
correct this oversight with language to permit the relator who
alerted the government to file suit, even if the government, as a
result of the publicity of the fraud from the Congress or the news
media, opens an investigation first. (Substitute, Sec. 3,
(e) (4) (i))
2 In our view, mere information in the government's
possession should not bar a qui tam suit. If the government was
not utilizing that information in an active investigation or
audit or had closed its consideration of a matter, a qui tam suit
should be permitted. Ultimately, it would be up to the court to
decide if the government's investigation was sufficiently active
to bar the relator's suit.
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Thus, the Department proposes language to better accomplish
several goals underlying this legislation. First, this language
would reward those who are sources of information in the first
place and voluntarily provide it to the Department or to a media or
congressional source before they file a case. Second, our language
would encourage those with information about fraud to report it to
the government promptly, thus advancing the taxpayers' interests
and maximizing our ability to develop and prosecute these cases.
Without this encouragement, we are concerned that individuals would
wait to file their own lawsuits instead of coming forward, relying
on the argument that they did not "first learn of" the allegations
as a result of the investigation but on their own. Third, it has
been our experience that many relators and counsel find it in their
interest to report their information to the government before they
file to facilitate a working relationship and to validate the
information. We think that the bill in its present form will
discourage this process entirely, because it would allow witnesses
who learn of the investigation to recover and displace the original
source from recovery if they beat the original source to the
courthouse door in filing these suits.
2. Other Aspects of Dismissal Provision:
a. Court's Dismissal: We believe that as currently
drafted, the bill would improperly allow the court to exercise
discretion in deciding whether or not to dismiss actions under
(e) (6) (A) (where the relator obtained substantially all of the
allegations from a government investigation or the news media or
Congress). The bill should explicitly state that the court "shall
dismiss" the actions under these circumstances.
b. Period to Move to Dismiss the Relator: We have
agreed to limit the ability to file motions to dismiss the relator
to the government, eliminating the possibility of defendants moving
to dismiss. However, the 90 day period within which the government
could file such a motion is insufficient. We understand that it is
preferable for the motions to be filed early in the lawsuit rather
than later, after the relator has participated in the suit.
However, we urge the Committee to adopt a more workable limitation,
as set forth in the Substitute, so that the government will have an
opportunity to acquire essential evidence regarding the relator's
status, e.g., whether the relator learned of the information from
an active investigation, and, if not, whether he otherwise can
proceed as a relator. Either investigation or discovery, or both,
will be necessary. Such a procedure causes no prejudice because,
during the early stage after filing a qui tam case, the relator
typically does not invest significant resources in the litigation.
Moreover, the Department's time and limited resources
following the filing of the complaint should be used to investigate
whether the defendant has committed a fraud and whether the
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government should intervene. Once those decisions are made, the
government then can turn its attention to determining whether a
motion to dismiss the relator is appropriate.
C. Basis for Dismissal: The current language of the
bill would bar only relators who learned substantially all of the
facts underlying the material allegations from active
investigations or the news media. We suggest additional language
to extend the bar to those who learned the "basis" for those
allegations from the public sources listed. This is meant to
clarify that relators' attorneys who simply fashion their claims in
legal language that differs from that used by perhaps non-lawyer
government investigators (or made public by non-lawyer reporters)
cannot avoid the bar if the basis for those claims was learned from
those sources. (Substitute, Sec. 3 (4) (ii)) We urge you to include
this language.
d. "Fraud" Investigation: In its present form, the bill
would bar suits only where the relator learned of the facts from an
active and ongoing "fraud" investigation, which is an unduly narrow
provision. Investigations cannot be easily labeled "fraud"
investigations at the early stages -- we investigate allegations
that could give rise to a finding of fraud, depending upon the
evidence developed. The touchstone should be whether a-government
inquiry into the matters alleged in the qui tam suit is pending,
whether or not that inquiry is termed a "fraud" investigation.
Similarly, although the current language does not include
"audit", the government's inquiry into allegations of fraud
typically begin with a government audit. Whether a particular
government action is called an "audit" or an "investigation" is
often just a matter of nomenclature. Audit action without any
separate inquiry termed an "investigation" often constitutes the
entire basis for a False Claims Act case. Thus, an active audit is
government action on the matter just as an investigation is
government action (and, under the Substitute as well as the Senate
bill, if the government does not take action and the audit is
closed, a qui tam suit can be filed). We urge the Committee to add
"audit" to the existing language in section (6) (A) (i) (I), as does
the Substitute.
e. Proceedings to which the government is a party:
Section 3 of the bill does not bar the relator who derives his
information from a filed criminal indictment or information or
other proceedings to which the United States is a party. This bar
is necessary because there may be no formal investigations pending
once criminal charges have been filed, even though the Government
intends to proceed civilly once the criminal action is concluded.
Moreover, a relator who derives his information from the
government's proceeding but adds nothing to the government's case,
has no legitimate basis for recovery. We suggest language to
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address this oversight. (Substitute, Sec. 3, (e) (4) (i) (a) and
(e) (4) (ii) (I)
f. Government Employees:
1. Exclusions of certain employees. As mentioned
above, under the bill, only DOJ employees and employees of the
Offices of Inspectors General are barred from becoming relators.
(Sec. 3, (e) (6) (c) This exclusion category should also cover
federal employees whose responsibilities include the detection and
investigation of fraud (investigators, auditors, agency contracting
personnel and attorneys), as set forth in the Substitute at Sec.
2 (5) (E). These employees are not confined to the Offices of
Inspectors General but include auditors who are charged by law with
the responsibility of auditing for potential fraud and abuse. For
instance, the Defense Contract Audit Agency audits both DOD
procurements and selected agencies' contracts, has subpoena
authority as well as document inspection authority pursuant to
contract, and conducts audits of government contracts, contract
proposals, and other contract actions. DCAA, furthermore, is
charged with the responsibility to report suspected fraud to the
Office of Inspector General. Similarly, the General Accounting
Office is charged broadly by statute to investigate "all matters
relating to the receipt, disbursement, and use of public money" and
assist the Congress in obtaining information about federal
expenditures. 31 U.S.C. $ 712.
The Substitute would also exclude agency contracting personnel
from those eligible to file qui tam suits. Contracting personnel
are the employees who are the most familiar with the award and
administration of a contract, and thus often the government
employees most familiar with a contractor's practices, including
its negotiations, charging of costs, and production or delivery of
the procured items or services. Thus, they are among those most
likely to uncover procurement fraud and be responsible for deciding
to initiate fraud investigations. Likewise, attorneys employed by
government agencies also are charged with the responsibility to
pursue, and to refer to the Department of Justice, allegations of
fraud in connection with government contracts and programs.
Attorneys, of course, are also under an ethical obligation not to
profit personally based on information belonging to their clients.
Without the expanded exclusion, the same government employees
who are given the responsibility to decide whether the government
should open an investigation and pursue fraud claims could profit
personally if they decide not to do so. This would create
disincentives for the government to investigate fraud and obvious
conflicts of interest. We also are concerned that criminal cases
could be jeopardized because government employee witnesses would be
subject to impeachment based on their financial interests in the
outcome of the fraud investigation.
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2. Suits based on information learned in the course
and scope of government employment: The bill's current language
does not correct a potential problem of the laundering of
governmental employees' information to others outside the
government. We urge the Committee to correct this significant
loophole by barring suits based "in whole or in part, upon
information obtained in the course and scope of federal
employment." (Substitute, Sec. 3, (e) (5) (A))
3. Continuing obligation to disclose:
The bill requires full cooperation but does not provide for the
continuing obligation of the government employee to disclose
information obtained after reporting the fraud. (Sec. 3,
(e) (6) (A) (ii) (II) This provision, as set forth in the
Substitute, is necessary to ensure that the employee does not
withhold relevant information in order to pursue a personal claim.
(Substitute, Sec. 3 (5) (A) (2))
4. Extension of 12 month period:
The bill does not allow for any extension of the 12-month period in
which the government may file suit after disclosure by the
government employee. The Substitute reduces the extension period
to 12 months upon notice to the relator. (Substitute, Sec. 3,
(e) (5) (A) (B) ) This extension period is necessary because it is
very difficult to predict the complexity and duration of an
investigation. A total period not to exceed 24 months is wholly
reasonable.
5. Obligation of government employees to report
fraud: We have added language to the Substitute to make clear that
notwithstanding the ability of a government employee to file suit
under section 3730 where that employee has satisfied the
requirements of the statute and is not otherwise excluded, that
nothing in the statute is intended to eliminate or lessen the
employee's independent and existing obligations to report fraud.
(Substitute, Sec. 3, (e) (5) (F)) For example, Executive Order 12674
(April 12, 1989) and federal regulations (5 C.F.R. $ 2635.101)
require that every government employee must disclose "waste, fraud,
abuse and corruption to appropriate authorities." We would expect
that the legislative history should clarify this point further.
g. Protection of Information in Support of Motions to
Dismiss: The bill does not afford the government clear protection
for its investigative information supporting its motions to dismiss
a relator. Hence, our entire investigative file can be disclosed
to a defendant, endangering a subsequent False Claims Act case. We
suggest a revision to protect against such a disclosure by keeping
the motion to dismiss and supporting information under seal. The
motion itself may be disclosed to the relator, although the court,
in its discretion and where the interests of justice require (for
instance, where disclosure of investigative information would
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compromise an active investigation or would reveal classified
information), may limit disclosure of the supporting evidence.
(Substitute, Sec. 3, (e) (6))
3. Extension of the Investigative Period to 120 Days:
Although we appreciate the bill's extension of the investigative
period from 60 to 90 days, we would urge an increase to 120 days.
(Substitute, Sec. 2) In our experience, the 60 days is simply
insufficient to conduct the investigation required in these
typically complex, fact-intensive cases. For example, agency
Inspectors General often issue Inspector General subpoenas for
documents, or we issue Civil Investigative Demands. Depending upon
the company's compliance, the process of obtaining and reviewing
the documents can consume months. Witness interviews or testimony
pursuant to CIDs are generally also necessary, which consume
additional time. Significantly, many cases are delayed because of
the pendency of a parallel criminal investigation and premature
decisions on intervention caused by qui tam deadlines can seriously
disrupt the criminal proceeding. While 90 days is an improvement
over the current 60 day period, 120 days is not unreasonable and is
a more realistic measure of the minimal time required to
investigate a fraud case.
4. Provisions Relating to Actions Barred and Qui Tam Awards:
The bill amends $ 3730(d) to allow 15-25% of "all of the proceeds
of the action or settlement", dropping "of the claim". (Sec. 4)
Arguably, this would allow relators to obtain shares of non-fraud
recoveries (where the government elects not to pursue the fraud
claims, but resolves them as a matter of contract).
The qui tam statute and the diversion of federal funds to the
private citizen have historically been justified by the compelling
need for information about fraud against the government. There is
no similar justification to allow the private plaintiff a share of
taxpayer dollars for providing information about a contract
dispute, where the government is entitled only to compensatory
damages (as opposed to False Claims Act multiples and penalties)
and will not be made whole if up to 30% of that must be diverted to
a relator.
5. Waiver of Private Right of Action: Given the definition
of "person" in section 5 of the bill, we do not think it is enough
to rely on the legislative history to clarify that the waiver
section deals only with private parties and is not intended to
affect the rights of the Government. We propose a change in the
language. (Substitute, Sec.4, (2))
6. "Person" Definition: Based upon discussions with
subcommittee staff, we had understood that the relator's status
should be defined by that of the person who provided the
information. However, the bill does not amend the language
accordingly. The Substitute would preclude a third party, for
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example, recovery where the individual providing the underlying
information is otherwise barred, as would be the case if that
latter person were criminally convicted for the underlying fraud.
31 U.S.C. § 3730 (d) (3). (Substitute, Sec. 6) We believe that this
should be clarified in the bill.
7. Statute of Limitations: We support the equitable tolling
of the six-year statute of limitations contained in the bill; this
provision is consistent with the law providing for equitable
tolling of fraud and other tort actions during the period when
discovery of the fraud or tort has not occurred and is also
consistent with the six-year equitable tolling of the general
contract statute of limitations in Title 28 of the U.S. Code. The
DOJ had obtained favorable case law under the pre-1986 6 year
statute of limitations to the effect that the government had 6
years from its discovery of the fraud to file suit. The 1986
Amendments essentially cut this back to allow only a 3 year tolling
period. The amendment will certainly improve the DOJ's ability to
assert the government's claims and recover our losses. We do not
object to the addition of the ten year statute of repose.
8. CID Authority: While we support the concept of amending
the CID statute to extend the Attorney General's authority to other
officials within the Department, we believe that the statute should
provide that the Attorney General's authority may be exercised not
only by an Assistant Attorney General, but officials above the
Assistant Attorney General, that is, the Associate and Deputy
Attorneys General. The Substitute accomplishes this result.
9. Retroactivity: We regret that the bill does not expressly
make the 1986 and 1988 amendments retroactive. While the district
courts have generally applied the 1986 amendments (including
increased damages and penalties, lower burden of proof, etc.)
retroactively, two courts of appeals have disagreed, and thus, the
state of the law is unclear. The amendment is necessary to make
clear Congress' intent so that additional resources are not
consumed in litigating this issue. A number of large cases are
still pending which include damages for conduct occurring pre-1986,
and millions of dollars are at stake.
The bill also makes the statute of limitations amendment
prospective only. Since the courts have held that amendments to
limitations periods are procedural and may be immediately applied,
as a matter of law this amendment can be made retroactive. Given
the extreme practical difficulty in applying two different statutes
of limitation to claims in the same case depending on whether they
arise before or after the date of the amendments, the change to the
limitations period should be made retroactive. The Substitute
makes all of the amendments retroactive.
10. Reporting: The current bill imposes an even more onerous
reporting requirement than the original S. 841. (Sec. 9). Many of
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the categories of data (e.g., nature and number of investigations
and "related proceedings" (A), and results achieved, including
"related recoveries" (F)) are so vague as to be impossible to
satisfy, and would require us to disclose nonpublic information
concerning existing investigations that would prejudice our ability
to bring False Claims Act cases based on that information. We
neither maintain nor do we have the mechanisms to collect much of
the other data listed in this section. We have drafted a reporting
provision which can be satisfied without unduly affecting our
resources adversely (Substitute, Sec. 9).
We believe the ongoing discussions that we have had with
members of the Senate Judiciary Committee have been most
productive. We look forward to working with you further on this
important bill.
Sincerely,
Sheila F. Anthony
Assistant Attorney General
Attachment
CC: Honorable Orrin Hatch
Ranking Minority Member
Honorable Howell Heflin
Chairman
Subcommittee on Courts and
Administrative Practice
Honorable Charles Grassley
Ranking Minority Member
EXECUTIVE OFFICE OF THE PRESIDENT
27-Jun-1994 06:40pm
TO:
Stephen C. Warnath
FROM:
Bruce N. Reed
Domestic Policy Council
SUBJECT: false claims act
Are you handling this issue now that Donsia is gone? DOJ called
me to push us on it. Do you know the scoop?
CAll Steve New
NEXT WEEK:
KIKE
CALL July 5 A.M.
BANS - Grassely -
DOJ; IG; Attn's, DCAA
Berman- make tooops: hurdles
more difficult - don't ban
any group
DOD- Contractor personnel
Investigatory Period-DOD 18mos - 12mos
she had undergone a circumcision and, if
argument that could have some reso-
she returned to Nigeria, whether the pro-
nance," he notes. "And it did."
Tilman Hasche
cedure would be forced on her daughters:
-Dimitra Kessenides
Winning A Record Award
For A Whistle-Blower
W
ould-be whistle-blower Douglas
fearing its own investigation would be taint-
Keeth, vice-president of finance at
ed by such a far-from-disinterested wit-
Hartford's United Technologies
ness-let alone to join him as co-plaintiff.
Corporation (UTC), had a problem. He
Furthermore, Golub, who earned
wanted to file a suit against the defense con-
roughly $7.5 million in fees (shared with a
tractor because of improper practices he had
Boston firm that helped in the initial fil-
uncovered as head of UTC's internal team
ing) on the case, had to convince the gov-
investigating billing procedures, but he
ernment that UTC was subject to a false
feared that such allegations would be chal-
claims suit in the first place. UTC claimed
lenged by the company as a violation of his
immunity from suits under a voluntary
fiduciary responsibilities, and viewed suspi-
disclosure program it signed on to in 1988,
ciously by the government as being moti-
in which the company's Sikorsky Aircraft
vated by monetary reward.
division admitted to billing the Depart-
But Keeth and his lawyer, David Golub,
ment of Defense in advance of work
overcame these obstacles and, five years
done-in effect, collecting interest-free
after filing the suit, on March 30, Keeth
loans. UTC returned the principal and
walked away with $22.5 million of a $150
promised to report back on remaining in-
million settlement-the largest award ever
terest owed. But Keeth found that the
to a whistle-blower. Under the so-called
problem went much deeper, and alleged
whistle-blower law, an employee alleging
that management tried to cover up his
corporate wrongdoing sues the company,
team's findings.
and the government may join as co-plaintiff.
Golub successfully argued that UTC's
Golub, 45, a high-profile litigator and
sanitized disclosure and subsequent fail-
founding partner of the ten-lawyer Stam-
ure to remedy the problem invalidated its
ford, Connecticut, firm of Silver Golub &
immunity. To get immunity, "they have to
Teitell, said initially the government was re-
tell the truth," says Golub. "UTC didn't
luctant even to communicate with Keeth-
tell the truth."
-Julie Triedman
David Golub
JUNE 1994.35
QUI PRO DOMINA 17 JUSTITIA OF SEQUIRE
GEORGE J. PHILLIPS
COUNSELOR TO THE
ASSISTANT ATTORNEY GENERAL
CIVIL DIVISION
(202) 514-5713 (OFFICE)
7
(202) 514-8071 (FAX)
DATE: 6-20-94
TO: Donsia Strong
FAX #: 456-7028
PHONE #:
# OF PAGES:
4
COMMENTS:
P.01
FAX NO. 2025148071
OAAG/CIVIL
JUN-20-94 MON 12:19
U.S. Department OI Justice
Civil Division
Office of the Assistant Attorney General
Washington, D.C. 20530
June 20, 1994
VIA FACSIMILE
(202) 456-7028
Ms. Donsia Strong
white House Domestic Policy Council
Old Executive Office Building
Washington, D.C. 20501
RE: False Claims Amendments - Letter to Senator Biden
From Senators Robb and Graham
Dear Donsia:
I obtained the enclosed letter from Senators Robb and Graham
to Senator Biden stating their concerns over the Department of
Justice's "proposed changes to the qui tam provisions." I wanted
to make sure you were aware of these Senators' interest in this.
Sincere
George J. Phillips
Counselor to the
Assistant Attorney General
Enclosure
cc: Stephen Neuwirth - VIA FACSIMILE (202) 456-1647
Michael Waldman - VIA FACSIMILE (202) 456-6485
Ingrid Schroeder - VIA FACSIMILE (202) 395-3109
Stephen Preston - VIA FACSIMILE (703) 693-7278
Frank W. Hunger
Robert Brink
Amy Jeffress
Faith Burton
P.02
FAX NO. 2025148071
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JUN-20-94 MON 12:20
CHARLES S. ROBB
COMMITTEE
VIRGINIA
ARMED SERVICES
WASHINGTON OFFICE
COMMERCE SCIENCE,
Russell Senate Office Building
AND TRANSPORTATION
Flest and Constitution Avenue. NE. Room 493
United States Senate
FOREIGN RELATIONS
Washington, DC 20310
Chairman. East Asian and
(202) 224-4024
WASHINGTON, DC 0510-4603
Pacific Affairs Subcommints
9 June 1994
JOINT ECONOMIC COMMITTE
Vice Chairman
Democratic Polley Commission
The Honorable Joseph Biden
Chairman
Committee on the Judiciary
United States Senate
Washington, DC 20510
Dear Mr. Chairman:
We are writing regarding S. 841, a bill under consideration
by your Committee, which would make certain changes in the qui
tam provisions of the Federal Civil False Claims Act (FCA). We
would like to take this opportunity to bring a few of our
concerns to your attention as the full Judiciary Committee
considers FCA reform in the context of S. 841.
As you are aware, this matter was carefully considered in
the report of the Section 800 Panel, a group of distinguished
government procurement authorities that was statutorily created
by PL 101-510, the FY93 Defense Authorization bill.
In addition to recommendations on acquisition reform, the
Section 800 Panel made important suggestions regarding needed
changes in FCA. It is our hope that we can come up with a
compromise on FCA reform which incorporates some of the Panel's
recommendations.
It is our understanding that the Department of Justice (DOJ)
is now circulating its own draft of proposed changes to the qui
tam provisions. While the DOJ draft recognizes some of the
concerns of the Section 800 Panel, we believe that its
recommendations can be improved. Major concerns with the DOJ's
proposals remain:
Any ber on gui tam suits following e voluntary
disclosure should be jurisdictional, not based on a
government motion alone; and such a bar should operate
when the disclosure is made;
The categories of government employees who cannot file
suit is too narrow; it should include government
employees involved in investigations, audit, or
contractor oversight;
Sww Office:
Regional Officers
D's CRY Mall
Deminion TOOPS. Swite 107
8220 1000 Reserved
1 Court Severe
Dominion Bank Building
1001 East Brase Street
Signat Bank Building
- Bank Building
229 a 04-
Sale NOT
S.... SAD
- Ewent
530 Main Street
310 STREET Street SW. Salta 102
- - 22813
Newolk. VA 23610
VIDDAE, VA 22182
VA 22801
Chreend VA 24226
Dan-ills. va 20$41
va 24011
(AD4) 27 1-3221
1909 (41-3134
.703 336-2006
17031 432-1551
(707)826-4104
(204) 751-0330
(703) 905-0103
P.03
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Page Two
The Honorable Joseph Biden
The proposed standard for lowering the reward for
dilatory relaters should not be subjective, as the DOJ
draft suggests. It basis its judgement on a relator's
state of mind. An objective standard, such as "with
the effect of increasing damage to the government,"
would be much easier for a court to apply;
The DOJ draft does not grant discretion for courts to
reduce remedies for relaters who participate in frauds;
the conduct of such relaters should be subject to the
same review as the DOJ would provide for dilatory
realtors;
The period of time for government reaction to a public
disclosure of possible fraud (sixty days) is too short;
The section 800 Panel concerns related to potential
disproportionate penalties under certain círcumstances
and the need to maintain integrity of the Contract
Disputes are not addressed at all in the DOJ proposals.
We are interested in finding sound and equitable compromises
on these issues and are prepared to work with your Committee to
reconcile our concerns with the legislation. We would like to
work with you to obtain the best possible legislation in this
important area.
Sincerely,
Clink Roll
DolGraton
Charles S. Robb
Bob Graham
P.04
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