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“FALSE CLAIMS ACT” mentioning the U.S. Dept. of Justice was published in the Extensions of Remarks section on pages E1546-E1548 on July 14, 1999.
The publication is reproduced in full below:
FALSE CLAIMS ACT
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HON. HOWARD L. BERMAN
of california
in the house of representatives
Wednesday, July 14, 1999
Mr. BERMAN. Mr. Speaker, I submit the following for the Record:
Hon. Janet Reno,Attorney General of the United States,U.S. Department of Justice,Washington, DC.
Dear Madam Attorney General:
As you know, we are the principal House and Senate sponsors of the 1986 Amendments to the False Claims Act, 31 U.S.C. Sec. 3729, et seq. (``the Amendments''). We have watched with pride the remarkable success of the amendments in bringing to the attention of the federal government hundreds of cases of fraud. We are particularly pleased with the qui tam provisions of the Amendments, which have resulted in cases that have returned $2.3 billion to the federal Treasury.
With dismay, however, we have watched the federal courts interpret several sections of the Amendments in ways that directly contravene Congressional intent, and, of even greater significance, discourage and foreclose potential relators from bringing meritorious cases. In particular, we are extremely concerned with the courts' crabbed interpretations of the public disclosure bar--Sec. 3730(e)(4)(A) and (B). That provision, which was drafted to deter so-called ``parasitic'' cases, has been converted by several circuit courts into a powerful sword by which defendants are able to defeat worthy relators and their claims. If this trend continues, we fear that the very purpose of the Amendments--``to encourage more private enforcement suits''--ultimately will be undermined. See S. Rep. No. 99-345, at 23-24 (1986).
Thus, we believe it is imperative that the Department of Justice (``the Department'') adopt and adhere publicly to an interpretation of the public disclosure bar that comports with the plain meaning of the statute and the Congress' obvious intent. The Department's role in this regard is critical. First, of course, the Department is often involved as a party in cases where the public disclosure bar is raised, and it is entitled and expected to make its views known. Even in cases where the Department determines not to intervene, Congress intended for the Department to be involved in monitoring cases, in part to address questions significant to the ongoing operation of the statute. See e.g. Sec. 3730(c)(3) and (c)(4). Finally, as the agency charged, in effect, with the administration of the False Claims Act, the courts are likely to accord significant deference to the Department's interpretation of the Act, and we believe the Department has an obligation to the Congress and to the courts to articulate those views.
With this letter, we intend to provide a detailed explanation of our view of the public disclosure bar, focusing in particular on some of the cases where we believe the courts have misinterpreted the law. In order to place that discussion in context, we want first to explain the origin and significance of the public disclosure bar so that the cases can be viewed in light of Congress' intent.
The public disclosure bar is intertwined inextricably with the history of the qui tam provisions of the statute. From its enactment in 1863, the False Claims Act allowed a relator to bring a qui tam action even if the Government already knew of, investigated and even criminally prosecuted the identical fraud. Such parasitic suites, made infamous in the Supreme Court's decision in Marcus v. Hess, 317 U.S. 537 (1943), allowed relators to recover if they ``contributed nothing to the discovery of this crime.'' Id. At 545. To correct that obvious inequity, Congress enacted the government knowledge bar in 1943, which prohibited qui tam suits based on information in the Government's possession. The government knowledge bar, however, was interpreted too broadly by the courts. If information about fraud was in a file somewhere in the vast federal bureaucracy, a qui tam case was barred even if the government was unaware of the information in its files or had done nothing to pursue it. Indeed, one court held that even if it was the relator him or herself who had reported the fraud to the federal government, their case was precluded on the theory that the government had knowledge of the fraud before the relator filed their case. See, e.g. United States ex rel. State of Wisconsin v. Dean, 729 F.2d 1100 (7th Cir. 1984).
The 1986 Amendment sought to restore some balance between these two extreme regimes. Unquestionably, Congress wanted to prohibit qui tam cases that merely copies a federal criminal indictment and to allow those in which the relator simply informed the government of their allegations before filing suit. But there is considerable terrain between these two poles, and it is here that the courts seem to get lost. The key to navigating the public disclosure bar successfully is understanding Congress' purpose is enacting the Amendments.
Three goals inspired the 1986 Amendments. First and foremost, Congress wanted to encourage those with knowledge of fraud to come forward. Second, we wanted a mechanism to force the government to investigate and act on credible allegations of fraud. Third, we wanted relators and their counsel to contribute additional resources to the government's battle against fraud, both in terms of detecting, investigating and reporting fraud and in terms of helping the government prosecute cases. The reward to the relator is for furthering these goals.
In reversing the old government knowledge bar, however, we wanted to continue to preclude qui tam cases that merely repackage allegations the government can be presumed already to know about because they were disclosed publicly either in a federal proceeding or in the news media. The reason is simple: if the relator simply repeats allegations that he or she heard from someone else and about which the government is already aware and taking action, the relator contributes nothing to the government's efforts to combat fraud. Accordingly, in the 1986 Amendments, we provided that a qui tam case is barred if the relator has based his or her filing upon publicly disclosed allegations unless the relator already has provided information concerning the allegations to the government before filing suit.
Certain courts have exploded this limited bar in ways that mock the very purpose and intent of the 1986 Amendments. A recent case is illustrative. In United States ex rel. Jones v. Horizon Healthcare Corp., No. 97-1635, the Sixth Circuit Court of Appeals held that Ms. Jones' qui tam action was barred because, before she filed her case, she had filed an application for unemployment insurance with the Michigan Employment Security Commission. Her application stated that she had been fired after reporting to her supervisor at Horizon HealthCare that she believed several claims prepared for submission to Medicare were false. The Court held that Ms. Jones' unemployment application was a public disclosure within the federal government prior to filing her action, her suit was barred.
In both its reasoning and its outcome, Jones strays far from the policies that underlie the public disclosure bar. First, as you know, 3730(e)(4)(A) specifically limits a public disclosure to ``allegations or transactions'' disclosed in a ``criminal, civil, or administrative hearing, in a Congressional, administrative, or Government Accounting Office report, hearing, audit or investigation, or from the news media.'' That list is exclusive, as many of the courts to have considered the question agree. See U.S. ex rel. Dunleavy v. County of Delaware, 123 F.3d 734, 744 (3rd. Cir. 1997) (recognizing the ``prevailing view is that this list constitutes an exhaustive rendition of possible sources.'') Only an absurdly broad definition of an ``administrative hearing'' would put an application for unemployment insurance on that list. And Congress did not intend to enact absurdities.
We did intend, and any fair reading of the statute will confirm, that the disclosure must be in a federal criminal, civil or administrative hearing. Disclosure in a state proceeding of any kind should not be a bar to a subsequent qui tam suit. The reason is grounded in the history of the FCA and the policies underlying the 1986 Amendments that we just reviewed. One thing is common to the law throughout its history. It was the Federal Government's knowledge of fraud that triggered the government knowledge bar; it was the federal government's indictment in Marcus v. Hess that formed the basis of the parasitic suit. Thus, when it enacted the public disclosure bar in 1986, Congress was concerned about what the federal government knew about fraud, that is, whether the federal government had in its possession sufficient information to investigate and pursue allegations of fraud, and whether that information was sufficiently publicized so that the federal government would be forced to act or explain why it chose not to act. As was noted in the Senate Report on the Amendments: ``Unlike most other types of crimes or abuses, fraud against the Federal Government can be policed by only one body--the Federal Government.'' S. Rep. 99-345 at 7. To suggest that Congress was concerned with disclosure to anyone other than the federal government when it enacted the public disclosure bar is to ignore history. And to suggest, as the Sixth Circuit held in Jones, that disclosure of fraud to a state agency on an application for unemployment is likely to alert the federal government to fraud is to ignore common sense. \1\
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Unfortunately, Jones is by no means an isolated example. U.S. ex rel. Fine v. Advanced Sciences, Inc., 99 F.3d 1000
(10th Cir. 1996) is an equally egregious example of judicial overreaching. In Advance Sciences, the Tenth Circuit held, first, that the listed sources in Sec. 3730(3)(4)(A) were not the exclusive means of public disclosure--a holding which, as we have noted already, is simply wrong. The Court went on, however, to hold that a public disclosure occurs whenever the allegations or transactions are provided to any member of the public who is a ``stranger to the fraud.'' In Mr. Fine's case, the stranger was a representative of the American Association of Retired Persons counseling Mr. Fine with respect to a potential age discrimination claim. By public disclosure, we meant disclosure to the public at large, not just one member of the public and certainly not to a confidential counselor. U.S. ex rel. John Doe v. John Doe Corp., 960 F.2d 318 (2nd Cir. 1992), reached a similarly untenable result, holding that disclosure of a government investigation of fraud to the employees of the defendant corporation was during their interviews with government investigators a public disclosure within the meaning of the False Claims Act.
Finally, in this regard, we want forcefully to disagree with cases holding that qui tam suits are barred if the relator obtains some, or even all, of the information necessary to prove fraud from publicly available documents, such as those obtained through a Freedom of Information Act
(FOIA) request. See ex rel. Schumer v. Hughes Aircraft Co., 63 F.3d 1512, 1520 (9th Cir. 1995), (finding that a public disclosure would occur only if the relator makes a FOIA request and receives the information requested). We believe that a realtor who uses their education, training, experience, or talent to uncover a fraudulent scheme from publicly available documents, should be allowed to file a qui tam action. Cases such as U.S. ex rel. Stinson, Lyons, Gerlin
& Bustamante, P.A. v. Prudential Ins. Co., 944 F. 2d 1149, 1150 (3rd Cir. 1991), which held that a ``relator must possess substantive information about the particular fraud, rather than merely background information which enables a putative relator to understand the significance of a publicly disclosed transaction or allegation [,]'' undermine Congress' explicit goals. If, absent the relator's ability to understand a fraudulent scheme, the fraud would go undetected, then we should reward relators who with their talent and energy come forward with allegations and file a qui tam suit.\2\ This is especially true where a relator must piece together facts exposing a fraud from separate documents.
The consequences of these decisions are alarming. Fraud may well go unpunished and, as a practical matter, undetected. Relators, like Ms. Jones, who are fired from their jobs because they blew the whistle on fraud and then take the not unreasonable step of applying for unemployment insurance will be told by their lawyers that their qui tam case is barred. Congress never intended to force relators to choose between filing a qui tam case and providing for themselves and their families.
The Jones case highlights one aspect of the public disclosure bar that has been widely misinterpreted by the courts--the question of what constitutes public disclosure. Unfortunately, other issues involving the public disclosure bar also need to be addressed. A second issue concerns how much information needs to be disclosed in order to constitute a disclosure of ``allegations or transactions.'' On this question, some, but by no means all, of the courts have held appropriately that in order to trigger the bar, the disclosure must include all of the essential elements of the fraud against a specifically identified defendant. As the Eleventh Circuit observed in U.S. ex rel. Cooper v. Blue Cross and Blue Shield, 19 F. 3d 562, 566 (11th Cir. 1994):
``Requiring that allegations specific to a particular defendant be publicly disclosed before finding the action potentially barred encourages private citizen involvement and increases the changes that every instance of specific fraud will be revealed. To hold otherwise would preclude any qui tam suit once widespread--but not universal--fraud in an industry was revealed.'' See also U.S. ex rel. Lidenthan v. General Dynamics Corp., 61 F. 3d 1402 (9th Cir. 1995) cert. denied 517 U.S. 1104 (1996) (disclosures that make no mention of specific defendant insufficient to invoke bar).\4\
Not only must the particular defendant be identified, so too must all of the elements necessary to bring a fraud action. As the D.C. Circuit explained in U.S. ex rel Springfield Terminal Ry Co. V. Quinn, 14F.3d 645 (D.C. Cir. 1994), ``Congress sought to prohibit qui tam actions only when either the allegation of fraud of the critical elements of the fraudulent transaction themselves were in the public domain.'' Bits and pieces of information about a defendant and some of its actions--even when publicly disclosed--rarely add up to an allegation of fraud. There must be ``enough information * * * in the public domain to expose the fraudulent transaction.'' U.S. ex rel. Rabushka v. Crane Co., 40 F.3d 1509, 1513-14 (8th Cir. 1994) quoting Springfield, 14 F.3d at 65. To hold otherwise, as some courts have, would undermine the stated purposes of the False Claims Act.
``Embracing too broad a definition of `transaction' threatens to choke off the efforts of qui tam relators in their capacity as `private attorneys general.' By allowing
[qui tam] complaint[s] to proceed beyond the jurisdictional inquiry, we help ensure that private actions designed to protect the public fisc can proceed in the absence of governmental notice or potential fraud. This is not the type of case that Congress sought to bar, precisely because the publicly disclosed transactions involved do not raise such an inference of fraud.''--Id., at 1514.
The last issue we want to raise with respect to public disclosure concern the ``original source'' exception to the bar. The public disclosure bar applies ``unless the action is brought by the Attorney General or the person bringing the action is an original source of the information'' 31 U.S.C. Sec. 3730(e)(4)(A). Section 3730(e)(4)(B) defines ``original source'' as a relator with ``direct and independent knowledge of the information on which the allegations are based who has voluntarily provided the information to the Government before filing an action under this section which is based on the information.'' This provision, too, is a source of considerable confusion and controversy in the courts. Again, however, what Congress intended when it drafted the original source exception is easy to discern both from the statute itself and from its legislative history.
First, the language of the statute makes plain that by
``original source,'' Congress meant an original source of information provided to the government and did not, as some courts have held, add an additional requirement that the relator also be the original source of the public disclosure that triggers the bar. See, e.g. U.S. ex rel. Dick v. Long Island Lighting Co., 912 F.2d 13 (2d Cir. 1990); U.S. ex rel. Wang v. FMC Corp., 975 F.2d 1412, 1418
(9th Cir. 1992). There is no statutory nor logical linguistic connection between an original source and the public disclosure that triggers the bar. Of course, a relator could be an original source of the information publicly disclosed, if the relator first provided the information to the Government.
Nor is there any policy rationale that would justify such an interpretation of the original source provision. When Congress enacted the original source provision, we had in mind a scenario where an individual reports fraud to the government and then there is a subsequent public disclosure of the allegations or transactions before that person has filed a qui tam complaint. The disclosure could be, for example, a criminal indictment brought by the Government as a result of the relator's information. It could also be a press story, based on a leak from a Government investigation or an enterprising reporter's investigative skills. Under these circumstances, the relator would not be barred from bringing a qui tam case. To the contrary, he or she should be rewarded for bringing to the Government information about the fraud.
Defendants have also sought the dismissal of relators by urging that ``direct and independent knowledge'' somehow requires the relator to be an eyewitness to the fraudulent conduct as it occurs. To the contrary, as the Eleventh Circuit concluded in Cooper v. Blue Shield of Florida, Inc., 19 F.3d 562 (1994) a relator's knowledge of the fraud is
``direct and independent'' if it results from his or her own efforts. For example, a relator who learns of false claims by gathering and comparing data could have direct and independent knowledge of the fraud, regardless of his or her status as a precipitant witness.
In light of these policies, it should not be surprising that we support emphatically the courts that have held that Sec. 3730(e)(4)(B) does not require that the qui tam relator possess direct and independent knowledge of ``all of the vital ingredients to a fraudulent transaction.'' Springfield, 14 F.3d at 656-57. As Representative Berman explained, ``A person is an original source if he had some of the information related to the claim which he made available to the government . . . in advance of the false claims being publicly disclosed.'' 132 Cong. Rec. 29322 (Oct. 7, 1986).
In closing, we want to urge you to consider seriously the Department's obligation to shape the courts' interpretation of the False Claims Act. We are frankly troubled by the fact that the majority of cases confronting the public disclosure bar are cases in which the Department has not intervened and in which there is no reference at all to the Department's views. To us, it appears that the courts take the Department's decision not to intervene in a case as a verdict on the merits of the relator's claims and are using the public disclosure bar in order to dismiss the case quickly. Even if some of those cases should be dismissed on the merits, we cannot countenance a tortured interpretation of the public disclosure bar to reach a desired result. Moreover, if the public disclosure provisions continue to be misinterpreted, relators and their counsel will be deterred from filing truly meritorious claims.
Further, not all of the cases in which the public disclosure bar is raised are those in which the government has declined to intervene. Defendants make public disclosure motions after the government has joined a case, and they do so for only one reason: to deprive the government of the resources that relators and their counsel bring to the case. Yet in those cases, too, the Department is typically silent, refusing to take a position on the public disclosure issue. That stance, too, may well undermine Congress' expressed intent.
One of the principal goals of the 1986 Amendments was to ameliorate the ``lack of resources on the part of Federal enforcement agencies.'' S. Rep. 99-345 at 7. That was one of the reasons we strengthened the qui tam provisions of the law. Thus, we expected some meritorious cases to proceed without the Government's intervention, and we fully expected that the Government and relators would work together in many cases to achieve a just result. By dismissing relators based on spurious interpretations of the public disclosure bar, the courts are depriving the government of these additional resources. And those resources have been considerable. In numerous cases, relators and their counsel have contributed thousands of hours of their time and talent and spend hundreds of thousands of their own dollars investigating and pursuing their allegations. The Department must act to protect those resources, even in cases where it has not intervened. When a question of statutory interpretation arises, particularly with respect to the public disclosure bar, the Department must make its views known to the court. As we stated emphatically at the time the Amendments were adopted, Congress enacted the Amendments based on the belief that ``only a coordinated effort of both the Government and the citizenry will decrease this wave of defrauding public funds.'' We continue to hold that view.
Sincerely,Howard L. Berman,
Member of Congress.Charles E. Grassley,
U.S. Senator.
FOOTNOTES
\1\ The same is true for civil complaints filed in state court or discovery obtained as a result of state court proceedings, which several Circuits have held constitute public disclosures within the meaning of Sec. 3720(3)(4)(A). See e.g. U.S. ex rel. Kreindler & Kreindler v. United Technologies Corp., 985 F.2d 1148, 1158 (2d Cir.), cert. denied, 113 S.Ct. 2962 (1993) (holding that discovery materials contained in unsealed court records was ``publicly disclosed''); U.S. ex rel. Stinson, Lyons, Gerlin & Bustamante v. Prudential Ins. Co., 944 F2d 1149, 1155-56 (3d Cir. 1991) (holding that the disclosure of discovery material--even if not filed in court--constitutes a public disclosure). We believe those cases are wrongly decided. Disclosure of fraud in a state court proceeding, even a state criminal proceeding, is unlikely to get to the attention of the federal government, unless it is publicized in the news media, a contingency the public disclosure bar addresses.
\2\ Some courts do get it right. In U.S. ex rel. Fallon v. Accudyne Corp., 921 F.Supp. 611 (W.D. Wisc. 1995), the court held that an audit report produced by a state agency did not constitute a public disclosure. ``Under these circumstances there is no reason to believe that the United States would become aware of such information.'' Id., at 625.
\3\ Senator Grassley made a similar comment during the debate on the 1986 Amendments: ``The publication of general, non-specific information does not necessarily lead to the discovery of specific, individual fraud which is the target of the qui tam action.'' False Claims Act Implementation: Hearing Before the Subcomm. On Admin. Law and Gov. Relations of the House Comm. On the Judiciary, 101st cong. 6 (1990) Statement of Senator Grassley.
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