Whistleblower Blawg

There are companies, trade groups, and law firms set in direct opposition to the False Claims Act.  One law firm that embodies the unabashed direct opposition to all positive aspects of the FCA is Fried, Frank, Harris, Shriver & Jacobson LLP.  Whenever a court rules in a potentially favorable way, Fried Frank attempts to spin it in a way that would undercut the viability of or the effectiveness of the False Claims Act.  On December 19, 2007, Representative Howard Berman introduced HR 4854–a companion to Senator Grassley’s S. 2041 entitled “False Claims Act Corrections Act of 2007″.  In its FraudMail Alert No. 07-12-21, Fried Frank warns that “the bill attempts to remove (or significantly weaken) the pleading requirement found in Federal Rule 9(b), which requires that the details of actual false claims must be alleged with particularity.” 

Not surprisingly, those companies, trade groups and law firms who make great profit from a weakened FCA, would prefer that there be a procedural mechanism to eliminate otherwise meritorious FCA actions.  “Form over substance” is the cry.  If this bill does, in some measure, bring sanity to the process of prosecuting companies that defraud the federal government, it is to be lauded and not attacked.  If companies have done nothing wrong, why should they hide behind a procedure to protect them rather than prove that they did nothing wrong in a court of law?   

Rule 9(b) as applied by most courts has thrown out the baby with the bathwater.  It has nothing to do with genuinely protecting against the unnecessary costs of defending a frivolous lawsuit and everything to do with protecting white collar crime against the United States treasury.  Where a company can destroy or limit access to a small amount of information (such as the billing records), it can protect itself from prosecution for unabashed fraud on the government because the courts are requiring every detail of every scheme to be pled (including evidence of the billing that is fraudulent).  The court interpretations on this point (as on many others) are not attempting to discover and enforce the intent of Congress, but rather to effectuate an agenda of protection of potential fraudsters that is directly contrary to every congressional action on the FCA since 1863.

Our firm recently had a huge victory in the battle to have FCA cases decided on their merits.  Up to this point, courts had been more and more tightly focusing on form over substance and, in our estimation, turning 50 years of American jurisprudence on its head.  Courts are demanding “proof” at the pleading stage and asking for “evidence” of things that whistleblowers usually do not have access to, thus dismissing countless meritorious cases, undermining Congressional intent in amending the FCA in 1986, and letting legions of people and companies who have cheated U.S. taxpayers keep their ill-gotten gains.  

The underlying premise of the overreaching Rule 9(b) analysis comes from the Clausen case where the Court boldly stated that the presentment of a claim was the “sine qua non” of an FCA action.  One glaring problem with this analysis is that the submission of a claim is only required for a claim under 31 U.S.C. 3729(a)(1) and there are six other subsections.  In the Sanders case in the Sixth Circuit, this distinction was laid bare.  Therefore, our firm argued that for any claims under 3729(a)(2) or (a)(3), the Rule 9(b) analysis requiring proof of a claim did not apply.  

The case is a very substantial case against the largest government contractor in the United States for what was the largest government contract–the Lockheed Martin F-22 fighter jet.  The opinion in U.S. ex rel. Howard v. Lockheed Martin Corp., Civil Action No. 1:99-CV-285 (S.D. Oh. June 28, 2007) can be found at 2007 WL 1893215 and 2007 U.S. Dist. Lexis 47029.  In following our firm’s argument, the Court held that as to the (a)(1) claims, those would be dismissed with the expectation that they would be renewed as soon as discovery provided a claim and as to the (a)(2) and (a) (3) claims, they would not be dismissed.  

It is time for courts across the nation to get back to the roots of American jurisprudence in the era of the Federal Rules of Civil Procedure as identified in cases such as Conley v. Gibson, 355 U.S. 41 (1957) and Foman v. Davis, 371 U.S. 178 (1962).  As the Supreme Court said in Rotella v. Wood, 528 U.S. 549, 560 (2000), in interpreting Rule 9(b) on a motion to dismiss, we cannot ignore “the flexibility provided by Rule 11(b)(3), allowing pleadings based on evidence reasonably anticipated  after further investigation or discovery.”  There should be no more FCA cases thrown out on Rule 9(b) grounds if the pleadings are based on evidence reasonably anticipated after discovery, and, the issue of whether or not the defendant actually submitted a claim to the government is easily determined in discovery.  If the defendant did not submit any claims, there will be no (a)(1) liability.  If they did, it does not make sense to dismiss the case simply because the third-party whistleblower did not get a copy before filing the case.  

U.S. ex rel. Brinlee v. AECOM Government Services, Inc., Civil Action No. 2:04-cv-310 (W.D. La. Apr. 25, 2007).  The district court required a repleading to meet Rule 9(b) standards.  Plaintiff attached two documents to the SAC and the court dismissed under Rule 9(b) because “[t]hese exhibits do not prove that the first inventory was never conducted or that the government was billed therefore.”  (emphasis added).  We are now proving things or, as in this case, not disproving the affirmative defense that the defendant alluded to in its Rule 9(b) brief (innocent mistake or negligence rather than fraud), but which was probably never pled because no answer was filed. 
In my view, taking all inferences in the light most favorable to dismissal, intent does not have to be pled with specificity and is inherently a jury issue.  Look where we have come.

Our firm recently completed oral arguments in the Sixth Circuit on the U.S. ex rel. Bledsoe case.  This is the second time the Bledsoe case has been before the Sixth Circuit.  The issues included FRCP Rule 9(b), alternate remedy, statute of limitations and the dismissal of all claims after determinations that certain claims were viable.  In its portion of the argument, the Government stated that it did not like the Bledsoe I decision and asked that it be overturned.  We hope to have the argument uploaded in a week or two.  The opinion could come in the next few months or just before the end of the year. 

According to the DOJ’s official statistics for the fiscal year 2000, False Claims Act lawsuits brought in over $1.5 billion.  Interestingly, the DOJ counted a settlement with Boeing, which it had previously failed to categorize as an FCA settlement.  Interestingly, DOJ failed to include the Shering-Plough settlement, which was itself nearly one-half billion dollars. 

The False Claims Act was amended in 1986 (twenty years ago) to provide incentives for ordinary citizens to ferret out fraud on the United States taxpayers.  Recently, the money recovered under this act reached the milestone of $19 billion.  However, this is the tip of the iceberg.  In the hearings on the amendments in 1985, the GAO reported that about 10% of the federal budget was lost to fraud every year.  The GAO estimated that fraud cost the government over $100 billion per year.  In other words, the total fraud money recovered in the past twenty years does not even equate to 20% of the fraud committed in the first year.  More whistleblowers are needed.