The Litigious Engine That Could
November 16, 2012
The U.S. Court of Appeals for the Sixth Circuit becomes the third circuit to hold that the Fraud Enforcement and Recovery Act of 2009 (“FERA”) amendments to the liability provisions of the False Claims Act (“FCA”) apply to all cases pending after June 7, 2008. See United States ex rel. Sanders v. Allison Engine Co., Nos. 10-3818/10-3821 (6th Cir. Nov. 2, 2012). This trend, coupled with the increasing focus on preventing procurement fraud, may make it harder for FCA defendants to escape liability in the these jurisdictions - at least until the Supreme Court gets in the Allison Engine mix again.
Background
Allison Engine has been moving around the federal court system since it was originally filed by two qui tam relators in 1995. The relators alleged that their former employer, a second tier subcontractor, falsely certified conformance with the contract requirements to the higher tiered contractor – importantly, these certifications were not made to the Government. The case went to the U.S. Supreme Court, which issued a decision on June 9, 2008 holding that FCA liability applies only when a defendant “intend[s] that the false record or statement be material to the Government’s decision to pay or approve the false claim.” In other words, the Supreme Court held that it is not sufficient for FCA liability that the false claim is made to a private entity (i.e., a higher tiered contractor), and the private entity will then use funds from the Government to pay the claim. Allison Engine Co., v. United States ex rel. Sanders, 553 U.S. 662 (2008).
As previously reported here, Congress enacted FERA in 2009, in part, to amend the FCA after the Supreme Court’s ruling. Through FERA, Congress changed § 3729(a) of the FCA so that it no longer requires that a false claim be “paid or approved by the Government.” This amendment was done intentionally to “clarify and correct erroneous interpretations of the law that were decided in Allison Engine Co. . . .” S. Rep. No. 111-10, at 10.
The Retroactivity Controversy
The November 2, 2012 ruling of the Sixth Circuit implicates FERA § 4(f)(1), which provides that the amended liability section “shall take effect on June 7, 2008, and apply to all claims under the False Claims Act . . . that are pending after that date.” (emphasis added). The question for the Sixth Circuit was whether the retroactivity provision applies to the Allison Engine case, which wasn’t decided by the Supreme Court until June 9, 2008, two days after FERA’s retroactive effective date.
To answer that question, the Court had to decide whether the word “claim” in § 4(f)(1) means either (1) a request or demand for payment (as it does in the FCA) or (2) a civil action or case. The Sixth Circuit looked to the other circuits, which are essentially evenly divided. The Second and Seventh Circuits have held that “claim” means civil actions while the Ninth and Eleventh Circuits have held that “claim” means a demand for payment. The Fifth Circuit has taken both positions. After a long and thorough analysis of the legislative history and Congressional intent, the Court determined that
“claim” means civil actions or cases. Therefore, the amended FCA applies to the Allison Engine litigation, which was still pending before the Supreme Court on June 7, 2008.
The Court then addressed whether retroactively applying the amended FCA provisions violates the Ex Post Facto clause of the Constitution. The Ex Post Facto clause prohibits Congress from passing a law that retroactively imposes or increases a punishment for an act that was not punishable when committed. Thus, the key question for the Sixth Circuit here was whether the FCA (as modified by the FERA amendments) imposes punishments on defendants. The Court again looked to the legislative history and determined that the FCA is intended to implement civil proceedings, not to impose punishment. Specifically, the Court found that the purpose of the FCA is to compensate, or make whole, the Government for its losses suffered due to fraud. Additionally, although the treble damages may have a deterrent effect, that is not enough to render it punitive. The Sixth Circuit’s analysis of this issue may be helpful to other FCA controversies where the issues depend on whether the FCA is remedial or punitive.
Until Allison Engine makes its second journey to the Supreme Court, the circuits will remain divided on their interpretation of FERA. Thus, whether the FERA amendments apply to a FCA case pending before June 7, 2008 depends entirely on where the case is filed.
Katie Calogero is the attorney responsible for the content of this article.