Circuit Split Deepens Over Retroactivity of Key False Claims Act Amendment

Recent amendments to the False Claims Act corrected legislative deficiencies that fraudfeasors had used and abused to drain billions of dollars from the U.S. Treasury. Perhaps most importantly, the amendments modernized the Act’s liability provisions so as to explicitly and fully protect government dollars even when the federal government relies on others to make payment decisions for the federal Government. The need for such legislation was heightened by Allison Engine Co. v. United States ex rel. Sanders, a 2008 U.S. Supreme Court decision that narrowed the Act to only apply to false claims that were potentially reviewable by the “Government itself” and that were “material to the Government’s decision to pay.”

To effectively erase this limiting court decision from the books, Congress drafted a corrective liability amendment so that it applied to all “claims” pending two days before the Supreme Court released its Allison Engine decision. While the congressional intent was clear, circuit courts have struggled with how to retroactively apply the new liability provision.

The problem stems with the language of the retroactivity provision, found in § 4(f)(1) of the Fraud Enforcement and Recovery Act of 2009 (“FERA”). FERA states that the new liability provision applies to “all claims under the False Claims Act” that were pending two days prior to Allison Engine. However, while Congress intended “claims” to mean cases, “claims” is specifically defined in the False Claims Act to mean “demands for payment.” Thus, two circuits–the Ninth and Eleventh Circuits–have held that the new liability provision only applies to “demands for payment” that were pending two days before Allison Engine. Conversely, the Second and Seventh Circuits have held that the provision applies to cases pending two days before Allison Engine.

 Recently, the Sixth Circuit broke the circuit tie when it held that the amendment applies to cases pending two days before Allison Engine. Ironically, the Sixth Circuit waded into these unsettled waters in the very case that catalyzed the False Claims Act amendments, United States ex rel. Sanders v. Allison Engine, which had worked its way back up the appellate pipeline. Of particular note, the Sixth Circuit held that the retroactive application of the new liability provision was not violative of the U.S. Constitution’s Ex Post Facto Clause.

Therefore, while Congress passed FERA to unmuddy the False Claims Act waters, the deepening circuit splits around retroactivity have, once again, stirred up confusion. Given the Supreme Court’s recent track record of limiting the reach of the False Claims Act, fraudsters are surely hoping this confusion generates another trip to the Supreme Court.

More information for whistleblowers is located at the Nolan Auerbach website.

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