6th Circuit Court of Appeals Rules that FCA’s Amended False Statements Liability Provision Applies to All Actions Pending on June 7, 2008

 

In Sanders v. Allison Engine Co., Nos. 10-3818/10-3821, 2012 U.S. App. LEXIS 22655 (6th Cir. Nov. 2, 2012), the Sixth Circuit Court of Appeals ruled on the effective date of the Fraud Enforcement and Recovery Act of 2009 (“FERA”) amendment to the  False Claims Act (“FCA”) that clarified that the law imposes liability on those who make knowing, false statements material to false claims  regardless of whether the maker of the false statement intended for the false statements to be relied upon by the government in determining whether to pay the claims.    See 31 U.S.C. § 3729(a)(1)(B) (post-May 20, 2009).   Interpreting statutory language in FERA, the Court of Appeals in an opinion authored by Judge Julia Smith Gibbons held that this amended provision applies to all civil actions pending on or after June 7, 2008, agreeing with reasoning of the Courts of Appeals for the Second and Seventh Circuits, and disagreeing with holdings by the Courts of Appeals for the Ninth and Eleventh Circuits.

Allegations and Procedural and Legislative History:  In 1995, the relators brought a qui tam action pursuant to the FCA, 31 U.S.C. §§ 3729 et seq., alleging that the defendant subcontractors submitted claims to a government contractor seeking payment for work relating to the construction of missile destroyers for the U.S. Navy even though the defendants knew that the work did not meet contractual specifications and regulatory requirements.  The district court entered judgment as a matter of law for the defendants because the relators failed to produce evidence of a false claim presented to the Navy.  The Sixth Circuit Court of Appeals reversed and the defendants successfully petitioned the U.S. Supreme Court to hear the case.  In a June 2008 opinion that reversed the Sixth Circuit, the Supreme Court held that liability for false statements under 31 U.S.C. § 3729(a)(2), the predecessor provision to 31 U.S.C. § 3729(a)(1)(B), required that “a defendant must intend that the Government itself pay the claim,”  Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662, 669 (2008).

Congress subsequently passed the FERA, which, among other things, amended the FCA to make clear that a defendant is liable for knowing, false statements supporting false claims ultimately paid with government funds regardless of whether the defendant intended for its false statements to be relied upon by the government in determining whether to pay the claims.  Prior to FERA, the FCA had imposed liability for false statements when made “to get a false or fraudulent claim paid or approved by the Government.”  See 31 U.S.C. § 3729(a)(2) (pre-May 20, 2009).  FERA changed this provision so that it imposes liability on anyone who “knowingly makes . . . a false record or statement material to a false or fraudulent claim.”   See § 3729(a)(1)(B) (post-May 20, 2009).

On the question of the “effective date,” FERA states that the amended FCA applies to conduct occurring on or after the date it is enacted, with two important exceptions.  First, the change to the false statements provision in former 31 U.S.C. § 3729(a)(2) “shall take effect as if enacted on June 7, 2008, and apply to all claims under the False Claims Act . . . that are pending on or after that date.”  FERA, § 4(f)(1) (emphasis added).   (June 7, 2008 was two days before the Supreme Court decided Allison Engine.)

Second, certain other amendments “apply to cases pending on the date of enactment.”  FERA § 4(f)(2) (emphasis added).  The courts subsequently have disagreed on the question of whether the word “claims” in § 4(f)(1) was intended to refer to “civil actions” or “invoices.”

In a post-FERA opinion, the district court on remand granted the defendants’ motion to preclude application of the amended liability standard in the case before it, holding that the term “claims” in § (4)(f)(1) of FERA refers to the defendant’s false invoices that are the basis for the lawsuit rather than the civil action itself.  The court ruled that the relators’ claims must be dismissed because the defendants’ allegedly false invoices were not “pending” on June 7, 2008.  See United States ex rel. Sanders v. Allison Engine Co., 667 F. Supp. 2d 747 (S.D. Ohio 2009).

Ruling on Issue of Retroactivity of the FERA Amendment to § 3729(a)(2):  As discussed above,  Section 4(f)(1) of FERA provides that the amended liability provision for false statements “shall take effect as if enacted on June 7, 2008, and apply to all claims under the False Claims Act . . . that are pending on or after that date.”    (Emphasis added.)  The question before the Sixth Circuit Court of Appeals was whether FERA’s drafters intended the term “claims” to mean “demands for payment” or  “civil actions.”  If the term “claims” was interpreted to mean “demands for payment,” then the amended liability standard would not apply to the case at hand because the defendants’ invoices were no longer pending with the U.S. Navy on June 7, 2008.  On the other hand, if the term was interpreted to mean “cases” or “civil actions,” then the amended liability provision would apply because the qui tam action was pending on June 7, 2008.

The Court of Appeals noted that the term “claim” is defined in the False Claims Act’s liability provisions to mean “demand for payment.”  The Court found it inappropriate, however, to import this statutory definition into the FERA provision concerning the “effective date” of the amendments because the statutory definition provides a “strained reading.”  Allison Engine, 2012 U.S. App. LEXIS 22655, *30.  The court placed little emphasis on the fact that the second exception to FERA’s effective date, § 4(f)(2), used the term “cases.”  The court noted that Congress had not drafted both exceptions simultaneously and thus could have intended the same meaning despite using different terms.  The Sixth Circuit held that “claims” in the first exception refers to “cases” or “civil actions,” noting that its conclusion was supported by Congress’s use of “claims” elsewhere in FERA when the “clear meaning” is “cases.”  Id.

The Sixth Circuit also held that retroactively applying FERA’s amendment to the liability standard did not violate the Ex Post Facto Clause of the Constitution because Congress did not intend to impose punishment when it enacted the FCA and FERA.  Moreover, the statutory scheme was not so punitive in purpose or effect as to negate Congress’s intent.  The court further held that applying the amendment in this manner would not run afoul of Fifth Amendment due process guarantees because a rational legislative purpose could be identified when “Congress made clear that it sought to correct what it viewed as an erroneous interpretation of the FCA and passed the amendment ‘to reflect the original intent of the law.’”  Id. at *53 (quoting FERA, § 4).