Are Investigations Under The Supply False Claims Act Unreasonably Onerous? – Government, Public sector


False Claims Act, 31 USCA §§ 3729-3733, investigations in the context of government procurement can be unreasonably broad. The Department of Justice has extensive powers to investigate FCA violations, including the use of Civil Inquiry Requests (CIDs), 31 USCA § 3733. But this extended authority is designed to be used sparingly. The Supreme Court ruled that the FCA is not a “one-size-fits-all anti-fraud law” or a “vehicle to punish breaches of contract or regulatory violations of garden varieties.” Universal Health Servs., Inc. v. US ex rel. Escobar, 136 S. Ct. 1989 (2016) (internal quotation marks omitted). In the context of procurement, where annual FCA recoveries are relatively modest, the question must be asked: do FCA investigations go beyond a reasonable scope and rather tend towards inadmissible investigations into breaches of contract or regulatory violations of garden varieties? See the press release, US Dep’t of Justice, Justice Department Recovers Over $ 2.2 Billion From False Claims Cases In Fiscal Year 2020 (January 14, 2021), billion-false-claims-act-cases-fiscal year-2020; see also Civil Division, US Dep’t of Justice, FRAUD STATISTICS – OVERVIEW: October 1, 1986 – September 30, 2020, (last visited September 5, 2021) (collectively, “DOJ press release”).

About FCA-The FCA anticipates that any person (or business) who knowingly submits false claims to the government will be liable for triple damages plus penalties per claim which are adjusted for inflation each year and which currently range between $ 11,803 and $ 23,331. The FCA is a powerful anti-fraud law, and “[m]any of the [Civil] The cases of the Fraud Section are lawsuits filed under the [FCA], a federal law originally enacted in 1863 in response to Civil War defense contract fraud. ” The false declarations law, US Dep’t of Justice, (updated January 14, 2021). FCA collections routinely bring billions of dollars to the treasury each year, but FCA collections related to Department of Defense purchases totaled about three percent of that number. See the DOJ press release.

About CIDs-CIDs can issue “[w]Whenever the Attorney General, or a designate … has reason to believe that a person may be in the possession, custody or control of any document or information relevant to an investigation under the false statements. 31 USCA § 3733 (a) (1). Prior to the commencement of any legal proceedings, DOJ may draft and serve “a request for civil investigation requiring that person (A) produce such documentary material for inspection and copying, (B) respond in writing to written inquiries concerning such documentary material or information, (C) to give oral testimony regarding such material or information, or (D) to provide any combination of such material, answers or testimony. , CID responses “can be shared with [the] qui tam relator. “Id.

The scope of the CID’s authority means that before potential defendants have a chance to understand the allegations made against them and therefore raise reasonable objections within the scope of the investigation, the DOJ can compel companies to spend potentially millions of dollars in document collection, review and production. costs. There is no meaningful opportunity for IDC grantees to determine whether the allegations are “breaches of contract or violations of garden variety regulations.” Escobar, 136 S. Ct. To 2003. Instead, CID recipients must comply, often at enormous cost.

Did FCA’s investigation process go beyond FCA’s scope in the context of procurement?– Several FCA trends suggest that the burden of responding to FCA surveys may be too heavy on government contractors.

  1. Defense procurement recoveries are comparatively low: Compared to healthcare-related FCA recoveries, supply recoveries (and in particular DOD contract recoveries) are relatively low. In 2020, they totaled around three percent of FCA recoveries and in recent years, they’ve struggled to break out of mid single-digit percentages. See the DOJ press release.
  2. Increased use of dismissal authority in CAF affairs:According to a recent article in The National Law Review, since the Granston Memo published in 2018, “DOJ has dismissed at least 50 actions that tam without merit pursuant to 31 USC § 3730 (c) (2) (A). Prior to the Granston Memo, the DOJ had only exercised his revocation power 45 times in about 30 years. “Kevin M. Coffey, Newly proposed FCA amendments would hamper defendants, Nat’l L. Rev. (July 28, 2021), www.natlawreview. com / article / newly-proposed-fca-amendmentswould-hinder-defendants. Dismissals tend to occur later, after investigation and the costs of this investigation being borne by the defendant.
  3. Recent legislative attempts to strengthen CAF apparently recognize abuse of law and burden of discovery: In recent months, Sen. Charles Grassley (R-Iowa) has led a group of lawmakers in a (so far) unsuccessful effort to change the FCA in two key ways. First, the proposed legislation would have shifted the burden of proof to the defendant FCA of proving a lack of materiality by the extremely high standard of “clear and convincing evidence” once the government has demonstrated materiality by a preponderance. Second, the proposed changes would have transferred the costs of the discovery from the FCA to the defendants. False Claims Amendment Act 2021, S. 2428, 117th Cong. (2021), www.grassley.

There is simply no reason to make it harder for defendants to invoke lack of materiality as a defense against FCA actions, unless lawmakers believe too many FCA lawsuits have failed. because of the way the Supreme Court defined materiality in Escobar. In addition, the proposed language of discovery fee transfer in the changes proposed by Senator Grassley requires further consideration. The wording applies to cases qui tam without intervention and provides that:

the court, at the request of the government, orders the requesting party to pay the government costs, including legal costs and fees, to respond to the party’s requests for discovery, unless the party can demonstrate that the information requested is relevant, proportionate to the needs of the case, and not unduly burdensome on the government.

Identifier. A qui tam business without intervention is a business the government has chosen not to put its resources behind. The government retains an interest in recovering funds through settlement, but does not believe the case is worth the government’s time, energy, effort and resources. The proposed legislation would transfer discovery costs to the defendant in undeserving qui tam cases.

But shouldn’t this same presumption also benefit the defendant / IDA beneficiary? The relative ease with which IDAs deliver, and their comparative magnitude, imposes substantial costs on government contracting defendants before the government decides to intervene. It is also surprising how many CID questions force the defendant to foot the bill for documents and information that the Department of Justice could easily obtain within the government. Is this an appropriate cost that FCA defendants should be forced to pay just for being the unlucky defendant in a qui tam lawsuit? And what if the underlying lawsuit is focused on a violation of a garden variety, or a violation of regulations, and therefore inappropriate for remedy under the FCA? Should defendants spend millions of dollars without having the opportunity to know what the lawsuit is about, and therefore not be able to seek redress?

The procedural protections existing in 31 USCA § 3733 to restrict the scope of CIDs are insufficient to allow entrepreneurs to push back CIDs that are too broad. CID recipients have 20 days to file a complaint in the U.S. District Court and request that the CID be amended or rescinded. See 31 USCA § 3733 (j) (2) and (3). But there is usually not enough information about the face of the CID to inform CID recipients of the nature of the investigation, or whether the allegations are more than mere breaches of contract or regulations.

Conclusion-Nothing here should be interpreted as an argument that intentional fraud should go unpunished or that bad actors should have an easier time “getting by”. Rather, these are important issues as we grapple with cost and productivity losses in our country’s procurement spending.

The trends highlighted here suggest that the GM is going beyond what is reasonable when issuing CIDs. The DOJ could shed the necessary light on these questions by including in the annual statistics of the Ministry the number of qui tam cases in which the Ministry intervenes, by category of cases, as well as the number of cases in which the Ministry refuses to intervene, by category. Likewise, the DOJ could publish the number of CIDs issued in cases with intervention compared to cases without intervention. In the absence of these data, however, one could reasonably conclude that the CID and FCA surveys drain a lot of time, energy and resources from government contractors that could otherwise be spent on product improvement, investing in research and development or reducing overall procurement costs.

Originally posted by Government Contractor

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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