Beware The Indefatigable Qui Tam Plaintiffs' Bar

Wednesday, June 2, 2010 - 00:00

Over the past three years, the qui tam plaintiffs' bar has enjoyed great success in expanding the False Claims Act and weakening the defenses available to defendants under the statute. First, they were successful in convincing Congress to enact FERA in May 2009, which greatly expanded the reach of the False Claims Act and included many plaintiff-friendly procedural changes. Second, they succeeded in sneaking another provision into the health care bill introduced in the Senate in December 2009 that was recently enacted as PPACA. Buried within the 750-page bill was a provision that weakens the public disclosure bar of the False Claims Act - one of the principal defenses available to defendants.(See my interview on page 13 for more information on the changes to the public disclosure bar.)

With few exceptions, these changes to the statute were unnecessary and ill-advised. Most of the amendments were designed not to assist the Department of Justice in its mission to combat fraud in federal programs - a goal that every American should share - but to increase the potential for qui tam plaintiffs to file suits and share in government recoveries. The effect of these amendments will be a spike in qui tam suits motivated by the prospect of lottery-like recoveries, many of which will be meritless. The corporations and others who are subjected to these suits will inevitably incur increased litigation and settlement costs, ultimately driving up health care, defense, and other costs borne by the government and taxpayers.

One of the most unfortunate aspects of PPACA is that the changes to the public disclosure bar were made outside the normal legislative process. There were no hearings, no explanatory Senate or House reports, and no significant floor statements - in short, no legislative process at all. There was no opportunity for other stakeholders in the False Claims Act, including the Department of Justice and the corporate and non-profit community, to suggest improvements. It is a truly unfortunate way to go about creating legislation, especially legislation as far reaching and important as this.

One would hope that the legislative process has now run its course, and the False Claims Act would not be further subjected to amendments motivated by the qui tam plaintiffs' bar.But unfortunately, there is no reason to think that these lawyers will be satisfied with the changes they have secured to date. The qui tam lawyers can be expected to continue to push for everything they have not yet been successful in obtaining.

Highest on their agenda may be legislation that would exempt qui tam plaintiffs from the requirement that they plead fraud with particularity in accordance with Federal Rule of Civil Procedure 9(b) - a requirement imposed on every other plaintiff coming into federal court with allegations sounding in fraud. The qui tam community has supported this change over the last two and a half years and has sought introduction of several bills making this change. In addition, the qui tam bar has sought a number of other changes designed to increase qui tam recoveries at the expense of the Department of Justice. It is hard to discern any public policy that would support these amendments, only the hope for private gain at the expense of the public fisc.

It is time for Congress to heed the admonition, "Don't just do something, stand there." The False Claims Act has enjoyed a 20-year history of great success in combating fraud in federal programs. The changes wrought by FERA and PPACA have now tipped the balance sharply in favor of qui tam plaintiffs. Further amendments in that vein could skew the statute so greatly in favor of the plaintiffs that corporations will cease doing business with the government or participating in federal programs. At the very least, it is time to give the False Claims Act a period of extended repose, and time for a careful assessment of how the amended statute will operate in practice.