On July 25, 2023, U.S. Senator Chuck Grassley (R-IA), introduced a bill that aims to, among other things, make it easier for the government to satisfy the False Claims Act’s materiality requirement when the government has made payment on a claim the government knows to be false or fraudulent. The bill, titled the “False Claims Amendments Act of 2023,” has bipartisan support and is co-sponsored by Senators Dick Durbin (D-IL), John Kennedy (R-LA), and Roger Wicker (R-MS).
The proposed amendments seek to make three changes to the False Claims Act (FCA). First, the bill states that, “[i]n determining materiality, the decision of the Government to forego a refund or to pay a claim despite actual knowledge of fraud or falsity shall not be considered dispositive if other reasons exist for the decision of the Government with respect to such refund or payment.” Second, the amendments would extend the Act’s anti-retaliation protections to former employees. Third, the amendments would require the U.S. Government Accountability Office to report on the effectiveness of the FCA, measured in part by the funds the government recovers under the Act.
The most significant of these proposed amendments to the Act is the first, which amounts to a congressional attempt to modify the U.S. Supreme Court’s 2016 ruling in Universal Health Services, Inc. v. United States ex. rel. Escobar, 579 U.S. 176 (2016), by softening the FCA’s materiality requirement. The FCA imposes liability only for a defendant’s violation of a material statutory, regulatory, or contractual requirement. Escobar held that “[t]he materiality standard is demanding,” as the False Claims Act is “not an all-purpose antifraud statute . . . or a vehicle for punishing garden-variety breaches of contract or regulatory violations.” 579 U.S. at 194 (internal quotation marks omitted). Escobar further held that it is “very strong evidence” that particular statutory, regulatory, or contractual requirements are not material “if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated.” Id. at 195. By mandating that the government’s continued payment, despite its actual knowledge of fraud or falsity, shall not be dispositive of the materiality inquiry if other reasons exist for the decision, the proposed amendment would soften without directly contradicting the materiality standard set forth in Escobar. It would also make the materiality inquiry more fact-intensive, which may impact defendants’ ability to win motions to dismiss based on materiality grounds.
Defense counsel should track this bill’s progress given its aim to weaken the Escobar materiality standard and thus strengthen the litigating position of qui tam plaintiffs and the government in pursuing False Claims Act liability against entities that do business with the government.
