A False Claims Payday for Trial Lawyers

By May 18, 2009Briefly Legal

Hans A. von Spakovsky and Brian W. Walsh of the Heritage Foundation have a new paper out, “Correcting False Claims about the New False Claims Act Legislation,” reporting on a bad bill making headway in Congress, H.R. 1788.

The False Claims Act is intended to discourage fraud committed against the government by allowing private plaintiffs to sue on the government’s behalf. The treble damages allowed by the law makes it an appealing weapon for private litigators.

However, courts — including the U.S. Supreme Court — have required there actually be an effort to get federal dollars fraudulently from the federal government, i.e., someone was trying to defraud the government. Some federal connection was insufficient to bring the False Claims Act into play.

But under the new legislation, they write at “A False Claims Payday for Trial Lawyers,” that distinction is erased.

All that would be required for a successful FCA fraud claim is for a defendant to have also received federal funds that may be spent to advance a government program or interest. Even undesignated federal funds given to a general operating account could suffice. Thus, liability could attach for any false claim made to a college or university, so long as the institution had received some federal grants – as most of them do. Or allegedly false claims made against a non-profit (501(c)(3)) organization that receives grants from federal employees’ charitable donations could expose the claimant to an FCA lawsuit.

This change would transform the FCA into an altogether different law. Instead of a statute designed to protect the American taxpayer, it would become a general federal anti-fraud statute, used in cases where the real federal interest at stake – if any – is only tenuously related to the false claim. It will allow the FCA to be used punitively by trial lawyers against almost any private organization or corporation that receives any federal funds. It opens up huge swaths of the economy to FCA litigation, especially in today’s post-TARP, post-bailout, post-“stimulus” world where federal funds are being injected even into large private institutions that don’t want them. It federalizes claims historically and adequately addressed at the state level – all to the financial benefit of the biggest political contributors to liberal politicians.

It’s a complex topic and the legislation is easily sold as “fighting government fraud.” But it really amounts it may amount to another huge increase in the tort tax paid by business and consumers, with revenues flowing into the pockets of the trial lawyers.

See also this Reed Smith alert for the Life Sciences Health Industry, which also summarizes the problems with S. 386, which is scheduled for House action this week. This bill is less extreme.

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