Legal Clichés are Meant To Be Challenged

Written By Tony Munter

We accept legal clichés so readily that we forget to look up how they were born.  In the world of False Claims Act law there are many and unfortunately, those cited to defend fraudsters continue to resonate with judges and the public.

I’m going to pick on a few in this blog and see how they are used.

Here’s one you will see in almost every Motion to Dismiss from any Defendant of an action filed under the False Claims Act.

“The materiality standard is demanding “as the FCA is not  ‘an all-purpose antifraud statute’ or a vehicle for punishing garden-variety breaches of contract or regulatory violations.”

This quote is from Escobar, currently the most important case on Materiality. Even though the Defense Bar cites it all the time and this quote in particular, the Case upholds the Plaintiff’s position. The idea that omissions and half-truths can form the basis of a False Claims Act case is what Escobar holds and materiality, the idea that something material to the government has been and is part of the False Claims Act statutorily.

Justice Thomas wrote the decision and it is mostly a thoughtful balancing of important ideas.  Here though, he strings together a bunch of quotes one of which troubled me. So I looked it up.

No the FCA is not meant to punish “garden-variety breaches of contract or regulatory violations.”  Although a garden-variety breach of contract as opposed to a material breach is not always so easy to define as I think Thomas would agree.

I take issue with the part of this quote that says the FCA is not an “all purpose anti-fraud statute” at least as cited by Justice Thomas.  He is hardly alone.

That particular sub-quote comes from an earlier and now overturned Supreme Court case Allison Engines 553 U.S. at 672.

The main holding of Allison Engines was overturned by Congressional action. The idea was that to hold someone liable under the Act you had to show “presentment” from some person to the U.S. Government. It made holding sub-contractors liable for fraud difficult. The fraud Enforcement and Recovery Act of 2009 eliminated this analysis by changing the definition of a” false statement” creating liability under the Act to Any person who…knowingly makes, uses or causes to be made or used a false record or material or statement…” Congress went so far as to make that change retroactive to the Allison Engine’s decision itself.

Not only is Thomas quoting from a case, which was overturned by congressional action, but also the quote misstates what Justice Alito, who wrote that decision, was saying at the time.

Here’s what Alito said in Allison Engines.

In such a situation, the direct link between the false statement and the Government’s decision to pay or approve a false claim is too attenuated to establish liability. Recognizing a cause of action under the FCA for fraud directed at private entities would threaten to transform the FCA into an all-purpose antifraud statute. Our reading of §3729(a)(2), based on the language of the statute, gives effect to Congress’ efforts to protect the Government from loss due to fraud but also ensures that “a defendant is not answerable for anything beyond the natural, ordinary and reasonable consequences of his conduct.” Anza v. Ideal Steel Supply Corp., 547 U. S. 451, 470 (2006) (internal quotation marks omitted).

So, what Alito was concerned about, was the idea that the False Claims Act could be expanded to use as an “all-purpose anti-fraud statute” in the sense that it could be used against private companies suing each other and or private companies whose conduct itself was not involved in defrauding the government.

Hello.  That is not at all what anyone files a False Claims Act case is intending to fight. There is no False Claims Act case being filed by any responsible member of the Plaintiff’s Bar that does not allege the government is being ripped off. So, what does the use of this trope really mean?

Alito’s reasoning at the time, narrowed the meaning of a false record to be sure that only an attempt to rip off the government would be considered and he was very strictly reading the text of the Act. His reasoning forced Congress to enact specific legislation to expand the definition of a false record and it did.

Even Alito was not worried that the FCA could be used to protect or recover government funds.

Yet, when this trope is used now, few people realize just how “all purpose” the type of law Alito was worrying the FCA could be. They throw this into condition judges to think using the law at all is somehow scary. As if fighting fraud is a bad idea or an extraordinary one or that the law should only be used, well in any case not involving the particular defendants involved.

Actually when it comes to fighting fraud committed against the government the FCA is all-purpose or at least that was the intent of those who enacted it. If we can demonstrate the government has suffered, actually suffered harm from a material misrepresentation, the FCA’s purpose is to hold the defendant liable.  You can call that all-purpose or specific purpose if you like, but it has little to do with the trope being posted at the top of every brief.