United States: Court Finds Absence Of False Claims Act Liability For Claims Submitted To Federal Grantee

On August 27, 2004, the Court of Appeals for the District of Columbia Circuit issued a significant ruling in United States ex rel. Totten v. Bombardier Corp. The court held that liability cannot be imposed under the federal civil False Claims Act ("FCA") when claims have been submitted to a private entity that serves as a federal grantee, but have not been presented for payment to an officer or employee of the United States government ("government"). The decision, which was issued by a sharply divided court, addresses issues of first impression and will likely be closely analyzed as other appellate courts face similar issues.

While this case dealt with a government contract issue, the decision is likely to have a significant impact on the health care industry as well. Health care entities often participate as subcontractors with organizations that receive federal funding as a primary government grantee or contractor, such as a provider in a Medicare managed care network or as site investigator for government sponsored clinical research. For health care entities that file various claims with government grantees or contractors but do not file claims directly with the government, this decision provides arguments which may be a defense against alleged FCA violations.

Edward Totten ("Plaintiff") brought a qui tam action against Bombardier Corporation and Envirovac, Inc. ("Defendants"), alleging that these companies violated the FCA by submitting false claims to Amtrak for defective rail cars. The claims were submitted to Amtrak for payment, rather than to the government. However, Amtrak paid Defendants from an account that included federal grant funds. The court's decision results from Plaintiff's second appeal of a lower court's decision to dismiss Plaintiff's FCA case, in which the government declined to intervene.

In his appeal, Plaintiff argued that false claims were presented to the government because Amtrak was a government corporation until 1997, and the government has continued to hold Amtrak's preferred stock and provided large subsidies to Amtrak since 1997. A majority of the court rejected this position, noting that Amtrak's enabling legislation stated that the company is not an agency, department, or instrumentality of the government. As a consequence, the majority decided that filing a claim with Amtrak was not the equivalent of filing a claim with the government.

Undaunted by the court's conclusion, i.e., that Amtrak is not part of the government, Plaintiff also contended that a claim submitted to Amtrak is effectively a claim submitted to the government because the FCA covers claims presented to grantees if the claims are paid with funds the grantee received from the government. A majority of the court rejected this argument as well, explaining that the FCA's plain language imposes liability only under circumstances in which a claimant knowingly presents, or causes to be presented, a false claim to an officer or employee of the government, commonly referred to as the .presentment requirement.. The majority found that neither Plaintiff, nor the government as amicus curie in the second appeal only, explained how a claim filed with Amtrak could possibly satisfy the FCA's presentment requirement.

Plaintiff argued that the FCA defines a "claim" as including a request for payment made to a grantee if the government provides any portion of the funds requested, or if the government reimburses the grantee for any portion of the requested funds, which is inconsistent with the presentment requirement. To reconcile these inconsistencies, it was Plaintiff's theory that liability may be imposed when false claims are submitted to grantees which receive federal funds because such claims are "effectively" claims made to the government even when not submitted directly to the government. The majority rejected this theory and reiterated its conclusion that the FCA requires that a claim be presented to a government employee or officer, a mandatory requirement separate and distinct from the definition of a "claim" under the statute. 

The majority also noted that the plain language of the FCA is so clear and unambiguous (in requiring claim presentment to the government in order to impose liability), that the legislative history of the statute is irrelevant in determining its meaning, especially in a manner that contradicts the plain statutory text. While Plaintiff and the government argued that adhering to the plain language of the FCA would be inconsistent with Congressional intent in enacting the 1986 amendments to the legislation, the majority reasoned that Congress could have amended the FCA in 1986 to impose liability for claims presented to a government grantee if it so chose. And since Congress did not so choose it was not appropriate for the court to impose that interpretation in the matter before it. As a result, the majority strictly construed the statutory language to limit the scope of FCA liability, even if a claim filed with a grantee technically meets the FCA's definition of a "claim." 

One judge argued, in a lengthy dissent, that the FCA offers another basis for liability that supercedes the presentment requirement. and provides FCA liability when a claim is submitted to a government grantee rather than directly to a government officer or employee. However, the majority rejected this argument as well, stating that the dissent's interpretation would render the FCA's presentment requirement meaningless and that the better interpretation would be to read the statute's provisions in combination, with the ultimate principle being that a claim must be presented directly to the government.

The court's decision is important because it narrows, significantly, the circumstances under which FCA liability may be imposed in cases involving claims submitted to private entities that also serve as government grantees. While this decision did not involve health care entities, similar issues might arise in a health care context in situations in which health care providers (e.g., Medicare+Choice/Medicare Advantage providers) submit claims to an entity that contracts with the government (e.g., a Medicare+Choice/Medicare Advantage Plan) rather than directly with the government.

It is important to note that this decision is likely to be addressed in future federal cases, in different jurisdictions, and possibly in a health care context. In these situations, the majority's holding, i.e., that a claim must be presented directly to a government officer or employee, could provide a convincing basis to refute FCA liability involving claims submitted to a government grantee. 

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