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February 2, 2011

Proposed Changes to Program Civil Fraud Remedies Act

The Program Fraud Civil Remedies Act ("PFCRA"), often referred to as the "mini-false claims act," allows government investigators to pursue individuals who knowingly (or with reason to know) submit false, fraudulent, or fictitious claims to a government agency. The PFCRA is very similar to its statutory brethren the False Claims Act ("FCA"), which has become a favored tool of the Department of Justice ("DOJ") and whistleblower plaintiffs in ferreting out fraud in many different industries doing business with the federal government.

So, why has the PFCRA garnered less attention than its fearsome relative, the FCA? The primary reason is that the PFCRA imposes a $150,000 cap on damages, rendering it unavailable for the prosecution of the large-scale frauds pursued by the DOJ and sophisticated whistleblower plaintiff's attorneys. Another reason is that PFCRA actions are prosecuted in administrative proceedings, not in federal court.

However, the divide between the PFCRA and the FCA may be narrowed by a proposal to raise the $150,000 cap on damages. If enacted, this change could have a dramatic effect on the federal government's ability to prosecute procurement fraud cases, as well as provide whistleblowers with greater incentive to rely on the PFCRA.

In its current form, the PFCRA enables the government to recover $5,000 per false claim and double the amount of the damages caused by the false claim, up to a cap of $150,000. Recently, Michael Granston, the Deputy Director of the DOJ's Civil Division – Commercial Litigation Branch, gave notice that the PFCRA may begin to play a more important role in civil fraud enforcement because of a proposed increase in the damages cap. According to Granston, a higher damages cap would lead to increased agency use of the PFCRA and a concomitant reduction of the DOJ's significant FCA caseload, leaving the DOJ with more resources to concentrate on the massive FCA investigations that have made news in recent years, and its particular priorities, such as fraud in the health care, mortgage and financial industries.

The proposed changes to the PFCRA could have a profound impact on government contractors and their attorneys. Obviously, a higher damages cap would expose government contractors to greater liability. However, perhaps more significant than the risk of increased damages is the threat of more frequent administrative prosecution for false claims matters. Some key differences between administrative and civil litigation of false claims matters are as follows:

  1. FCRA proceedings would not remain under seal for extended periods of time as FCA cases do in federal court;
  2. Administrative proceedings lack some of the important procedural safe guards available in civil litigation. For example, regulations under the PFCRA do not permit the extensive discovery available to litigants in federal court;
  3. Administrative proceedings progress much more quickly than FCA cases brought in federal court;
  4. Administrative agencies lack the experience of federal courts in handling issues prevalent in false claims litigation, and have not developed a significant body of precedent like that involving the FCA;
  5. The respective appellate standards of review differ significantly.

Although the PFCRA will not replace the FCA as the favored fraud-prevention tool of the federal government and whistleblowers, the proposed changes are an important development in false claims litigation. Companies that do business with federal agencies should take note and be prepared to address the threat of increased false claims prosecution.

If you require further information regarding the information presented in this Legal Alert and its impact on your organization, please contact any of the members of the Practice Area.


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