<DOC> [110 Senate Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:42809.wais] S. Hrg. 110-412 THE FALSE CLAIMS ACT CORRECTION ACT (S. 2041): STRENGTHENING THE GOVERNMENT'S MOST EFFECTIVE TOOL AGAINST FRAUD FOR THE 21ST CENTURY ======================================================================= HEARING before the COMMITTEE ON THE JUDICIARY UNITED STATES SENATE ONE HUNDRED TENTH CONGRESS SECOND SESSION __________ FEBRUARY 27, 2008 __________ Serial No. J-110-76 __________ Printed for the use of the Committee on the Judiciary ---------- U.S. GOVERNMENT PRINTING OFFICE 42-809 PDF WASHINGTON : 2008 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 COMMITTEE ON THE JUDICIARY PATRICK J. LEAHY, Vermont, Chairman EDWARD M. KENNEDY, Massachusetts ARLEN SPECTER, Pennsylvania JOSEPH R. BIDEN, Jr., Delaware ORRIN G. HATCH, Utah HERB KOHL, Wisconsin CHARLES E. GRASSLEY, Iowa DIANNE FEINSTEIN, California JON KYL, Arizona RUSSELL D. FEINGOLD, Wisconsin JEFF SESSIONS, Alabama CHARLES E. SCHUMER, New York LINDSEY O. GRAHAM, South Carolina RICHARD J. DURBIN, Illinois JOHN CORNYN, Texas BENJAMIN L. CARDIN, Maryland SAM BROWNBACK, Kansas SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma Bruce A. Cohen, Chief Counsel and Staff Director Stephanie A. Middleton, Republican Staff Director Nicholas A. Rossi, Republican Chief Counsel C O N T E N T S ---------- STATEMENTS OF COMMITTEE MEMBERS Page Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 1 prepared statement........................................... 203 Specter, Hon. Arlen, a U.S. Senator from the State of Pennsylvania................................................... 3 WITNESSES Boese, John T., Partner, Fried, Frank, Harris, Shriver & Jacobson LLP, Washington, D.C........................................... 23 Clark, John E., Of Counsel, Goode, Casseb, Jones, Riklin, Choate & Watson, P.C., San Antonio, Texas............................. 21 Gonter, Tina M., Jacksonville, Florida........................... 19 Hertz, Michael F., Deputy Assistant Attorney General, Civil Division, Department of Justice, Washington, D.C............... 6 QUESTIONS AND ANSWERS Responses of John Boese to questions submitted by Senator Specter 40 Responses of John Clark to questions submitted by Senator Specter 52 Responses of Michael Hertz to questions submitted by Senator Specter........................................................ 54 SUBMISSIONS FOR THE RECORD Benczkowski, Brian A., Principal Deputy Assistant Attorney General, Department of Justice, Washington, D.C., statement and attachment..................................................... 57 Boese, John T., Partner, Fried, Frank, Harris, Shriver & Jacobson LLP, Washington, D.C., statement............................... 75 Brickman, Jim, Real Estate Developer and Investor, Texas, statement...................................................... 115 Bucy, Pamela H., Bainbridge Professor of Law, University of Alabama School of Law, Tuscaloosa, Alabama, statement.......... 119 Clark, John E., Of Counsel, Goode, Casseb, Jones, Riklin, Choate & Watson, P.C., San Antonio, Texas, statement.................. 136 Gonter, Tina M., Jacksonville, Florida, statement................ 167 Hertz, Michael F., Deputy Assistant Attorney General, Civil Division, Department of Justice, Washington, D.C., statement... 186 Kohn, Stephen M., President, National Whistleblower Center, Washington, D.C., statement and attachment..................... 196 THE FALSE CLAIMS ACT CORRECTION ACT (S. 2041): STRENGTHENING THE GOVERNMENT'S MOST EFFECTIVE TOOL AGAINST FRAUD FOR THE 21ST CENTURY ---------- WEDNESDAY, FEBRUARY 27, 2008 U.S. Senate, Committee on the Judiciary, Washington, D.C. The Committee met, Pursuant to notice, at 10:05 a.m., in room SD-226, Dirksen Senate Office Building, Hon. Patrick J. Leahy, Chairman of the Committee, presiding. Present: Senators Leahy, Durbin, Specter, and Grassley. OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE STATE OF VERMONT Chairman Leahy. Nearly a century and a half ago, President Lincoln pushed through the False Claims Act. He wanted to stop the rampant fraud and war profiteering we saw during the Civil War. It is fitting that we hold this hearing on legislation to strengthen ``Lincoln's law'' the same month we celebrate President Lincoln's birth. We are in the midst of war, and we are facing reports of billions lost to fraud and waste in Iraq and Afghanistan. And so we are considering important new improvements to the False Claims Act--not only to punish and deter those who seek to defraud our Nation, but also, importantly, to recover billions in taxpayer dollars that were stolen from the public trust. In recent years, the False Claims Act has become the Government's most effective tool against fraud. Since 1986, it has been used to recover more than $20 billion lost to fraud, half of that just in the past 5 years. It has been used to punish contractors selling defective body armor to our police, to recover hundreds of millions from oil and gas companies bilking the Government on valuable leases on Federal land, to punish health care and drug companies for defrauding billions from Medicaid and Medicare, and to uncover massive fraud by insurance companies illegally shifting their losses from Hurricane Katrina to the Federal Government. But these recent successes do not tell the full story. The False Claims Act has yet to fulfill its true potential for combating fraud. In 1986, Senator Grassley led the effort to reinvigorate the False Claims Act by amending the law to encourage citizens to report fraud against the Government. I want to take this moment to publicly commend Senator Grassley for doing that. Senator Grassley. Thank you, Mr. Chairman. Chairman Leahy. It was one of the most important pieces of legislation passed during that time. Senator Grassley. Thank you. Chairman Leahy. Since then, citizen whistleblowers have become the greatest source for uncovering complex frauds against the Government. Their cases now account for about 70 percent of all the money recovered under the False Claims Act. Yet opponents of the False Claims Act, those who defend the major defense contractors and big drug companies, have worked hard to undermine the original intent of these amendments. A series of recent court decisions have placed new, technical impediments on false claims cases, and these court cases threaten to weaken the law. Not only would they weaken the law, they would undo the successes of these past few years. So we are considering bipartisan legislation--the False Claims Act Correction Act of 2007--that is going to correct these judicial interpretation problems and strengthen the False Claims Act for the 21st century. In doing so, I will recognize the longstanding leadership of my friend Senator Chuck Grassley. He introduced this bill recently in order to restore the original intent of the 1986 amendments. He has worked tirelessly over the years in defense of the False Claims Act, and I am proud to join with him, as well as Senator Specter, of course, and Senator Durbin and Senator Whitehouse, in support of this bill. I look forward to working with these Senators and the Committee to make the False Claims Act even more effective and to provide important, new protections for the citizen whistleblowers, who are so vital to uncovering these frauds. So we will ask some important questions of the Justice Department about its failure to dedicate sufficient lawyers and investigators to pursue these fraud cases. The Justice Department has a backlog of more than 1,000 false claims cases. Now, assuming no new cases were brought, at the current pace that would take 10 years to resolve. That is assuming no new cases. Now, when one considers that a recent study found that for every dollar spent enforcing the law in health care cases, the Government recovered $15 on behalf of the American taxpayers, there is no excuse for failing to pursue these cases aggressively. That is a pretty good investment. In light of the politicization of the Justice Department, many wonder whether it has resisted pursuing certain false claims cases for political reasons--most notably those involving contracting fraud related to the war in Iraq and Afghanistan. Over the past 5 years, the Justice Department has participated in more than 600 false claims settlements nationwide and recovered more than $10 billion. And I commend them for that. But during that same time, the Justice Department participated in only five settlements involving contracting fraud in Iraq and Afghanistan, recovered a mere $16 million--less than two tenths of 1 percent of the overall total. We certainly know from the press that there has been a lot more fraud than that. And since 2002, our Government has spent nearly $500 billion on the wars in Iraq and Afghanistan, and billions of taxpayers' dollars have been lost to fraud, waste, and abuse. They ought to be recovering that, not protecting favorite contractors or politically connected people who are bilking the taxpayers. The False Claims Act was designed to attack such rampant war profiteering. It was necessary during the Civil War, and it is necessary today. The administration has apparently decided that pursuing unscrupulous defense contractors would be embarrassing, and aggressively pursuing these frauds is not their priority. We will hear from a courageous citizen whistleblower, Tina Gonter, who will tell us how she used the False Claims Act not only to hold our Nation's largest defense contractors to account, but also to keep the Justice Department honest. She risked her job, she was retaliated against, but she took on the powerful and the moneyed defense contractors anyway. It is people like that who Senator Grassley and I and others want to protect when they raise these issues. The whistleblowers should be recognized as ``citizen soldiers,'' as President Lincoln called them when the False Claims Act was first passed so many years ago. Her story demonstrates how the False Claims Act works for all Americans and why the new protections for citizen whistleblowers in the bill we consider today are necessary to encourage them to come forward and tell their stories. So I hope all Senators will join us to honor the legacy of Lincoln's law and take action now to strengthen and improve the False Claims Act for the next century. Before I yield to Senator Specter, I should note that because of our duties on the Appropriations Committee, we both will have to leave, and I have asked Senator Grassley when we leave if he would chair this hearing, and he has graciously offered to do so, and I appreciate that. [The prepared statement of Senator Leahy appears as a submission for the record.] Senator Specter? STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE OF PENNSYLVANIA Senator Specter. Thank you, Mr. Chairman. The subject of the False Claims Act is a very important one. I was fascinated by the subject in law school, and the criminal law textbook had the Supreme Court decision of ex rel. Marcus v. Hess, a 1942 decision, and it motivated me to do extensive research and write an article for the law review, law journal on private prosecutions. And over the years, I have followed this Act, and it has enormous potential to collect money for the Federal Government, but only if people are encouraged to follow that. I was disappointed to see the decision of the Supreme Court of the United States in the Rockwell International Corporation case, which said that if the factual basis for recovery or conviction was not what the whistleblower had started with, there could not be a recovery. Well, the texture of a case frequently changes during the course of discovery and litigation. And if the whistleblower is going to find that his claim can be dislodged that easily, he is not going to be inclined to follow it. Also, the Totten case, where the relator whistleblower was denied recovery because it was Amtrak, not the Government but a grantee. And grantees get most of the money or a great deal of the money from the Government. And then in the Custer Battles case, to deny a claim because it was the Coalition Provisional Authority in Iraq, an international entity that got so much of the money from the United States, those are really Federal dollars, and there really ought to be a way to encourage this kind of action. But private action and citizen action is really the cornerstone of initiative, and it has been very successful on treble damage cases and many, many other lines. I am sorry that my schedule precludes my staying. It is a very distinguished list of witness. Mr. Hertz has a phenomenal record, 30 years in the Federal Government. As I see him sitting at the witness table with packs of materials on each side, I am going to be fascinated to see how he can handle it in 5 minutes. Chairman Leahy. Trust me, Mr. Hertz knows what is in--I know Mr. Hertz. He knows what is in every bit of that material, too. Senator Specter. That is a lot of material, but that is an occupational hazard, which Senator Grassley does not have. Senator Grassley brings to this Committee a fresh view. He is not encumbered with a law degree. [Laughter.] Senator Specter. He is a very, very practical man. And as I said on the floor 1 day, when I got carried away, Senator Grassley is in the mold of Harry Truman. I hope President Truman did not mind my making that reference. But Senator Grassley brings a unique practicality to his work here. And I have a special fondness for Senator Grassley. I have still got a little time, so I am going to use it to reminisce a bit. Senator Grassley and I were elected in 1980 together. We came with a total of 16 Republican Senators, and two Senators were elected as Democrats. One was Senator Chris Dodd of Connecticut. I saw Chris this morning. We were reminiscing about how 50 percent of his class has remained and only 12.5 percent of the Republican class, 2 out of 16. And the only thing that has really befallen Senator Grassley of a problemsome nature during his distinguished career is that with some frequency he has been mistaken for me. [Laughter.] Senator Specter. And that is grounds for a defamation suit. But Senator Grassley does not like dealing with lawyers, so he has never brought the suit. But he was after Attorney General William French Smith, so, Mr. Hertz, if he is tough on you today, he goes after Attorneys General as well. One day I was at the White House, in 1984, and Attorney General Smith said, ``Why are you after me?'' And I finally realized that he thought I was Chuck Grassley. [Laughter.] Senator Specter. Senator Grassley tells a story--well, you tell the story about what happened, people remonstrated you for your terrible questioning of Professor Anita Hill. Senator Grassley. Yes, and, you know, the practice then when we had Anita Hill and other people before the Committee at the Thomas hearing, there were two Republicans and two Democrats that were scheduled to ask questions. None of the rest of us asked questions. That was a bipartisan agreement at that time. And so he was asking the questions for the Republicans. We each made a statement for maybe 2 or 3 minutes, is all our participation. But for the next 6 months, because he asked such tough questions of the witnesses, everybody would come up to me and say, ``I don't see how you could have been so mean to those witnesses.'' [Laughter.] Senator Grassley. And I was innocent. I did not ask a single question, nor did most of the other Republicans. Senator Specter. One addendum to that. In 1999, 8 years after those hearings were over, Senator Grassley and Justice Thomas were having breakfast in the Senate dining room. And I walked over to the two of them sitting there, and I said, ``Justice Thomas, I want to tell you two things. I want to tell you how hard it was for me to get Grassley to vote for you.'' They both about fell off their chairs, this diehard Republican. ``And one other thing I want to tell you, Justice Thomas. You know all those questions I asked Professor Hill? Grassley fed them to me.'' [Laughter.] Senator Specter. But on the subject, this is-- Chairman Leahy. And what was his answer? Senator Specter. He laughed. Justice Thomas has a laugh which originates in the lower part of his abdomen. He really explodes with his laugh. But those were complex hearings, really historic hearings. Senator Leahy and I have been around, as has Senator Grassley, to participate in a lot of historic hearings, and this is a very important one. And I will work hard with Senator Grassley and Senator Leahy to see if we cannot get this legislation. And we are amenable to your suggestions, Mr. Hertz, as to where you think it ought to go, as long as we can get the bill passed. Senator Grassley. Senator Leahy, if I could delay my opening statement, because I would like to make sure as Chairman of the Committee, I think it is very important to the legitimacy of my legislation if you would ask your questions before you go? Chairman Leahy. I will, and I appreciate that. Mr. Hertz, if you would stand, please, to be sworn. Do you solemnly swear that the testimony you will give in this matter will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. Hertz. I do. Chairman Leahy. Thank you. Michael Hertz is the Deputy Assistant Attorney General for the Commercial Litigation Branch of the Civil Division at the Department of Justice. He served continuously with the Department for over 30 years. Beginning in 1975 when he joined the Civil Division's appellate staff, he supervised and litigated False Claims Act cases extensively during his long and distinguished career. And I might note that through the years, in both Republican and Democratic administrations, I have noted that it is the career people in the Department of Justice that are the most important aspect of that Department. I remember how appealing I found them when I was a young law student--I actually did value getting my law degree--when the then-Attorney General was basically asking me if I would come out of law school and join the Department of Justice. I remember that Attorney General. I was very impressed with my meeting with him, and telling me how in the professional division they did not allow politics to influence them. I had some interest in the Criminal Division. He said even the President of the United States--he told the President of the United States he could not interfere with a criminal investigation. And I thanked Attorney General Robert Kennedy for telling me that, and it turned out, as history showed, that when a strong supporter of his brother was involved with a criminal matter, they prosecuted him. And that is, of course, the way it should be. Mr. Hertz during his service with the Department has received numerous awards, including the Stanley D. Rose Memorial Award. That is the Civil Division's highest ranking award. He received that in 2002. He has his bachelor's degree from Rensselaer, a law degree from Northwestern University School of Law. Please, Mr. Hertz, go ahead. STATEMENT OF MICHAEL HERTZ, DEPUTY ASSISTANT ATTORNEY GENERAL, CIVIL DIVISION, DEPARTMENT OF JUSTICE, WASHINGTON, D.C. Mr. Hertz. Mr. Chairman, Senator Grassley, I want to thank the Committee for inviting me to testify and present the views of the Department of Justice on Senate bill 2041. I also appreciate having this opportunity to review with you the Department's experience with qui tam actions since the 1986 amendments. The Department of Justice is committed to the vigorous enforcement of the laws against those who perpetrate fraud to obtain money from the Government. Since the False Claims Act was amended and liberalized in 1986, over $20 billion has been recovered on behalf of taxpayers by the Department with more than $5 billion of that amount in just the past 2 years. The qui tam provisions of the False Claims Act statute, which the Department continues to vigorously support, have augmented our resources to address fraud in connection with Government programs and to recover some losses to the Federal fisc that would not have otherwise been identified. Since the qui tam provisions of the False Claims Act were amended, there have been more than 5,800 suits filed with the Department through fiscal year 2007. It is significant to note that of the $20 billion recovered under the False Claims Act since 1986, $12.6 billion has been the result of qui tam actions, and the Department has paid awards to qui tam relators of $2 billion. We believe that the success of the Act's qui tam provisions are in large part due to the efforts of both whistleblowers, whom we acknowledge bring these cases often at great personal sacrifice, and the highly professional, skilled and dedicated Government attorneys, agents, auditors, who, with the encouragement of the Department, work with relators and their attorneys to fully implement the public-private partnership contemplated by the 1986 amendments. As I have said, the Department is of the view that the False Claims Act is effective and working very well. Accordingly, we have not independently urged or seen a pressing need for major amendments at this time. As our views letter and appendix reflect, however, the Department has considered the bill carefully and is sympathetic and can support many of the proposed changes to the False Claims Act, although in a number of instances we proposed alternative language to accomplish essentially the same purpose. For example, we have argued that the presentment and Federal funds limitations imposed by the courts in the Totten decision and the Custer Battles decision were incorrectly imposed, and we have filed amicus briefs arguing that both cases were wrongly decided. To the extent that S. 2041 proposes to redress those holdings, we have provided comments for an effective and simple way to do so. Similarly, we support the goals embodied by the provisions of S. 2041 that: one, clarify the conspiracy provisions apply to all substantive bases of liability; two, make actionable under the False Claims Act the requirement to return overpayments; three, prohibit the unwitting waiver of claims by relators; four, provide a single 10-year statute of limitations under the False Claims Act; five, make clear that under the False Claims Act amended allegations filed by the United States relate back to the date of the original complaint by the relator; and, six, streamline and make effective the False Claims Act civil investigative demands. Notwithstanding these areas of mutual agreement, and principally because of S. 2041's specific proposals with respect to the right of Government employees to serve as relators, and the public disclosure bar, as well as the preference for the alternative language we have proposed, the Department cannot support the bill as currently drafted. The Department is opposed to an explicit legislative recognition of the right of Government employees to serve as relators and obtain qui tam awards. Each Federal employee has an existing duty to report fraud, waste, and abuse. Adding a financial incentive to file qui tam suits conflicts with this duty and has the potential to undermine both the employee's loyalty to the Government and the public's confidence in the fairness and impartiality of the Government's decisions. This is particularly true for those Government employees such as auditors, investigators, contracting officials, and attorneys who are paid salaries by the taxpayers to identify and root out fraud and who, under S. 2041, would not be barred from filing suits using information they learned in carrying out those duties. We are also concerned that in an effort to correct the current public disclosure bar, the proposed legislation will unduly narrow it. One of the guiding principles of the False Claims Act was that it was intended to provide the Government with information about fraud it otherwise would not have discovered. As currently drafted, the proposed narrowing restrictions would enable rewards to be claimed by plaintiffs with no firsthand knowledge of fraud and who do not add information beyond what is in the public domain, as well as plaintiffs in a broad range of cases where the Government is already taking action. While the Department could support aspects of the bill's proposal that eliminate the jurisdictional nature of the public disclosure bar and that permit only the Attorney General, and not defendants, to seek dismissal of relators on this ground, it could only do so if the bar reflects the concerns we have outlined. In our view, the public disclosure bar would have to be revised to permit dismissal of a qui tam action by the Government if it is already pursuing the matter unless the relator provides new information that would enhance the Government's recovery or the Government's investigation is based on information voluntarily provided by the relator. The Department wishes to acknowledge the efforts of Senators Grassley, Leahy, Specter, and Durbin and their staffs for the thoughtful work that has gone into S. 2041. Although as currently proposed the Department cannot support the bill, we remain willing to work with the Committee to address our concerns and ensure that the False Claims Act remains the vital anti-fraud weapon that it is today. I look forward to your questions. Thank you. Chairman Leahy. Well, thank you, Mr. Hertz. You know, I am somewhat concerned on the part that you do disagree with, and I appreciate the fact that the Department agrees with a number of the sections. And I take it you feel the Rockwell decision was wrongly decided. Is that correct? Mr. Hertz. That is correct. The Government filed an amicus urging that the relator in that case be allowed to retain the award. Chairman Leahy. I agree with that. But you understand that under our bill--and I understand what you said about employees already have--Government employees have a duty to report fraud or abuse, and we will all agree on that. The concern I have had--and I know Senator Grassley and others have had--is that many times when that is reported, it is reported to the detriment of the career of the person doing the reporting. And our bill says that if they discover a fraud, they have to report it to their superiors or to the Inspector General of the Department. And they are not allowed to sue if action is taken. But the only time they can sue is if a year goes by and no action has been taken. Then they can sue. Do you really find that unreasonable? Mr. Hertz. Mr. Chairman, we appreciate the efforts that the provisions of the bill attempt to put restrictions on Government employees, and we recognize that there are some policy choices to be made here. But at the end of the day, we are left with a couple of factors that cause us to say that Government employees should not be allowed to file suit even in the circumstances you outline. First and foremost is, at the end of the day, after the Government employee follows all the procedures in the bill and files a lawsuit, you will still have the situation where the Government employee has a personal financial interest in the matter that he worked on as a Government employee. This is something that is contrary to ethics regs and ethics statutes. Chairman Leahy. I understand that, but we have a certain amount of frustration. If somebody finds something and they report it to the Inspector General, they report it to the Secretary or whoever it might be, and nothing happens--and that has been a situation--what do you do? I mean, you read all these cases about Iraq and Afghanistan. We have spent $500 billion there. You read in the press there seem to be well-- documented cases of fraud and waste. There has been, if I am correct by my notes here, five False Claims Act settlements through the Justice Department, $16 million in cases involving fraud in Iraq and Afghanistan. The AG says there are 230 false claim cases involving defense procurement fraud under seal at the Justice Department. My concern is that political decisions can be made to stop these claims from going forward or that if you have a Government employee--usually, the first one who can see fraud and waste, you know, the trucks get a flat tire, and they just leave the trucks behind, the huge amounts of money that Halliburton was spending on hotels and things like this. They are the ones who are going to see it. And if nothing is done on it, does it just get covered up? Mr. Hertz. I think we are talking about potentially two different issues. One-- Chairman Leahy. Tell me why. Mr. Hertz. Well, we are talking about, one, cases in Iraq. If you look at the qui tam cases that have come out from under seal involving Iraq, they have not involved Government employee relators. And we are working the cases that have been filed in connection with the war in Iraq. Chairman Leahy. Well, you mentioned those under seal. How many have been under seal for more than 2 years? Mr. Hertz. In Iraq? Chairman Leahy. In Iraq and Afghanistan. Mr. Hertz. Well, I do not know. There have been a total of approximately 45 cases involving Iraq and Afghanistan, and about 15 of them are out from under seal. Some we have declined, some we have intervened, some we have settled. One of the things that we have done, we did--you know, unfortunately, these cases are complicated, and they take time. Chairman Leahy. Well, let me ask it another way: Defense procurement cases--and this involves everywhere, not necessarily just Iraq and Afghanistan--the AG says there are 230 under seal. How many of those under seal involve either Iraq or Afghanistan? Mr. Hertz. It should be about 30 of those. Chairman Leahy. OK. That is what I wanted to make sure I understood. And how many of those have been under seal for more than 2 years? Mr. Hertz. Well, you know, I do not know the answer to that, but most of the cases that have come in regarding Iraq have come in in the last 3 years. If you look at the total number of cases that are still under seal, most of those have come in in the last 3 years. We know that it takes a long time to work these cases. There doesn't seem to be any significant difference in the period of time before the Government makes an intervention decision in the cases involving Iraq and the other cases, the pharmaceutical cases that we have, other areas. Chairman Leahy. If I might just ask one last question--I have gone over my time, but you have about 1,000 backlogged now. Have you ever seen a backlog this--you have got institutional memory that most people do not have. Have you ever seen a backlog this big? Mr. Hertz. You know, I have not really looked at the numbers that way. We are trying--they come in at the rate of about 350 a year. Whether the-- Chairman Leahy. And the Justice Department is settling about 100 a year. Mr. Hertz. The qui tam--right, but we decline an awful lot of cases. You know, we decline and do not proceed with 75 to 80 percent of the cases. Chairman Leahy. I understand. Mr. Hertz. Most of those cases actually end up not producing any recovery for the Government. Whether we are disposing more than the 350 that come in per year, I would have to go back and look at that. So I do not know whether the backlog has built over the last few years or has started going down. Chairman Leahy. I tell you what. My time is up. I am going to ask my staff--I have got a number of questions, and they are aware of them--to sit down and work with you on questions of whether we need more staffing. And if you could be good enough to respond to those, please. Mr. Hertz. I would be happy to respond to the questions. Chairman Leahy. Thank you. And Senator Durbin has come in, but as before, I am going to be leaving for this other Committee meeting, and I am going to turn it over to Senator Grassley to chair this. Senator Grassley. [Presiding.] Thank you. I would like to defer to Senator Durbin because I know a Leader has limited time. No, please go ahead. Please go ahead. Senator Durbin. Thank you very much. Senator Grassley. Because I may have the whole meeting to myself. So you go ahead. [Laughter.] Senator Durbin. Thank you, Senator Grassley and Senator Leahy. Senator Leahy, thank you for this hearing. And Senator Grassley has been an extraordinary champion of this issue for as long as I have served in the Senate, probably before. I think it is an extraordinary opportunity to try to ferret out fraud and waste of taxpayers' dollars, and I am a little bit honored and taken by the fact that it started under a President from the State of Illinois. Let me just ask you this, if I might, basic questions, Mr. Hertz. I take it that the Department does not agree with the fundamental goal of this legislation, which is to try to make certain that taxpayers' funds are not wasted, that we do not defraud people who are supposedly serving in good faith, trying to serve their Government. Is that true? Mr. Hertz. No, I do not think that it is true that we disagree with the fundamental purposes of the legislation. I think our--as I have said, we are actually sympathetic with many of the provisions that they are trying to accomplish. I have also said that some of the issues, for example, like Totten and Custer Battles, are actually still in the courts. We do not have final judicial resolution-- Senator Durbin. Well, we try to resolve the Totten issue. Do you have any problem with our resolution of that? Mr. Hertz. I think we propose a different way to fix it. We have said that Totten was wrongly decided. Senator Durbin. OK. Mr. Hertz. And we disagree with, you know, the ruling and think the principle should be otherwise. Senator Durbin. So let's go to the next question. The question is: What about rank-and-file Government employees who see fraud, report it to the supervisor, the Inspector General, and nothing happens? What if the employee's supervisors do nothing to correct or even investigate the fraud? Should we do something to incentivize those employees to keep working to bring that fraud to light? Mr. Hertz. I think we already have incentivized those employees. I think if they run into resistance within their chain of command, they should have the right and go to the Inspector General of that agency, or even come directly to the Department of Justice. The Department of Justice, I would suggest, has actually a fairly good record when it gets cases that come to us in the qui tam context. As I said, we intervene in about 20 to 25 percent of the cases. Virtually all of those end up in a recovery for the Government. And the 75 to 80 percent of the cases that we decide not to go forward with, there are much more limited recoveries. That is what history shows us. So I think that these employees have a place to go. Given that and given what we would say are the potential conflicts of that employee using information that comes to him in his Government capacity for a personal financial gain, which could essentially cause the public to really distrust people who are doing regulating--people in the Government who are regulating or contracting with or investigating or auditing third parties. If they can use that information to file their own qui tam lawsuit, even accepting the fact that their supervisors have rejected going forward with a fraud case, I think that calls-- the public could have a perception problem that the Government is acting fairly in those circumstances. Senator Durbin. I just wanted to check my notes here and try to--I have some information here, and I do not know if Senator Grassley has it, that since 1986 the Federal Government and qui tam relators have worked together to recover $20 billion in Government money. So, clearly, there is some value to the current system. Mr. Hertz. Oh, absolutely. Senator Durbin. And my question to you is: If the ordinary process, the due process of Government does not result in an investigation, your position is it should end at that point. Mr. Hertz. No. We accept and we have long accepted that when a relator who is not a Government employee files a case, even if the Government decides not to go forward, that relator should be allowed to go forward. Senator Durbin. Why restrict it to just non-Government employees? Mr. Hertz. Because the non-Government employee does not have the restrictions on them not to use public information for their own personal gain. Senator Durbin. And the non-Government employee is less likely to have the information to pursue a claim. Mr. Hertz. Actually, we would suggest otherwise. The non- Government employee who is in the corporation is likely to have firsthand knowledge of the fraud. The Government employee is likely to only have secondhand or derivative knowledge, things that were reported to him. Senator Durbin. Well, I do not know how we can generalize in this situation and say that you would exclude Government employees. But I take it that just as a fundamental principle, you are opposed to the idea of a Government employee recovering any money personally as a result of a fraud on our Government Mr. Hertz. As a result of using information they learned as a Government employee, and using information they learned performing their Government duties as a regulator, investigator, auditor, using that information for their personal gain, correct. Senator Durbin. Having served on the Intelligence Committee where they classify everything that is not moving, including the coffee pot, I am concerned here, because I know that if you want to break out and get something done significantly, there are many ways within Government to stop you. And these people who have pursued regular governmental due process without good results have as last recourse the option as a Government employee of taking these to court and getting it resolved. And my fear is that at the end of the day, if we follow your lead and follow your suggestion, we are going to close off a lot of opportunities to stop the fraud on the taxpayers. That seems to me like a greater public good than the possible notion that a Federal employee who does the right thing, blows the whistle, and gets the right result may end up with some money in their pocket. Mr. Hertz. As I said, these are policy questions that we come down on a different side. Our experience shows that those Government employees that have filed qui tam suits for the most part have not gone to the Inspector General first, have not come to the Department of Justice. And as I said, when we get cases, when we in the Civil Division, the career employees who work these cases, who have dedicated their professional lives to bringing these cases, we have a pretty good track record of bringing the meritorious ones, and the ones that do not get brought--although there have been exceptions, there have been recoveries in cases where the Government has declined. I do not want to suggest otherwise. We think that is a relatively small price to pay, to give up those potential suits, considering the harm to public perception of allowing a Government employee to use information they learn in their official capacity. Senator Durbin. I would just conclude by saying I think the American public would be less scandalized by the notion that a Federal employee might end up with 10 percent or 20 percent of the outcome and find millions, if not billions of dollars being saved from being defrauded. Mr. Hertz. Well, as I said, you know, if there is millions or billions of dollars being defrauded and it is reported to the Department of Justice, the Department of Justice is going to bring that case on behalf of-- Senator Durbin. It should bring this case, but it does not always bring the case. Mr. Hertz. Well, again, we do not really have any experience of cases being brought by Federal employees to the Department of Justice that were not brought. Senator Durbin. Never. Mr. Hertz. In terms of meritorious cases? Senator Durbin. Never. Mr. Hertz. Well, because what I am suggesting is the Government employee cases that have been brought have not previously been brought to the Department of Justice before those cases were filed. Senator Durbin. Never. So there has never been a meritorious case brought to the Department for investigation that you have not followed through? Mr. Hertz. No. I am saying Government employees--the experience that exists today with Government employees filing qui tam suits, none of those, to my recollection, were brought to the Department of Justice before the Government employee filed that suit. Senator Durbin. Senator Grassley, back to you. Senator Grassley. Senator Durbin, we do have some circuit courts that say a Government employee ought to be able to do it. We have other circuits that say they could not. And we ought to solve this, and that is the purpose of having the issue you raise in the legislation, so we can--and then I could also--later on I will bring up that in 1990, 4 years after the law was passed, I gave several testimonies to different committees of Congress that the intent of the original legislation was that Government employees ought to be relators. Mr. Hertz, I am going to ask--I cannot ask you all the questions I would like to ask you, so you will have to answer a lot of them in writing that we will submit to you and to the Department. So I will go with just a few of the questions. I have a longstanding belief that the 1986 amendments did not preclude Federal Government employees from acting as qui tam relators. For instances, in 1990, I testified in the House that Government employees should be allowed to file qui tam suits if they first make a good-faith effort to report the fraud within proper channels. My rationale is that if a Government employee reports the fraud and supervisors sit on it because they do not want egg on their face, there needs to be a way to address the loss to the American taxpayers. Allowing Government employees to act as relators is yet another check that we can have on bureaucracy that may be too big and too unenthusiastic about stopping fraud. However, we should put reasonable steps in place to ensure that these employees are not just sitting on the job building a qui tam case. Section 3 of the bill includes requirements that a Government employee must overcome, such as reporting to supervisors, the Inspector General, and then to the Attorney General. Then after that, there has to be a whole year that has to elapse, inaction on the part of the Government. It would seem to me that 1 year is long enough for the Government to make a decision if they are going to get involved or not be involved, and if they decide not to get involved, then the qui tam ought to proceed. These are procedural hurdles that are not even required now under the case in the Eleventh Circuit. I understand the Department strongly opposes this section, but what should a Government employee who uncovers fraud do if he reports it up the chain and then there is nothing to stop it? Mr. Hertz. Senator Grassley, as I said, we appreciate the efforts that the bill makes to put some restrictions on this. It deals with some of the concerns that we have with regard to Government employees. But in the end, it does not deal and we do not see how it can deal with what we see as the fundamental problem of a Government employee who, after he has followed all these procedures, files a lawsuit using information that came to him in his governmental capacity for his personal gain. That is just a principle that comes out of congressional statutes. It comes out of regulations. It is something we drill all executive branch employees in terms of training every year. For us, that is just a principle that really allowing these lawsuits would violate. In addition, as I said--I might read something. In 1943, the Supreme Court decided Marcus v. Hess--Senator Specter referred to it--and this was the case that led to the amendments in 1943 when the Supreme Court had decided that a relator who had actually just copied public information could bring a lawsuit, Congress wanted to change that. Justice Jackson dissented from that decision. The dissent eventually became the law, and although that case did not involve a Government employee, the issue apparently came up. He pointed out and he said to permit law enforcement officials to ``use information gleaned in their investigation to sue as informers for their own profit would make the law a downright vicious and corrupting one.'' He went on to say, ``If we were to add motives of personal avarice to other prompters of official zeal, the time might come when the scandals of law enforcement would exceed the scandals of its violation.'' It was clear under the 1943 amendments--and it was actually debated on the floor, at least in one of the Houses--that Government employees would not be able to file qui tam cases. In 1986, there appears not to have been any public discussion of it in the legislative history. The change of the legislative bar had, we think, the unintended effect of potentially allowing Government employees, and as I have said, we think that that is really a policy that should not stand. Senator Grassley. Well, my next question was going to be if there was any sort of suggestions you could make, but I think I have just heard from you that there is really no middle ground between the position that Senator Durbin and I have in our bill and what you have just stated as the position of the Department. Or do you think there might be some middle ground? Mr. Hertz. I have not been able to think of any. We certainly would be willing to try to think of it. But as I said, at the end of the day, when all those procedures you put in the bill are followed, you still have the situation of the Government employee using Government information to file a lawsuit from which he personally can potentially benefit. Senator Grassley. Well, you know, the questions raised by you and then by the quotes that you gave that it might promote corruption on the part of Government employees to personally profit, but do not forget we are trying to stop other people from corrupting the public process and the public purse. And it seems to me if we have a heck of a lot more people doing business with the Government than we have Government employees, there is greater possibility for corruption on the outside that a Government employee might know something about than there is corruption from a few whistleblowers. Mr. Hertz. Right, and as we said, we would encourage Government employees who run into a stone wall within their agency to go to the Inspector General, come directly to the Department of Justice. Senator Grassley. That is what we do, and we just ask the Department of Justice to make a decision in 1 year. Otherwise, they can proceed. Would you oppose future Government relators if the Eleventh Circuit allowed them to proceed? Mr. Hertz. You are quite correct, there are at least two courts of appeals that have suggested that Government employees under the existing law, where there is not otherwise a public disclosure, can proceed--the Eleventh Circuit and the Tenth Circuit. We do not think that really all the courts have spoken on that. Even the Tenth Circuit has suggested that there may be arguments that the Government could make that a Government employee would hold any recovery that they had in constructive trust for the United States. So I think in terms of where we are sort of in terms of judicial decisions, we would like the opportunity to keep litigating the Government's positions prior to having an explicit legislative recognition of the right of a Government employee to file a qui tam lawsuit. Senator Grassley. OK. Now, I know you mentioned that there was no legislative history on this issue, but I want to assure you, even though you disagree with me, I was there, and I want to make it very clear to you. And I think I made this clear in some of my testimony that I gave to Congress later on after 1986 that we intentionally meant to overturn the 1943 amendments to the False Claims Act when we changed it in 1986. That was our intent. Now, you might disagree with that intent. Mr. Hertz. Oh, I agree that the intent was to overturn the 1943 amendments in certain regards. Obviously, the bar on the Government having knowledge about information barring a qui tam relator, what I suggested was we did not see anything in the legislative history dealing with the specific question of Government employee relators. Senator Grassley. OK. Let me go on to the Totten decision. There the D.C. Circuit raised the notion that Section 3729(a)(1) included a requirement that claims be presented directly to a Government employee. While this may be a legitimate reading, the court further added that in reading Section 3729(a) implies that the presentment requirement be read into subsections (a)(2) and (a)(3). This was not the intent of Congress in 1986. The D.C. Circuit even concluded that subsection (a)(2) has ``no express requirements of presentment.'' However, just yesterday, the Supreme Court heard oral arguments in a case where the petitioners seek this result. I wrote a brief opposing this view, and I know the Department did as well. I have learned not to hold my breath when it comes to the False Claims Act cases before the Court, so Section 1 of S. 2041 would correct this problem. Looking at the Department of Justice views letter, the Department, in a fairly convoluted way, seems to support fixing the presentment requirement, but not the way that Section 1 is drafted. What is the problem with trying to have the False Claims Act liability to all Government money and property, as Section 1 currently does? Mr. Hertz. Well, what we suggested in our appendix to our views letters is we thought there was a simpler way to accomplish that. We were concerned that uses of phrases in 2041, such as an ``administrative beneficiary,'' which is a brand new phrase incorporated into the False Claims Act, would give the courts an opportunity to interpret terms and we are not exactly sure how they would interpret it. We also thought that the simplest fix with regard to the decision with regard to Totten is to remove the word ``presentment'' from (a)(1) because that word in (a)(1) allowed then-Judge Roberts to say that (a)(2) should be parallel to it. So we think we have a more simplified way to do this using terms that are less likely to be ambiguous or where people could argue that they are ambiguous and have an unintended interpretation by the Court. Senator Grassley. Can I at least say that even though there are different ways to approach it, you do not disagree with what we are trying to accomplish? Mr. Hertz. I mean, we agree that Totten is wrongly decided. We agree that the principle in Totten should not be a principle under the False Claims Act. I think the only thing I would suggest is at this point in time, since we do not know what the Supreme Court is going to do in Allison Engine, and we could get some language that might--it is hard to--as you say, hard to predict. We might actually want to see what that decision looks like before we had, you know, a final fix on the Totten problem. Senator Grassley. Senator Durbin, I am glad to go back to you since I went over my time. [No response.] Senator Grassley. OK. Then to followup, in the views letters, the Department states, ``It does not advocate and would not support application of the False Claims Act to all acts of fraud directed at an entity that receives money from the United States.'' Do you believe that my bill would apply the False Claims Act to all acts of fraud directed at any entity that receives money from the United States? And if so, why? Mr. Hertz. No, I do not believe that your bill does that. I think we just wanted to make clear that we do think there are limits, and we think there are limits in your bill as well. Senator Grassley. OK. I appreciate your testimony. I wanted to ask your views on the view letter. In the cover letter, the Department states that, ``There is no pressing need for major amendments'' to the False Claims Act. Further, the letter states that the administration cannot support the bill ``as currently drafted.'' However, after reading the appendix filing and the amicus brief alongside the Department of Justice in the Supreme Court, and after hearing from the line attorneys in the Department of Justice, I believe that there is a lot in this bill that the Department of Justice does support. Further, I think there are provisions that the Department of Justice needs to effectively enforce the False Claims Act. If you had to name one legislative fix that is needed, what would be the top choice and why? Mr. Hertz. If there was only going to be one, I think I would opt for a relatively simple fix involving the CID provisions, because it is relatively straightforward, it would probably have the most effect on a day-to-day basis for our line attorneys who are actually investigating these cases, the ability to essentially subpoena witnesses and compel depositions without having to go through the cumbersome procedure of having to get approval from the Attorney General. We would think that this particular change would be relatively straightforward and should not engender a lot of controversy. And as I said, I think it would probably have the most immediate effect. Senator Grassley. OK. Another question along the same line. How far apart do you think that my bill is from the suggestions for edit that you have made for presentment and public disclosure? And do you think that we could reach an agreement on that section? Mr. Hertz. Well, again, I think we--you know, as I said, we appreciate the work that you and your staff have done. It obviously represents a lot of work. It is currently a complicated statute with lots of court interpretations. You know, it takes some careful thought to think about how language should be structured to get the results that we intend. We tried to come up with our best shot at trying to fix what we think are the same problems and achieve the same goals that you were going for, and I think really we would be at the stage where we would sit down and talk with your staff, because I am sure they probably may have noticed things in our proposals that they might think do not work as well as we might think. Senator Grassley. If we were to make the changes to the public disclosure bar of presentment, do you think it would increase the chances of Government fraud recovery? Mr. Hertz. I am not sure which changes you are referring to. Senator Grassley. Let me repeat and then I will have my staff--if it is not clear, I will have my staff clarify. If we were to make the changes to the public disclosure bar or presentment, do you think it will increase the chances of Government fraud recoveries? Mr. Hertz. There are two questions: presentment and public disclosure. You know, to be candid, we have had pretty good luck since the Totten decision in essentially limiting that decision and finding other avenues under the existing language of the False Claims Act to go after frauds. So I am not sure at this point in time I could say that there are a lot of cases that could not be brought because of the Totten decision. That would be something that would probably play out over time. With regard to the public disclosure bar, as I think we have outlined, we do have some disagreements with the proposal in S. 2041. And so I think under our version, you know, I do not know the answer whether it would increase or decrease the number of qui tam cases. Senator Grassley. OK. Mr. Hertz, I think the rest of my questions will have to be submitted in writing. Does Senator Durbin have any more questions? [No response.] Senator Grassley. OK. Thank you very much. Mr. Hertz. Thank you, Senator. [The prepared statement of Mr. Hertz appears as a submission for the record.] Senator Grassley. Could I have the next panel come, every one of you come at the same time? And maybe before you sit down, each of you, it is a tradition in this Committee to swear people, so I would ask you to hold your--well, I will wait until you get to the table. Thank you all. Would you--this is what I am not customarily doing because we do not do this in the Finance Committee. Do you affirm that the testimony you are about to give before the Committee will be the truth, the whole truth, and nothing but the truth, so help you God? Ms. Gonter. I do. Judge Clark. I do. Mr. Boese. I do. Senator Grassley. Thank you. I want to introduce each of you before you testify. We have Tina Gonter. From 1982 to 1996, she worked as a nuclear mechanical systems inspector for the Department of Defense and was assigned to the Quality Assurance Department, Norfolk Navy Shipyard, Plymouth, Virginia. In 1999, she moved to Ohio and began work for Hunt Valve Company as military quality assurance manager. She filed a qui tam case under the False Claims Act along with her husband against the Hunt Valve Company in April 2001. The case settled in 2005. Their investigation exposed serious fraud perpetrated against the U.S. Navy. She now lives with her husband in Jacksonville, Florida. I think her story is a truly amazing example of how the False Claims Act works. Judge Clark focuses his current practice on representation of relators in qui tam litigation under Federal false claims and corresponding State laws. Judge Clark is of counsel, San Antonio law firm of Goode, Casseb, Jones, Riklin, Choate & Watson. From 1969 to 1977, he worked for the Department of Justice; served as U.S. Attorney, Western District of Texas, 1975 to 1977. Judge Clark was appointed and served as Justice, Texas Court of Appeals, Fourth Circuit, 1981 to 1982. Judge Clark served as a member and Chairman of several commissions, advisory boards, including Texas Ethics Commission, received a bachelor degree from Lamar University, and his law degree, University of Texas. John Boese is a partner at the Washington law firm Fried, Frank, Harris, Shriver & Jacobson. Mr. Boese has represented defendants in numerous false claims cases brought by qui tam relators and Department of Justice over 25 years now. Prior to joining Fried, Frank in 1977, he was a trial attorney with the Civil Division, U.S. Department of Justice. He is an author of a book called ``Civil False Claims and Qui Tam Actions,'' a two-volume discussion of civil False Claims Act and qui tam enforcement at the Federal and State level. He lectures frequently, private and public groups, on civil fraud issues and co-chairs the Biennial American Bar Association National Institute of Civil False Claims Act and Qui Tam Enforcement. Mr. Boese received a bachelor's degree, Washington University, and law degree, St. Louis University. And then we had another witness that is sick and could not come, and that was Professor Pamela Bucy. I am going to start in the order we gave, and we will have each of you testify for your 10 minutes--am I right, 10 minutes that was allotted? Or 5 minutes. Yes, 5 minutes. Your whole testimony that would be obviously longer will be printed in the record, so we will start with you, Ms. Gonter. STATEMENT OF TINA M. GONTER, JACKSONVILLE, FLORIDA Ms. Gonter. It is an honor to be here. Just to correct just a little note in the introduction. Senator Grassley. Maybe pull your--whatever sort of correction you want to make, you can make. Ms. Gonter. OK. Senator Grassley. Go ahead. Ms. Gonter. I was not a nuclear mechanical systems inspector from 1982 to 1996. I started off as a metals inspector in radiography. So I just wanted to make sure that that was clear. Senator Grassley. Sure. We stand corrected. And don't be nervous. This may be your first time before the U.S. Congress. We put our pants on a leg at a time just like everybody else. [Laughter.] Senator Grassley. Just feel comfortable. Ms. Gonter. Mr. Chairman and members of the Committee, my name is Tina Gonter, and I was a relator in a False Claims Act suit from 2001 to 2006. I reported fraud committed by military defense contractors Northrop Grumman and EB, who delivered nuclear submarines to the Navy. I worked for their subcontractor, Hunt Valve, who supplied valves for submarines. My background as a quality assurance specialist prepared me for my position at Hunt. For many years, I worked for Norfolk Naval Shipyard as a nuclear mechanical ship systems inspector. During my time at the shipyard, I received extensive and comprehensive training in quality control requirements. In November of 2000, I was hired on as quality manager at Hunt Valve in Salem, Ohio, where my husband had already recently started working. Hunt was the major supplier of valves and valve parts to the U.S. Navy and its shipbuilding prime contractors, including Level I/SUBSAFE valves. These valves have critical applications on the submarines and surface ships and, thus, have extremely high standards and requirements for all aspects of their development. Within a few days of starting at Hunt, I began to suspect that they were committing fraud. I witnessed the complete disregard for quality control standards. My first course of action was to initiate cause and corrective action and try to resolve the violations. This, however, quickly resulted in upper management directing me to only concern myself with my office and the paperwork I was required to review. After many, many confrontations, and being ignored by my boss and others, I decided I needed outside help. After lots of calls to try to find someone to help me, I connected with qui tam lawyers Rich Morgan and Jennifer Verkamp. They quickly involved DCIS agents Jay Strauch and Mike Hampp. During our first meeting with the agents, they expressed concern that if my allegations could be proved, the impact to the Department of Defense was serious. They brought a tape recorder to the first meeting, and they asked if I would start taping what was transpiring at Hunt. I agreed, and I wore a tape recorder under my clothes for many months as I gathered information for the Government. This lasted until August of 2001. It resulted in 8,000 pages of transcripts. I was scared and anxious every day, but honestly, I was more scared of not taping because of the seriousness of what was taking place. I knew that I had to do everything I could to prove that what I was telling them was really happening. The tape backed up what I had been reporting and revealed the unthinkable extent of fraud and violations. The people involved were completely aware of what they were doing, and this included not just the people at Hunt but the prime contractors as well. The tapes showed that EB source inspectors and upper management were fully aware of what was going on at Hunt. I assisted the Government as much as I could from the inside until I was fired in August of 2001. I believe that Hunt's employees suspected that I was recording conversations, and they certainly knew that I believed their conduct violated the law and their contract requirements. I was told that I was costing too much to correct the deficiencies, and they said that they were making an extreme personnel cutback. However, I was the only one that was fired. On September the 17th of 2001, 6 days after 9/11, the Defense Department, with the help of the NRC and NCIS and DOE, swarmed Hunt Valve with a search warrant and more than 40 agents. They seized over a million pages of evidence and all computer files. Fearing for our safety, my husband resigned from Hunt, and we made plans to move. We went from a combined income of $106,000 a year to nothing overnight. We sold our property at a substantial loss in order to have money to live on. We moved to Columbus, Ohio, where the DCIS agents were based in order to assist them in making sense of the huge volume of records seized. After some time, my husband obtained work, and I spent the next 2 years reviewing files and transcripts with the assistance of my lawyers' paralegal, Mary Jones. We reviewed the documents seized from Hunt in tandem with John Carruthers and Bob Hardin from DCAA. They showed, among other things, that more than half of Hunt's certifications were falsified and that Hunt's welding personnel were improperly and illegally qualified and that material control was not properly documented or maintained. The Justice Department decided not to intervene in our case against General Dynamics and Northrop Grumman. This decision was never explained to us. However, much later, we were present when the judge was told that if the Navy recovered moneys from General Dynamics and Northrop Grumman, they would add more money to future contract bids and the Navy would just end up paying them back. Because of the qui tam provisions of the False Claims Act, we were able to go forward on our own. The shipyards were represented by Mr. Boese's firm, I believe, and other huge Washington firms--I am sorry, that is, Boese. The civil case eventually settled, with the help of Honorable Daniel Polster, who held multiple sessions with all parties. There was also a criminal case, which resulted in Hunt's quality manager and the vice president both pleading guilty to fraud and going to Federal prison for more than 2 years each. Senator Grassley, I realize I have gone over my time, but I would like to request just another couple minutes. Senator Grassley. Please go ahead, and I will give each of the other witnesses equal time. Ms. Gonter. Thank you. My most sincere goal in all of this was to enhance the safety of our Navy men and women aboard the submarine and surface ships. I believe this happened. I pray that Hunt Valve under new management is doing better at supplying conforming valves. Sadly, I know the reality is that there are many other Hunts out there, and there are many other men and women who have found themselves in situations like this, like ours. I am so grateful for the False Claims Act, which gives ordinary people like me a voice to try to correct these crimes. I also hope that you do everything you can to make it better, to help people like me not just come forward but to see it through to the end. I think it is critically important that this corrections act covers subcontractors like Hunt, not just direct Government contractors. Hunt's fraud was not known to the Government, and there is no reason the statute of limitations should be a defense in a situation like this. And while there should never be an issue of whether someone like me is an original source of information, the law should be clear that relators can use what they learn in the course of the Government investigation without putting their lawsuit at risk. Finally, I cannot overstate the importance of comprehensive retaliation protections. It is a great honor to be here today. But it does not compare to the honor of using the False Claims Act to stop Hunt Valve in its tracks. I urge you to do everything you can to help. Thank you. [The prepared statement of Ms. Gonter appears as a submission for the record.] Senator Grassley. And thank you very much. Proceed, Judge Clark. STATEMENT OF HON. JOHN E. CLARK, OF COUNSEL, GOODE, CASSEB, JONES, RIKLIN, CHOATE & WATSON, P.C., SAN ANTONIO, TEXAS Judge Clark. Mr. Chairman, Senator Durbin, thank you for allowing me to comment on this bill. Relators' counsel are glad to see that this bill addresses a lot of the concerns that we have had for improving the False Claims Act and making it work the way Congress intended. We have also read the comments of the Department of Justice, and we think a lot of their suggestions will strengthen and improve the bill. We look forward to working with the Department to help Congress make the Government's primary remedy against fraud even more effective. I have been a lawyer for nearly 47 years. For the last 15 years I have represented whistleblowers under the False Claims Act and some State counterparts. Earlier in my career, like many attorneys who represent whistleblowers today, I was a Federal prosecutor, first at the Department of Justice and then in Texas. I prosecuted white-collar crime, and I continued to do that when President Ford appointed me United States Attorney for the Western District of Texas. I am not a plaintiff's lawyer. I do not represent plaintiffs in negligence cases. I am not what the press refers to as a ``trial lawyer.'' These cases are not about negligence or good-faith mistakes or confusion about regulations. These cases are about knowingly defrauding the United States. And these cases allow me to feel that I am still making at least a small contribution to law enforcement, because that is what this is. Now, hearing Ms. Gonter's story reminds me once again that it is because of courageous persons like her that I am still representing whistleblowers long past the time when the calendar suggests I should have retired. What she did and what she endured points up why whistleblowers are so important to the Government. Now, her story is more dramatic than most, but every whistleblower has to understand that his or her life may get turned upside down, and the stress can last for years while the case is under seal. And they will not be able to explain why they had to make a mid-life career change or what is happening to them and why they are having financial problems. The personal stresses of being a whistleblower drive some qui tam plaintiffs into bankruptcy, psychological counseling, and divorce courts, and I have seen it happen. I have to explain those disincentives to prospective whistleblowers when they come to see me so that they and I can decide if they have the courage and the strength and the staying power to even start down that road. But I also have to explain some legal disincentives to them. Some are obstacles that courts have created by misinterpreting the statute, and others have to do with some unforeseen consequences of some of the 1986 amendments. And those obstacles trump all the others because they can kill even the most meritorious case for inconsequential or misguided reasons. It is disappointing how often I have to explain those legal road blocks to prospective whistleblowers in the context of telling them why their claim will not succeed and I will not pursue it for them. This bill addresses a lot of those judicial misinterpretations and unforeseen consequences, and I am glad to see the changes. I have given my written comments explaining the reasons. I would like to comment briefly, though, on two particularly important issues: First, the presentment issue, the Totten case and Custer Battles decisions. We know from the Department of Justice's testimony they share our concern about the Totten decision, and they have suggested some alternative language to improve the way the bill addresses those decisions. As I sit here today, I am not certain that their proposed language would ensure the desired result, but that is for technical reasons that lawyers and law professors can debate about. It has to do with the precise wording chosen, not with the intent, because our intent and their intent is the same. We are trying to ensure the result that we all want. As to the public disclosure bar, Mr. Chairman, it appears to me that after listening to the Department of Justice and reading their comments and their appendix, we in the relators bar and the Department of Justice are very close to being on common ground. One of the most troublesome aspects of the public disclosure bar is its availability to defendants as a jurisdictional defense, regardless of the defendant's culpability. We strongly agree with the premise of the bill that it should be the Government's sole prerogative to seek dismissal of a qui tam action on public disclosure grounds. The Government is uniquely in a position to know whether it considers the whistleblower somebody it wants to be protected from or values him as an ally whose assistance and resources will help prosecute the case. We deplore the tendency of some courts to interpret the current public disclosure bar far too broadly. That has caused a lot of problems. Now, we have some questions about how the Department of Justice and the courts would interpret some of the terms and conditions that the Government has suggested as grounds on which the Government could seek a dismissal under public disclosure if they had the sole discretion. But we are very optimistic that we in the relators bar can work with the Department of Justice to reach agreement on some common ground that we could recommend to change the language. But the primary thing is taking the public disclosure bar out of the hands of defendants as a jurisdictional defense, when it has nothing whatever to do with their culpability, it is purely technical when it comes to the relator. Thank you, Mr. Chairman. [The prepared statement of Judge Clark appears as a submission for the record.] Senator Grassley. Thank you, Judge Clark. Now Mr. Boese. STATEMENT OF JOHN T. BOESE, PARTNER, FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP, WASHINGTON, D.C. Mr. Boese. Senator Grassley, Senator Durbin, and members of the Committee, I appreciate the opportunity to testify today on behalf of the U.S. Chamber of Commerce and the U.S. Chamber Institute for Legal Reform in opposition to S. 2041. For the last 25 years, I have had the privilege of defending False Claims Act cases against large and small companies in health care, oil and gas, technology and defense, as well as colleges and universities, airports, churches, and local government agencies--precisely the diverse group of defendants that this bill so deeply affects. My legal treatise, ``Civil False Claims and Qui Tam Actions,'' has been the leading authority cited by academics in Federal courts for almost 15 years. The Chamber fully supports the Department of Justice's efforts to recover from those who cheat the Government, and we recognize the importance of an appropriate use of the False Claims Act in those efforts. As I listened to you and Senator Specter and Chairman Leahy and Senator Durbin speak this morning, I think the difference between us, Senator, is that you are concerned about the guilty under the False Claims Act, and I am concerned about the innocent. And I am concerned about the abuse of qui tam enforcement by the private plaintiffs bar against innocent defendants in qui tam cases. The Chamber opposes 2041 because we believe it will not assist the Government in its fraud-fighting efforts and will not result in increased moneys being returned to the Treasury. Instead, the bill will breach the legitimate expectation of American businesses and institutions who honestly do the Government's work that their Government will treat them fairly, and this bill does not. I want to first dispel a common misperception that these amendments are necessary for private attorneys to combat major fraud by big corporate interests because those big corporate interests outgun DOJ attorneys. In my experience, the exact opposite is true, and the statistics bear that out. Of the $20 billion recovered under the False Claims Act between the 1986 amendments and 2007, far less than 2 percent--really 1.4 percent--was recovered in qui tam cases handled by private counsel where the DOJ did not take over the case and prosecute it. These amendments, which are intended to encourage qui tam enforcement really without DOJ, benefit only those qui tam plaintiffs and their lawyers, and not the U.S. taxpayer. I have also read the DOJ letter that we received on Friday. We have a number of comments about that that I hope we will be able to address in our answer. With that, I will now quickly address the most egregious impacts of 2041. First, this bill would dramatically expand the scope of the Act to cover many private contracts and transactions. Although I believe completely unintended, the bill's broad definitions of the terms ``Government money'' and ``administrative beneficiary'' will, for example, bring within the scope of the False Claims Act disputes between Federal employees and their hairdressers and their landscapers if they are paid with the Federal employee's salary. It will usurp State contract and tort law if either party receives Federal money in any way or form, and every product liability case will become a False Claims Act case if the product is bought by a Social Security recipient with their Social Security check. This amendment is an unjustified reaction to a handful of decisions which came to the unremarkable conclusion that the False Claims Act should only apply if the Federal Treasury has been cheated. The Act was never designed to make a Federal case out of every transaction involving money that the Federal Government has touched in any way. Second, the 1986 amendments struck a delicate balance to allow true whistleblowers to come forward and be rewarded while preventing parasitic qui tam suits by plaintiffs who file qui tam cases based on public information. By effectively eliminating the public disclosure and original source defense, the bill will force American businesses and institutions to defend themselves against qui tam plaintiffs who are not true whistleblowers. And it will allow individuals to use public information to take 25 percent of Government recoveries simply because they are the first to file a qui tam case. Third, S. 2041 will effectively encourage Federal employees, including Federal auditors and investigators, to use the private information they obtain as Federal employees to enrich themselves by filing qui tam suits. The so-called safeguards included in the bill are impractical and illusory. One cannot imagine a better way of destroying the trust and confidence Americans have in their Government and in their Government employees. In our view, S. 2041 reflects bad policy and bad law. There is simply no reasons to treat so unfairly the businesses and institutions who deal with the Government in good faith. Thank you for this opportunity to present my views. I am happy to take any questions the Committee may have. [The prepared statement of Mr. Boese appears as a submission for the record.] Senator Grassley. Senator Durbin, I would like to turn to you because I am sure--then I could continue, if you are the only one that is going to be here, and if you only want one turn, and then I would continue right on through my questions. Senator Durbin. Mr. Boese--am I pronouncing your name correctly? Mr. Boese. Boese, Your Honor. It rhymes with ``crazy.'' Senator Durbin. Pardon me? Mr. Boese. It rhymes with ``crazy.'' [Laughter.] Senator Durbin. Right. And for the record, I am not a ``Your Honor.'' Mr. Boese. That is where I spend most of my time, Senator. I spend it in court. Senator Durbin. So do I understand your testimony that you think our changing the law would mean that if someone brought an action against a company for selling a defective product and, in fact, a Social Security recipient had bought that defective product, you think that is covered by our law? Mr. Boese. Yes, sir, I do. Senator Durbin. I think you are way off base. I have no idea what you are talking about. Mr. Boese. Well, Senator, I can explain it very simply. We-- Senator Durbin. Please do, because I am a Senator. Mr. Boese. And we can supplement that. We can supplement that. And, in fact, in our written statement beginning on page 9--or 10 of our written statement, we go into very significant detail about the definitions of ``Government money or property'' and ``administrative beneficiary.'' What those really say is, if you read those amendments, especially subsections (b) and (c) of those amendments, it broadens the definition of who is an administrative beneficiary. If you wanted to include--I mean, we can talk about the Coalition Provisional Authority because I argued the Custer Battles case. I am happy to talk about that case. But if you want to extend it to some institutions, I can understand that and we can deal with that. But what you have really said is that anyone who receives money for a Federal purpose. Now, if you are going to give money to a Social Security beneficiary, the purpose is to support them. You-- Senator Durbin. So anything the Social Security beneficiary spends money on then comes within the purview of qui tam, as you read it? Mr. Boese. If you pass this bill as it is written, yes, I believe that is-- Senator Durbin. That is the most tortured logic I have ever heard in this Committee. I congratulate you for it. But I think you are completely off base. Mr. Boese. Senator-- Senator Durbin. You are a great advocate, I am sure. I can tell. And I am sure that you have been very successful in your profession. And I have a confession. I used to be one, a real trial lawyer, before I got to be a Senator and a Congressman. So my hat is off to you. But I think you are off base, and we will take a look at it. Certainly it is not our intent, and what you have said--I believe Senator Grassley would agree with me--has never been our intent. Ms. Gonter, if I can ask you the situation here, you have heard Mr. Boese suggest that the abuses that might take place if we allow the current system to continue. Now, and you also heard the earlier testimony from the Department of Justice about what they think you should have done with your discovery of the fraud on the Government. First, the fraud that you found involved in your work for the Government, could this have endangered human life? Ms. Gonter. It is my belief that-- Senator Durbin. You have to push the button on your microphone to be heard. Ms. Gonter. The light is on. I am just not close enough. Senator Durbin. OK. Ms. Gonter. It is my belief that, yes, this could have cost lives. Senator Durbin. And was there an ordinary process that you could follow to disclose this fraud and to try to do something about it within your workplace? Ms. Gonter. I approached the quality control manager, who was a lateral position, who was doing the multitude of the fraud, and then went to our boss, who was the vice president of the company. Not only was this happening while I was there, it is under--I understand that it had been going on for approximately 10 years from looking at the paperwork, if not longer. Senator Durbin. And I take it from your testimony that that did not result in any action being taken to stop this fraud. Ms. Gonter. Absolutely not. I was ostracized from meetings. I was then pretty much taken out of my position. Senator Durbin. So you followed what you understood to be the ordinary chain of command, the ordinary rules-- Ms. Gonter. Absolutely. Senator Durbin.--to try to disclose this fraud that you had found, with no results. Ms. Gonter. No results. Senator Durbin. And your only recourse at that point was either to quit, accept it and be part of it, or do something about it. Is that, as you saw it, the only choice? Ms. Gonter. There was no choice. I had to do something. Senator Durbin. And so you chose to wear a tape recorder and to record 8,000 pages of testimony or transcript conversation. Ms. Gonter. Approximately 8,000. Yes, sir. Senator Durbin. Yes. Mr. Hertz earlier was dismissive of your role in this type of thing, saying, you know, the Government has a way of taking care of these things. Was there anything that--you were employed by a private contractor, I believe, at this time. Is that correct? Ms. Gonter. That is correct. Senator Durbin. Was there anything that you could have turned to, anything outside of your company, for example, where you think you might have turned to the Government for help? Ms. Gonter. Not that I know of. Just from working with Norfolk Navy Shipyard, we knew that there had to be some type of avenue to report something like this. We knew we had to let someone know. We got on the phone and just started calling everybody that we could think of, and we were directed toward-- through the Government, actually. I cannot even remember the guy's name. But he gave us Rick Morgan's name. Senator Durbin. And this is a private attorney--Mr. Morgan? Ms. Gonter. Yes. Senator Durbin. OK. And that is what resulted in the qui tam suit. Ms. Gonter. Yes, sir. Senator Durbin. Tell me the outcome of that suit again. When it was all over, was your claim substantiated? Did they agree with you that there had been a defrauding of the Government? Ms. Gonter. It was settled for $12 million. Almost $3 million. Senator Durbin. How much? Ms. Gonter. It was 12-point something, almost $13 million. Senator Durbin. Almost $13 million. Ms. Gonter. Yes, sir. Senator Durbin. It was found that they had defrauded the Government of that amount. Is that correct? Ms. Gonter. That was the settlement agreement. Senator Durbin. Settlement. Ms. Gonter. I do not know that they admitted to anything. Senator Durbin. All right. Judge Clark, as you cautioned us ahead of time, you are not a plaintiffs' lawyer, so I will not accuse you of that. [Laughter.] Judge Clark. It is not a bad word. Senator Durbin. I did not think so. I made a living at it. Judge Clark. But I am on the other side of that bar, as a rule. Senator Durbin. I understand. And so you have heard Mr. Boese talk about the abuses of this process. Would you like to comment on his interpretation or his evaluation of the Grassley-Durbin bill? Judge Clark. Well, some of Mr. Boese's comments strike me as fantasy when he talks about the broad interpretation that could be given. I also take a little offense at the notion that there are a lot of abusive relators' representatives filing these lawsuits. I know personally, I guess, most of the, perhaps 200 or 300 lawyers around the country who are primarily involved in this kind of litigation. And I do not know a finer group of people or a more responsible group of people. They choose their cases carefully and always try to choose cases that the Government will like and intervene in. Senator Durbin. Can you relate to me the complexity of these cases, if they are undertaken? Judge Clark. They are very complex, and it is a tough road to go down, not only for the relator, like Ms. Gonter, to make that decision, but for the lawyer to make that decision, because these cases typically involve complex facts, facts that have been concealed sometimes for years in the corporate records or some employer's records, facts that are hard to get to. The defendants oftentimes are represented by law firms that have 700 or 800 or 1,000 partners and maybe twice that many paralegals, and so you are embarking on a serious battle if you take one on. Senator Durbin. Ms. Gonter's testimony suggests that she was involved in this for years, as I remember. Is that commonplace in this type of litigation? Judge Clark. It is. Some of these cases remain under seal for many years. I filed one lawsuit in 1998 for a relator who was in his late 70's at the time. It was finally resolved almost literally on New Year's Eve--yes, New Year's Eve 2004. And I had to remind the court at one time, when the thing was dragging along and settlement negotiations were prolonged, that Charles Dickens used to write about cases in the English chancery courts that parties got born into and died out of. And my now 83-year-old relator was concerned whether he was going to survive this case. These cases can take a long time. It is not at all uncommon for one to remain under seal for 3, 4, 5 years. Senator Durbin. Well, I think that is an important part of the record, Senator Grassley, because testimony from Mr. Boese on behalf of the Chamber of Commerce may lead one to believe that this is an ambulance chase that ends very quickly. But it sounds to me like it is a lawsuit that can involve a lot of emotional commitment and a lot of time against the odds, against formidable representation on the other side, and lawsuits of long duration. I do not know many attorneys that would sign up for a lawsuit like that unless they really believed that they had a chance for recovery, a legitimate claim. That has been my experience. You will not keep your law office open very long if you make too many miscalculations in that type of lawsuit. Judge Clark. You will not. I am the only one in my law firm who devotes most of his time to this kind of lawsuit. Everybody else is trying to do things that produce a regular stream of income. Senator Durbin. Thank you, Senator Grassley. Senator Grassley. Senator Durbin, it should not surprise you that we have business taking the same point of view, because for 4 years after we passed this legislation, the defense industry tried to gut it, various amendments on appropriation bills, et cetera. We stopped that. When they did not have the credibility to get the job done, they turned to the hospitals of America for a couple years, trying to gut it. They finally gave up. So the last 15 years, we have not had to defend it through the appropriation process and riders trying to gut it and all that. But there are still people that do not want this legislation to function the way it was intended. Senator Durbin. Well, they should have known better than to take on an Iowa corn farmer. [Laughter.] Senator Grassley. Thank you. Thank you. Are you done? OK. I have questions of everybody, but I am going to start with Ms. Gonter. First of all, I need to thank you for testifying, and I have been a person that has found whistleblowers to be courageous people. I find very few of them that come to me that do not have a great deal of credibility and lead us to a lot of skeletons being buried in the bureaucracy or within corporations that need to be exposed and we have been able to expose them. And I also agree with what has been testified to already that for the most part whistleblowers ruin themselves professionally as a result of their patriotic efforts. And so, obviously, I come from the standpoint that not every whistleblower might be right, but so many are right that we owe that class of people a debt of gratitude. Whistleblowers are strong-willed people, obviously. So what was it like to be a whistleblower wearing a wire undercover without your co-workers knowing what you were really doing and some hardships connected with that? Ms. Gonter. Well, first off, it was scary. Mostly being afraid that you were going to be discovered. There was times where I had to go to the ladies' restroom in a stall and change the tapes out, which you could imagine would make a little bit of racket, unusual racket in a stall that people would probably wonder about. There was one incident when I was actually in the office, and the tape started malfunctioning. I do not know, somehow it went into like a reverse mode and started clicking relatively loud in my shirt. So I just started talking loudly and tried to back out of the room. It was uncomfortable. It was scary, and especially in the beginning. But toward the end, I kind of felt like it was my security blanket. And I do not know if I am allowed to do this, but if there is a whistleblower out there and if you can do that, I would recommend it, because it really shows that what is going on is happening, that you are not putting words into other people's mouths. But it was scary. Senator Grassley. I do not know whether you answered a question like this for Senator Durbin or not, but do you believe that your firing was directly related to your work when you tried to correct the quality at Hunt Valve? Ms. Gonter. Yes, sir, I do. Senator Grassley. Do you have any advice for others who know of fraud or are contemplating blowing the whistle? And I think you just in your previous statement gave them encouragement. Do you have any further advice for whistleblowers? Ms. Gonter. If you are thinking about blowing the whistle, the first obligation is to go through your chain of command. That is not a question. That is your obligation. You go through the chain of command. And I think that anyone, any respectable person in their field, whatever it is, knows that that is the appropriate avenue. If it is serious enough and your heart just tells you that this is so unacceptable that you cannot deal with it, it is no longer a choice. It is not a choice of whether, you know, I do this or I do not. You have to do it. Who else is going to do it? If it is that important to you, then you have to make that move. You have to contact people that are going to listen to you. In my case, it was not a choice because we were talking about our sailors' lives. Senator Grassley. Judge Clark, yesterday the Supreme Court addressed the Totten decision in the Allison Engine case. I have long stated that I believe the Totten decision was incorrectly decided and that it is contrary to the intent of my amendments in 1986. As a member of the Committee on Finance, I wear another hat because we have so much jurisdiction over Federal Medicare and Medicaid programs. I am concerned with the impact of the Totten decision and its progeny may have on health care fraud cases. As you have litigated a number of Medicare- and Medicaid-- related false claim cases, what is your opinion of the impact that Totten has had on health care-related false claim cases? Judge Clark. Senator, I am very concerned about that because one court in Texas has recently indicated that he thinks the Federal Government does not have standing to make a claim for Medicaid fraud. And that is partly as a result of the Totten decision. So it is a source of considerable concern. Senator Grassley. Is the Totten decision being used as a defense to the false claims liability in health care fraud cases? Is that what you just told me? Judge Clark. That is the indication that I got. This is not a case of mine, but one that another party is pursuing--well, the State of Texas is pursuing it. Senator Grassley. I assume you have read a lot of legislative history about the 1986 amendments. Do they contradict the Totten decision? Judge Clark. Well, yes-- Senator Grassley. You understand? Judge Clark. I think so. I think clearly the intention of Congress is contravened by the Totten decision. The statute was intended to reach the kind of thing that Totten says it does not, in my opinion. Senator Grassley. In the views letter submitted by the Department, they propose different language to correct the presentment problem of Totten. For instance, they suggest that we keep the language in subsection 3729(a)(2) that references ``payment or approval by the Government'' and suggest modifications in subsection 3729(a)(1) to include the (a)(2) language instead of the presentment language. They also propose expanding subsection (c) defining the word ``claim.'' In your view, will this proposal from the Department of Justice adequately address the Totten problem? Judge Clark. Senator, I am not sure that it does. I have some concern about certain terms, like the prepositional phrase ``for payment or approval by the Government.'' But these are some things that I would like to personally talk to representatives of the Department of Justice about because I think they and I as a relators counsel are aiming to do the same thing, and that is, to ensure that we cure the problem. Senator Grassley. OK. I want to ask Mr. Boese a question, but I would like to have you listen, Mr. Clark. I may want you to comment on it. And, again, I get back, Mr. Boese, to the Supreme Court oral arguments yesterday on Allison Engine. In that case, similar but unrelated to Ms. Gonter's case, a defense contractor is accused of jeopardizing the lives of Navy sailors by building defective battleship generators. The contractor argued that it is not liable under the False Claims Act simply because a U.S. Government employee had not personally approved or paid its invoices. Because some courts have supported this application of the law which is contrary to the intent of Congress in 1986, I authored the legislation to clarify that point. Mr. Boese, do you argue that we should keep this presentment requirement in the Act, thereby only attaching liability to those claims that are actually presented by a Government employee or official? Mr. Boese, since you make that argument, why shouldn't we protect all Government funds, not just those funds directly paid or approved by Government employees? Mr. Boese. Senator Grassley, I was at the oral argument yesterday, and--because I filed an amicus brief, as you did, in--I filed it in support of the defendant in that case. I was at the oral argument, and I was particularly drawn to Justice Breyer's concern. Now, no one could really talk about--you know, he seemed to have come to the argument originally, frankly adverse to the Government contractor viewpoint. But during the course of the Solicitor General's argument--and the Department of Justice argued in favor of the defendant in that case. In the course of listening to the theory of the Justice Department, Justice Breyer realized something that I think is very important to this entire argument, which is, when you talk about Government money because of Government contracts, Government grants, and Government programs, Government money is endemic in the American economy. There is virtually no entity that would not have some Government money. And if a fraud on an entity--Justice Breyer asked, if a fraud on an entity which received some Government money becomes a violation of the False Claims Act, there is no end to the statute. It has no limits, and it can be enforced either by the Justice Department, but much more likely by qui tam relators. And I am sorry, I think Senator Durbin misunderstood me. I did not accuse all qui tam relators of being ambulance chasers. But one must understand that because of the treble damages and enormous penalties that are available under this statute, the ability of getting rich very quickly attracts some cases that should never be brought. Returning back to your question, Senator, about the Totten case, what the Supreme Court currently has before it--and I would strongly urge the Committee to see what the Supreme Court says, because I think the judgments that are going to be issued and the explanations that are going to be given are going to explain this issue, which I also discussed with Senator Durbin: If you basically make a false claim to any person or entity who receives Federal money, if that is your definition, then you are expanding the False Claims Act far beyond its roots. The roots of the False Claims Act are that we are out to remedy fraud on the Federal Government. Now, that fraud on the Federal Government can take many forms. I personally have no basis for arguing--I would never argue that fraud on Medicaid or Medicare does not come within the scope of the False Claims Act because of the Totten decision. In fact, I wrote at the time of the Totten decision that I thought it was a decision of very limited applicability to entities like Amtrak and the Coalition Provisional Authority. That is less than one-tenth of 1 percent of all False Claims Act cases. And what we are doing in S. 2041 is overturning and potentially expanding the False Claims Act beyond its entire-- beyond its roots to every aspect of the American economy simply to fix two almost unique cases that the Supreme Court may fix for us. Senator Grassley. Mr. Clark, I would like to have you either have a rebuttal or a commentary on that from your experience of what Mr. Boese just said. Judge Clark. Senator, I think it is important to note that there is a big difference between the Government spending money and the Government putting money in somebody's hand, like a grantee, to spend the money for the Government, as directed by the Government. I do not see anything in the bill that suggests to me that it was intended to reach controversies between private parties or, for goodness sake, to reach something purchased by a Social Security recipient. I think the intent was, it appears to me, to protect the Government's money when it puts it in somebody else's hands to spend as directed pursuant to a program or to protect Government money or money that the Government is holding in trust, so to speak, for somebody else. I guess I would turn the question around a bit and say, If someone tries fraudulently to get their hands on money that came from the United States pursuant to a program, why shouldn't they be penalized for trying to do that? Senator Grassley. OK. I am going to have another series of questions that involve all three of you. I want to go back to Ms. Gonter. Your testimony highlighted many of the reasons why I drafted the qui tam provisions of the False Claims Act in 1986. Most notably, I am pleased to hear that you were able to continue your case against the contractors, the shipbuilders, even though the Department of Justice declined to intervene. You stated the reason that they declined was never given to you, so I have to ask you: Why do you believe the Department of Justice declined to intervene against the shipbuilders? Ms. Gonter. My personal view is that there are only, you know, a few shipbuilders, you know, yards that actually can build submarines. They know that they have the contracts with them, and it was said. It was said that they were going to have to make up that money in future contracts. Whatever they paid, they would have to make up in future contracts. I believe they are in bed with them. Senator Grassley. Well, at least there were rumors flying around about that being the reason. Ms. Gonter. Yes, there were. Senator Grassley. I mean, you had heard-- Ms. Gonter. I had heard. Senator Grassley.--people comment that way. Ms. Gonter. Yes, sir. Senator Grassley. Yes. What was the judge's reaction when he learned that the Department of Justice would not intervene along with you? Ms. Gonter. I believe from looking at his expression on his face that he was surprised. Senator Grassley. Do you think that it would have been sufficient to let the prime contractors off the hook because the subcontractor paid a settlement? Ms. Gonter. Oh, absolutely not. The prime contractors were just as guilty, if not more so. It was their responsibility to make--whoever they give out their subcontracts to, that they follow those requirements. And they did not do that. They have to contract with people that are going to meet the requirements, and they absolutely did not do that. The source inspector that was onsite, a representative of EB, knew exactly what was going on there. He did not stop it, at times even contributed to it. He was on tape in as much--and his resolution--I asked him for help, actually. And his resolution to me was to take a stick of dynamite and blow the place up. That was not a joke. Senator Grassley. OK. Ms. Gonter. I mean, he may have been exaggerating about the stick of dynamite, but, you know, he was serious about how bad it was. Senator Grassley. OK. Mr. Clark, the public disclosure bar is an area of great debate in the false claims community. In 1986, we sought to undo the overly burdensome Government knowledge bar and replace it with something more workable. The compromise that we developed was the public disclosure bar, which limited False Claims Act cases based upon public information unless the relator was the original source. As your testimony shows, the courts have litigated this section of the False Claims Act to death, and to the detriment of good-faith relators and American taxpayers. Further, these interpretations, including those in Rockwell, created a disincentive for relators. Our bill amends the public disclosure bar and removes this jurisdictional challenge from the hands of opportunistic defendants and puts it in the hands of the Justice Department, the party that the bar was originally intended to benefit. So to what extent has the public disclosure bar become a strategic tool utilized by defendants to shape the relationship between the Department and the relator? And do you have any examples? Judge Clark. Well, the public disclosure bar is used by defendants to a large extent. It is one of their favorite defenses. They assert it every time they get a chance. I have spent a lot of time answering public disclosure bar motions in cases, motions that really had no basis and were filed by somebody who either did not understand what the public disclosure bar meant, or they were trying to confuse the court. There was a recent case out of Atlanta in which a district court wrote an opinion and said, in denying a public disclosure bar motion to dismiss, this looks to have been done to create delay. But when the defendant can use it as a jurisdictional bar, that is a great irony because the whole purpose of the public disclosure bar was to encourage relators to come forward and to protect the Government from having to share rewards with relators who really did not do anything except copy something out of the newspaper. So when it becomes a jurisdictional bar that has nothing to do with what the defendant did, that is a real irony. It has created a lot of mischief. It is probably the most litigated provision of the current False Claims Act. Senator Grassley. OK. To what extent has the public disclosure bar become a problem with relators rushing to file false claims cases without a complete record only to protect their claim from becoming public? Judge Clark. The relator, of course, always needs to be concerned about being the first to file, but for a couple of reasons, the relator also wants to be sure that he has got the facts right, because you do not want to file pleadings in a Federal court that are not well founded in fact because you can get sanctioned for doing that. So you want to be sure you are right, but you want to be sure you are first. I have dissuaded prospective relators from filing Freedom of Information Act requests, for example, because of the court decisions that have said that when the Government responds to a Freedom of Information Act request by sending you the document that you ask for, that that is an administrative report. I think that is a far extension of the statute, but that is what some courts have said. Senator Grassley. Mr. Boese, kind of along the same lines, I want to ask a question, and then I want to state something you assert in your testimony, and then a final question. So I would like to have you answer them both at the same time. Isn't the Government in the best position to determine whether a relator is bringing a parasitic qui tam lawsuit? You assert in your testimony that the public disclosure bar is normally only applied when the Government does not intervene. Yet in the Rockwell case, decided by the Supreme Court last year, the relator was not thrown out by the bar until after the Government intervened and a successful trial verdict was reached. This case seems to refute that argument as well as demonstrate a clear deviation from the congressional intent in the 1986 amendments. Wouldn't you agree that when the Court interprets a statute inconsistent with the intent of Congress, it is appropriate for Congress to pass corrective legislation? Mr. Boese. Senator, I will start with the Rockwell case because I think it is interesting. It was also an anomaly. I have been doing work on the False Claims Act under the 1986 amendments since 1986. I was doing this work 5 years before that. I have almost--I think one time I have filed a public disclosure/original source motion in a case in which the Government had intervened, and then only because it was such an outrage and I knew that I was going to get hit for attorney's fees, and I won that motion. When the Government intervenes in a qui tam case, public disclosure and original source become irrelevant. Our major goal is to resolve the issues with the Government. And, remember, the Government only intervenes in 20 percent of these cases, and 99 percent of the recoveries under the False Claims Act cases are in cases in which the Government intervenes. So my concern is, once the Government intervenes, resolving that case with the Government. And if at that point in time I have to pay attorney's fees, that is the price of doing business. Once I filed a public disclosure. Rockwell was simply an anomaly. Rockwell had raised that defense in the very beginning and had asserted it throughout. The relator, nevertheless, spent almost $10 million--they were only liable for about $3 million in damages. The attorney'S fees were $10 million, and that is the reason that case--that case is not a reason in order to pass this legislation because in 99.9 percent of the cases in which the Government intervenes, which is where you get 99 percent of the recoveries, this is not an issue. Public disclosure and original source, in all candor, Senator, is used by courts to get rid of meritless cases-- meritless cases that the Government does not intervene in. The courts have significant discretion as to how they define public disclosure and how they define original source. And in my experience--and this is a very practical experience--courts have used public disclosure and original source, as well as one other defense, in order to dismiss meritless cases. This is not an issue on cases where there is real fraud. This is not an issue in a case like Ms. Gonter's case. It is not an issue there because the Government comes in and that is where your recoveries are. Senator Grassley. Well, you surely have to admit that Ms. Gonter's case is an example of a serious fraud that proceeded without the Justice Department's help. Mr. Boese. I would not agree with that, Senator. A couple of things about that case-- Senator Grassley. You would not agree? Mr. Boese. I would not agree with your statement. And with full disclosure, my firm represented one of the shipyards in that case, so I know the case a little bit better, but it was not my case. The Government, as Ms. Gonter says--and she is a courageous relator. I believe that she is exactly the way this law should work, because when she brought her allegations to the attention of the Government, they sprang to action. The investigators sprang to action. They put a wire on her. They started to investigate this matter. And the system worked the way it did. The Justice Department did intervene against whom they believed to be the wrongdoer, which was Hunt Valve. They did not intervene against the two shipbuilders. I do not know why. They know why. You can ask Mr. Hertz why they did not do it. But the real wrongdoer here was Hunt Valve, not the shipbuilders. Eventually, the shipbuilders settled that case because they had contract claims. The very fact that they had an inadequate supplier like Hunt Valve subjected them to significant contract damages--not False Claims Act damages but contract damages. Senator Grassley. I would like to ask one last question, and I am going to start with you, Mr. Boese, and then I might ask Mr. Clark to listen and probably have some rebuttal. No court has ruled that there is a per se ban against Government employee relators. However, most courts have held that a Government employee cannot qualify for the original source exception when there has been a prior public disclosure, as under the false claims public disclosure bar. Given this confusing legal backdrop, the proposed amendments seek to clarify how the act applies to Federal employees who discover fraud during the course of their employment. The bill provides the Government the authority to move to dismiss the action of any Federal employee who brings a qui tam action under the Act without first meeting certain requirements. These requirements provide the Government fair notice and opportunity to investigate. Only after reporting the claims to supervisors, the Inspector General, and/or the Attorney General can the employee file a qui tam. In Ms. Gonter's case, she was not a Government employee, but as her testimony shows, the Government was reluctant to pursue the fraud by the prime contractor due to their future contracts with the Government. Had she been a Government employee, how would that fraud have been recovered? The False Claims Act is an important safety valve then for uncovering fraud when a governmental agency has been unwilling or unable to prosecute. Isn't a defined set of procedures for Government employees to follow before becoming a relator better than the current and ad hoc system of the circuit-to-circuit seesaw that we are involved in? Mr. Boese. Senator, first of all, I agree with you that some set of rules was better than nothing. However, I would echo the statements by Mr. Hertz on behalf of the Justice Department and, I might add, Professor Pam Bucy, who submitted a written testimony but was not able to be here, saying that allowing Government employees to bring qui tam cases is not just bad policy, it is toxic. We spend a fair amount of time in our written report on pages 21 through 27 talking about all the problems that occur. I would specifically refer the Committee to review the discussion of the POGO case on page 25, where a Government employee who was actually interpreting regulations that were the subject of a False Claims Act suit, of a separate qui tam suit, that same employee was receiving 10 percent of the results of whatever the qui tam relator received. Now, the Justice Department sued both the relator and the employee in Federal court under the Ethics in Government Act and just earlier this month got a result. But when you allow a Government employee to bring a qui tam suit, then all the deference that should be due an employee's decision because they are independent--in other words, we give deference to a Government employee's interpretation of the law because they are independent. Once we allow them to bring qui tam cases to benefit themselves personally, we are essentially taking that deference away from them because they will not be acting for the good of the public. They are going to be acting for the good of themselves. The problem I have with the procedure you set forth is that in many ways it is the worst of all possible worlds. It is the situation where an IRS agent or another agent audits an individual or a company and then uses that information to put money in their own pocket. That is what this bill allows, and that is why we are so opposed to it. Senator Grassley. As I suggested, Judge Clark, what do you think, whether or not Congress ought to clarify the playing field so that there is not this mismatch and also circuit discrepancy that we have on whether or not an employee can be a qui tam relator? Judge Clark. I have not had the experience myself of being approached by a Government employee to be a whistleblower, but then we do not have nearly as many of those in San Antonio as there are in Washington. But I guess the bottom line for me is I would hate to see a fraud against the Government go unredressed simply because the person who knows about it and is trying to blow the whistle about it is a Government employee. If I might, I would like to add two very brief comments addressing a couple of things that Mr. Boese said, if you would indulge me in that. First, as to whether public disclosure bar motions are filed in intervened cases, they are not irrelevant at all. I have answered public disclosure motions in intervened cases because defendants would love to knock out a relator who is sitting there side by side with the United States and has brought resources to the battle with the relator. So, yes, they file them in intervened cases. And as to the statistic about 1.4 percent, or whatever it is, of recoveries coming in declined cases and that 80 percent of them are declined because they are meritless, in the first place there are many reasons cases are declined. I have had the Government tell me, when a court unseals a case before the Government is ready to intervene, ``Will you carry the ball until we can finish our investigation and get in?'' And that happens. Not only that, there have been substantial recoveries that are in the column that says intervened cases that were intervened in right at the last minute for settlement. Just a couple of examples. The Merck case that was in the headlines just recently, that was a $670 million settlement. Now, most of that, $400 million plus, was in one case that the Government did intervene in; the balance of that settlement came from a declined case that the attorney from New Orleans litigated without the Government, right until the time to settle. The same thing happened in the Gabelli case. That was $130 million. That was settled on the eve of trial. The Government intervened very close to the time of trial. The Amerigroup case, $144 million plus penalties, was intervened in very close to going to trial. The Northrop case, $62 million, that was litigated by the relator and his counsel for 10 years, and it was intervened in just before it was settled. The Alderson case, the Columbia-HCA case, that is another one. I do not know the amount of that one, but that one was litigated by the relator and their counsel for years. There was an intervention, I believe, but it came right at the end as the case was being brought to fruition. So the statistic that says all this money comes out of intervened cases includes those cases that are intervened in very late after the relator has litigated that case sometimes for years. Senator Grassley. Did you have something you wanted to say, Mr. Boese? Mr. Boese. Well, I believe the Alderson case was the Columbia-HCA case. I believe the ultimate recoveries there were $1.4 billion. As one of the early attorneys for Columbia-HCA in that case, I can tell you that the Government was in it very early and very often. They had seven teams of attorneys working on that case. That was not a case of un--intervene. And with regard to most of the others that he referred to, some of which I am familiar with and some of which I am not, many of those were done by State Attorneys General who were acting under their State qui tam laws. I do not consider that to be a qui tam case. I believe that to be a State operating under its own qui tam laws and bringing the Government along with it. Senator Grassley. I am going to close now, but I have a summation because I was not able to give an opening statement. But before I do that, I am going to ask, without dissent, that my opening statement be printed in the record as if read. And I also have a request here from Senator Cornyn that a statement that he has be placed in the record because he was not able to come. I thank you all very much for your testimony. It has been very worthwhile testimony. After this testimony, I do believe that there is agreement that the False Claims Act can be strengthened with some provisions of 2041. Further, while not endorsing the bill in the current form, I have found from the testimony this morning, the views letter also from the Justice Department, to be very encouraging. I am committed to ensuring that the Department has the necessary tools to enforce laws against those who seek to defraud. S. 2041 contains some provisions that will help the Department of Justice in efforts to root out that fraud. And I am going to work with the Department to see if we can get some consensus. I would like to note that the False Claims Act works because of courageous whistleblowers. I speak often about honoring whistleblowers, and no less you, Ms. Gonter. As the Department's testimony shows, qui tam whistleblowers are at the heart of false claims actions, accounting for nearly 63 percent of all recoveries. You and your husband and the lengths that you went to to ensure that our sailors aboard our Navy submarines are safe have to be honored and acknowledged. This is the real power of whistleblowers to expose complex fraud schemes from the inside and then push the Government to not sit on its laurels but recover fraud that was lost. I will admit that I struggle to see why the Department decided to not intervene in Ms. Gonter's case despite the volumes of evidence she uncovered while working from the inside. That said, the qui tam provisions worked, and Ms. Gonter saved the taxpayers over $13 million, and commendation for that cannot be too great. With approximately 1,000 qui tam cases under seal, waiting intervention, I can only guess that there are hundreds if not thousands of whistleblowers just like Ms. Gonter waiting to tell their story. While this large number is testament to the False Claims Act, it is also a reminder that fraud never sleeps and that we need to keep fighting to protect taxpayers' dollars. S. 2041 will help strengthen the False Claims Act for the next 20 years and help courageous individuals in the future, like Ms. Gonter has shown us today, to continue to bring fraud to light. I especially take note of Chairman Leahy's interest in this, more importantly for bringing the attention that he did through this hearing and also for his participation in it. And I also note that the statements of all Senators other than those that I have already mentioned will be received by unanimous consent and to remind each of you who are witnesses, besides my own questions that I may submit--or will submit, that maybe members who could not be here would also have questions, that we would ask you to submit, and so the record would remain open for 7 days for that purpose. Thank you all very much. [Whereupon, at 12:15 p.m., the Committee was adjourned.] [Questions and answers and submissions for the record follow.] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] <all>