The Unwritten Nexus Requirement: Requiring a Connection Between Federal Funds and False Claims Under the False Claims Act

The federal government provides funding to an incredible number of non-government entities through direct spending and grants. The False Claims Act (“FCA”) provides that anyone who presents “false or fraudulent claims” or who commits other similar offenses is subject to substantial penalties.

“Claim” is defined as including any request for payment where the federal government provided “any portion” of the requested funds, meaning many false claims presented to non-government entities will be subject to FCA liability.[1]  Indeed, under one reading of the “any portion” language of the FCA, any false claim presented to a non-government entity that receives any federal funding may be subject to FCA liability. As discussed below, courts have largely rejected this reading and instead require that there be a nexus (aka connection) between the federal funding provided to the non-government entity and the false claim.

The FCA Covers False Claims Made to Non-Government Entities for Government Funds

Prior to 1986, the FCA did not define “claim.”  In response to a concern that courts were improperly limiting the scope of FCA liability, Congress added a definition of “claim” to expressly provide that FCA liability existed when false claims were made for government funds even if such claims were made to non-government entities.  “Claim” was defined as:

[A]ny request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded, or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.[2]

However, the FCA still only imposed liability for persons who “knowingly presents, or causes to be presented, to an officer or employee of the United States Government . . .  a false or fraudulent claim for payment or approval.” [3] The interplay of these definitions created a seeming ambiguity: the definition of “claim” contemplated claims made to non-government entities using government money while the liability provision required that the claim be made “to an officer or employee of the United States Government.” Courts interpreted the FCA as only creating liability where a claim was presented to the Government, i.e. that liability did not exist in situations where claims were presented to recipients of government funds, even where government funds were used to pay the false claims.[4]

In 2009, Congress reconciled this ambiguity by enacting more amendments to the FCA. Specifically, Congress eliminated the language “to an officer or employee of the United States” from the substantive liability provision of the FCA such that it now provides that anyone who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” is subject to liability. It is now clear that false claims presented to recipients of government funds are actionable under the FCA.  As one court explained, “[t]he new language underscored Congress’s intent that FCA liability attach to any false claim made to an entity implementing a program with government funds, regardless of whether that entity was public or private.”[5]

Courts Interpret the FCA to Require a Nexus Between False Claims and Federal Funds

As described above, “claim” includes any request for payment where the federal government provides “any portion” of the requested money. This creates potentially vast liability under the FCA given that the federal government provides funding to a wide variety of institutions and programs. For example, school districts in the United States are largely funded through state and local funding, although the federal government still provides a substantial amount of funding. One reports estimates that schools receive about 90% of their funding through state and local sources with the remaining 10% coming from the federal government.[6]  Applying the “any portion” language of the FCA, any and all false claims presented to school districts are potentially subject to liability given that the federal government provides every school with some funding.

Courts have largely rejected relators’ attempts to contend that the “any portion” language of the statutory definition of “claim” means that a false claim presented to an entity is automatically actionable under the FCA so long as the entity receives any federal funding irrespective of whether the claim itself involves any federal funds. Put differently, courts have generally held that there must be some nexus between an entity’s receipt of federal funding and the false claims.

For example, in Garg v. Covanta Holding Corp., 478 F. App’x 736 (3d Cir. 2012), the Third Circuit held that the “FCA requires that there be some greater nexus between the alleged fraud and the government funds.” In another recent case, a court similarly held that the FCA “requires a connection between government funds and the funds used to pay a false claim.” United States ex rel. Todd v. Fid. Nat’l Fin., Inc., 2014 WL 4636394, at * 10 (D. Colo. Sept. 16, 2014). Other courts have reached similar conclusions. See United States v. McMahon, 2016 WL 5404598, at *12 (N.D. Ill. Sept. 28, 2016) (“Although under the amended FCA, Relators are not required to show that any false statement or claim was presented directly to the federal government, Relators are still required to sufficiently allege a nexus to federal funds.”).

Conclusion

While courts have generally construed the “any portion” language to require a nexus between the false claims at issue, it is important to carefully evaluate each individual case under the specific facts and circumstances. This is particularly true given that there is not a wide body of law on this issue, and it is possible that interpretations of the “any portion” language could change and evolve in the coming years.

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[1] 31 U.S.C. § 3729(b)(2).

[2] 31 U.S.C. § 3729(c) (1986).

[3] 31 U.S.C. 3729(a)(1) (1994) (emphasis added).

[4] See e.g. U.S. ex rel. Totten v. Bombardier Corporation, 380 F.3d 488 (D.C. Cir. 2004).

[5] United States ex rel. Garbe v. Kmart Corp., 824 F.3d 632, 638 (7th Cir. 2016).

[6]U.S. Dep’t of Education, Revenues and Expenditures for Public Elementary and Secondary School Districts: School Year 2011–12 (Fiscal Year 2012) (Jan. 2015), available at  https://nces.ed.gov/pubs2014/2014303.pdf.