Home -> Law Blog Directory -> Administrative Law Blogs -> Within the Scope

Administrative Law

: Within the Scope

False Claims Act Not an ?All-Purpose Anti-Fraud Statute?

By Eric L. Lipman

In an interesting opinion issued yesterday, a unanimous U.S. Supreme Court overturned a lower court ruling as to the proof that qui tam relators must assemble in order to recover damages under the False Claims Act.

At issue in the case was whether former employees of a second-tier subcontractor for the U.S. Navy, now acting as private attorneys general, could recover money damages against their misbehaving former employer and others. The second-tier subcontractor had furnished products to a first-tier subcontractor, certifying that the goods it delivered met the Navy?s contract specifications and had passed required quality testing; yet, neither of these representations were true.

At the close of the qui tam relators? case in U.S. District Court, the contractors moved for judgment as a matter of law. As the companies argued, no jury could find a violation of the False Claims Act because the relators did not offer proof that the fraudulent invoices and certificates from the second-tier subcontractor were ever presented by the prime contractor to the Navy. In the view of the companies, the nexus between the second-tier subcontractor's misconduct and later government payments was missing. Agreeing, the District Court granted the motion.

Reversing, a panel of the U.S. Court of Appeals for the Sixth Circuit held that such claims do not require proof of an intent to cause a false claim to be paid by the Federal Government; but rather, the intent to cause a false claim to be paid with funds that earlier came from the Govern­ment was sufficient.

Disagreeing, a unanimous U.S. Supreme Court held that subcontractor liability under the False Claims Act required proof that the subcontractor presented a false claim to higher-tier contractors with the intent and purpose of inducing payment of the false claim by the Federal Government. Without such proof, continued the Court, ?[r]ecognizing a cause of action under the [False Claims Act] for fraud directed at private entities would threaten to transform the FCA into an all-purpose antifraud statute.?

Likewise interesting, in rejecting the Government?s argument that the terms ?paid ? by the government? should have a broad construction, and include instances in which government funds were used to pay an improper invoice, the Court takes the Government to task for ?colloquial? and uncustomary statutory construction techniques. Participating as amicus curiae, the U.S Government argued that ?when a student says his college living expenses are ?paid by? his parents, he typically does not mean that his parents send checks directly to his creditors. Rather, he means that his parents are the ultimate source of the funds he uses to pay those expenses.? Countering with his own hypothetical, Justice Alito replied: ?This example is unpersuasive because it involves a colloquial usage of the phrase ?paid by??a usage that is not customarily employed in more formal contexts. For example, if a federal employee who receives all of his income from the Government were asked in a formal inquiry to reveal who paid for, say, his new car or a vaca­tion, the employee would not say that the Federal Government had footed the bill. In statutory drafting, where precision is both important and expected, the sort of colloquial usage on which the Government relies is not customary.?

Generously, from a website at which no one has to pay in order to receive quality goods, the Court?s complete analysis is accessible here.

Full post as published by Within the Scope on June 10, 2008 (boomark / email).