New Supreme Court False Claims Act Decision Today: Could This Court Be Any Friendlier to Qui Tam Defendants?

False Claims Act history repeated itself today.

Since Congress acted decisively in 1986 to breathe life into the False Claims Act through amendments intended to expand use of the nation’s major anti-fraud whistleblower law, the Supreme Court and some lower courts have regularly intervened by imposing their own views on what Congress must have meant in writing the 1986 amendments.

Those decisions hostile to enforcement of the False Claims Act included Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662 (2008); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), cert. denied, 544 U.S. 1032 (2005); and United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617 (E.D. Va. 2005), rev’d, 562 F.3d 295 (4th Cir. 2009)).

Since then, in 2009 and 2010 Congress responded emphatically with three more sets of FCA amendments to state, in essence, what Congress actually intended in 1986, and still intends, the law to mean. We have previously discussed those amendments made by the 2009-2010 legislation known as FERA, PPACA, and Dodd-Frank. (Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, 123 Stat. 1617 (“FERA”); Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119 (“PPACA”); Dodd-Frank Financial Reform Act (“Dodd-Frank”), Pub. L. No. 111-203, 124 Stat. 1376.)

Today’s decision in Schindler Elevator Corp. v. United States ex rel. Kirk is a victory for those who seek to make it more difficult to use the “old” version of the False Claims Act to battle fraud against taxpayers. The Supreme Court’s decision today continued the legislative tennis match with Congress.

The Court held that what is known as the “public disclosure bar” of the False Claims Act deprived courts of jurisdiction over this qui tam whistleblower case, because the whistleblower had attempted to corroborate his allegations through FOIA requests.

Fortunately for those who favor stopping fraud against taxpayers, the decision should have no effect on qui tam cases filed after the March 22, 2010 enactment of PPACA, the major health reform bill.

Before PPACA, the False Claims Act Act provided that, when there is an action “based upon the public disclosure of allegations or transactions” in one of three specified categories of places where disclosures can occur, the court shall lack jurisdiction over the action, unless “the person bringing the action is an original source of the information.” The three specified places of “public disclosure” were “[1] in a criminal, civil, or administrative hearing, [2] in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or [3] from the news media.”

As we have discussed in our past writings on the False Claims Act, PPACA has removed this jurisdictional bar, has authorized the government to prevent dismissal on this basis if it chooses, and has relaxed the standard for relators to establish that they are an “original source” as a means of avoiding dismissal on that basis as well. In addition, PPACA limited the type of public disclosures in question to federal sources, and thus pre-empted for future violations the Supreme Court’s ruling shortly thereafter in 2010 in Graham County Soil & Water Conservation District v. United States ex rel. Wilson, 130 S. Ct. 1396 (2010)(state report created public disclosure under prior version of FCA).

Today’s decision–similar to many past decisions attempting to limit what Congress has plainly said–nonetheless leaves readers to wonder if this Supreme Court has a preference for making large scale fraud against taxpayers more difficult to stop.

The False Claims Act is an important law enforcement statute. Courts do not need to legislate from the bench to change the meaning of what Congress has written. Taxpayers lose when decisions like this one occur.

Shouldn’t we want to encourage whistleblowers to verify and corroborate their information? As Justice Ginsburg’s dissent today observed:

Why should a whistleblower attentive to the heightened pleading standards of Federal Rule of Civil Procedure 9(b) be barred from court if he seeks corroboration for his allegations, as Kirk did, through a FOIA request simply for copies of a contractor’s filings? After today’s decision, which severely limits whistleblowers’ ability to substantiate their allegations before commencing suit, that question is worthy of Congress’ attention.