This week, the United States Supreme Court agreed to hear a False Claims Act whistleblower case filed against the General Motors Corporation and its former division, Allison Engine Company. The alleged fraud concerns subcontracts for building parts for the U. S. Navy’s guided missile destroyers. Each of the 50 destroyers in question costs the taxpayers over $1 billion.
At issue in this case is an argument being made by the defendants that the whistleblower and the government cannot attack the alleged fraud scheme under the False Claims Act based on the failure of the subcontractor (Allison Engine Company) to personally present claims for payment to the United States government. (In short, even if fraud occurred, the subcontractor cannot be sued under the False Claims Act because the subcontractor did not itself present false claims to the federal government.) This rule, known as the “Totten” rule, was first articulated by the now Chief Justice of the Supreme Court John Roberts when he previously served on the U. S. Court of Appeals for the D. C. Circuit. The “Totten” rule allows subcontractors to escape liability under the False Claims Act if they were not the actual party who formally presented the claim to the government for payment.
In the case which the Supreme Court has agreed to review, the lower Appeals Court supported the whistleblower’s claims and explicitly rejected the “Totten” rule. The Court of Appeals reasoned that the subcontractor’s liability should not depend on a technical presentment of a claim to the government, but whether government money was used to pay a false and fraudulent claim for payment on the contract.
Obviously, this technicality is being used by defendants in many cases where the subcontractor does not actually itself submit a false claim for payment to the government, but instead “causes” it to be submitted (usually by the general contractor), but still ends up collecting substantial taxpayer monies. Obviously, the central focus of the False Claims Act is not only to hold liable not only those who submit a false claim to the government, but also anyone who causes such a false claim to be submitted with the intent that the government be defrauded. Obviously, the “Totten” rule needs to be overruled by the Supreme Court but given the fact that Chief Justice Roberts issued the “Totten” opinion when he was an Appellate Court Judge himself, court observers are mixed as to whether the Supreme Court will reject the rule and uphold the intent of the False Claims Act, or whether it will side with defendants and make it easier to escape liability for fraudulent conduct on technical grounds.
We have already written about the new amendments recently proposed to the False Claims Act in the Senate that would eliminate the Totten defense, and restore the False Claims Act to its original intended result in other ways as well. The “Totten” rule is bad law and bad public policy. If one causes a false claim to be submitted, this should be sufficient; otherwise form is elevated over substance. This whistleblower firm hopes that common sense will prevail in the Supreme Court.