by Martin Magnusson, Editor-at-Large
The False Claims Act is a federal statute that allows citizens to sue, on behalf of the government, contractors who have defrauded the government. To compensate for their risk and effort, the statute allows the whistle-blowing citizen, referred to as a relator, to retain a portion of the funds that are recovered. In False Claims Act cases, damages are trebled (multiplied by three) and civil penalties are assessed for each false claim. Accordingly, the relator's award can be quite large, which serves as an inducement for relators to step forward with information that ultimately achieves greater accountability in the performance of government contracts. In order for citizens to sue under the False Claims Act, though, they must be an original source of direct evidence of fraud. The original source requirement is meant to preclude “parasitic” relators from filing suit in the hopes of hitting a jackpot award.In 1986, James Stone, a former engineer at the Rocky Flats nuclear weapons plant, told the FBI that he believed there were widespread environmental violations at the plant. As a result of his disclosures, the federal government ultimately recovered $18.5 million in criminal fines and $4.1 million in civil damages. Rockwell appealed the award of a portion of the civil damages to Mr. Stone, contending that he possessed only “background” information and was not an “original source” of the information at issue in the suit. This case was recently heard by the Supreme Court.
Rockwell is contending that while Mr. Stone told FBI agents that the design for making pondcrete (blocks of concrete mixed with nuclear waste) was faulty, the actual problem with the pondcrete blocks had nothing to do with their design. Rather, the problem was due to Rockwell's failure to use an adequate amount of cement.
The Tenth Circuit rejected this argument, observing that
[Our] review of the record convinces us that Stone has been specific and detailed in showing how he obtained, through his own efforts and not through the labors of others, direct and independent knowledge that Rockwell's designs for manufacturing pondcrete blocks would result in the release of toxic waste . . . The fact that Mr. Stone was not aware of the specific persons or documents involved does not erase this knowledge.
Rockwell's counsel, Maureen Mahoney, takes issue with this finding, arguing that “the best reading [of the original source requirement] is that the relator must have direct and independent knowledge of information sufficient to permit the trier of fact to conclude that a false statement was made to the Government in support of a fraudulent claim for payment.”
The US Chamber of Commerce filed an amicus brief on behalf of Rockwell, which notes that the False Claims Act “[threatens] every federal government contractor, health care provider, and grant recipient in the United States.” The amicus brief further notes that many False Claims Act cases have been “brought by officious bounty hunters.”
This characterization is challenged by Taxpayers Against Fraud, a non-profit organization dedicated to the promotion and use of the False Claims Act. Taxpayers Against Fraud contends that a look at the “big picture” is warranted:
It's worth noting what is NOT being argued in this case. There is no question that Rockwell International is guilty of ripping off the American people . . . Nor is there any question that Jim Stone was the first person to bring to the Government's attention the fact that nuclear waste was being improperly disposed of at Rock Flats due to defects in the “pondcrete” manufacturing process . . . The only question is whether Rockwell International -- the guilty party -- can determine who is, and who is not, an original source in a case that has been joined by the U.S. Department of Justice.
The high court is rightly skeptical when Stone's claim will overwhelmingly impose a financial burden on the U.S. which backs him, relative to the burden it places on Rockwell, who opposes Stone.
This case presents a better context for deferring to the government than cases like interpretations of agency regulations, where it routinely does so. While a particular administration may disagree with an agency's entire mission, almost no administration disagrees with the idea of increasing government revenues in cases involving fraudulent contractors.
The high court is rightly skeptical when Stone's claim will overwhelmingly impose a financial burden on the U.S. which backs him, relative to the burden it places on Rockwell, who opposes Stone.
This case presents a better context for deferring to the government than cases like interpretations of agency regulations, where it routinely does so. While a particular administration may disagree with an agency's entire mission, almost no administration disagrees with the idea of increasing government revenues in cases involving fraudulent contractors.