Tuesday, March 27, 2007

It Ain't So Easy To Whistle While You Work.

Whistleblowers took a heavy right-cross to the jaw today when the U.S Supreme Court held that they cannot collect a share of monies recovered in a qui tam suit filed under the False Claims Act (31 U.S.C. Sec. 3729, et seq.) unless they are the “original source” of the information proving the fraud. For the uninitiated, a qui tam suit allows a private citizen to: (a) file an action in the name of the United States alleging fraud by government contractors and other entities who receive or use government funds; and (b) share in any monies recovered. The term qui tam means, literally, "he who sues on behalf of the king as well as for himself." Archaic, yes, but up until today, qui tam suits seemed to be a pretty good deal for plaintiffs. I'm not so sure about that now.

In Rockwell International Corp., et al. v. United States, et al. (No. 05-1272), the Court, by a 6-2 majority, held that a former engineer at Rockwell International (“Rockwell”) was not the “original source” of information used to expose fraud at Rockwell’s nuclear weapons facility in Colorado. Accordingly, he could not collect any share of the millions from a jury verdict and award that Rockwell had been ordered to pay as a penalty for engaging in the fraud alleged. The Court held that an "original source" under the statute must have “direct and independent knowledge” of the information alleged in the lawsuit. Here, the engineer failed to qualify since he had merely “predicted” that the company's system for creating solid, “pondcrete” blocks from toxic pond sludge and cement would not work because of problems in piping the sludge. This prediction proved correct in part, but the cause for the failure was not due to piping problems; rather, the block had become "insolid" due to the leakage of toxic sludge. After the engineer was laid-off and prior to his taking legal action, the leakage issue was publicly disclosed by the news media. The Court found that the engineer did not know for a fact that the block failure had occurred or that Rockwell had made false statements about it to the government until approximately one year after his lay-off and after the information had become public.

While the Court's ruling rests on a hyper-technical interpretation of the statute, it reduces significantly the incentive for individuals to furnish information critical to exposing fraud against the government. In my view, it makes little difference as to whether the engineer had direct, first-hand information or whether that information came to him from another source which led ultimately to proving the actual fraud (which it did). This is a classic example of form over substance which, in the long run, only encourages wrongdoing and hurts the taxpayer. Congress would do well to remedy this statutory crater post-haste.

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