Supreme Court Clarifies The Extent To Which The False Claims Act Applies

On June 9, 2008, the U.S. Supreme Court decided the case of

Allison Engine Co., Inc., v. U.S. Allison

Engine was a test of the False Claims Act

("FCA"), which rewards whistleblowers who report when

the U.S. Government ("Government") is being defrauded

by those who do business with it. At issue was the question of

whether the law covers only those cases in which a fraudulent

bill is presented directly to the Government or whether it

could also cover situations in which government funds may be

misspent, but the actual fraudulent bill is presented to a

company or other institution that receives federal funds and

not directly to the Government.

In the case two workers were involved in the manufacture of

electrical supplies for the Navy's billion-dollar Arleigh

Burke-class Guided Missile Destroyers. The men worked for one

of several subcontractors who collaborated on the design and

building of generator sets ("Gen-Sets") used to power

the destroyers. They alleged in their qui tam suits

that the companies used unqualified workers to build the

Gen-Sets, installed leaky gearboxes in the systems, and used

defective temperature gauges.

After a five-week trial, the district court granted judgment

as a matter of law for the companies. The court concluded that

the FCA requires that defendants must have

"presented" a fraudulent claim to the Government. The

district court ruled that the "presentment

requirement" had not been met because the subcontractors

submitted their invoices to the prime contractor.

The Sixth Circuit reversed that decision. The court held

that the FCA was meant to be liberally construed in order to

discourage double-dealing against the Government. The FCA

imposed liability on any person who "knowingly makes,

uses, or causes to be made or used, a false record or statement

to get a false or fraudulent claim paid or approved by the

Government." The Sixth Circuit held that this requirement

was satisfied when the subcontractors prepared invoices that

resulted in payments from the prime contractors out of monies

received by the Navy.

In reaching this conclusion, the Sixth Circuit distinguished

a D.C. Circuit case, Totten v. Bombardier Corp., 380

F.3d 488 (D.C. Cir. 2004). In Totten, the court

refused to sign off on a FCA claim where the defendants had

prepared false documents for payment by Amtrak. The court held

that even though Amtrak received government funds, it was an

independent entity authorized to pay its own claims without

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