Allison Engine Co. v. Sanders

The requirements of proving a whistleblower suit under the False Claims Act will be clarified by the Supreme Court this Term, in a case alleging that manufacturers defrauded the United States Navy.

The appellees in the case, Allison Engine Co. v. Sanders, No. 07-214, were two workers 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 electrical systems. They alleged in their qui tam suits that the companies used unqualified workers to build the electrical 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 False Claims Act requires that defendants have "presented" a fraudulent claim to the United States government. Here, because the subcontractors submitted their invoices to the prime contractor, the court ruled that the "presentment requirement" had not been met.

The Sixth Circuit reversed that decision. The court held that the False Claims Act is meant to be liberally construed in order to discourage double-dealing against the federal government. The statute imposes liability on any person who "knowingly makes, uses, or causes ot be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government." The court 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 False Claims Act 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 government approval. Therefore, the court held that even though the defendants ultimately received government money, their claims were not subject to the False Claims Act.

In the Allison Engine case, U.S. Circuit Judge Alice Batchelder dissented, citing the Totten case. Batchelder echoed the D.C. Circuit in urging a limiting interpretation of the False Claims Act. The majority's broad reading, she suggested, would apply to all invoices submitted to "almost every college and university" because they received federal grants.

The Court will likely decide the case in early 2008.

The requirements of proving a whistleblower suit under the False Claims Act were clarified by the Supreme Court today, in a case alleging that manufacturers defrauded the United States Navy.

The appellees in the case, Allison Engine Co. v. Sanders, No. 07-214, were two workers 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 electrical systems. They alleged in their qui tam suits that the companies used unqualified workers to build the electrical 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 False Claims Act requires that defendants have "presented" a fraudulent claim to the United States government. Here, because the subcontractors submitted their invoices to the prime contractor, the court ruled that the "presentment requirement" had not been met.

The Sixth Circuit reversed that decision. The court held that the False Claims Act is meant to be liberally construed in order to discourage double-dealing against the federal government. The statute imposes liability on any person who "knowingly makes, uses, or causes ot be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government." The court 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 False Claims Act 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 government approval. Therefore, the court held that even though the defendants ultimately received government money, their claims were not subject to the False Claims Act.

In the Allison Engine case, U.S. Circuit Judge Alice Batchelder dissented, citing the Totten case. Batchelder echoed the D.C. Circuit in urging a limiting interpretation of the False Claims Act. The majority's broad reading, she suggested, would apply to all invoices submitted to "almost every college and university" because they received federal grants.

The Court will likely decide the case in early 2008.

On June 9, a unanimous Supreme Court overturned the appeals court decision.

"A plaintiff asserting a §3729(a)(2) claim must prove that the defendant intended that the false record or statement be material to the Government’s decision to pay or approve the false claim," Justice Samuel A. Alito Jr. wrote for the court.

Justice Alito noted that "eliminating this element of intent, as the Court of Appeals did, would expand the FCA well beyond its intended role of combating “fraud against the Government.”