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The United States Supreme Court has ruled that whistleblowers may not file suit on the government’s behalf in cases where the alleged fraud against the federal government was first disclosed in an administrative audit by a state or local government. The federal False Claims Act contains restrictions on when suits can be brought after allegations of fraud are publicly disclosed. This is to prevent people from reading a newspaper story about a fraudulent scheme against the government and then rushing to file a whistleblower suit in order to collect a share of the government’s recovery. Rather, the False Claims Act is intended to encourage people with personal knowledge of a fraudulent scheme to step forward and assist the government in making a recovery. The Qui Tam provisions of the statute allow whistleblowers to share in the proceeds of any settlement of judgment.
Prior to the Court’s ruling, courts disagreed on the issue concerning suits based on disclosures made initially in state and local government audits. It is clear from the federal False Claims Act that similar suits may not be filed where the fraud comes to light in a federal administrative audit. The question was whether Qui Tam suits alleging that local governments misused federal funds may be brought when the misuse is first revealed in a local government audit. Today, the Supreme Court ruled in a 7-2 decision that such suits are not viable.
The Court’s decision, however, is likely to have a short term impact on Qui Tam litigation. This is because the newly enacted health care legislation contains language changing the federal False Claims Act so that new lawsuits based on state and local administrative audits may go forward. Congress specifically amended the False Claims Act language in question to apply only to federal audits. According to the Supreme Court’s decision today, however, the change would benefit future whistleblower actions only; pending lawsuits will be unaffected by the new law.
The Court’s decision was announced in Graham County Soil and Water Conservation District v. U.S., 559 U.S. __ (2010).
For the full story, go to the Washington Post.