Supreme Court Restricts Whistle-blower Lawsuits


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The overall effect of the decision is likely to be narrow because Congress amended the disputed provision as part of the health care overhaul that became law March 23.

At issue was the scope of the False Claims Act, first enacted during the Civil War to elicit help from ordinary citizens against contracting fraud. The law permits people to sue in the name of the United States and to collect some of the settlement. Since Congress bolstered the act in 1986, the Justice Department has recovered more than $20 billion.

The new case and the recently passed legislation put a spotlight on whistle-blowers who uncover fraud through the help of state or local audits that normally would not come to the federal government’s attention.

The case turned on a section of the law — on the books before March 23 — that barred citizen lawsuits based on information already public “in a congressional, administrative or Government Accounting Office report, hearing, audit or investigation.”

The question was whether that ban covered only federal reports — as the Department of Justice argued — or blocked whistle-blower claims based on information published in a state or local report.

The government says it often is not aware of findings in local reports and relies on citizens to drill down to expose fraud that costs Washington money.

Rejecting the U.S. government’s reading of the law, the high court declared Tuesday that “administrative” reports covered state and local audits. The justices ruled against Karen Wilson, who had been a secretary in North Carolina’s Graham County Soil and Water Conservation District. She alleged that fraud related to the county’s involvement in a federal disaster relief program after a storm in 1995 caused extensive flooding. (A Graham County audit of the disaster-relief effort had documented some problems cited by Wilson.)

In construing the ban to cover state reports, Justice John Paul Stevens wrote for the majority, “Congress carefully preserved the rights of the most deserving … plaintiffs: those whistle-blowers who qualify as original sources.”

Yet Stevens noted that Congress had recently amended the law to say that only federal reports fall under the public-disclosure exemption. Stevens suggested that the provision would not apply in Wilson’s or other cases in the pipeline because the “legislation makes no mention of retroactivity.”

That issue could spur more litigation. Wilson’s lawyer wrote to the high court March 26, three days after the health care overhaul was signed, saying the new provision “raises complex issues as to its retroactive effect.”

Patrick Burns, spokesman for the Taxpayers Against Fraud Education Fund, which sided with Wilson, said, “This case underscores why changes were needed to the False Claims Act.”

“The federal government cannot be everywhere and see everything,” he said, explaining why whistle-blower advocates wanted to ensure that state reports could be used as grounds for a citizen claim. “You need these bird dogs in the states” to pursue potential fraud.

Justices Stephen Breyer and Sonia Sotomayor dissented. They argued that Congress had sought a more expansive view.

Writing for herself and Breyer, Sotomayor said the majority misinterpreted the text of the law and gave “insufficient weight to contextual and historical evidence of Congress’ purpose” in allowing whistle-blower suits.

By Joan Biskupic, USA TODAY



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