Like many corporate law and business law decisions, yesterday’s Supreme Court decision in Allison Engine Co. v. United States ex rel. Sanders was virtually ignored by the media and blogosphere. Neither the New York Times , Washington Post , nor even the Wall Street Journal even mentioned it in their daily dispatches, choosing to focus instead on other opinions handed down yesterday. But for my government contracts practice , and my clients, this decision was of monumental importance.
The case arose out of the False Claims Act , a Civil War-era statute that provides civil liability and penalties for anyone who, among other things, ” 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.” Notably, the statute contains a qui tam provision that allows individuals (called “relators”) to sue on behalf of the U.S. government if they learn of such fraud and entitles these whistleblowers to a percentage of the recovery if the suit is successful. This provision was originally inserted to counterbalance a recalcitrant Justice Department that was unwilling to go after fraud. It has since launched a large and active plaintiff’s bar in this area, and a great deal of litigation, too.
Yesterday, the Supreme Court narrowed two important parts of this statute considerably, by raising the bar for what a plaintiff must prove in court about a contractor’s (or subcontractor’s) intent, and the materiality of their statements. This is so significant because most False Claims Act cases don’t involve clear-cut cases of fraud or deception. Rather, they typically turn on very granular facts. Many cases involve compliance certifications on one form or document, and requests for payments on another document, or sometimes only an “implied certification” of compliance. It would be a massive understatement to say there are thorny issues of proof in these cases.
With its decision in Sanders , the Supreme Court is making it much tougher for qui tam plaintiffs to prove contractor violations of the False Claims Act. Given the size and scope of the government contracts industry, and the amount of litigation involving these questions, yesterday’s decision will likely have an effect far beyond its publicity.