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Analysis: Whistle-blower defeat short-lived?


UPDATE 1:57 p.m.  The letters to the Court regarding the new law are now linked in this post.

The Supreme Court’s ruling Tuesday, blocking potentially thousands of federal lawsuits by whistle-blowers seeking to recover U.S. government funds that were misspent, apparently will not be in force for very long.  Even as the Court was moving towards its decision in Graham County Soil and Water Conservation District v. U.S. ex rel. Wilson (08-304), Congress was changing the federal law in a way that apparently will overturn that decision, at least for future cases.  The Court took note of that change in a footnote, but appeared to have limited its ruling to so-called “false claims” cases that had been pursued previously.

Even so, it appears that there may be a lingering dispute over whether the change in the law applies retroactively.  The Court’s opinion did not resolve that issue.

The controversy revolves around a law that is nearly a century-and-a-half old, the federal False Claims Act (sometimes called the “Lincoln Law” because it originated in the Lincoln Administration in 1863).  Among other provisions, the Act generally allows private citizens to file lawsuits, on behalf of the federal government, when there is evidence that someone has wrongly made a claim for money from the federal government.  The suing citizen gets a part of any money that is recovered.  The government can bring its own lawsuits, but the whole idea of the citizen provisions of the False Claims Act is that private citizens’ help in recovering misspent funds is a valuable part of the scheme.

What was at stake both in the Graham County case, and in the amendment signed into law a week ago by President Obama as part of the multi-faceted health care reform bill, is a limitation on private lawsuits under the False Claims Act.  Congress apparently has been concerned that there would be what are called “parasitic” lawsuits, or claims for recovery of money by someone who had no role in ferreting out the misconduct but was simply trying to use someone else’s disclosure. Thus, the Act barred such lawsuits if they were based on earlier “public disclosures.”

In Tuesday’s ruling, the Supreme Court decided for the first time that a private citizen (technically, a “relator”) cannot bring a lawsuit to recover misspent funds if that individual learned about the situation in an official report or audit by a state or local government agency.  Justice John Paul Stevens wrote for the majority that Congress, in adopting changes in the law in 1986, had blocked lawsuits that were based on “administrative” disclosures, whether those came from a federal source or an official state or local source.  Justice Sonia Sotomayor, in a dissent joined by Justice Stephen G. Breyer, said that would rule out lawsuits that grew out of “thousands of state and local government administrative reports produced each year.”

In the new health reform law, Congress changed the language of the False Claims Act that was before the Court in Graham County. It clarified that a private lawsuit under the Act is blocked only if the prior public disclosure came in a “federal” proceeding in which the federal government is a party, or in a report, audit or investigation that was itself “federal.”  By omission, then, the new law seemed to clear the way for whistle-blower lawsuits under the Act based on public disclosures that had come in state and local government probes or reports.  (The amendment resulted from the combined efforts by Sen. Charles Grassley, Iowa Republican, and Senate Judiciary Committee Chairman Patrick Leahy, Vermont Democrat.)

Justice Stevens, in his opinion, mentioned the new law in a footnote (as did Justice Sotomayor in dissent).  The Stevens footnote said that the new provision “makes no mention of retroactivity.”   Such a clause would have been necessary, the footnote added, in order for it to apply to “pending cases.”  The Court, however, did not rule directly on whether, in fact, the law could be understood to apply to pending cases that originated before the law was amended, or to state or local public disclosures that preceded the amendment but might be relied upon to file new lawsuits.

The state of North Carolina, in a letter dated the day President Obama signed the new law, notified the Court of the amendment.  The letter commented that the state did not believe that the change “impacts the outcome of the action before the Court” — that is, the Graham County case — because the amendment “does not purport to make the amendment…retroactive.”

The attorney for Karen Wilson, the would-be whistle-blower in the Graham County case, Mark T. Hurt of Abingdon, VA, wrote to the Court on March 26 to note the passage of the new law, and said “the legislation raises complex issues as to its retroactive effect.”  That letter went on to suggest that the Court call for “short supplemental briefs from the parties on what impact this new amendment has on the pending case,” and that the Court should also seek advice from the federal government on the new law’s impact.  Solicitor General Elena Kagan, in a letter to the Court also dated Friday, said the government did not plan to file any views on that issues unless the Court sought them.

Those letters appeared to have reached the Court on the day the Court was holding its private Conference last week — probably the Conference at which the Court made up its mind to release its Graham County ruling this week.  There was no call for further briefs on the retroactivity issue.  Presumably, that will be an issue when the case is returned to the Fourth Circuit Court; Justice Stevens’ opinion noted that there would be further proceedings there.