Fraud case probes limits of whistleblowing

In 1863, at the height of the Civil War, Congress passed a law aimed at punishing corrupt defense contractors who were overcharging the Union Army for its supplies.

The False Claims Act empowered ordinary citizens to sue such profiteers and recover a portion of the fraud as a reward. The law survives today and has won whistleblowers more than $200 million in the past 30 years.

But what happens when the alleged profiteer is a state government? That is the latest federalism question to emerge at the US Supreme Court, where the conservative wing is trying to restore what it views as the proper constitutional balance between the federal and state governments.

At issue in today's case is whether a private citizen can sue a state under the federal act, or whether such a suit violates state sovereign immunity guaranteed by the 11th Amendment.

At its core is a fundamental choice between federal or state power.

The case may also raise the broader issue of whether ordinary citizens who have not been the immediate victim of a fraud against the government have the legal authority to bring such a suit even when the defendant isn't a state government. In the past, the courts have said they do. But recently a federal appeals court in New Orleans threw out a whistleblower case on those grounds.

If the court decides the case on this broad basis, legal analysts say it would mark a major shift in the law and represent a significant setback to whistleblowers.

This "is probably the most important whistleblower case ever argued before the Supreme Court because it goes to the ability of the federal government to call upon its citizenry to defend the law - and whether that fundamental act of patriotism is legal," says Stephen Kohn of the National Whistleblower Legal Defense and Education Fund in Washington.

There is no question that states accused of bilking the federal government should be held accountable. But states-rights advocates say more is at stake than recovery of monetary damages.

Taking sides

Friend-of-the-court briefs were filed by 44 states, four cities, and various educational and social-service organizations. All warn that private false-claims suits against state and local governments, if allowed, would not only threaten the constitutional balance, but also the financial survival of some government groups.

On the other side are the US solicitor general and watchdog groups who argue that when the states ratified the Constitution, they consented to suits by the federal government.

They say citizen-initiated suits under the False Claims Act are the equivalent of suits brought by the federal government because the victim is the federal government. By filing such a suit, they argue, a private plaintiff becomes a kind of government lawyer.

Under the act, the federal government retains the right to enter or take over such a suit.

The case before the court involves a false-claims suit brought by Jonathan Stevens against the Vermont Agency of Natural Resources (VANR). Mr. Stevens, a former VANR employee, charged that the agency was falsifying employee time sheets to qualify for federal funding it didn't deserve.

The federal government investigated and found no wrongdoing, and declined to enter the suit. But Stevens pressed on.

Vermont asked a judge to toss the suit, arguing that such a suit against a state by a private citizen should be barred under the 11th Amendment. A federal judge and appeals court disagreed.

"We conclude that such a suit is in essence a suit by the United States and hence is not barred by the 11th Amendment," wrote Judge Amalya Kearse of the Second US Circuit Court of Appeals.

Dissenting Judge Jack Weinstein says the law does not deputize plaintiffs as federal lawyers, and that prior rulings say the US may not delegate its authority to sue states in federal court. "Any discussion of the 11th Amendment must take place within the larger context of our federalism and the constitutional balance it was designed to maintain."

The parties also disagree over the meaning of the text of the False Claims Act. The law says it applies to any "person" who presents a false claim for payment to the US government.

Stevens's lawyers maintain that the "person" includes a state government. Vermont counters that person means person - an individual, not government entity.

Attention getter

Vermont and supporting states argue that if the Supreme Court upholds the circuit court's decision, it will spark a flood of litigation targeting state or local agencies administering federal funds - including Medicaid, Medicare, and education grants.

States-rights advocates say a successful private suit against a state or local government organization would only succeed in punishing innocent taxpayers who would be forced to pay triple damages awarded against the state or local government.

"Local government entities are particularly vulnerable to lawsuits by disgruntled employees intent on winning a share of the [act's] bounty," says a friend-of-the-court brief by the Orleans Parish School Board, which lost a similar lawsuit.

Mark G. Hall, Stevens's original lawyer, says taxpayers have an interest in ensuring that their tax dollars are not being misspent. "The core issue is whether the country as a whole is able to recoup money that somebody wrongfully diverted," he says.

(c) Copyright 1999. The Christian Science Publishing Society