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High Court May Rein in Whistleblower Litigation

Two decades after James Stone first filed a whistleblower suit against his former employer, Rockwell International, alleging violations of the False Claims Act (FCA), the Supreme Court will consider his case, confronting an issue that will decide the fate of hundreds of pending FCA suits.

The court will hear arguments Dec. 5 on Rockwell's appeal of a 10th Circuit decision in United States ex rel. Stone v. Rockwell International Corp. At issue is the meaning of the "original source" provisions of the FCA, which has resulted in conflicting opinions in the circuits.

The FCA allows private citizens, called relators, to file what are known as qui tam suits on behalf of the U.S., alleging fraud involving federal programs or contracts, and to receive up to 30 percent of any judgment. The statute is intended to encourage people with inside knowledge of fraud to come forward and assist the government in discovering and prosecuting it.

However, the act bars citizens from bringing qui tam suits involving information that has been disclosed publicly unless the plaintiff is an "original source" of the information. That language is intended to reserve qui tam awards for people who help the government recover losses from a fraud that otherwise would go undetected. Otherwise, someone who simply read about a fraud in the newspaper potentially could collect damages. The money at stake for a relator can be significant because the statute provides for treble damages--Stone, for one, could collect about $1.25 million.

The Rockwell case, while convoluted, boils down to whether Stone is an original source of information about fraud at Rockwell and therefore eligible to file a qui tam claim. As a result of contradictory language in the law, hundreds of qui tam cases every year hang on the question of whether the relator was an original source of the information about fraud, according to Peter Hutt, member of Miller & Chevalier. Hutt and other qui tam defense attorneys hope the Supreme Court will resolve this ambiguity.

"If they would go forward and resolve the disparate language and lay out a test for who is an original source, that would be a real service," says Howard O'Leary, Jr., partner in Dykema Gossett.

Stone's Saga

Stone's suit may provide the court with the perfect opportunity to resolve one major issue in the FCA. His 20-year saga began in 1986 when he was laid off from his job as a lead engineer at the now-defunct Rocky Flats nuclear weapons plant in Colorado, operated by Rockwell (now a subsidiary of Boeing Corp.) under contract from the Department of Energy (DOE). The following year, Stone went to the FBI with allegations of environmental violations, including the burning and dumping of hazardous wastes.

Stone also filed a qui tam action under the FCA. In his claim, Stone alleged that Rockwell concealed those environmental problems from the DOE throughout the 1980s and presented false and fraudulent claims for payment. The violations fell under the FCA because the government based part of Rockwell's compensation on its performance on environmental, safety and health issues.

The government did not prosecute Rockwell for the environmental violations alleged by Stone in his original suit. However, the company entered into a consent agreement in 1992, pleading guilty to 10 environmental violations involving the mixing and storing of pondcrete, a mixture of hazardous wastes and concrete.

Then Stone and U.S. prosecutors filed an amended complaint under the FCA in December 1996, centering on the pondcrete allegations. In supporting documentation, Stone, who had left the company before pondcrete production began, showed that he warned company officials in 1982 that the planned pondcrete process was flawed.

In 1999 a jury found for the plaintiffs on three of the 10 FCA charges and awarded $1.39 million in damages, which was trebled to $4.17 million.

However, on appeal Rockwell challenged Stone's eligibility to serve as a relator. It argued that the information about the pondcrete was already public information before Stone filed his amended suit due to the consent decree and that Stone had no direct knowledge of the alleged fraudulent misrepresentations to the government. Therefore, the company said, Stone could not be an "original source" of that information.

But two trial judges found that Stone's duties as a plant-wide troubleshooter and his knowledge that Rockwell's compensation was based in part on compliance with environmental regulations were sufficient to qualify him as an original source.

The 10th Circuit agreed, saying Stone's knowledge of the background leading to the wrongdoing qualified him as an original source. The court said that the relator is not required to know of "the actual fraudulent conduct itself" and that "knowledge 'underlying or supporting' the fraud allegation is sufficient."

That interpretation of the FCA has some observers worried. "If you apply the 10th Circuit decision, it broadens greatly who can be an original source, so that people clearly not intended by Congress to be an original source would be," says John Boese, partner in Fried, Frank, Harris, Shriver & Jacobson.

Subsection Subtext

The disagreement over the FCA's definition of "original source" in cases where information has been publicly disclosed prior to filing of a suit arises from two subsections of the statute--one that says a person must be the source of publicly disclosed information in order to be eligible to file as a relator and one that says only that the person must have provided information to the government to be eligible.

If the High Court rules that a relator need only disclose some helpful information to the government to qualify as an original source, it will greatly expand the pool of people who could file qui tam suits--especially in those circuits that have followed a more narrow interpretation.

Both the 2nd and 9th Circuits have taken a narrow view of who can file as a relator, ruling that in order to qualify as an original source, one must have both publicly disclosed information about the fraud and have provided information to the government. For instance in Wang ex rel. U.S. v. FMC Corp., the 9th Circuit said that "one must have had a hand in the public disclosure of allegations that are part of one's suit. A whistleblower sounds the alarm, he does not echo it."

But the 4th Circuit, in United States ex rel Siller v. Becton Dickinson & Co., relied solely on the latter subsection of the FCA, finding that an original source "need only provide his information to the government before instituting his qui tam action." That is the standard the 10th Circuit used in Rockwell as well.

Defense attorneys are optimistic that the justices will tighten standards for being an original source, partly based on an opinion Justice Samuel Alito wrote while on the 3rd Circuit bench in Mistick v. Housing Authority of the City of Pittsburgh, in which he recognized that the original source wording in the FCA is contradictory. They also hope that Alito's and Chief Justice John Roberts' previous experience with FCA cases will lead the court to take on additional issues.

"This case is the tip of the iceberg," Hutt says. "There probably are 25 different cert petitions pending on open issues in the FCA. The Supreme Court is likely to take more of them because both Roberts and Alito wrote important decisions while on the circuit bench, so they are both familiar with the issues."

Senior Editor

Mary Swanton

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