Amicus Curiae Brief — Hughes Aircraft Co. v. United States Ex Rel. Schumer

Supreme Court, U.S.

(v4) FILED

NOV 29 1996

No. 95-1340 |

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

HUGHES AIRCRAFT COMPANY,

Petitioner,

v.

UNITED STATES ex re/. WILLIAM J. SCHUMER,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF FOR CHAMBER OF COMMERCE

OF THE UNITED STATES OF AMERICA,

ELECTRONIC INDUSTRIES ASSOCIATION,

NATIONAL SECURITY INDUSTRIAL ASSOCIATION,

AND SHIPBUILDERS COUNCIL OF AMERICA

AS AMICI CURIAE IN SUPPORT OF PETITIONER

Of Counsel:

STEPHEN A. BOKAT

ROBIN S. CONRAD

National Chamber

Litigation Center, Inc.

JOHN J. KELLY

Electronic Industries

Association

ROBERT A. LIPSTEIN

National Security

Industrial Association

FRANKLIN W. LOSEY

Shipbuilders Council

of America

CLARENCE T. KIPPS, JR.

Counsel of Record

ALAN I. HOROWITZ

PETER B. HUTT II

ALVARO L. ANILLO

MAUREEN HENRY

MILLER & CHEVALIER,

Chartered

Metropolitan Square

655 Fifteenth Street, N.W.

Washington, D.C. 20005

(202) 626-5800

4

tone

wee

—

4

TABLE OF CONTENTS

TABLE OF AUTHORITIES

INTEREST OF THE AMICI CURIAE

THREATENED OR ACTUAL FINANCIAL

HARM TO THE GOVERNMENT IS AN

ESSENTIAL ELEMENT OF A FALSE CLAIM

UNDER THE FALSE CLAIMS ACT

A.

Since its Inception, the False Claims Act

Has Operated to Prevent Injury to the

This Court’s Rulings Have Consistently

Affirmed That the False Claims Act Imposes

Liability Only Upon Conduct That Poses a

Threat to Federal Funds

In 1986, Congress Amended the False

Claims Act to Define “Claim” as “Any

The History of the Criminal False Claims

Act and Criminal False Statements Act

Shows That the Civil False Claims Act

Reaches Only Financial Frauds

Il.

III.

TABLE OF CONTENTS-Continued

E. The Alleged Misconduct in This Case Did —

Not Cause Threatened or Actual Financial

Injury to the Government and Cannot

Support Civil False Claims Act Liability.......

THE PUBLIC DISCLOSURE PROVISION IN

THE 1986 AMENDMENTS TO THE FAL*é

CLAIMS ACT CANNOT BE _ APPLIED

RETROACTIVELY BECAUSE IT ATTACHES

NEW LEGAL CONSEQUENCES TO EVENTS

COMPLETED BEFORE ITS ENACTMENT........

A GOVERNMENT DISCLOSURE OF INFOR-

MATION TO "INNOCENT" COMPANY

EMPLOYEES DURING AN AUDIT OR

INVESTIGATION CONSTITUTES A "PUBLIC

DISCLOSURE" THAT BARS SUBSEQUENT

QUI TAM ACTIONS .......ccccsssssscssesssersesesnnensseenneneees

COINCLIUGIOIN .1ccssoscrccssersnonpensssssnssoesecsssobeniessntnesaiahaneses

Page

13

14

iii

TABLE OF AUTHORITIES

Page

CASES:

Center for Nuclear Responsibility, Inc. v. United

States Nuclear Regulatory Comm'n,

Lol 16

Hallowell v. Commons, 239 U.S. 506 (1916) ..........000 16

Hubbard v. United States, 115 S. Ct. 1754 (1995).......passim

Landgraf v. USI Film Products,

511 U.S. 244, 114 S. Ct. 1483 (1994)... 4, 14, 16

Rainwater v. United States, 356 U.S. 590 (1958)........... 5

Rex Trailer Co. v. United States,

rc incnertsenccndsnesesenstnenene 9

United States ex rel. Barajas v. Northrop Corp.,

ee 20

United States ex rel. Doe v. John Doe Corp,,

960 F.2d 318 (2d Cir. 1992) ..........cccccccescesecsesceneenees 19, 20

United States ex rel. Hyatt v. Northrop Corp.,

ee 20

United States ex rel. Lindenthal v. General Dynamics

Corp., 61 F.3d 1402 (9th Cir. 1995),

cert. denied, 116 S. Ct. 1319 (1996) .00.......cccccccceees 16

United States ex rel. Pilon v. Martin Marietta Corp.,

re POO Ge Cele BI i rccccseccsncscescesesesccccscescccesees 20

United States ex rel. Stinson, Lyons, Gerlin &

Bustamante, P_A. v. Prudential Ins. Co..,

944 F.2d 1149 (3d Cir. 1991) .........cccccccccccecccccecceeeees 20

United States v. American Heart Research

Foundation, Inc., 996 F.2d 7 (ist Cir. 1993)............ 10

United States v. Bornstein, 423 U.S. 303 (1976)........... 6, 8

United States v. Cohn, 270 U.S. 339 (1926)............. 2, 6, 7, 12

United States v. Gilliland, 312 U.S. 86 (1941).............. 11,12

iv

TABLE OF AUTHORITIES—Continued

Page

United States v. Kember, 648 F.2d 1354

GES. Cie. SERED endesiistessitintnsntcctimnsinttidliccanssstciiiiinas 16

United States v. McNinch, 356 U.S. 595 (1958)........ 2, 5, 6, 7

United States v. Neifert-White Co.,

Ee a ee 2, 3, 7, 8, 10

United States v. Tieger, 234 F.2d 589 (3d Cir. 1956)... 7

United States v. Yermian, 468 U.S. 63 (1984)............... 11,13

Winfree v. Northern Pac. Ry. Co.,

BT Os OO Oe itiutinntiinimanimnutimatil 4, 14, 15

STATUTES:

Act of March 2, 1863, ch. 67, § 1, 12 Stat. 696............. 5

Revised Statutes, 18 Stat. 5438, 3490 00000... cccccceeeees

Act of June 18, 1934, ch. 587, § 35, 48 Stat. 996 .......... 11

Act of Sept. 13, 1982, chs. 1 & 37, §§ 3729-3731,

A re Se ae 6

BO CGS. Be Fe cad lecnteninuiintirhtenatiiticntnibiiiilintiinan passim

LEGISLATIVE MATERIALS:

H.R. Rep. No. 829, 73d Cong., 2d Sess. (1934) ............ 11

H.R. Rep. No. 651, 97th Cong., 2d Sess. (1982),

reprinted in 1982 U.S.C.C.A.N. 1895 .0...........0c0000 9

False Claims Reform Act, 1985: Hearing on S. 1562

Before the Subcomm. on Admin. Practice and

Procedure of the Senate Comm. on the Judiciary,

99th Cong., Ist Sess. (September 17, 1985).............. 19

S. Rep. No. 345, 99th Cong., 2d Sess. (1986),

reprinted in 1986 U.S.C.C.A.N. 5266 ........... 3, 10, 19, 20

H.R. Rep. No. 660, 99th Cong., 2d Sess. 23 (1986) ......19, 20

v

TABLE OF AUTHORITIES-Continued

MISCELLANEOUS:

John T. Boese, Civil False Claims and Qui Tam

Actions (Supp. 1995)

ieee eh

Page

Supreme Court of the United States

OCTOBER TERM, 1996

No. 95-1340

HUGHES AIRCRAFT COMPANY,

Petitioner,

v.

UNITED STATES ex rei. WILLIAM J. SCHUMER,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF FOR CHAMBER OF COMMERCE

OF THE UNITED STATES OF AMERICA,

ELECTRONIC INDUSTRIES ASSOCIATION,

NATIONAL SECURITY INDUSTRIAL ASSOCIATION,

AND SHIPBUILDERS COUNCIL OF AMERICA

AS AMICI CURIAE IN SUPPORT OF PETITIONER

INTEREST OF THE AMICI CURIAE

The Chamber of Commerce of the United States of

America is the nation’s largest federation of business

215,000 companies, many of which provide goods and

services to the United States under government contracts. The

Electronic Industries Association is a national organization of

more than 1200 companies involved in the development and

production of televisions, radios, computers, telecommun-

2

ications devices, radars, avionics, and other military and

commercial electronic equipment. The National Security

Industrial Association is a national organization of

approximately 300 manufacturing, research, and service

companies from all segments of industry that provide goods

and services in support of the national security needs of the

United States. The Shipbuilders Council of America is a trade

association that promotes a sound private shipbuilding and

ship-repair industry in the United States.

Amici’s members annually perform billions of dollars of

work for government agencies pursuant to thousands of

contracts. This work exposes amici’s members to the

possibility of suits initiated by private individuals pursuant to

the qui tam provisions of the False Claims Act, 31 U.S.C.

§§ 3729-3733. Accordingly, amici have a strong interest in

the questions presented in this case. In the interest of brevity,

amici address only some of the questions presented, relying

entirely on petitioner's and other amici’s discussion of other

questions.

Both petitioner and respondent have consented to the

filing of this brief, and letters reflecting these consents have

been lodged with the Clerk of this Court.

SUMMARY OF ARGUMENT

A. The history of the civil False Claims Act

demonstrates that liability is imposed only upon conduct that

may cause the government financial injury. The Act was

enacted in 1863 to stop the “plundering of the public

treasury” and “was not designed to reach every kind of fraud

iced on the Government.” United States v. McNinch,

356 U.S. 595, 599 (1958). This Court consistently has

regarded the Act as directed at false claims for federal money

or property. /d.; United States v. Cohn, 270 U.S. 339, 345-

46 (1926). As the Court determined in United States v.

3

Neifert-White Company, 390 U.S. 228, 233 (1968), the Act

reaches “all fraudulent attempts to cause the Government to

pay out sums of money.”

In 1986, when Congress revised the civil False Claims

Act for virtually the first time since its enactment, Congress

specifically defined “claim” as meaning a “request or

demand ... for money or property.” 31 U.S.C. § 3729%c).

This definition confirmed the Court’s interpretation that the

Act was directed at financial injury to the government.

Congress “strongly endors{ed]” the Court’s holding that the

Act “was intended to reach all types of fraud, without

qualification, that might result in financial loss to the

Government.’” S. Rep. No. 345, 99th Cong., 2d Sess. 19

(1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5284 (quoting

Neifert-White, 390 U.S. at 232).

That the Act imposes no civil liability for non-financial

frauds is forcefully shown by Congress’s extension of the

false statements provision in the criminal False Claims Act

to reach non-financial frauds. By this extension, Congress

“sever(ed] the historical link with the false claims portion of

the statute” and left untouched the civil and criminal

provisions related to financial fraud. Hubbard v. United

States, 115 S. Ct. 1754, 1760 (1995).

In this case, there was no false claim for money or

property. All that occurred was that Hughes failed to file a

timely Cost Accounting Standards Disclosure Statement as

required by its contract and the applicable regulations. This

run-of-the-mill violation was not associated with any claim

for payment. Moreover, it did not threaten or cause financial

harm to the government. To the contrary, the untimely

disclosed accounting practice saved the government money.

The Ninth Circuit nonetheless ruled that the nondisclosure

could result in a false claim within the meaning of the False

4

Claims Act. See Pet. App. 25a. This unnatural interpreta-

tion, imposing severe penalties for run-of-the-mill violations

that cause the government no harm, is contrary to the plain

language of the Act, its legislative history, and this Court’s

decisions.

B. The “public disclosure” provision, 31 U.S.C.

§ 3730(e4)(A), which was instituted in the 1986

amendments, cannot be applied retrospectively, since it

“permits recovery, in cases where recovery could not be had

before, and takes from the defendant defenses which formerly

were available.” Winfree v. Northern Pac. Ry. Co., 227 U.S.

296, 302 (1913). Although this provision is couched in

jurisdictional terms, its effect on the substantive rights of

defendants warrants application of the “default rule” that

statutes not be given retroactive application. Landgraf v. US]

Film Products, 511 U.S. 244, 114 S. Ct. 1483, 1501 (1994).

C. The “public disclosure” provision bars qui tam

actions that are “based upon the public disclosure of

allegations” in an “administrative . . . audit.” 31 U.S.C.

§ 3730(e)(4)(A). i. this case, the government disclosed the

alleged frauds in the course of an administrative audit to

innocent Hughes employees, as well as to emnioyees of

another company, before the qui tam action was filed.

Although the statute does not define the term “public

disclosure,” that term surely encompasses disclosures, like

those made in this case, to persons who were strangers to the

alleged frauds. The Court should reject the baseless ruling of

the Ninth Circuit that disclosures to employees of defense

contractors are “private” rather than “public” in nature.

5

ARGUMENT

I. THREATENED OR ACTUAL FINANCIAL

HARM TO THE GOVERNMENT IS AN

ESSENTIAL ELEMENT OF A FALSE CLAIM

UNDER THE FALSE CLAIMS ACT.

A. Since its Inception, the False Claims Act Has

Operated to Prevent Injury to the Federal

Treasury.

Congress enacted the False Claims Act in 1863 “after

disclosure of widespread fraud against the Government

during the War Between the States.” Rainwater v. United

States, 356 U.S. 590, 592 (1958). “Testimony before

Congress painted a sordid picture of hov- the United States

had been billed for nonexistent or worthless goods, charged

exorbitant prices for goods delivered, and generally robbed

in purchasing the necessities of war.” United States v.

MeNinch, 356 U.S. 595, 599 (1958). To “stop this

plundering of the public treasury,” id., and to “protect the

funds and property of the Government from fraudulent

claims,” Rainwater, 356 U.S. at 592, Congress made it a

criminal and civil offense for any person to “present or cause

to be presented for payment or approval .. . any claim upon

or against the Government of the United States, or any

department or officer thereof, knowing such claim to be

false, fictitious, or fraudulent.” Act of March 2, 1863, ch. 67,

§ 1, 12 Stat. 696. The 1863 Act also proscribed ancillary

means of putting the government’s money at risk. Thus, in

what is known as the false statements provision, the Act

prohibited the use of any “false or fraudulent statement or

entry” in securing “the approval or payment of such claim.”

Id., 12 Stat. at 696-97.

Congress made only “minor” changes to the Act in the

following years. Hubbard v. United States, 115 S. Ct. 1754,

6

1760 n.8 (1995). When Congress rearranged the existing

body of statutes by subject matter in 1873, it separated the

1863 Act containing both criminal and civil provisions into

two separate sections of the Revised Statutes. Section 5438

contained the criminal sanctions, and Section 3490 contained

the civil penalties. See Revised Statutes, 18 Stat. 5438,

3490. The civil section did not list the prohibited acts. It

simply provided for double damages and a $2000 forfeiture

for “any of the acts prohibited by any of the provisions of

section [5438]” of the Revised Statutes. These provisions

formed the official text of the civil False Claims Act until

Congress enacted Title 31 of the U.S. Code as positive law

and repealed section 3490 in 1982. Act of Sept. 13, 1982,

chs. 1 & 37, §§ 3729-3731, 96 Stat. 877, 978-79; see United

States v. Bornstein, 423 U.S. 303, 305 n.1 (1976).

B. This Court’s Rulings Have Consistently

Affirmed That the False Claims Act Imposes

Liability Only Upon Conduct That Poses a

Threat to Federal Funds.

The Court determined in United States v. Cohn, 270

U.S. 339 (1926), the kinds of claims that can give rise to

False Claims Act liability. Although Cohn arose under the

criminal provisions of the False Claims Act, it constitutes an

essential building block in the construction of “claim” in the

civil False Claims Act because the words construed in Cohn

— “claim upon or against” the government — came directly

from Revised Statute § 5438, which by cross-reference also

described the conduct that gave rise to civil liability until the

1982 amendment. See McNinch, 356 U.S. at 600 n.10.

In Cohn, the Court defined “claim” to require a threat to

the government’s money or property, based on the

government's own liability to the claimant, and it explicitly

left outside the statute conduct that did not pose any threat of

7

injury to federal money or property, even if the purported

claimant lied to the government. 270 U.S. at 345-46. Cohn

was indicted for wrongfully gaining possession of

merchandise held in customs. Because the Government laid

no claim to the merchandise, Cohn’s false statements could

not “bilk the Government out of money or property.”

Hubbard, 115 S. Ct. at 1760. The Court determined that the

requirement of a

‘claim upon or against’ the Government relates solely

to the payment or approval of a claim for money or

property to which a right is asserted against the

Government, based on the Government’s own

liability to the claimant.

Cohn, 270 U.S. at 345-46. Similarly, the use of the word

“defraud” throughout the statute referred to “the wrongful

obtaining of money and other property of the Government.”

Id. at 347. Accordingly, the Court concluded that Cohn did

not fall within the reach of the statute.

In McNinch, the Court reiterated that “‘the conception of

a claim against the government normally connotes a demand

for money or for some transfer of public property.”” 356

U.S. at 599 (quoting United States v. Tieger, 234 F.2d 589,

591 (3d Cir. 1956)). Three individuals made false statements

to a private bank to secure a federally-insured loan. After

reviewing the language and history of the Act, the Court

determined that such conduct fell outside of the civil statute.

The statute was intended to crack down on “plundering of

the public treasury” and “was not designed to reach every

kind of fraud practiced on the Government.” /d.

Accordingly, the false loan application in McNinch did not

constitute a false “claim” under the statute.

In United States v. Neifert-White Company, 390 US.

228, 233 (1968), the Court restated the definition of “claim”

for purposes of the civil statute to cover all instances of fraud

intended to cause the government to pay out money. There,

a grain storage bin vendor supplied false information in

support of a loan application to the Commodity Credit

Corporation (the “CCC”). Specifically, the company over-

stated the purchase price of grain storage bins to induce the

CCC to extend larger loans to the company’s customers than

the CCC’s rules otherwise would have allowed. The

company argued that it fell outside the Cohn definition of

“claim” because it had not submitted a claim for payment

based on the government's liability to the company. The

Court rejected this argument. It revisited the legislative

history of the Act and concluded that “the Act was intended

to reach all types of fraud, without qualification, that might

result in financial loss to the Government.” /d. at 232. In

accordance with this purpose, the Court ruled that the Cohn

definition was too restrictive because the False Claims Act

reaches “beyond ‘claims’ which might be legally enforced, to

all fraudulent attempts to cause the Government to pay out

sums of money.” Jd. at 233. As such, the Court ruled that

the company was subject to civil False Claims Act liability.

In sum, this Court in Neifert-White reconfirmed the

Cohn definition of a “claim” as meaning a claim that might

result in financial loss to the government, but it abandoned

the dictum in Cohn that a “claim” must be based on the

government’s liability to the claimant. Jd. at 231, 233.

Accordingly, Neifert-White provides no support for the Ninth

Circuit's ruling that the False Claims Act extends to all

- contract violations regardless of their financial effect on the

government. Since Neifert-White, the Court has again

reaffirmed that the plain meaning of claim “connotes a

demand for money or for some transfer of public property.”

Bornstein, 423 U.S. at 309 n.4.

i

9

The Court’s decision in Rex Trailer Company v. United

States, 350 U.S. 148 (1956), provides no support for the

Ninth Circuit's decision. Rex Trailer involved fraudulent

purchases from the government under the Surplus Property

Act, a statute that provided the government with liquidated

damages or double damages as alternative remedies for such

frauds. The Court upheld the imposition of liquidated

damages, stating that it was “obvious that injury to the

Government resulted from the . . . fraudulent purchase.” /d.

at 153. The Court unremarkably held that it was not

necessary for the government to allege or prove actual

damages, which were “difficult or impossible to ascertain,”

in order to recover liquidated damages. /d. at 152-53. The

Rex Trailer Court regarded injury as a necessary predicate to

liability under the Surplus Property Act, just as it has always

regarded financial injury as a predicate to liability under the

civil False Claims Act.

C. In 1986, Congress Amended the False Claims

Act to Define “Claim” as “Any Request or

Demand” for “Money or Property.”

In 1986, Congress amended the civil False Claims Act

to insert a statutory definition of “claim” that comprehends

“any request or demand” for the payment of federal “money

or property,” even if submitted to “a contractor, grantee, or

other recipient” of federal funds. 31 U.S.C. § 3729(c).' This

definition reaffirmec that a false claim under the Act

' The 1986 amendments constituted the first substantive changes to

the civil False Claims statute since its inception. In 1982, when Congress

enacted Title 31 of the U.S. Code as positive law, including the civil

False Claims Act, it substituted “simple language” for “awkward and

obsolete terms” and changed language “to attain uniformity,” but it made

“no substantive change in the law.” H.R. Rep. No. 651, 97th Cong., 2d

Sess. 1, 2-3 (1982), reprinted in 1982 U.S.C.C.A.N. 1895, 1896-97.

10

involves a request or demand for the payment of money. It

also broadened the definition of claim to make clear that

“frauds perpetrated on Federal grantees, including States and

other recipients of Federal funds,” were actionable under the

False Claims Act, even though the fraudulent claim was not

presented directly to the Government. S. Rep. No. 345, 99th

Cong., 2d Sess. 21 (1986), reprinted in 1986 U.S.C.C.A.N.

5266, 5286.

In a second change, Congress further emphasized the

focus of the Act on financial injury by inserting a provision

to ensure that “reverse false claims,” in which the claimant

avoids or decreases the amount of money rightfully payable

to the government, fall within the scope of the False Claims

Act. 31 U.S.C. §3729(a)(7). Before 1986, courts were

divided on whether such claims fell within the ambit of the

Act. Congress’s action in 1986 recognized that “the effect of

fraud on the government is pretty much the same whether too

much is extracted from the federal treasury or too little paid

in.” United States v. American Heart Research Foundation,

Inc., 996 F.2d 7, 10 (1st Cir. 1993).

Both of these changes expand the class of “claims” that

are subject to the False Claims Act, but they retain the focus

of the statute on conduct or omissions that may cost the

government money. Congress recognized that reverse false

claims and fraud perpetrated on a federal grantee may create

a ““financial loss to the Government,” and accordingly it

“strongly endorse[d]” this Court’s statements in Neifert-

White. S. Rep. No. 345 at 19, reprinted in 1986

U.S.C.C.A.N. 5284 (quoting Neifert-White, 390 U.S. at 232).

The New Deal programis of the 1930s presented a new

opportunity for fraud against the government: non-financial

program designed to stabilize the oil industry. See United

States v. Gilliland, 312 U.S. 86, 90 (1941). Accordingly,

Secretary of Interior Harold L. Ickes advocated a change in

the cruminal False Claims Act to correct the absence of a

“law . . . under which prosecutions may be secured for the

presentation of false papers” that interfered with government

programs but did not cause financial injury to the

government. H.R. Rep. No. 829, 73d Cong., 2d Sess. 2

(1934).

Congress extended the false statements provision of the

criminal False Claims Act in response to Secretary Ickes’

requests. It provided that any falsity, concealment, or cover-

up of a material fact in a “false bill, receipt, voucher, roll,

account, claim, certificate, affidavit, or deposition” would

expose the maker to liability under the false statements

provision of the criminal False Claims Act. Act of June 18,

1934, ch. 587, § 35, 48 Stat. 996. This language altered the

“fundamental character” of that provision in the statute.

Hubbard, 115 S. Ct. at 1760. Congress deleted the statute’s

references to financial frauds from the false statements

false claims portion of the statute” that the false statements

12

provision had previously shared. /d. The amendment

“broadened the provision so as to leave no adequate basis”

for the conclusion that the false statements portion of the

statute covered only financial fraud. Gilliland, 312 U.S. at

93. Indeed, the Court quickly approved the use of the new

false statements provision in the criminal prosecution of non-

financial false certifications in connection with the oil

regulatory program. /d. at 95-96. The amendment reflected

“congressional intent to protect the authorized functions of

governmental departments and agencies from the perversion

which might result from [non-financial] deceptive practices.”

Id. at 93.

of the civil statute extend only to falsehoods that may cause

financial injury to the federal treasury. Although Congress

expanded the false statements provision of the criminal False

Claims statute, it declined to change the civil False Claims

statute. If Congress had believed that a civil remedy should

exist for non-financial frauds, it would have amended the

civil provisions as well as the criminal provisions. But as

noted above, the civil provisions remained essentially

unchanged from 1909 to 1982, and no amendment

subsequent to 1982 indicates any change in this aspect of the

civil False Claims statute. In addition, Congress made no

change to the provision in the criminal False Claims statute

prohibiting false claims (as opposed to false statements).

Thus, the False Claims portion of the criminal statute

retained the “claim upon or against” language that the Court

in Cohn held to encompass only financial frauds in which the

Government stood to lose money or property. Cohn, 270

U.S. at 345-47. The lack of any change in the language of

the False Claims provision of the statute indicates a

congressional intent to retain the “fundamental” concen-

tration on “financial frauds” embodied by the False Claims

13

part of the statute. Hubbard, 115 S. Ct. at 1760. Indeed, the

Court continues to rely on the Cohn definition of “claim” in

interpreting the criminal provisions of the False Claims Act.

Yermian, 468 U.S. at 70-71; Hubbard, 115 S. Ct. at 1759 n.5.

E. The Alleged Misconduct in This Case Did

Not Cause Threatened or Actual Financial

Injury to the Government and Cannot

Support Civil False Claims Act Liability.

The history of the False Claims Act manifests the

relentless pursuit of a single goal: protecting the federal

Treasury from those who would defraud the government.

Simply put, the Act requires that an actionable false “claim”

pose a threat to federal money or property in some manner.

The record in this case reveals no such threat. To the

contrary, as the Ninth Circuit recognized, the untimely

disclosed accounting system “actually saved the government

money.” Pet. App. 4a. This Court should reverse the

erroneous ruling of the Ninth Circuit that a false “claim” can

exist even when no federal money or property is at risk.

A f-the-mill sefecton dint in ont toed

with any claim for payment, and therefore cannot have any

impact on federal funds, cannot form the basis of a False

standard Government contract requirements that do not bear

on the provision of goods or services under the contract, and

as the Cost Accounting Standards disclosure requirement at

issue here. Run-of-the-mill violations of such provisions, for

which the Government has a variety of routine remedies,

cannot give rise to liability under the False Claims Act.

amendments cannot be applied retrospectuvely to that event.

In Winfree v. Northern Pacific Raiilway Company, 227

U.S. 296, 302 (1913), the Court sefused to permit retroactive

application of a statute

In Landgraf v. USI Film Products, 511 U.S. 244, 114 S. Ct.

1483, 1505 (1994), the Court reaffirmed that a statute

“impair{ing) rights a party possessed when he acted,

increas[ing] a party's liability for past conduct, or impos[ing}

new duties with respect to transactions already completed”

cannot govern preenactment conduct. In other words,

“prospectivity remains the appropriate default rule” where, as

here, Congress has not addressed the temporal reach of a

statute. Jd. at 1501.

Because the “public disclosure” provision of the

amendments changed the rights of both the qui tam relator

and defendant, it should not be construed to apply

retrospectively to preenactment conduct. Prior to 1986,

31 U.S.C. § 3730(eX4A). In 1986, thus, Congress created

a new qui tam cause of action that would have been barred

law in effect at the time of a pre-1986 disclosure, such

the contractor.

16

‘takes away no substantive right but simply changes the

tribumal that is to hear the case’” and thus may be applied

retrospectively. 114 S. Ct. at 1502 (quoting Hallowell v.

Commons, 239 U.S. 506, 508 (1916)). Nothing in Landgraf

suggests. however, that a statute affecting the parties’

The Ninth Circuit eventually asked the proper question

to rebut its presumption of retroactivity - whether “the

jurisdictional rule curtailed a substantive right” — but it

reached the wrong result. Pet App. 7a. Relying on United

States ex rel. Lindenthal v. General Dynamics Corp., 61 F.3d

1402 (9th Cir. 1995), cert. denied, 116 S. Ct. 1319 (1996),

the Ninth Circuit concluded that “the amendment does not

infringe on the substantive rights of the defendant.” Pet.

App. 7a. In Lindenthal, the Ninth Circuit simply followed

the mechanical approach of looking to the word “juris-

diction” in the statute and concluding that the new public

disclosure provision did not alter the substantive rights of the

parties because it was jurisdictional. 61 F.3d at 1408. This

circular approach overemphasized the importance of the term

“jurisdiction” in the public disclosure provision, a term that

is “so popular that its chameleon quality sometimes slips

from our grasp.” Center for Nuclear Responsibility, Inc. v.

United States Nuclear Regulatory Comm'n, 781 F.2d 935,

945 n4 (D.C. Cir. 1986) (R.B. Ginsburg, J., dissenting)

(quoting United States v. Kember, 648 F.2d 1354, 1357

(D.C. Cir. 1980).

This fundamental error in its approach to the question of

retroactivity led the Ninth Circuit to disparage the

substantive effects of the public disclosure provision of the

17

1986 amendments. But that provision allows a qui tam

plaintiff to recover in circumstances where it could not have

recovered under prior law and eliminates absolute defenses

previously available to a defendant. Whether or not the

public disclosure provision is considered “jurisdictional,” it

cannot be applied retrospectively to alter the substantive

rights of the parties.

iil. A GOVERNMENT DISCLOSURE OF INFOR-

MATION TO "INNOCENT" COMPANY

EMPLOYEES DURING AN AUDIT OR

INVESTIGATION CONSTITUTES A “PUBLIC

DISCLOSURE” THAT BARS SUBSEQUENT

QUI TAM ACTIONS.

Well before this lawsuit was filed, the government

conducted am audit of the Hughes accounting practices at issue

in the case. In the course of that audit, the government

disclosed allegations of accounting impropriety to employees

of Hughes and its prime contractor, Northrop, who were not

involved in the alleged improprieties. Eg, J.A. 113-15, 157-

75. These disclosures constituted a “public disclosure of

allegations” in an “administrative . . . audit” within the

meaning of the public disclosure provision of the 1986

amendments to the Act, 31 U.S.C. § 3730(e)(4)(A), and this

action accordingly should have been dismissed.

The public disclosure provision of the False Claims Act

bars qui tam actions that are:

based upon the public disclosure of allegations or

transactions in a criminal, ciwil. or administrative

hearing, in a congressional, adiministrative, or

Government Accounting Office repoct. hearing, audit,

Or investigation, or from the news mealiia, unless.

the person bringing the acmom is am origanal source of

the information.

31 U.S.C. § 3730(e4)(A). The statutory text plainly provides

that a disclosure of allegations of misconduct to members of

the public in one of the ways specified in the statute is a public

disclosure. Nothing in the statute suggests that a disclosure

must be broadly disseminated to any particular number of

individuals, or to any particular categories of individuals, in

order to be deemed public. To the contrary, the sorts of public

disclosures identified in the statute contemplate disparate

degrees of dissemination to different groups of individuals.

Broadcasts in the news media may be disseminated widely to

the nation at large; Government Accounting Office reports

will likely be read by only a few members of the public;

disclosures made in the course of civil hearings will likely be

disseminated to the litigants and perhaps other interested

parties; and disclosures made in administrative audits and

investigations will likely be made only to a few specific

individuals, typically those subjected to audit or investigation.

Under the statute, each of these disclosures ordinarily

constitutes a public disclosure and cannot form the basis for a

qui tam action, regardless of the number or identity of

individuals who receive the information.

Amici do not suggest that all disclosures made in the

ways specified in Section 3730(e)4) will necessarily

constitute “public disclosures.” The disclosure must be of

such a nature that it is “public.” Thus, disclosures of

allegations to persons who were involved in the alleged

wrongdoing would not be “public.” Disclosures of allegations

made in grand jury proceedings or disclosures made in

documents filed under seal in civil proceedings may not be

“public.” Disclosures of allegations made to government

employees may not be “public.” But disclosures by the

government that reach members of the public who are

strangers to the fraud and who are not government employees,

or any disclosures in the news media, fall within any

19

veasonable construction of the term “public disclosure.” See

United States ex rel. Doe v. John Doe Corp., 960 F.2d 318,

322-23 (2d Cir. 1992).

To escape the conclusion that the disclosures made to

Hughes and Northrop employees in the course of an

“administrative audit” were “public disclosures,” the Ninth

Circuit labeled the disclosures a “release of information within

a private sphere.” Pet. App. 10a. The court asserted that it

was “unrealistic” to treat employees of government contractors

as “members of the public,” since these employees would have

a “strong economic incentive” to protect disclosures of

wrongdoing from further dissemination. /d at 9a. This

assertion is insupportable. Individuals who happen to be

employees of defense contractors or subcontractors do not lose

their status as members of the public by virtue of their

employment.

Nor should the statutory rule be defeated by the

unwarranted assumption that such employees will not

disseminate the information that is disclosed to them. It is the

Ninth Circuit that is “unrealistic” in surmising that employees

of government contractors are unlikely to file qui tam suits

based upon information relating to fraud. In considering the

1986 amendments Congress heard testimony from employees

of defense contractors who had filed qui tam suits against their

employers, and it understood that employees were a class of

individuals likely to have knowledge of information relating to

fraud. See False Claims Reform Act, 1985: Hearing on S.

1562 Before the Subcomm. on Admin. Practice and Procedure

of the Senate Comm. on the Judiciary, 99th Cong., 1st Sess.

80-85 (September 17, 1985); S. Rep. No. 345 at 13-14,

reprinted in 1986 U.S.C.C.A.N. 5278-79; H.R. Rep. No. 660,

99th Cong., 2d Sess. 23 (1986). Indeed, Congress specifically

tailored the 1986 amenJments to the False Claims Act to

encourage employees to file qui tam actions, by enacting

20

provisions that protect employees from subsequent retaliation.

See 31 U.S.C. § 3730(h). Furthermore, as the reported qui tam

to be current and former employees of corporations, many of

which are defense contractors. See, e.g., United States ex rel.

Hyatt v. Northrop Corp., 91 F.3d 1211 (9th Cir. 1996);

United States ex rel. Pilon v. Martin Marietta Corp., 60 F.3d

995 (2d Cir. 1995); United States ex rel. Barajas v. Northrop

Corp., 5 F.3d 407 (9th Cir. 1993); see generally John T.

Boese, Civil False Claims and Qui Tam Actions 4-9 through

4-11 (Supp. 1995).

The Ninth Circuit also looked to the legislative history

of the statute for support, stating that a narrow reading of the

“public disclosure” bar would further Congress’s purpose of

encouraging qui tam actions to prod the government into

action. Pet. App. 10a-lla. Although this was one of

Congress’s goals, see S. Rep. No. 345 at 24-26, reprinted in

1986 U.S.C.C.A.N. 5289-91, H.R. Rep. No. 660 at 22-23,

the principal goal of the 1986 amendments was to provide

additional incentives for whistleblowers to bring new

information to the government concerning fraud, while

continuing to ban “parasitic” lawsuits based upon information

already in the public domain. See, e.g., Doe, 960 F.2d at 321-

22; United States ex rel. Stinson, Lyons, Gerlin & Bustamante,

PA. v. Prudential Ins. Co., 944 F.2d 1149, 1154 (3d Cir.

1991); see also S. Rep. No. 345 at 1-2, reprinted in 1986

U.S.C.C.A.N. 5266-67; H.R. Rep. No. 660 at 22-23. It would

hardly further Congress’s purpose if the statute were to allow

qui tam actions based on information already disclosed in the

course of a government audit or one of the other methods

identified in the statute merely because the information had

been disclosed only to a few members of the public or to a

particular class of individuals.

21

The Ninth Circuit also objects that if a government

disclosure to innocent company employees is interpreted as a

public disclosure, then “government possession of

information relating to fraud effectively forecloses qui tam

suits.” Pet. App. 10a. This is untrue. Only qui tam lawsuits

that are “based upon” government disclosures in an

investigation or audit are barred by the statute. And even if a

qui tam lawsuit is based upon information disclosed in a

government audit or investigation, qui tam plaintiffs who

qualify as “original sources” of the information will remain

able to prosecute their actions.

CONCLUSION

The decision of the court of appeals should be reversed.

Respectfully submitted,

Of Counsel: CLARENCE T. KIPPS, JR.

STEPHEN A. BOKAT Counsel of Record

ROBIN S. CONRAD ALAN I. HOROWITZ

National Chamber PETER B. HUTT II

Litigation Center, Inc. ALVARO I. ANILLO

JOHN J. KELLY MAUREEN HENRY

Electronic Industries MILLER & CHEVALIER,

Association Chartered

ROBERT A. LIPSTEIN Metropolitan Square

National Security 655 Fifteenth Street, N. W.

Industrial Association Washington, D.C. 20005

FRANKLIN W. LOSEY (202) 626-5800

Shipbuilders Council

of America

November 1996