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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1997
- **Citation:** 520 U.S. 939

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0695%3A18. Public record. Not legal advice.