Judge OKs Contractor Fraud Suit by Citizen
Holding that the right of private citizens to be public watchdogs is “embedded in our constitutional system,” a federal judge Friday upheld the constitutionality of a 1986 whistle-blower law that allows people with knowledge of fraud against the government to take government contractors to court.
U.S. District Judge William D. Keller rejected a challenge from a variety of major aerospace contractors who had sought to throw out the 1986 amendments to the federal False Claims Act, which they claim encourage disgruntled employees to file frivolous fraud lawsuits that can tie up major weapons and aircraft programs in years of litigation.
The Los Angeles judge was the first to rule on the constitutionality issue although nearly half a dozen similar challenges are pending across the country in cases ranging from the Stealth bomber to the Apache helicopter. In making his ruling, the judge delayed a trial in the case by allowing attorneys to immediately appeal.
‘Eminently Constitutional’
“We’re pleased to see that the first judge to address the question didn’t have any difficulty whatever in finding that it’s eminently constitutional,” said John Phillips, who represented the Center for Law and the Public Interest in the case.
William R. Ramsey, the lawyer for the former Hughes Helicopter Co. employee who filed the lawsuit that was the subject of the ruling, said the judge’s decision is a notice to defense contractors that they will be held to a high standard of conduct in their dealings with the government.
“These initial challenges, had they been upheld, would have resulted in business as usual,” Ramsey said. “And the standard operating procedure of all the aerospace companies that I have been investigating is that the ends justify the means, and it’s legal if you can get away with it.”
In the Hughes case, lawyers for Hughes’ parent company, McDonnell Douglas Inc., and Parker Hannifin Corp. had argued that the whistle-blower statute violates the Constitution’s separation of powers provision and appointments clause by shifting the role of prosecutor--which normally resides in the executive branch--to a private citizen under the judiciary’s jurisdiction.
But Keller, in a 37-page opinion, held that some of the nation’s oldest laws have contained provisions allowing private citizens to enforce them by filing civil lawsuits.
“Although most of these statutes resembled simple informer laws, the idea of private citizen enforcement of public rights is embedded in our constitutional system,” Keller wrote.
“The power to enforce the laws does not mean that some of the power, authority and discretion to initiate a lawsuit on behalf of the United States cannot be delegated by Congress to anyone other than a duly appointed officer of the United States,” the judge added.
Passed in 1863
The False Claims Act was originally passed in 1863 to encourage private citizens to come forward with information about contractors who were shortchanging the Army during the Civil War. As amended more than a century later, it permits private citizens to file lawsuits alleging fraud against the government and share in any damages eventually assessed.
Such whistle-blower suits are initially filed without public scrutiny, permitting the government to investigate the allegations and determine whether it wants to join in the suit. If it elects not to join, the private citizen simply litigates the case on his own and collects an even greater share of the damages.
Government contractors have complained that they often spend hundreds of thousands of dollars defending themselves against lawsuits without merit that the government has elected not to pursue.
But Keller said the companies failed to consider that “loose cannon plaintiffs” are subject to a variety of constraints, including monetary sanctions imposed by the court and the potentially intimidating specter of going up against large corporations with their “significant litigation coffers and access to preeminent legal talent.”
Moreover, the Justice Department retains significant ability to control the course of the lawsuit, either by taking it over or electing to join it later, Keller said.
Scrutiny Cited
“The defendants’ parade of horribles does not withstand scrutiny,” the judge said.
In the Hughes case, plaintiff Rodney A. Stillwell, a former Hughes employee, claims to have uncovered up to $175 million in overcharges to the Army on the Apache helicopter. The suit seeks total damages of up to $750 million.
Ramsey, his lawyer, said only the False Claims Act’s whistle-blower provisions allow a single employee to pursue such an allegation.
“This act allows one person to change a company’s procedures,” he said, “no matter how many millions or billions are involved, and in that respect, I think it’s a very important act. You don’t have to have 25 people and a battery of lawyers behind you. You only have to have one individual who knows the truth to be able to make sweeping changes in a company’s procedures.”
Lawyers for Hughes could not be reached for comment Friday, but a company spokesman said it had not been decided whether to appeal the ruling.
The U.S. Justice Department did not take a position in the case, though it is possible the department could weigh in during the appeal process.
Department spokeswoman Amy Brown said the newly appointed solicitor general will be reviewing the case and determining what position the department will take. Accordingly, Justice Department officials have sought a delay in a similar case involving the Northrop Corp. pending before another federal judge in Los Angeles.
