HUGHES AIRCRAFT CO. v. UNITED STATES EX REL. SCHUMER
In 1989, William J. Schumer filed an action against Hughes Aircraft Co. under the False Claims Act (FCA), specifically under the qui tam provision which allows suits by private parties on behalf of the United States against anyone submitting a false claim to the government. Schumer alleged that Hughes had submitted false claims related to two Air Force radar projects between 1982 and 1984. Hughes moved to dismiss the case claiming that the 1986 amendment to the FCA that Schumer had filed under was not retroactive and that the alleged conduct precluded the suit because the government already had the information on which the suit was based. The motion was dismissed; however, the District Court ruled in favor of Hughes based on the merits of the case. Ultimately, the Court of Appeals rejected Hughes, finding that the FCA should be applied retroactively to suits pre-1986. The appellate court also found that, because no public disclosure of information possessed by the Government had been made, the action was not barred under the 1986 version of the Act.
Does the False Claims Act, as amended in 1986, apply retroactively to qui tam suits regarding allegedly false claims submitted to the government submitted prior to is enactment?
Legal provision: Federal False Claims
No. In a unanimous decision delivered by Justice Clarence Thomas, the Court held that, because the 1986 amendment does not apply retroactively to qui tam suits regarding allegedly false claims submitted prior to its enactment, Schumer's action should have been dismissed, as required by the pre-1986 version of the FCA. The Court reasoned that, prior to 1986, disclosure to the Government of information about the allegedly false claim would have constituted a full defense, which the retroactive application of the 1986 amendment would deprive Hughes of that defense. "Given the absence of a clear statutory expression of congressional intent to apply the 1986 amendment to conduct completed before its enactment, we apply our presumption against retroactivity," concluded Justice Thomas.
Argument of Kenneth W. Starr
Chief Justice Rehnquist: We'll hear argument now in Number 95-1340, Hughes Aircraft Company v. United States, on the relation of William J. Schumer.
Mr. Starr: Thank you, Mr. Chief Justice, and may it please the Court:
This case brings before the Court three issues under the False Claims Act that represents the Court's first occasion to address some of the myriad issues which have arisen under the 1986 amendments to that act, and beyond, it is this Court's first qui tam case since World War II.
Two of the issues, the meaning of the public disclosure provision of the 1986 amendments and the meaning of the pivotal bedrock statutory term, false claim, are of enduring and high practical significance to the law.
The threshold issue in the case is retroactivity, addressed, of course, in terms of first principles by this Court in Landgraf.
If the Court pleases, I will speak to the retroactivity issue before turning to the other two questions, which are looming large nationwide in Federal court litigation.
As to retroactivity, although issues of retroactivity and, indeed, its very meaning are not without difficulty, we believe that this case fits well within the Landgraf analysis.
In particular, the public disclosure provision of the 1986 amendments did something very specific.
It eliminated a defense, a very basic defense, namely the defense of Government knowledge.
That is, at the time of the conduct in question, Hughes' accounting practices under a variety of Government contracts, the fact that the Government had knowledge of the information or the allegations would constitute a complete bar to Mr. Schumer's lawsuit.
The 1986 amendments wipe this out, thereby expanding the circumstances under which a Government contractor could face liability.
Unknown Speaker: Mr. Starr--
--Do they wipe it out as to everyone, or do they wipe it out as to suit by the Government?
Mr. Starr: Well, Government knowledge would not, of course, be a bar with respect to the Government.
The Government can, in fact, bring a False Claims Act--
Unknown Speaker: So in fact he's liable.
Both then and now he was liable for the same conduct, regardless of the Government's knowledge.
I think the argument made by the other side is that all the change does is to say in the future we're going to let private people bring that suit as well as the Government, right?
Mr. Starr: --Your Honor, if I may, it seems to me that under the Landgraf analysis, the fact that you are permitting private parties theretofore barred to bring the action is indeed an additional burden using the judgmental process that this Court in Landgraf said is--
Unknown Speaker: Mr. Starr, the conduct that can be charged is the same, but in one case you have the Government as a prosecutor.
Now you have added a private prosecutor.
How does that differ from a U.S. Attorney's Office that has no strike force at the time a crime is committed and then beefs up with a... just a tremendous high-powered crew?
Can the defendant say, well, it was a thin prosecutor's office when I did it, and therefore you can't retroactively set the strike force after me?
Mr. Starr: --Justice Ginsburg, we believe the key distinction is the fact that there is an expansion in your hypothetical of the public service, which is quite decidedly different, in our view, than empowering private individuals who do not take the oath of office and who do not operate, as this Court has noted in case after case, with the same sort of strictures that a public actor, a public official acts under.
It's altogether different if you're in fact facing the United States Government, including a beefedup United States Government, as opposed to a private relator who is motivated by an entirely different set of motivations.
This Court noticed... noted that in its 1943 opinion, decision in Marcus v. Hess.
There may be issues or motivations of greed, or an effort to seek vengeance and retribution with respect to a particular qui tam action.
Those are inadmissible qualities of an orderly public prosecution function, and there are any number of safeguards in place to assure that the public prosecution function that you identified is in fact carried out within the context of a culture of regulations and procedures and, indeed, those procedures are very important.
It was Justice Frankfurter who reminded us that the history of liberty is in no small part the history of procedure.
Unknown Speaker: Mr. Starr, are you then saying that if the Government agency... let's say there's an antidiscrimination law that's put in the charge of a Government agency, and then Congress decides to add on to that a private right of action because the agency isn't well-enough staffed.
The private actors who are given a private right, they cannot reach any conduct that occurred before the private right was created?
Mr. Starr: It seems to us that, while that is a more difficult question in terms of the creation of that sort of private right of action, yes.
We believe that under a Landgraf analysis that, in fact, is going to a very material change in the exposure of the defendants in an analytically distinct way.
Unknown Speaker: Mr. Starr, you're not really saying that they can't do that.
You're just saying that if Congress wants to do that it has to make it clear.
Congress could say, this statute applies to acts committed before the private right of action is created.
Mr. Starr: Exactly.
Unknown Speaker: So you're not speaking of the constitutionality.
Mr. Starr: No.
This is not a Turner-Ellicorn due process--
Unknown Speaker: Right.
Mr. Starr: --issue at all.
We are speaking of what is the default presumption, and we think, just in terms of fairness considerations, this Court went to some length in its Landgraf opinion to talk about fairness and the burdens to the parties who are affected by this, and--
Unknown Speaker: Well, what fairness here seems to be, in effect, an estimate of the odds of getting prosecuted, or the odds of getting caught.
That is not what we normally mean by fairness in this context.
Mr. Starr: --It is... I accept the point that the odds of getting caught would not, I believe, harkening back to Justice Ginsburg's hypotheticals, carry the day for me.
Justice Souter, it is only if you accept what we believe is an established proposition in this Court's jurisprudence that an action by the sovereign is qualitatively different than an action by a private actor who is animated by a different set of considerations.
The Court has said it, and we believe that is indeed an additional burden that should call upon Congress, as Justice Scalia is suggesting.
What we are talking about here is, what should be the default presumption?
There's no indication that Congress believed that it was enabling a new category of candidates to in fact look retrospectively, and especially in this context, where what was changed in the law... what was changed in the law was the fact that in the ongoing relationship between the Government contractor and the Government, if, in fact, 'in this relationship of information flow, if the Government contractor is flowing information to the Government in that relationship, that contractual relationship, no stranger to the relationship under the regime that existed since World War II could then come into Federal court and assail a particular practice.
That seems to us to be a fairness consideration.
Unknown Speaker: Well, it's not only fairness.
I suppose it's depriving you of a defense you earlier had.
What's your best case for the fact that if you're denied a defense, that this is a substantive expansion of the liability?
Mr. Starr: This Court has said with respect to statutes of limitation in particular that the elimination of that kind of defense does, in fact, work a change, and should not, in fact, be retroactively applied.
Unknown Speaker: What's your best case for that?
Mr. Starr: I can get you that on rebuttal, Your Honor.
Unknown Speaker: But that's a defense against everybody, isn't it, Mr. Starr, and this is not a defense against everybody, and it's a defense that doesn't have any relationship to the primary conduct.
Mr. Starr: It does have a relationship, Justice Souter, I believe, if I may beg to differ, with respect to what this bar is all about.
If one carefully reads 3730(a)(4)(A), it is about the disclosure of information.
Who originally had the information?
The information, by definition, is in the hands of the Government contractor.
The Government contractor, under a regime that existed for 40 years, 43 years, knew that all it needed to do was to keep the Government informed, and that insulated it from qui tam relator exposure.
That, to us... if one doesn't accept that, that is our submission.
We think that is in fact looking to the underlying conduct of what the contractor is doing and the incentives--
Unknown Speaker: Yes, but of course, your answer assumes that in any event, even under the old regime, the Government could have sued for precisely what this particular relator is suing on.
Mr. Starr: --That is correct.
There is no question that the underlying issue could, in theory.
I think it does bear noting that... and this moves me, if I may, to some of the other issues in the case, that... and what was Congress' policy that was being implicated here?
Congress' policy concern was that there were not enough levels of activity with respect to ferreting out "fraud", that there was insufficient Government action.
What this case represents, a sort of... the extreme of the most elaborate and careful exacting governmental scrutiny, and that in the context of highly sophisticated and sensitive Government contracts where there is, Justice Souter, a flowing of information continually, including with governmental auditors resident on premises.
That is a very different kind of regime that I think the concerns that were animating Congress, which was what?
We want to... and this moves me, if I may, to the public disclosure issue and the meaning of false claim.
Unknown Speaker: Before you leave that, could... if... suppose we were to disregard the label, jurisdictional or not, and look at it under--
Mr. Starr: --I missed the first part of your--
Unknown Speaker: --Suppose that in looking to see whether it's retroactive or not you don't necessarily look just to the label, which is what you want.
Mr. Starr: --Yes, that is correct.
Unknown Speaker: Suppose we were to look at whether there was fair notice, reasonable reliance, and the settled expectations of your client, all right?
Mr. Starr: Yes.
Unknown Speaker: Landgraf.
On the one had, they know they're not supposed to make false statements, whoever can sue them, but you think that in fact this change as to who can sue makes a material difference as to how they behave.
Mr. Starr: It makes a material difference as to--
Unknown Speaker: As to how they would have behaved had they only known.
Mr. Starr: --It makes a... sorry.
Unknown Speaker: And what I want you to do is to explain how.
Mr. Starr: It makes a material difference in terms of the incentives to keep the Government apprised.
Under the prior regime, one has an enormous amount of incentives, and obviously I'm speaking in the abstract, because responsible Covernment contractors keep the Government informed, and what is at issue here was an extraordinarily hypertechnical dispute as to disclosure, disclosure that was ultimately found, of course, not to not only cost the Government any money, but the underlying accounting practice actually saved the Government money.
Unknown Speaker: Well, you don't argue now and you don't argue in your brief that it gives them the incentive to disclose to some public group that there is a problem, and I suppose that that's because that's just unrealistic?
Mr. Starr: It is in the context of highly, shall I say sensitive and important projects.
What it does do under the prior regime, and again, it troubles--
Unknown Speaker: Let me put the question differently--
Mr. Starr: --Yes.
Unknown Speaker: --because I'm trying... suppose you find out that the Justice Department hires 50 more lawyers.
Mr. Starr: Yes.
Unknown Speaker: Nobody would say that that makes any difference.
Mr. Starr: I agree.
Unknown Speaker: Although individuals might think, oh, boy, I better really be careful.
How is this different from that?
Mr. Starr: Again--
Unknown Speaker: That is, what practical difference does it make to your client, had your client known in advance that this new law would have governed?
Mr. Starr: --Again, it seems--
Unknown Speaker: Other than--
Mr. Starr: --Yes.
Unknown Speaker: --there are 50 more lawyers.
Mr. Starr: No, that the incentives again are, with respect to the underlying conduct, keep the Government fully informed.
There was an additional set of incentives under the Government knowledge bar, because as soon as you made the Government aware... there is a dispute as to whether the Government was aware or not with respect to what we were doing, but under the prior bar, as soon as you made the Government aware of it you were free and clear.
It was air-tight.
That strikes us as a material difference.
With respect, if I may, with the Court's permission, move to public disclosure.
The Ninth Circuit here in a very important ruling in this respect held that the disclosure of allegations concerning these accounting practices to employees, undisputed, of both Northrop and of Hughes did not trigger the public disclosure bar.
Now, why did the Ninth Circuit conclude that?
It concluded that those employees operate within what the court called a closed loop of secrecy.
This holding, with all respect to the Ninth Circuit, is not moored to the statute at all.
Here, and simply engaging in a textual analysis and then I would like to move briefly to the policy, there was a disclosure outside of the Government, and that took the form, or in the vehicle of an administrative audit, one of the enumerated categories of disclosure, and in an investigation, another enumerated category.
Those categories we think are illuminating, because in contrast to other categories such as the news media, or a congressional hearing, or a congressional report, there is not going to be wide dissemination of a Government audit.
In particular, in the context of defense contracting... and this is undisputed.
The Government will not dispute this.
The DCAA, the Defense Contract Audit Agency, which cleared Hughes totally and said thank you, you saved us lots of money, you're terrific, $15.4 million now goes to you.
That's a good thing.
What DCAA also said is, we're not going to be issuing press releases with respect to that.
We do not disseminate.
That's DCAA regulations.
Congress, of course, knows what its own entities do by way of practice and, thus, it is unrealistic to look to whether the general public would know.
What we believe the statute contemplates is divulgence by the Government to a person outside of the Government in one of the vehicles that are enumerated.
Unknown Speaker: Mr. Starr--
--With respect to that, just a... suppose the Government agency gives to the chief auditor of the company a report and says, I want to ask you some questions about this.
That's a person outside the Government.
Mr. Starr: Yes.
Unknown Speaker: Is that a public disclosure?
Mr. Starr: Yes, it is.
Under our theory--
Unknown Speaker: Just one person--
Mr. Starr: --Yes.
Unknown Speaker: --no matter how high up in the company.
Mr. Starr: Yes, it is, and the reason that, Your Honor, while that seems counterintuitive, we think a careful reflection of the... both congressional purposes but also, Your Honor, if one looks at the rest of 3730(e)(4)(A), there is a very important and forgotten person in the drama, and that's the original source.
This statute was designed... the 1986 amendments... and this Court has very recently said you want to look to the purpose of what Congress had in mind when it was changing a statute or enacting it.
What Congress was getting at, and one can say, was it an artful way or not, but what Congress was getting at was to protect original sources, and those are defined in the statute, and the original sources, Justice Ginsburg, are not affected by your hypothetical.
That is to say, that would exclude anyone in the universe except an original source from coming forward with a quit tam action and as previously stated an obvious--
Unknown Speaker: But Congress did use the words, public disclosure, and the words public disclosure generally imply something more than tell one officer of the company.
Mr. Starr: --I could not agree more in the normal context.
If one simply... and our colleagues on the other side have very ably invited the Court to focus very specifically on two words.
We believe that's not a correct method of statutory interpretation.
You look at the entire provision, and then you also look at something that's very important.
Very briefly, what Congress was trying to do in the 1986 amendments was to get the right balance.
It didn't just say anybody in the world filed a qui tam action.
It was a balance, and what was that balance?
The balance was, we want to encourage true whistleblowers, those who are not opportunistically availing themselves of material that is already available, known to the Government.
That doesn't assist in ferreting out--
Unknown Speaker: Well, what your interpretation may mean in effect is that for almost any Government investigation, or audit of some suspected fraud or false claim, if, in conducting the audit or the investigation anyone other than the wrongdoer is asked questions, other employees, sub-employees, any employee, then it seems under your interpretation it virtually wipes out an audit or an investigation for any qui tam action, ever, because inevitably I guess some employee would be talked to who wasn't party to the alleged wrongdoing.
Mr. Starr: --The apparent harshness of the regime that I am espousing and that you're discerning, Justice O'Connor, is upon reflection true to Congress' intent.
If one examines the background of these amendments, one sees that what really had Congress concerned... the National Association of Attorneys General was up in arms on this.
This is undisputed... was State of Wisconsin v. Dean, which embodied the value of the original whistleblower.
That's the true qui tam relator, Justice O'Connor.
That's the good qui tam relator.
It is not someone who is not adding value in the sense of bringing information to light that is otherwise hidden.
Unknown Speaker: Yes, but there's another value, and that's the value of the prosecution.
It seems to me that the amendment allows for that value to a degree that the prior law perhaps did not.
It's not just information.
Mr. Starr: I agree with that as well, because there is, in fact... but I don't think that that should change the Court's disposition, but the Second Circuit's approach is correct and the Ninth Circuit's approach is wrong, because, in fact, of the concern that in this balance that the public prosecution function is important, but it in fact needs to be supplemented by private relators.
But Congress has been making a qualitative judgment about who are good qui tam relators and who are not, and under, Justice Souter, your regime a relator is a good relator, but Congress didn't make that policy judgment.
It has said, no, we want to bar what otherwise would not be brought as a qui tam action save by an original source if there has been public disclosure in one of the exhibits, and that was its way of overruling State of Wisconsin--
Unknown Speaker: Mr. Starr, it's public disclosure in one of a series of different kinds of hearings and so forth.
Mr. Starr: --Yes.
Unknown Speaker: Which is the category in which this public disclosure was made?
Mr. Starr: In an administrative audit or investigation.
There were two forms, Justice Stevens.
Air Force first classified audits, and then a series, all before the qui tam action was filed, and that's why the qui tam action here is utterly... not only worthless, it's counterproductive.
Three DCAA audits, finally concluding again that, not that it's material to the disposition of the case, but that Hughes had in fact saved the Government money.
Unknown Speaker: Mr. Starr, suppose Congress had written this statute 3729(a)(1) and (2), which is what you're addressing here--
Mr. Starr: --Yes.
Unknown Speaker: --without the word public in it, and it just said, no court shall have jurisdiction under this section based upon the disclosure of allegations or transactions in a criminal, civil, or administrative hearing and a congressional blah, blah, blah, blah, and so forth.
How would that differ from the interpretation you were giving the provision with the word public in it?
Mr. Starr: Yes.
Our interpretation does not rob public of meaning but rather it seems to us that what Congress is getting at here is that disclosure outside the Government.
We believe that's the most natural meaning.
Whereas, if it had simply said disclosure, but not public disclosure, that could very naturally be interpreted DCAA informs--
Unknown Speaker: But an administrative investigation doesn't necessarily mean disclosure outside the Government, does it?
Mr. Starr: --No, it does not, but there has to be disclosure... the point is, as one takes the entirety of the provision, there must be a disclosure, then apply allegations or transactions in this... so under my interpretation of your redrafted statute, Justice Scalia, it might very well be that under this disclosure would have taken place if there was a communication from DCAA to the Air Force.
Whereas public disclosure to us means a divulging of information outside the Government, which is what happened.
Unknown Speaker: But is there such a thing as an audit or investigation where they don't even tell the person audited?
I mean, I don't know how you'd do that.
I guess there could be such a thing, but... you're saying Congress could possibly have just wanted... it was trying to distinguish cases where you're... the very object of the investigation being told the result of the investigation, the wrongdoer, is enough to make it public in your view?
Mr. Starr: Your Honor, I think you have collapsed the object of the wrongdoer, which is a "corporate entity" with what Congress was trying to encourage--
Unknown Speaker: No, I'm just saying in your view--
Mr. Starr: --which is whistleblowers.
Unknown Speaker: --In your view, it makes it public if you just tell the corporate entity being investigated?
Mr. Starr: I think it has to come to the attention of an individual who was... we believe the Second Circuit is right here, which is the most natural approach, someone who is not involved--
Unknown Speaker: Fine.
Then why isn't it a perfectly minimal definition of public to say that disclosure to the public at least means disclosure to a person who is not the wrongdoer, which could include an employee, provided he's being disclosed in his capacity as member of the public, such as he independently gets it.
Now, why isn't that a perfectly clear, minimal definition, though I imagine you'd lose on that definition here.
Mr. Starr: --I would very much lose because of the last part of your definition.
Unknown Speaker: Yes, but if you're interested in, say, a clear rule of law that's minimal and satisfies all your requirements, why wouldn't that do it?
Mr. Starr: Because I think that will strike a very different balance than what Congress struck, Justice Breyer, because what you will be doing is, in fact, encouraging, quote, whistleblowing actions by individuals who have no information to provide to the Government.
Remember, what is the value here?
If the Court dwells on what Congress' purpose was, Congress' purpose was encourage whistleblowing.
In your hypothetical, Your Honor, there's no whistleblowing going on.
Unknown Speaker: Why do you make the assumption that Congress did not also have the purpose to encourage prosecution?
Mr. Starr: --It is a balance.
I do agree by virtue of asserting my part of the balance, and I hope that when the other side stands up the other side will speak to the important part of the balance as well, which is avoiding nonvalue-laden qui tam actions.
There is simply no value, Congress has determined, if one does not come forward with information that is useful to the Government if the Government is already caught on the trail of fraud, save again, Your Honor, for the original source, which is pivotal to our argument.
Unknown Speaker: Will the fact that in fact it saved the Government money at the end of the day result in some reduction of the ultimate liability here?
Mr. Starr: If there's a technical... this is... if I may--
Unknown Speaker: If it's technical, because I just don't understand the real effect--
Mr. Starr: --The--
Unknown Speaker: --if you allow the suit to go forward at the end of the day.
Mr. Starr: --The underlying problem, Your Honor, is in fact the Ninth Circuit's... which is our third argument, the definition of false claim as the Ninth Circuit has now defined it.
We believe that in the context of Government contracting that there must, in fact, be some effect, or potential effect on the Treasury, that you are submitting a claim for payment of money to which you are not entitled.
Something disentitles you.
The Ninth Circuit has held in this case that is not necessary, that an entirely regulatory violation could run afoul of the False Claims Act.
Unknown Speaker: Well, but the act doesn't just say false or fraudulent claim, it says a false or fraudulent claim for payment or approval.
Mr. Starr: That's exactly right.
Unknown Speaker: So if you seek approval of... you know, I assume that means approval that this portion of the job has been fully completed satisfactorily.
Would that be covered?
Mr. Starr: It depends upon whether it is, in fact, a condition of contracting and whether there is a falsity that affects your entitlement to claims.
Unknown Speaker: It doesn't say that.
It says a claim for payment or approval.
What, in your estimation, does or approval mean?
Mr. Starr: For approval simply means that the Government must, in fact, say, we are... we have your request, and we will now pay or approve its payment, and what we think, Your Honor, the difficulty in what the Ninth Circuit has done, is to take any kind of violation, whether it has an effect on your entitlement to the payment or approval for payment and says regardless, whether it's an environmental regulation, if it's not a condition for contracting, you've stated a False Claims Act, and Justice O'Connor--
Unknown Speaker: So you read approval to mean, approval for payment.
It states false or fraudulent claim for payment or approval.
Mr. Starr: --Approval for payment.
Unknown Speaker: It doesn't say that.
That's the only problem with that.
Mr. Starr: Well, we think that the case law, Your Honor, is very clear with respect to what the nature of a claim is.
If you go to the nature... the definition of a claim, a claim is in fact a request for payment that money or property is owed by the Government to the claimant.
If I may, I'd like to reserve... the remainder of my time.
Unknown Speaker: Thank you, Mr. Starr.
Mr. Starr: I thank the Court.
Unknown Speaker: Mr. Gold.
Mr. Gold, would you mind telling us what's in it for a plaintiff who at the end of the day is faced with the fact that this procedure that was followed here saved the Government money?
Is the claimant's recovery diminished?
Are we talking about attorney's fees and the nuisance of a suit?
What are we talking about here in a case like this, where at the end of the day the Government saved money?
Argument of Laurence E. Gold
Mr. Gold: Two things, if I could, Justice O'Connor.
First of all, when the case was brought, the audit reports within the Government had not reached the conclusion that the Government had saved money--
Unknown Speaker: Right.
Mr. Gold: --but rather that the Government had lost money.
Secondly, if in the end the only claim left here is the claim based on the improper cost accounting disclosure statement, we presume that all that would be at issue in terms of the liability would be the penalty provision for filing a false claim.
Unknown Speaker: And what is that penalty if no money is lost--
Mr. Gold: Well, it is still... at the time it was $2,000... a false claim, and I think the point of this, Justice O'Connor, is shown first of all by the particular provision we have here in the background, or as we emphasize in our brief, a case like the Rohleder case in the Third Circuit, where the contractors certified that subcontracts had been let as was required by the Government regulations through competitive bidding, when in fact they hadn't.
Unknown Speaker: --Mr. Gold, I expect the $2,000 is peanuts compared to what else you're entitled to, and that is the costs of the action, the costs of the civil action.
I expect that by the time the discovery that the Government hadn't lost any money was made, the plaintiff here had invested well in excess of $2,000.
You do get your costs, don't you, as well?
Mr. Gold: And getting those from the plaintiff's--
Unknown Speaker: Would be--
Mr. Gold: --point--
Unknown Speaker: --Right.
Mr. Gold: --Well, but also from the point of view it is not... from the plaintiff's point of view it's not much of an enrichment.
It's a nonloss for having gone forward.
I don't say it is--
Unknown Speaker: But that explains why the suit proceeds.
You would think that once it was found the Government hadn't lost any money, it would say, gee, it's not worth expending a lot more money prosecuting this suit for $2,000, but you're going to get the $2,000 plus all that you've spent up to now prosecuting it.
Mr. Gold: --Right.
Unknown Speaker: Plus what you'll spend in--
Mr. Gold: And if I could, and then I'd like to go back to the law issues here, the two issues left in this case.
The other one on which there are no audit findings, and on which if you compare the original Northrop request for an audit with the final audit reports there's nothing but confusion, is whether Hughes misled Northrop in terms of what costs would be charged to the radar development for the B-2, and whether that generated false claims.
Now, there is nothing in... there is nothing but discord at this point, and that's why the Ninth Circuit sent that issue back, and therefore there may be real money here.
That's just not clear yet.
There are two claims, one of which rests on the issue that the... that Hughes has brought up here, the disclosure statement issue, and on that our position is that if the Government requires as a condition of contracting that you provide certain accurate information in order to safeguard the contracting system and to assure that the charges are proper charges, and if you knowingly provide false and incomplete and misleading statements and certifications, then there is a false claim, and that is true whether or not the claim is overstated.
So we think the answer to the sole question that the... that Hughes raises in this regard is no.
In that situation the False Claims Act does apply, and it generates at least the penalty which assures the integrity of the contracting system and provides the Government that kind of benefit, and that's true whether it's, you have to show us what your cost accounting system is, or you have to let subcontracts by competitive bidding, or you have to tell us what the qualifications of certain employees are if they're to be paid a premium.
Unknown Speaker: --This is addressed to the third question?
Mr. Gold: The third question.
If I can, now, going rapidly backwards, I'd like to turn to the first question.
Unknown Speaker: On that question, Mr. Gold, it seems to me just as a practical matter the board of directors of a defense corporation would say, you know, in the light of this new statute, we have an expanded new liability for punitive damages.
We're going to have to change our conduct in the way we disclose.
A defense has been taken away from us so that the law has changed.
In lay terms, they would explain it that way.
I have some difficulty, other than perhaps the Winfree case, in finding a case that would support that theory.
That's just what I'm thinking about this issue.
Mr. Gold: I don't think there is any doubt that when you change a jurisdictional bar, which we think it's fair to call this... I mean, it doesn't go to the merits... in a way which makes it easier for plaintiffs to bring suit, opens the courthouse door, you have some effect on the legal regime.
Unknown Speaker: But it does take away a defense, does it not?
Mr. Gold: I don't believe it takes away a defense.
Unknown Speaker: Because previously you had a defense if you disclosed to the Government.
Now you don't have that defense.
Mr. Gold: You had a defense in terms of saying, this person cannot be a plaintiff.
You didn't have a defense if what you disclosed to the Government caused the Government to understand that you had made false claims on it, and... because the Government could sue.
And the change here in terms of opening the door to the courthouse to individuals who would otherwise be subject to a bar is one which doesn't change the underlying rights, doesn't change the underlying duties, and in this case, since there can be only one suit for false claim, whether it's brought by the Government or a relator, it doesn't change the liability.
Indeed, it doesn't even necessarily change the plaintiff, because the Government can take over any case brought by a relator, so I do think that what you have here is not a creation of a new cause of action as in the statute of limitation revivor case, but a true rule regulating the procedural and jurisdictional rules of the Court.
Unknown Speaker: Mr. Gold, would you explain to me again how it could be under the old regime that if I was a contractor and I disclosed to the Government, I could nonetheless be held liable--
Mr. Gold: You... if--
Unknown Speaker: --under the False Claims Act.
Mr. Gold: --If you had a situation in which you disclosed to the Government your prior nondisclosure, the Government certainly could act to bring the suit.
In other words--
Unknown Speaker: Let's assume I disclose at the outset.
I don't have any--
Mr. Gold: --Well, there's simply no violation.
Unknown Speaker: --Under the old regime.
Mr. Gold: Under any regime.
Unknown Speaker: Well, you're not saying, Mr. Gold, that the statute made no change by eliminating a defense that had previously been available.
That's what we're trying to get at here.
Mr. Gold: No, I... I would not want to say that.
I don't think that's right.
It made a change in the rules concerning the jurisdiction of the courts to entertain suits brought by a private relator on behalf of the Government.
It did not change any underlying substantive rule, and it did not change in any way the Government's preexisting and pre-1986 and post-1986 rights to go into court.
Unknown Speaker: So the effect of a disclosure before this change was exactly what it is after the change, and secondly you're saying there is no provision under the new statute for a relator to bring an action if the Government couldn't bring an action.
Mr. Gold: There's no... if the Government brings the first case, there can be no relator.
If one relator brings a case there cannot be a second or third relator, and if a relator brings a case, the Government can always take it over.
Unknown Speaker: But they're saying, I think, which is bothering me too, that it just isn't fair.
You see... and that's, I think, relevant, because after all a statute of limitations... suppose Congress passed a statute of limitations and tried to revive some action that expired in 1810?
I mean, I don't think whatever you call it that would be so upsetting of reliance interests that we wouldn't permit it, and... I don't think... and so they're saying here, you see, it's unfair.
We had this defense against the private, and we had a course of action telling the Government everything, working it all out with the Government.
We're home free.
And now we don't.
So is it... I mean, is there a way that you can address this question that they say they reasonably relied on the old statutes, it's unfair to upset that reasonable reliance.
Mr. Gold: The proposition that you can after the fact, which is what we're dealing with here, tell the Government something and save yourself from liability is simply an erroneous statement.
Unknown Speaker: Well, but now you're ignoring, I think, the point, which is if you fail as a Government contractor to disclose something on the form that the Government said you should have put it on, and the contractor later realizes, oh, that should have been on that form 8929, and it wasn't, I'm going to tell the Government, I really goofed, I made the mistake, the Government can still sue, but you've told 'em.
But, under the new law, no qui tam action could have been brought by a third party for that because the contractor had told the Government.
Yes, the Government could file a suit, but a disgruntled employee could not.
Mr. Gold: --Well--
Unknown Speaker: So to that extent there is a retroactive change, is there not?
Mr. Gold: --There is a retroactive change in terms of the... the openness of the courts to the private party.
If that kind of change, which seems to me also to be true of taking the jurisdictional amount out of the Federal question jurisdiction which was done, or a change which otherwise creates the ability after the fact of somebody else to sue where before only the United States could sue--
Unknown Speaker: Well, but isn't that what this petitioner is coming before us and alleging, that until the 1986 amendments we had assumed that while the Government could still complain, that no qui tam action could be brought by this particular relator, and they say that was this situation.
Now, could it possibly be?
Mr. Gold: --Well, two things, if I could, because I'm down to my last 5 minutes.
One is that there is no showing that Government contractors after the fact made these representations to the Government in order to cut off qui tam relators, and there's no showing that Hughes made any such showing.
All of this came out in the fullness of time, and no showing that the Government didn't act after the fact, if you came in and you said we knowingly gave you false statements, or we knowingly misled a contractor, and I don't think those kinds of expectations have ever been seen to be the kind that are protected by this rule of fairness on public disclosure.
The... it seems to us the critical points are that at no juncture in the evolution of the '86 jurisdictional bar provision were all Government disclosures a basis for prohibiting the going forward of a qui tam suit.
At every stage, the forms of disclosure which led to the bar were limited.
There was a set of negotiations which are not public, and in this instance as opposed to Landgraf after the discussions statutory language came out and nobody tried to explain it.
Everyone seems to have kept their word that the statute would be the statute, and at that point the forms, or the means by which disclosure could be made, were expanded.
But at the very same time, the word public was added before the word disclosure for the first time, and it's just impossible, if you read the statute for what it tells you, to say that a disclosure within a contractual relationship marked confidential, for business purposes only, in the only way that a disclosure can be made to a fictitious entity which is the other contracting party, namely to its responsible officials, is a public disclosure.
Unknown Speaker: But do you agree with the Solicitor General's definition, because as I read the briefs, you and the Solicitor General have a different approach.
Mr. Gold: Well, in the peculiarities of this case, our approach and the Government's come down to the same thing.
We say a disclosure within the contractual relationship as such is not a public disclosure.
The Government says a disclosure to the allegedly wrongdoing party is not a public disclosure and here, because the allegedly wrongdoing party is a corporation, the disclosure to its responsible officers is the only way you can make such a disclosure.
I would point out that the Government's position at least averts the problem that's inherent in the tiny bit of concession that the petitioner makes, namely that the petitioners would have you have a jurisdictional inquiry into who in the corporation was involved in the wrong, where the Government at least faces up to that problem.
Unknown Speaker: Thank you, Mr. Gold.
Mr. Waxman, we'll hear from you.
Argument of Seth P. Waxman
Mr. Waxman: Mr. Chief Justice, and may it please the Court:
I'd like to take the issues presented in the reverse order, if I may.
On the merits as to the third point, the assertion Hughes now makes as opposed to the assertion it made in its petition that a claim under the False Claims Act is false and fraudulent only if it involves the submission of an inflated request for payment is quite wrong.
As this Court stated 30 years ago in United States v. Neifert-White Company,
"The act was intended to reach all types of fraud, without qualification, that might result in financial loss to the Government. "
"It covers all fraudulent attempts to cause the Government to pay out sums of money. "
That interpretation was expressly endorsed in the Senate report accompanying the 1986 amendments, and it is consistent with virtually every decision applying the act.
Thus, in our view, whenever a... a claim is false or fraudulent within the meaning of the act whenever it knowingly misstates facts bearing on the claimant's entitlement to payment or a benefit, regardless of whether the misstatement relates to price, the character or quality of the goods or services provided, the eligibility of the claimant to receive the benefit, or compliance with governing laws, regulations, or contract terms.
Turning to the second point--
Unknown Speaker: Excuse me.
What if there's just a violation of a contract term that is so minor that it would not be the basis for the Government's refusal to pay the contract price?
Mr. Waxman: --Justice Scalia, if the misstatement could not as a matter of law have borne on the entitlements claimant, or entitlement to payment, it would not be a violation of the act, and there are many statements that might be false statements under 1001 that would not qualify.
I mean, if I misstate my social security number, unless there is a very strange regulation that makes it a condition of receipt, it wouldn't be a false claim.
Unknown Speaker: Well, I mean, there also may be some provisions about you have to report this, that, and the other thing.
Let's assume you don't report one thing.
I wouldn't think in the ordinary case the result of that would be the Government can refuse to pay the entire contract.
Mr. Waxman: I think that's right.
In the ordinary case, unless it was made an express or implied, under the law, condition of payment, it wouldn't relate to a false claim.
Unknown Speaker: So you're willing to be committed to that.
It has to be the condition of payment.
Mr. Waxman: Yes.
It has to bear on the entitlement to payment in some way.
Unknown Speaker: Is that another way of saying it must be material?
Mr. Waxman: Yes.
Unknown Speaker: Yes.
Mr. Waxman: In fact, I think, although the courts have torn themselves inside out trying to determine whether in this provision and the criminal false claims provision materiality is an element, in fact, to the extent materiality is an element, it really is embedded in the test of whether it bears on entitlement to payment or a benefit.
I mean, taking this Court's definition from Gaudin and Kungys, the natural tendency to influence or be capable of influencing the decisionmaker seems to incorporate this test.
Any fact that bears on entitlement is one that is capable of influencing.
With respect to the public disclosure bar, we believe that allegations and transactions are publicly disclosed by the Government whenever they are revealed to a member of the public outside the Government other than to the suspected wrongdoer.
In the context of a corporate wrongdoer, I will rush to the test that Justice Breyer identified as a clear minimal definition and state that, since corporations can only act through individuals, the test should be whether the persons to whom the Government disclosed the allegations or transactions received the information in his or her capacity as an employee or agent of the corporation, not just as an individual who happens to be an employee.
Unknown Speaker: What about a disclosure to, say, not just to Hughes but to Northrop in a case like this?
Mr. Waxman: --Well, I think a disclosure to Northrop would be in most instances a public disclosure.
Northrop actually is the whistleblower in this case, and I think a disclosure to Northrop or Northrop employees would have to be considered a disclosure to a member of the public, in this case the paradigm qui tam relator.
But as to disclosures to employees, and I know it is very important for this Court to announce some sort of bright line rule so that we can apply this, this provision, let me give you some examples of--
Unknown Speaker: Well, Mr. Waxman, before you do that, have you... are you changing your position from what the Government... I didn't understand that to be the Government's position in its briefs.
I thought the brief was not whether it's disclosed to the employee as an employee or as a member of the public, but rather, whether the employee to whom it was disclosed had an obligation to keep it secret or was free to disclose it to the rest of the public.
Mr. Waxman: --To the extent--
Unknown Speaker: Wasn't that the test in your brief?
Mr. Waxman: --There was some language in our brief to that effect.
With all respect, I don't think--
Unknown Speaker: Well--
Mr. Waxman: --that was the burden of our statement, but we... in an effort to create a bright line--
Unknown Speaker: --So you--
Mr. Waxman: --we are saying that if it's disclosed, either by the Government or by Hughes management, to someone in the corporation because they're a corporate employee, that's not public disclosure.
On the other hand, if someone who happens to be a public... a corporate employee files an FOIA request, and obtains it, that is a public disclosure.
If the Government, the Attorney General, pursuant to her authority under 3733, files a civil... sends a civil investigative demand out to persons who may have knowledge of the alleged wrongdoing and one of them happens to be a corporate employee, that is a public disclosure.
If a DCAA investigator goes out and talks to people, some of whom are corporate employees, and in the course of the interviews discloses allegations and transactions, that is a public disclosure.
That was the Second Circuit's test in Doe.
Unknown Speaker: --As an employee means he acquires it by reason of his employment.
Is that what your as an employee, receives it as an employee means?
Mr. Waxman: Receives it because he is an employee.
In other words, Hughes general counsel sends it to their director of auditing because he is their director of auditing and it's his responsibility to respond to the DCAA's charges.
Unknown Speaker: What if somebody who happens to be a messenger in the company happens to see that?
It wasn't sent to him, but he sees it.
He wouldn't have seen it except that he's an employee.
Mr. Waxman: I was confident we would get into some hypotheticals.
Unknown Speaker: Well, you say it's a clear line.
This is what I'm worried about.
Mr. Waxman: My clear line is that that would not be a public disclosure, because we need a clear line.
The employee was there because he was an employee.
He was performing his functions as an employee, and if he happens to see it, that's not a public disclosure, and what is... although this is a clear line, it leaves contractors like Hughes the ability to calibrate the universe of people it will allow to see these reports.
Hughes could decide that only the general counsel is going to receive this report, and no one else is going to see it.
Unknown Speaker: Unless it has nosy messengers.
Mr. Waxman: Excuse me?
Unknown Speaker: Unless it has nosy messengers.
Mr. Waxman: Unless it has nosy messengers, and I think that this really is the test that does approximate as best as we can determine what Congress' intent was with respect to the changing of the... just changing of the qui tam bar from Government information to public disclosure.
With respect to retroactivity--
Unknown Speaker: On that point, with respect to retroactivity, assume this is not a jurisdictional bar.
Assume we think that Congress has eliminated a defense.
Should the statute be applied retroactively?
Mr. Waxman: --We think that the statute is not truly retroactive even taking your point about the defense as against a qui tam relator, because this Court stated in Landgraf that a statute has genuine retroactive effect only where the statute would either impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed.
Unknown Speaker: So how does it work with the statute of limitations?
Mr. Waxman: --Here, application of the new qui tam provisions will not impair any legal rights that Hughes possessed when it acted, it will not increase any Hughes legal liability for its past conduct, and it will not impose any new legal duties on Hughes with respect to transactions already completed.
Unknown Speaker: As to number 2, that depends on whether you want to be realistic or not.
Mr. Waxman: --Well, yes, but this Court did say... I do want to be... I want to be very realistic, and I think this Court in Landgraf was realistic in saying a statute does not operate retrospectively merely because it upsets expectations based in prior law.
The test is whether it has new legal consequences, not practical consequences but new legal consequences.
Unknown Speaker: So you would say if there were additional punitive damages that would be no good.
Mr. Waxman: That--
Unknown Speaker: That would up the penalty.
Mr. Waxman: --That is correct.
Unknown Speaker: But the fact that there are going to be more litigation costs--
Mr. Waxman: That is absolutely correct.
Unknown Speaker: --So how does reviving an action by, say... statute limitations, 10 years later, 20 years later, Congress says, oh well, we'll change it.
Mr. Waxman: The cause of action here is a cause of action under the False Claims Act.
That action never lapsed, and... may I finish my answer?
Unknown Speaker: Finish your answer.
Mr. Waxman: And, indeed, even under the prior regime, if Mr. Schumer had filed an action, and it turned out the information was in the Government's files, we could have taken over the case and it would have proceeded.
Chief Justice Rehnquist: Thank you, Mr. Waxman.
The case is submitted.