ALLISON ENGINE CO. v. SANDERS
Two workers involved in the manufacture of electrical supplies for the Navy’s billion-dollar guided missile destroyers brought a whistleblower case alleging that subcontractors performed faulty work. The two charged that the companies employed unqualified workers, installed leaky gearboxes and used defective temperature gauges. After a five-week trial, the district court granted judgment as a matter of law for the companies, concluding that the False Claims Act under which the suits were brought requires that defendants “present” the fraudulent claims to the government. Because the subcontractors actually invoiced the general contractor and not the government, the court ruled that the presentment requirement had not been met. The appeals court reversed, holding that the Act should be liberally construed to discourage private companies from defrauding the government.
Must whistleblower claimants prove that a private company directly presented a fraudulent bill to the government in order to prevail in a False Claims Act case?
Legal provision: Federal False Claims
Yes. Writing for a unanimous Court, Justice Samuel A. Alito made clear that a plaintiff must prove more than that the false statement's use resulted in payment or approval or that Government money was used to pay the claim. Instead, a plaintiff must show that the defendant intended the false statement to be "material" to the Government's decision to pay or approve the false claim.
Argument of Theodore B. Olson
Chief Justice Roberts: We'll hear argument today in Case 07-214, Allison Engine Company versus United States ex rel. Sanders and Thacker.
Mr. Olson: Mr. Chief Justice, and may it please the Court: The False Claims Act addresses and redresses fraud on the government, not on every recipient of government funds.
The liability imposing provisions of the False Claims Act refer ten times in a single sentence to a submission to the government, getting a claim paid or approved by the government, or defrauding the government.
Liability is to the government and it's based upon the amount of damages that the government sustains.
20 years ago, construing an even broader statute, this Court unanimously determined that defrauding the government in any manner for any purpose does not include defrauding recipients of Federal funds.
That's the Tanner case.
The United States made the same arguments in the Tanner case in 1987 that it's making today in connection with the False Claims Act, and this Court unanimously decided that case that defrauding the government did not include defrauding grantees or recipients of Federal funds.
There is no evidence in this case that false or fraudulent claims were submitted to the United States.
Indeed, we don't know from the record what was submitted to the United States, when it was submitted to the United States, what it contained.
Justice Ginsburg: What about the certificates of conformance with specifications of?
I believe they were the Navy's specifications and Allison submitted to someone those certificates of conformance.
Mr. Olson: The district court very carefully analyzed that evidence, as well as all the other evidence in the case, Justice Ginsburg, and found that an inference could not be drawn with respect to what had happened or when it happened because there is a time lag to drawing an inference from certificates of performance when you don't know when those certificates were made, when they were submitted to the government, what they said.
Justice Ginsburg: Could the government have asked... could the Navy have asked for them?
Mr. Olson: The Navy, you mean in connection with the litigation or in connection--
Justice Ginsburg: No.
In connection... the Navy... the engines are being supplied for Navy destroyers and the Navy obviously has an interest in making sure that the... they measure up to the specifications.
So my question is whether in this procedure for dealing with subcontractors there is any kind of audit where the Navy can say, we want to see the certificates of conformance for those engines or other documents relating to them.
Mr. Olson: --The answer to your question as I understand it, Justice Ginsburg, is yes, the Navy had the right to test the equipment, look at the... look at the specifications, examine the specifications, ask for corrections if they were unsatisfied, to test the products.
The Navy had the right to do all of those things.
And one... fundamental to this case is we don't know whether they did, whether they were satisfied with the generators as ultimately delivered to them, whether there were corrections, if there were deficiencies or deviations from the specifications when they were first submitted to the shipyards, whether those were corrected, whether those deviations were immaterial.
Justice Kennedy: Did the Navy have the right to audit the subcontractor's books?
Mr. Olson: --It's my understanding... I'm not 100 percent sure of that, Justice Kennedy, but it's my understanding that the government did have the right to follow the process all the way through.
There's no evidence that they did so.
Justice Kennedy: Suppose they audit the subcontractor's books and they don't discover a fraud and leave.
Would there be liability then under your view?
Mr. Olson: Well, I think it would depend upon what was in the books and whether there was--
Justice Kennedy: The books show that X dollars were spent for certain parts and that was far too much.
That was an inflated figure.
It fools the government.
The government then paid the subcontractor... pays the contractor; the contractor pays the subcontractor.
Mr. Olson: --It... that might be, Justice Kennedy.
Regarding the terms of the statute, whether you might interpret that as providing under (a)(2), providing a record or document to the government with the intention that the government pay or approve a claim, I think you'd have to examine the evidence in that context.
What we don't have here, we don't know what was submitted to the government.
What the lawyers representing the claimants in this case... and this is from page 5a of the appendix to the cert petition, footnote 3.
We... this is what the... when they were asked about this issue: We haven't shown you the ship yard's invoices to the United States and we're not going to show you those.
Because they are totally irrelevant under the False Claims Act.
Now, that could not be more wrong, it seems to us.
You can't determine... if there's going to be a fraud, a claim of fraud against the United States, you have to know what the United States received to see whether it's fraudulent, to see whether any deviation from the facts were material, whether the deviation from the specifications where maybe the product was better, maybe it deviated in an insubstantial way or an immaterial way, maybe the government had an opportunity to fix it.
We don't know whether there was reliance by the government.
We don't know whether there was a loss by the government.
And we don't know, if there was a loss by the government, the quantification for the loss.
Justice Breyer: I must be just missing something here.
Tell me what I'm missing.
What about the definition of "claim"?
It says a claim includes a request under a contract for money or property, and the request is made to the contractor if the United States provides any... any of the money.
Is there an issue here as to whether some of the money provided... are you saying there was no money provided by the United States or maybe there was no money provided?
Mr. Olson: No.
The way the record... the record is a little confusing with respect to that, Justice Breyer, but I think that one of the witnesses... I don't know how he knew--
Justice Breyer: Yes.
Mr. Olson: --But one of the witnesses said, yes, the money that we received was money that came from the United States.
Justice Breyer: Well... so why doesn't that end it?
Why doesn't... how do you win, then, given the language I just read?
Mr. Olson: Well, that's the definition of the word "claim".
Justice Breyer: "Claim".
And there has to be a claim.
Mr. Olson: There has to be a claim.
But then section... you're reading subsection (c).
Justice Breyer: That's right, that's right.
Mr. Olson: Subsection (a) provides the standard for liability.
So you can have a claim, but you're not liable for a false claim unless it's submitted to the government, unless it's knowingly made to get a fraudulent claim paid or approved by the government.
Justice Kennedy: Well, you say (a), but we're talking about (a)--
Mr. Olson: Yes.
Justice Kennedy: --in connection with (c).
Mr. Olson: Yes.
I... I'm looking at the statute--
Justice Kennedy: But you were quoting from (a)(1).
Mr. Olson: --No, I quoted from both (a)(1) and (a)(2).
Justice Kennedy: I know that, but doesn't (a)(2) stand by itself, especially as... as (c) is written, (c) and (2), (c) and (a)(2) make perfect grammatical sense without any presentation to the government.
Mr. Olson: --Well, it reads out the words "by the government" from that section, which is what the statute looked like until it was specifically amended.
Justice Stevens: Well, the words (a)(2).
Mr. Olson: Pardon me?
Justice Stevens: The words (a)(2).
Mr. Olson: They are in (a)(2), but the way Justice... the way Justice Kennedy was reading it, I respectfully submit, would read out those "by the government".
Justice Scalia: You're saying, in addition to being a claim, that's not enough reliability?
It has to be a claim that's presented to the government?
Mr. Olson: --It's presented to the government and--
Justice Scalia: And all that (c) does is tell you what a claim is.
So that, even if it's not a claim against the government but just a claim against a subcontractor, that still can be the basis for liability so long as it's presented to the government.
Mr. Olson: --It's presented to the government or, under (a)(2), knowingly made to get--
Justice Stevens: But (a)(2) says it has to be paid or approved by the government.
Mr. Olson: --It has to be made or used to get a claim paid or approved.
In other words, it has to be something that's created, then given to the government, so in order to get a claim paid or approved by the government.
What I am--
Justice Kennedy: But you said given to the government.
Does it say given to the government?
"paid or approved by the government. "
Mr. Olson: --Well, I think a reasonable reading of the statute is... and this is essentially what this Court unanimously decided 20 years ago in the Tanner case, that these cases about defrauding the government must involve something that causes the government to suffer a loss, some something that impacts the government.
Even... even the government today is making the same statement that there has to be a loss.
What I'm saying with... it's important, Justice Kennedy, that... that if you are going to want to get something paid or approved by the government, you have to do something that gets it to the government in some fashion.
And reading (a)(1) and (a)(2) and (a)(3) and the Tanner decision and the history of this statute from 1863 all suggest very strongly, I submit, the plain language of the statute is that it's... involves fraud against the government.
Now, you may submit something to a prime... you may be a subcontractor that submits something to the prime contractor, and this very... this case is a very good example of it, and this case is very much like the Tanner case.
What did the prime contractor do with it?
If it was false or deficient or out of specifications, the prime contractor had a right to say: Wait a minute, tighten those bolts up a little bit more, or we're going to deduct it, a little price from that, and we're going to tell the government that there's a deviation from the specifications.
Justice Ginsburg: But if it's disguised, how would the... how would the prime contractor know?
Mr. Olson: Well, that's just the point, Justice Ginsburg.
We don't no one way or the other unless the evidence is submitted.
We don't know what the government received, so we don't know whether the government was deceived.
So, if I submit that it might well be in this case... we don't know how much time elapsed between the submission of the invoices or the other materials from the subcontractor to the prime contractor.
What happened then between then and when the ships were delivered to the Navy?
Lot of things could have happened.
We don't know.
Justice Ginsburg: But there wasn't any trial, was there?
Mr. Olson: There was a trial.
Justice Ginsburg: There was?
Mr. Olson: And there was a motion at the close of the evidence of the plaintiff's case.
And at that... it's at that point that counsel said: We are not going to show you the invoices to the United States.
Justice Ginsburg: Well, how could... they would have at a minimum, even if your theory is not correct... they would have to prove loss to the government.
Otherwise they would have no claim.
Mr. Olson: --That's... that's correct, Justice Ginsburg.
And that's my point.
If you can't... if you don't know what went to the government, you don't know whether a claim or a document or a statement, to use the words of the statute, went to the government, you don't know whether what the government got was false; you don't know whether they--
Justice Scalia: Does the other side concede that point, that you have to prove loss to the government?
I don't think they do, do they?
Mr. Olson: --I'm not sure.
Justice Scalia: I don't think they do.
Mr. Olson: --What the statute says--
Justice Ginsburg: Well, the government certainly has that in its brief.
Mr. Olson: --What the statute says is that it is liability to the government for the damage the government sustains.
Now, it may well be... there's penalties even if there isn't damage to the government.
I would concede that.
Justice Scalia: You could say that the missed funds which are in the hands of subcontract... of contractors, harms the government, even though it doesn't come out of the government's pocket, because those funds were given for a particular purpose, and if that purpose is frustrated, the government is harmed.
That would work, without saying that the government has lost any money.
Mr. Olson: Well, you could say that, but you don't know whether the government got what it wanted.
You don't know whether the... if something deviates from specifications in a contract, it might deviate on the plus side of something, it might deviate in an immaterial way.
The contractor, the prime shipyards here, and the government had the right to correct any deficiencies.
Justice Scalia: Well, suppose the government gives money for building schools, okay, to a State and a fraudulent claim is submitted as... in connection with the construction of the school.
The government has been cheated in that the money it gave for a school is not going to the school; some of it is going into the hands of the fraudulent contractor.
Mr. Olson: Well, what you've done with your question, Justice Scalia, is left out the link.
What happened... what... the government may have made... given money to the schools.
Subcontractors might have submitted something false.
The prime contractor might have discovered it and said: Correct this or--
Justice Scalia: I understand that, but that's a different point.
Mr. Olson: --No, it isn't--
Justice Scalia: I am talking now about the point of whether the government itself has to suffer any harm other than the fact that the money it gave was not used for the purpose for which it gave it.
That alone, it seems to me, could be harm.
Mr. Olson: --Well, it... it might under some circumstances be harm.
It might not under other circumstances be harm.
It might be misleading in an immaterial way.
It might... there might have been no reliance by the government.
There might have... the government might have said... the contract between the prime contractor and the subcontractor might have different requirements than what the government wants.
None of those--
Justice Kennedy: Mr. Olson, it seems to me you're fighting a hypothetical.
Let's say they built a lousy school, sub spec.
The roof is falling in; the plumbing leaks.
It's a fraud, but they've given the money, the feds have given the money to the States and the States have let this slip by.
Justice Scalia's point was the Federal Government has been injured.
Mr. Olson: --The Federal Government may have been injured.
The question is what does this statute redress?
There are other statutes.
There's a major fraud provision of Title 18 that has major penalties for fraud by subcontractors against contractors in connection with public projects just as the one... like the ones you're describing.
But if this Court's Tanner decision is correct... and it was only 20 years ago; it was unanimous... it defined the term "defrauding the government" and it said "defrauding the government" means defrauding the government, not filing a false claim--
Justice Breyer: But that's why the definition... it seems to me at the moment... that's why I'd like your view... that the language is perfectly ambiguous, the language of
"knowingly makes a false statement to get a false claim paid. "
Now, the "false claim" is the claim that they made to the contractor, because that's the definition.
And you are saying: Well, they made this statement to get a false claim paid by the government.
Now, you could read those words "paid by the government" to say
"and there has to be a causal connection. "
which is what you're saying, that you have to make the false statement, make the claim, and that led the government to pay.
But you could also say it's paid by the government when the money to pay it comes out of government funds, because it was paid by the government even though the government gave the money to build the school 100 years ago.
But it's there in the bank account, and then the contractor took the money from the bank account that the government put in and paid it.
In such a case, linguistically, you can say it's paid by the government.
Mr. Olson: --It has to be a false claim paid by the government.
Justice Breyer: It was a false claim.
Mr. Olson: What... Justice Breyer, what is missing from your hypothetical is what went to the government.
Suppose the prime contractor decided that the paint was off white instead of white, and that was satisfactory.
Suppose the subcontractor said to the government: This is a major project; this is a billion dollar project; there are all these little things that are out of specifications and could be called false or fraudulent or misleading; we're going to disclose all of these things to the government.
The government has a complete opportunity to test them, look at them, and decide whether it's satisfied.
Then the government isn't deceived.
Justice Breyer: Well, it doesn't say that.
It says it was a false claim, which it was.
It's false, and it is a claim to the general.
And was it paid by the government?
It was paid by the government, even though everything you said is true, because the money to pay it came from government funds.
So that's why I'm having a problem.
I can read those words "paid by the government" either way.
Mr. Olson: Well, I think you are taking the words and isolating them.
Justice Breyer: That's true.
Mr. Olson: It is knowingly making a false record or a false statement to get a false claim paid.
If the government didn't pay a false claim, then (a)(2) doesn't provide for liability.
Justice Souter: Well, that's not strictly correct.
I mean, it "paid or approved".
Mr. Olson: Yes, I should have said--
Justice Souter: --which means there is a third way, and the third way of reading it is if the sub makes the false statement to the general contractor in order ultimately to get a false claim, i.e., the ultimate contractor's claim for conforming work, approved or this particular claim approved by the government when the government makes the ultimate decision to pay the general contractor, that would be covered by (2).
Mr. Olson: --Well, if... I should have said the word "approved" because I... I was shortening it up.
But it does say "paid or approved".
But what has to be done is that the government has to... what has to be submitted is something to cause the government to pay or to approve a false claim to the government.
Justice Souter: But that can simply be done by the false claim to the general contractor, who either accepts it as true or, for that matter, knowingly understands that it is false, and ultimately submits the same claim, i.e., as an element of its ultimate bill for the whole project.
Mr. Olson: Well, what I might say in addition to what I have said, Justice Souter, is that there is no stopping point for that theory.
The government says as long as the project involved Federal money, as long as the project used Federal funds, as long as the project might endanger the Federal fisc, as long as the program is financed in part by Federal money, there would be liability under this statute.
Given the tens of thousands of government contracts, government funds, government financing of States, localities, universities, and so forth, there is no limiting point.
Justice Souter: With respect, I think there is a limiting point.
You are certainly right when you talk about the thousands of contracts that the government ultimately makes or finances for the benefit of lower units of government.
But it does not follow from the government's theory that if the United States makes grants to a sub unit of government, not for the purpose of a given contract or a given project, it simply makes grants, revenue sharing sorts of things, it doesn't follow from the government's position that when one of those sub units of government then makes a contract spending part of that money, that it's covered by this statute.
This statute would cover the myriad of grants made for particular contracts.
It would not cover every subset of funds in a lower government unit, some of which had been contributed by the national government.
Mr. Olson: --I don't... I don't think, with respect, that that's a fair reading of what the government said either in the Tanner case, think making essentially the same arguments which were rejected unanimously by this Court, or what it says in its brief to the Court today.
Justice Ginsburg: Well, perhaps we should ask the government to explain what its position is.
But one of the points that has been raised in opposition to your argument is that your interpretation would cut out claims that today are regarded as properly presented under the False Claims Act.
And the one that was featured was false claims for Medicare or Medicaid reimbursement, because those are presented not to the government but to an intermediary.
Mr. Olson: In... with respect to that, the government filed a brief in a case called Atkins versus McInteer in the Eleventh circuit, and I have the brief here... it is not part of the material that is before you... in which the government said that even if the District... D.C. Circuit decision that's involved in this case, the Totten case, was correctly decided, those Medicare-Medicaid cases would be substantially covered under the statute even under that construction because the provider's claim is passed on by the insurer to the Medicare agency or entity.
Now, I don't know, Justice Ginsburg, the facts of that case or the facts of all of those circumstances.
But the fact is that if you take this statute as it was enacted in 1863, all of this used to be a part of one section that talked in the first case, the first instance, one sentence which discussed in the first instance a presentation of a claim to the government and which was the liability to be imposed upon the claimant.
The second part of the sentence said... it was intended to cover the people aiding the fraud, those people that provided with records or statements in order to get the payment made.
And then the third provision was the conspiracy provision.
Those were broken out into the subsections you see today.
In 1982, Congress specifically said: We are simply codifying the statute; we're not changing the statute.
We are making no substantive changes in the statute.
If you read that provision in the context of the Marcus versus Hess case, which was in the early '40s, in which the government... in which the Court specifically said there's liability for an intermediary causing a... Federal Government to pay the claim.
But in that case, the invoices were passed on, and the... and the government entity in that case, the Public Works Administration, had the opportunity to review and approve--
Justice Ginsburg: So the whole difference... the whole difference, then, is if the... the invoices are passed on, as opposed to the government having the right, if it so chooses, to inspect the books and records?
Mr. Olson: --I think I may not have heard your question.
Justice Ginsburg: The difference is if the government gets the invoices from the contractor, then there's a claim under the False Claims Act.
But if, instead, the subcontractor is required to make its books and records available on request to the government, that's not enough?
Mr. Olson: --Well, I... I think... it's certainly not this case, because the... although the government had an opportunity to do these things, we don't know what happened.
Justice Ginsburg: But it made... I thought you said that it is this case that the government had the right--
Mr. Olson: If--
Justice Ginsburg: --to audit the--
Mr. Olson: --The problem is, as this Court said in the... unanimously in the Tanner case, given... forgive me for doing this, but it's important... given the immense variety of ways the Federal Government provides Federal financial assistance, always accompanied by some restrictions or conditions on its use, the inability of the substantial supervision language which the government was advancing then, which it's sort of advancing now, does not provide any test for any real guidance or--
Justice Kennedy: But the Tanner case didn't confront the statute which has the definition of claims that Justice Breyer is putting to you.
Mr. Olson: --Yes--
Justice Kennedy: This statute that we're looking at, in effect, defines what a fraud against the government is.
Mr. Olson: --Yes, but it... but when it was... when it added that section, it specifically added in the words "by the government", which those words were added after the legislative history that both the Respondents and the government cite.
And it did not change, Justice Kennedy, the definition of "liability".
It simply defined "claim".
If the Court--
Justice Scalia: Am I correct in this that without the claim definition, the statute would not cover a fraudulent submission by the subcontractor to the contractor which is known to be passed on to the government ultimately?
Mr. Olson: --No, I think--
Justice Scalia: Without that definition, the claim would be made against the contractor, not against the government.
Mr. Olson: --I--
Justice Scalia: And, therefore, wouldn't be a claim.
Mr. Olson: --I think under both the... if the claim by the subcontractor to the contractor is intended to be passed on, that the... that the contractor is an intermediary, then under Marcus versus Hess, which is the situation there, there could be liability.
I'd like if I could, Mr. Chief Justice, to reserve the balance of my time.
Argument of Malcolm L. Stewart
Chief Justice Roberts: Thank you, Mr. Olson.
Mr. Stewart: Mr. Chief Justice, and may it please the Court: I'd like to begin with the same point that Mr. Olson began with, namely, does the False Claims Act... is the False Claims Act directed solely at schemes to defraud the government or does it encompass schemes to defraud people who receive Federal money?
And we're in agreement with Petitioners that the False Claims Act is directed at schemes to defraud the Federal Government.
Our theory in this case is not that the subcontractors are potentially liable because they may have attempted to defraud the prime contractors.
Our theory is that the subcontractors are potentially liable because they are alleged to have used false representations made to the prime contractors but with the ultimate purpose of defrauding the United States.
And I think if you imagine what would have happened if the allegations in this case are true and if the fraudulent scheme had been carried to completion, it's very clear that the government, rather than the prime contractors, would have been the injured party.
Chief Justice Roberts: Mr. Stewart, I don't understand that point.
Let's say Allison Engine is defrauding Bath, but Bath makes ships for a lot of people, boats, whatever they make.
Allison Engine is defrauding, saying these engines, you know, work this way and, in fact, they don't.
It doesn't know Bath is going to use some of them in a government ship as opposed to a private ship.
So you're saying in that context, since there's no intent to defraud the government, there's no liability?
Mr. Stewart: Well, we would say certainly in the context where Allison knows that the engines are to be used for private work, that the False Claims Act would not--
Chief Justice Roberts: It just sells them engines.
It doesn't know what Bath is going to do with them.
They are going to put some in private boats and some in the government boats.
Mr. Stewart: --I think you could still have a FCA claim, if in fact the work was being done for the government contract.
But whatever the correct answer to that question in the circumstance where the subcontractor really doesn't know what the ultimate project is for, that's not the case here.
Justice Scalia: I have another question.
Suppose the subcontractor... the fraud consists of inflating the hours spent in a cost plus contract.
So the subcontractor submits and receives payment for $10,000 more than the subcontractor deserved.
But that all comes out of the hide of the contractor.
The contractor gets the same amount of money from the Federal Government and the fraud only harms the contractor.
Mr. Stewart: --Our view is that that would not be covered.
Justice Scalia: That would not be--
Mr. Stewart: That would not be covered.
Justice Scalia: --Why?
Mr. Stewart: --Because the statute... if you look at page 2 of the blue brief, that reproduces the relevant provisions of the statute.
And the one that we're principally... the two that we're relying on here are subsection 2, which says:
"Knowingly makes, uses or causes to be made or used a false record or statement to get a false or fraudulent claim paid or approved by the government. "
And we would say that the reference to false or fraudulent claim paid or approved by the government should be taken as limited to a claim that is false as to the government.
That is, it's false in a respect that the government cares about.
Justice Souter: --injured by it because it, in effect, gets less than it paid for?
Mr. Stewart: Well--
Justice Souter: If it were a cost plus contract, the government would pay an extra 10,000 and it would lose.
Mr. Stewart: --That's right.
Justice Souter: If they... if they simply supplied defective parts, the government would get less of a machine than it paid for.
But in the... in Justice Scalia's example, the government ultimately ends up with exactly what it bargained for, and the person who's out is the person who paid for too much labor, which is general... is that your--
Mr. Stewart: That's correct.
And in that circumstance, I think the scheme could fairly be characterized as one to defraud the prime contractor, because the prime contractor would bear the loss associated with the scheme.
And we would agree that that's not covered.
Justice Breyer: What you are saying is covered, I take it... and this is... I want to know how this has worked out... what is covered is... imagine government grant programs.
And suppose there are vast numbers of grant programs now that go to all kinds of entities throughout the country, and a large portion of which are just grants.
They're paid and the government is not going to get a penny back.
Now, there are instances of frauds in such situations of subs against the person who gets the grant.
And in... I can't imagine a case... maybe imagine, but it would be imaginary... where the Government couldn't say: But we got less than the grant was supposed to pay for.
And you're saying all those are covered.
Is that right?
Mr. Stewart: --I mean, I think our test would be, is the effect of the fraud to cause the money provided by the Federal Government to be diverted to purposes--
Justice Breyer: To get less than it was supposed to get.
Mr. Stewart: --I--
Justice Breyer: And so this is what surprises me on your side.
It's 20 years later.
And if all those things are covered, given the vast extent of government grant programs in the United States, has your interpretation worked to bring within this statute, and lots of qui tam cases against municipal frauds of all kinds, things that they just never thought of at the time of the Civil War?
Do you see what the question is?
Mr. Stewart: --I mean, I think... I think it has basically worked.
I don't think it has worked perfectly.
But I don't think--
Justice Breyer: Have there been a lot of such cases?
Mr. Stewart: --I think there are a lot of cases... I mean, Medicare and Medicaid fraud is an example that we would deal with differently textually, but those are programs in which the Federal Government provides money.
Persons other than Federal officials decide whether the claims should be paid, but ultimately there's reimbursement by the Federal Government.
Now, our answer to the question--
Justice Ginsburg: Mr. Olson said on the Medicare that the providers, that the intermediary does present the--
Mr. Stewart: --And our view is that those would be covered even if there is a presentment requirement, because subsection (a)(1) of the statute refers to a person who knowingly causes a false claim to be presented to a Federal official.
So because there's the reimbursement mechanism we think that would be covered.
But a big part of our argument here is that the applicability of the FCA should not depend on these sorts of quirks of timing.
That is, to take the school hypothetical that was discussed in the first part of the argument, you have provision of government money for... Federal money for construction of a school, and the contractors who deal with the State agency defraud the State agency and they produce a shoddy product.
Now, if the way that the funding program works is that the State agency pays first and then presents a claim for reimbursement to the Federal Government, that would be covered even with the presentment requirement.
Chief Justice Roberts: Well, how far down the line?
I mean, let's take that hypothetical.
The government gives money to the State to build a school.
The school has to be painted as part of that, so the school contractor, the prime contractor, takes some of the money from the Federal Government and pays the painter.
The painter needs to buy paint.
So the painter takes some of the Federal money and pays the paint company.
The paint company has to get the chemicals from somebody.
So the paint company takes some of the money and pays the chemical company.
And at that point, the chemical companies fraudulently added, you know, a dollar on to the cost of the chemicals.
So that dollar goes all the way through.
So the Government ends up paying a dollar more because of the fraud five, six, seven times down the line.
Can an uninterested person bring a qui tam action against the chemical manufacturer because of that fraud?
Mr. Stewart: I think our answer would probably be yes.
A court might read a de minimis limitation into the statute, but part of our point would be that be that that--
Justice Scalia: A hundred dollars more a can.
Mr. Stewart: --Well, the answer to that hypothetical... and the answer to that hypothetical really has nothing to do with whether the statute imposes a presentment requirement, because the hypothetical--
Chief Justice Roberts: It's not a presentment requirement.
That's in (a)(1.
It's that the claim be paid, the fault claim, be paid by the government.
And what you're saying is when the government pays the State, that pays the school, that pays the contractor, that pays the paint... blah, blah, blah... that that is payment by the government of a false claim because the chemical manufacturer six or seven steps down the line commits fraud.
Mr. Stewart: --It could be an (a)(2) question, but my point was that the same type of issue could arise even with the presentment requirement, because if the chemical manufacturer presents his own bill to the paint company, who presents his bill to the contractor who does the painting work, who presents his bill, et cetera, et cetera--
Justice Scalia: He has to know that.
He has to know that his bill is going to be sent up the line to the government.
"Knowingly makes, uses or causes to be made or used a false record to get a false or fraudulent-- "
Mr. Stewart: --I guess I would say--
Justice Scalia: --And if he knows it, serve him right.
But this other guy thinks he's just honestly cheating the guy who's buying the chemicals.
Mr. Stewart: --Again, whatever... whatever the answer... the point I was trying to make about the timing is... again assume away these issues about how much might be de minimis.
You have substantial fraud by the contractor directed at the State agency.
If the State... if the way the funding program works is that the State agency then presents its own bill to the Federal Government, we're going to have a good (a)(1) case regardless of whether presentment is required, because we're going to say the subcontractor, the person who did the work, caused the State agency to submit a false claim to the Federal Government and we can recover on that theory.
But... but if the government provides the money up front, gives it to the State agency and says, use it for the defined purposes, you'll still have presentment of a claim by the State agency, namely the request for funding, but there will be no way to say that that difference--
Justice Breyer: The difference is that government money today is in everything.
So if it's in everything, then everything is going to become subject to this False Claims Act.
And of course I exaggerate by using the word "everything", but only a little.
Mr. Stewart: --But the point about timing... but the point about timing is if the State's claim is submitted to the Federal Government at a time when the fraud has not yet occurred, the State's claim can't be denominated false, assuming that the State intends it--
Justice Kennedy: I don't know that that accords with the definition of (c).
Mr. Stewart: --Well, the definition of (c) says it's a request or a demand--
Justice Kennedy: It says the government will reimburse.
Mr. Stewart: --Will reimburse, but it also says
"if the United States Government provides any portion of the money or property which is requested or demanded, or if the government will reimburse. "
Justice Kennedy: But I meant provide.
It has provided it already.
Mr. Stewart: --That's correct.
And my... my point is the definition of "claim" indicates that Congress didn't want liability to turn on this quirk of timing, whether the fraud occurs before the claim is submitted to--
Justice Kennedy: So in your own school hypothetical, there's liability.
Mr. Stewart: --There's liability if the Federal Government reimburses a claim for expenses that have already been incurred, but under Petitioner's theory, if the Federal Government pays the money up front, the State has submitted a claim but it's not a false claim.
And then if the contractor defrauds the school... the State, by producing a shoddy school, the contractor can't be charged with having caused a false claim to be submitted.
Justice Scalia: It doesn't shock me.
I don't know.
It doesn't shock me at all.
If indeed the object of this is to prevent fraud upon the government and if the government has not been deceived at all, get yourself a new statute.
Mr. Stewart: But our point is that--
Justice Scalia: This statute doesn't have to cover every ill in the world.
Mr. Stewart: --That's correct.
But fraud... fraud against the government can occur whether... the whole point of the definition of (c) is that fraud against the government can occur if Federal money is diverted away from its intended purposes, whether the deceit is practiced directly upon a Federal official or a contractor or a grantee.
Justice Ginsburg: --Before... before you finish, the major objection is the one that Justice Breyer just voiced, that your position is vastly overbroad and every time there's government money there will be... one of these qui tam people can come in.
What are the limiting principles that you say attach to this statute?
Mr. Stewart: There are two principal limiting principles.
The first is that the bill has to be submitted to the contractor or grantee in his capacity as such.
That is, there has to be a nexus between the provision of Federal funds and the request that's made.
So if a subcontractor defrauds Boeing on work that Boeing is doing for a private airline, there's no FCA violation.
Even though Boeing literally is a government contractor, it's not being defrauded in its capacity as such.
And the second is that the fraud has to be of a nature that if successfully carried to completion could be expected to injure the Federal Government.
So in the hypothetical of the cost plus contract between the prime contractor and the sub and the sub presents an inflated bill, if the loss false on the prime contractor and is not passed along to the government, the claim would not lie under the FCA--
Justice Scalia: But if injuring the Federal Government would... it would suffice to injure the Federal Government that the schools are shoddy and the roofs are leaking?
That would be enough?
Mr. Stewart: --That would be enough.
Justice Scalia: Even though the Federal Government is not out of pocket any more, but the program that it... that it was desirous of encouraging is simply not as good as it would have been otherwise.
Mr. Stewart: That's... that's correct.
Justice Souter: --And you would still... your theory would still cover the case of the... of the agency that gets 10 percent of its budget by... through a general grant from the United States, no matter what it spent its money on, regardless of the fact that the United States has no connection with particular contracts.
If in fact a fraudulent claim was presented to that agency, it would fall within the qui tam statute?
Mr. Stewart: We would still be asking was the... whether the fraud was of a sort that the Federal Government cared about.
That is, if the Federal Government made a grant with no strings attached, use it as you want.
Justice Souter: Right, no strings attached.
Mr. Stewart: Then there would be no FCA liability.
Justice Souter: Why wouldn't there be?
Mr. Stewart: Because the fraud would not... in that... in that hypothetical, you would have something akin to a fraudulent car repair bill passed along, given to me.
I happen to be a Department of Justice employee and I might use my Federal salary to pay the fraudulent claim.
But we wouldn't say that's an FCA violation.
Justice Souter: No, but when your salary is paid, in effect the government's interest stops when it pays for your labor.
In the... in the hypothetical in which the government funds 10 percent of a sub agency's operating budget, presumably its intent generalized goes to everything that agency does.
Mr. Stewart: Well, we would still ask whether the government has... the Federal Government has placed meaningful limitations on the way in which the money may be spent and whether the nature of the fraud is to prevent those limitations from being honored.
Argument of James B. Helmer, Jr.
Chief Justice Roberts: Thank you, Mr. Stewart.
Mr. Helmer: Mr. Chief Justice, and may it please this Court: Electricity is the critical component in a modern warship that allows it to fight, to defend itself, and to carry out its mission.
Because of that, the Navy imposed rigid requirements on all who work on its generator sets in manufacturing those generator sets.
Those rigid requirements were passed down from the Navy to Bath.
Bath was ordered by the Navy to pass those down in writing to each of its subcontractors who were going to work on these Gen-Sets, and Bath did that.
Each of the subcontractors in this case knew they were working on the DDG-51 project, which is the Arleigh Burke-class destroyers.
They knew that military requirements were called out in their paperwork that had to be met; and they did not satisfy those military requirements and yet submitted both claims for payment and, as Justice Ginsburg has pointed out, certificates of compliance.
If you look at the Sixth Circuit's joint appendix at page 620, you're going to see, at paragraph 6.1 in the contract between Bath Iron Works and Allison, the subcontractor, that Allison was required, when it delivered the Gen-Sets to the shipyard to give a certificate of conformance that all of these rigid requirements had been satisfied, and that certificate of conformance had to be given to the United States Navy.
And third, until that certificate of conformance was given to the United States Navy, no money; no money was going to be paid to Allison.
Justice Ginsburg: Whose certificate is it?
Is it the contractor's certificate that everything that the subs have done or the certificate of conformance that Allison provided, that SOFCO provided?
Mr. Helmer: Yes, ma'am.
There are two certificates of conformance, you're absolutely correct.
What I'm speaking of is the certificate of conformance from the defendant in this case.
They have to take and give that to the shipyard that says: We have met all the requirements, the Navy requirements; and we have to give that to the U.S. Navy.
The U.S. Navy then takes that certificate and releases the Gen-Set.
It's under lock and key.
It releases the Gen-Set--
Justice Scalia: I thought--
Mr. Helmer: --to be installed in the ship.
Justice Scalia: --I thought it was not established that anything from this defendant got to the Navy.
Mr. Helmer: You were told that earlier this morning, Your Honor.
I don't believe that's correct.
Justice Scalia: Well, where in the record is there some indication that some... some paper from... with a fraudulent representation made it up to the Navy?
Mr. Helmer: If you'll look at the joint appendix, the Sixth Circuit joint appendix, at page 620; it's clause 6.1... talks about the certificates.
The certificates are in the record starting at joint appendix, Sixth Circuit joint appendix 515--
Justice Scalia: Well, I know what certificates are, I mean, you know, their general content.
But was there anything in the record that a certificate from Allison went to the Navy with Allison's signature on it?
Mr. Helmer: --Yes, Your Honor.
The contract with Bath required the Navy to receive that for Allison to be paid.
There was evidence in this case that Allison was, in fact, paid for delivering these Gen-Sets.
That's circumstantial evidence that they did submit their certificates of conformance--
Justice Alito: What about the statement that Mr. Olson quoted during his argument, when counsel for plaintiffs said to the jury: You haven't seen anything that was submitted to the Navy and you're not going to see anything that was submitted to the Navy?
Mr. Helmer: --No, Your Honor.
That... I made that statement, and that was not my statement.
Justice Alito: Well, what was your statement?
Mr. Helmer: My statement was: You are not going to see the invoices from Allison... the invoices, not the certificates of conformance, not the invoices from Bath to the Navy.
You're not going to see those.
But the invoices from Allison to Bath were all admitted into the record in this case.
They're all summarized.
Justice Scalia: Well, then there's less to this case than we had thought.
My goodness, even under the Petitioner's theory, you win.
If indeed a fraudulent document was given to Bath and Bath passed that on, I think the Petitioners would have conceded--
Mr. Helmer: Your Honor, this case--
Justice Scalia: --that there's a cause of action.
What is all this fuss about, then?
Mr. Helmer: --This case is not a outlier on the ends of this statute.
It is squarely in the middle of (a)(2).
Justice Scalia: I wish you had said that in your brief because we could have saved ourselves a lot of reading.
Mr. Helmer: Your Honor, anything that I can do to help the Court.
I apologize if I didn't write the brief better than I could have.
But I do have another point that I... that I would like to make in addition to what's in the record in this case.
If you go back and look at the 1863 version of the False Claims Act, which continues on in 1943, the statute talks about in the second clause... and the second clause is what is now known as (a)(2)... it talks about a false record or statement being made for the purpose of obtaining or aiding to obtain payment.
It does not say, and it never said, that there has to actually be payment, there has to actually be payment.
Now the statute reads today
"to get a false or fraudulent claim paid or approved by the government. "
My point is... and the Rainwater case, Justice Scalia, that I think you may have been referring to says that... the government does not have to have a monetary loss for there to be a False Claims Act violation.
However, for there to be a violation of (a)(2), the false record or statement that's presented, the false record or statement that's made, has to be made with the purpose of reaching Federal funds.
That's what the statute originally said.
That language was taken out in 1982.
We all seem to agree that the '82 recodification did not change any of the meaning or purpose of the statute--
Chief Justice Roberts: So your argument... your understanding of the scope of the statute is exactly the same if the words "by the government" were replaced by "with Federal funds"?
You think those are... you think the statute is exactly the same if it said "with Federal funds" instead of "by the government"?
Mr. Helmer: --Yes, Your Honor.
I think that's correct.
I think that--
Chief Justice Roberts: So when the government... when the phrase '86?
Mr. Helmer: --Yes, Your Honor.
Chief Justice Roberts: There were a lot of statutes that said "with Federal funds", right?
Mr. Helmer: There were.
Chief Justice Roberts: So why did the Congress add the phrase "by the government" instead of "with Federal funds" if it meant the same thing?
Mr. Helmer: The legislative history is dark on that subject.
But I have two answers for you, Mr. Chief Justice.
First, if you look at the '82 version of the statute, there were six liability provisions set out.
A seventh was added in '86, (a)(7).
But of the first six that were added in '82, when they broke this long sentence down into parts, every one of those provisions except for (a)(2} dealt with either "by the government" or "defrauding the government".
(A)(7) likewise has such similar language.
My first point to you is that I believe that when Congress amended this statute in '86 it wanted all provisions to be consistent with each other in that sense that we're talking about fraud on the government, not fraud against private parties, fraud on the government.
The second response I would make to you, Mr. Chief Justice, is that we don't read "by the government" as meaning presented to the government or even paid by the government.
We read (a)(2), because without that language on (a)(2), if you read the definition of (a)(2).
By adding the words "by the government", the Congress has limited this to directing to Federal funds.
Chief Justice Roberts: Right.
So I guess I get back... you read "by the government" as if it said "with Federal funds"?
Mr. Helmer: I do, Your Honor.
Justice Breyer: Suppose... you just said to Justice Scalia... if you have one minute; I rather missed that... that your point was if you lose on that point you just made and it isn't "with Federal funds" and it is that the government has to pay the claim, you still win.
That was your point to Justice Scalia, I guess.
Mr. Helmer: Yes.
Justice Breyer: Well, what was that argument?
Because you said it wasn't in the brief, and what is it?
How do you still win?
Mr. Helmer: Well, I believe they... that was the first point that I was making to Justice Scalia.
Justice Breyer: Yes.
Mr. Helmer: And my point there is that (a)(2) covers making a false record or statement to get a false claim paid or approved by the government.
Justice Breyer: Yes.
Mr. Helmer: In this case, they were required... Allison was required by its contract with Bath and the Navy to submit a certificate of conformance to Bath and the Navy to release the Gen-Set for installation into the destroyer.
Without that certificate of conformance... and we spent 5 weeks in front of a jury talking about why they were false, why each of those were false... without that certificate of conformance, the Gen-Set could not have been released to be installed in the ship and Allison could not have been paid.
That's what section 6.1 of the contract provides.
Justice Alito: The certificate of performance made its way to the Navy.
That was required by contract.
Why did you not introduce direct evidence of that in your case?
Mr. Helmer: We did put all the certificates of conformance that were given to Bath in the record of this case.
And all of those by the terms of Allison's contract with Bath had to be shown to the U.S. Navy employee on site at the shipyard.
And that contract was also admitted into evidence.
But we did not--
Justice Ginsburg: But that was only the contract.
You didn't show that in fact that had happened, that the certificates of conformance actually were shown to a naval officer?
Mr. Helmer: --No, ma'am, we did not have a witness who testified that this certificate was given to Ensign So-and-So.
Justice Scalia: And whose... whose contract required this?
It's a strange provision to be in the contract between Allison and Bath.
Mr. Helmer: --It... you are correct, Your Honor.
It was the contract between Bath and Allison that I'm speaking about now that flowed... that also flowed down the U.S. Navy's requirements that these Gen-Sets be... be built rigidly to the specifications set out by the Navy.
Justice Scalia: And that contract between Allison and Bath said that this certificate from Allison had to be presented to the Navy?
Mr. Helmer: Yes, Your Honor.
It had... it had to be shown to the Navy.
If you want to get paid, you have to show it to the Navy, and then the Navy will release the Gen-Set.
See they build these ships around the Gen-Sets.
They are so huge that you don't install them on a destroyer; you build the destroyer up around it.
So before you can release those to the shipyard for construction, you had to have the certificates of conformance.
Justice Souter: In the contract between the Navy and Bath, was there a provision that Allison's invoices would be shown to the Navy?
In other words, was the parallel provision in the contract with the... with the general the same as the provision between the general and the sub?
Mr. Helmer: Justice Souter, it was different.
There is a provision I believe Justice Ginsburg was referring to.
You will find it at page 415 of the Sixth Circuit's joint appendix.
That provision required that when Allison made a certificate to get paid to the Navy... I'm sorry, strike that... when Bath made a certificate to the Navy to get paid, it had to have available for the U.S. Navy all of the underlying documentation.
All of the bills, the invoices, and certifications had to be available to show the Navy.
Justice Souter: Available but not necessarily transmitted.
Mr. Helmer: Not necessarily stapled to the invoice and given to the Navy, but they had to be available.
Justice Souter: But the contract between Bath and Allison says: You give those to us, and we give them to the Navy.
It was specific in saying they go... your invoices, your... your certificates, go to the Navy?
Mr. Helmer: It was specific in saying your certificate of conformance goes to the Navy.
Justice Souter: Okay.
Mr. Helmer: It did not say in the provision that I have cited to the Court, your invoice.
Justice Souter: I understand that.
Mr. Helmer: And that was why I said, Justice Alito, to the trial court, not to the jury, that the invoices are irrelevant.
And I... I didn't make that up.
That comes out of the Bornstein opinion.
Justice Scalia: And Bath would have been in breach of its contract with Allison unless it passed these things on to the Navy?
That's why I say it's a strange provision to be in the contract between Bath and Allison.
Mr. Helmer: The certificate was required.
Your Honor, yes, that was required.
The invoices had to be available--
Justice Scalia: Allison could sue Bath for not passing the certificate on to the Navy?
Mr. Helmer: --Well, I believe the way it reads, Allison is supposed to hand the certificate to the Navy employee at the shipyard.
Chief Justice Roberts: So if in fact, as you suggest, Allison submitted the certificate to the Navy person at the shipyard, then the question presented in this case is not in fact presented here?
Because the question presented assumes that there had not been a submission to the Federal Government of the false... false claim.
Mr. Helmer: I think that's fair to say, Your Honor.
Justice Scalia: Did you make this point in response to the petition for cert?
Mr. Helmer: We opposed the petition for cert on other grounds.
I did not cite the Court to the joint appendix, the Sixth Circuit joint appendix at page 620.
Justice Scalia: Well, you know, usually we take a case to decide the question presented; and if this question is really not before us you should have told us that.
Mr. Helmer: Well, my understanding, Justice Scalia, is under your Rule 26.2 I am permitted to bring to the Court's attention additional information that was in the joint appendix below.
And that was what I was attempting to do in response to Justice Ginsburg's initial question that started the presentation today.
Justice Ginsburg: There has been a statement, in opposition to your position, that the way you read (a)(2) would render (a)(1) useless, That everything would fall within (a)(2).
Is there a distinction between what comes under (a)(1) and (a)(2), in your view?
Mr. Helmer: Yes, ma'am.
That is pointed out in the solicitor's brief at pages 18 and 19, the silver brief, the distinction between (a)(1) and (a)(2).
(A)(1) can be a claim that just says, pay me; there's nothing false on its face, but it is impliedly false because it... it's not entitled to be paid because the requirements haven't been met.
(A)(2) would require a specific false statement in that record or statement that's used.
Justice Ginsburg: Thank you.
Chief Justice Roberts: Thank you, Mr. Helmer.
Mr. Helmer: Thank you, Your Honor.
Rebuttal of Theodore B. Olson
Chief Justice Roberts: Now, Mr. Olson, four minutes.
Mr. Olson: Thank you, Mr. Chief Justice.
Let me address the... what seems to be a controversy as to what was submitted to the Navy.
In the first place, the invoices were not submitted to the Navy.
We know that.
That's the provision that I quoted before.
The Plaintiffs in this case did not call a single Navy witness.
They did not call the prime contractor as a witness.
So we don't know what the Navy received, or what the Navy did not receive.
With respect to the so called certification, that is addressed on pages 57a through 59a of the cert petition appendix.
This is a district court decision, three pages of discussion.
This was an argument that the relators came up with relatively late when they couldn't explain why they didn't have the invoices or what actually went to the Navy, and they argued that Bath submitted a false implied certification.
Then the district court goes through the evidence on pages 57a to 59a and concludes at the top of 59a there is no evidence of a requiring... of a required, continuing certification with respect to quality, which is the issue tried in this case.
I don't have time to go through all of that or all of the evidence, but that is backing and filling.
There... and the question presented is a correct question presented.
As the relators put it to the... to the district court, we don't have to do that.
We are not going to show you--
Justice Stevens: Let me ask you this question: Suppose they had submitted the qualification certificate, but not a claim?
Would they have had a case, under your view?
Mr. Olson: --If it was... if the qualification... if a... if a--
Justice Stevens: What I am really asking is: Do they still need a claim?
Mr. Olson: --I... they... there has to be... no.
Under (a)(2), Justice Stevens, you could submit a statement intending to get a false claim approved or paid by the government.
Now, the government can't approve anything if it's not actually submitted to it, or not intended to be submitted to it.
That's in the same section of... of the statute.
Let me... let me turn to the... this is a penal statute.
There is a punitive statute, as you pointed out, in the Vermont versus Stevens case.
There is no meaningful limitation on what the government and the Respondents want in this case.
The government has now come up with this limitation: Well, it must be really a government project.
Well, that isn't in the statute.
That's basically the same thing you unanimously rejected in the Tanner case.
The government said in its brief if the government is the ultimate source of the funds.
That goes back to the example that the Chief Justice was making.
There might be 15 different layers, the way this government works.
Money is fungible.
It's impossible to trace.
This statute is intended to address claims made, or statements made in connection with claims made, to... to commit to defraud the government, and defraud the government irrespective of the definition of (a), but was not put in section (a), the liability section.
The Congress knows how to put those words in statutes.
They were in the major fraud statute, the... the case that this Court distinguished in Dixon, in... in Tanner.
The Dixon case was money given... paid to or on behalf of the government.
There is language like that throughout the congressional statutes.
We don't know in this case whether the government was defrauded, or was intended to be defrauded, because there is this big space between what went on between the subcontractors and the shipbuilders and what went on between the shipbuilders and the government.
There could have been all kinds of dialogue.
There could have been disclosures.
There might be deviations from the specifications in any kind of government contract.
But this statute has to have a limitation point.
And if you look at it from 1863 up to the present, it is intended just as the Tanner case said.
And in Marcus versus Hess you said that the criminal false claim statutes have to be construed identically with the civil false claims provisions if they contain identical language.
371 has the same language as the False Claims Act's, and the Tanner case is dispositive.
Chief Justice Roberts: Thank you, Mr. Olson.
The case is submitted.