Supreme Court restricts whistleblower lawsuits against local governments

Tuesday, March 30, 2010

High court restricts whistleblower lawsuits

WASHINGTON — The Supreme Court on Tuesday placed limits on existing whistleblower lawsuits alleging local governments misused federal money, in a decision that produced newcomer Sonia Sotomayor’s first dissenting opinion.

But the just-enacted health care overhaul law contains a provision that changed the federal False Claims Act in a way that would appear to allow new, similar lawsuits to go forward.

The court voted 7-2 to hold that a technical, though important aspect, of the federal whistleblower law applies to local governments. One section of the law prohibits whistleblower lawsuits when public disclosure of the alleged fraud occurs through a court hearing, a news report or congressional or administrative audit.

In an opinion by Justice John Paul Stevens, the court ruled that the language on administrative audits refers to a report prepared by any government, not just a federal government document. The question had divided federal appeals courts.

Justice Sotomayor dissented, saying her colleagues “misread the statutory text” to limit whistleblower claims. Justice Stephen Breyer joined the dissenting opinion.

But, in any event, the health care legislation signed by President Barack Obama last week changed the false claims law so that it now refers specifically to federal reports. Stevens noted the change in a footnote to his opinion, but said it did not affect pending lawsuits.

Once allegations are disclosed publicly, often by the media, individuals face a higher hurdle in bringing fraud suits on the federal government’s behalf. Otherwise, people could read a newspaper account or an indictment and then rush to the courthouse to file suit.

The issue arose in a lawsuit alleging fraud on the part of the Graham County Soil and Water Conservation District in western North Carolina in the use of federal disaster assistance following a damaging storm in 1995.

The False Claims Act allows a whistleblower to collect up to 30 percent of a judgment against a party found liable.

Since Congress reinvigorated the Civil War-era law in 1986, those suits have returned more than $16 billion to the government.

The case is Graham County Soil and Water Conservation District v. U.S., 08-304.

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