March 30, 2010

Supreme Court Decides Graham County Soil and Water Conservation District v. United States

On March 30, the Supreme Court decided Graham County Soil and Water Conservation District v. United States, No. 08-304, holding that the False Claims Act's bar against private qui tam actions based on information disclosed in government reports applies to reports issued by state and local governments, as well as to reports issued by the federal government.

The False Claims Act (FCA) authorizes both the Justice Department and private qui tam plaintiffs to bring suits against persons who make false or fraudulent claims to the federal government for payment. The FCA's public disclosure bar, however, eliminates jurisdiction over qui tam suits when the relevant information has already entered the public domain through "a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation." 31 U.S.C. §3730(e)(4)(A). The circuits have divided over whether this bar applies to suits based on information disclosed in reports issued by state and local governments.

In this case, the federal government contracted with two North Carolina counties to perform cleanup and repair work after severe flooding. Karen Wilson, an employee of a county soil and water conservation district that was performing part of the work, suspected fraud in connection with her district's performance. She reported her suspicions to local and federal officials, and the county, state, and U.S. Department of Agriculture all investigated and issued reports. Wilson filed suit against her employer and the similar district in the second county alleging that they had knowingly submitted false claims for payment under the contracts. The district court dismissed her action, holding that she had failed to show that her claim was not based on the disclosures in the county and state investigative reports. The Fourth Circuit reversed, holding that the FCA's bar against actions based on disclosures in governmental reports or investigations applied only to disclosures by federal government sources and therefore did not preclude Wilson's claim even if it was based on disclosures in the county and state reports.

The Supreme Court reversed, holding that the bar applies to claims based on information disclosed in state and local government reports as well as in federal reports. The term "administrative" in the relevant statutory passage is not modified by "federal," so there is no clear textual basis for excluding state and local sources from the scope of the term. Other categories of public disclosure that the FCA lists as barring qui tam claims—such as disclosure though the news media or through civil, criminal, or administrative hearings—are not limited to federal disclosures. And nothing in the legislative history suggests an intent to limit the categories of reports to federal reports alone.

The Court noted that the relevant provision of the FCA was recently amended but that the amendment was not retroactive, making it irrelevant to the resolution of this case. Although the Court didn't discuss the substance of the amendment (which is part of the new health care reform statute), it inserts the word "federal" at several points in the public-disclosure-bar provision, so that, in the future, only federal disclosures or disclosures in the media will bar a qui tam action.

Justice Stevens delivered the opinion for the Court, in which Chief Justice Roberts and Justices Kennedy, Thomas, Ginsburg, and Alito joined and in which Justice Scalia joined in part. Justice Scalia also filed an opinion concurring in part and concurring in the judgment. Justice Sotomayor filed a dissenting opinion in which Justice Breyer joined.

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