New Restrictions on Whistleblower Suits a la the Supreme Court

If you’re thinking about blowing the whistle on your corrupt little local government after you heard about their having misspent funds from a state audit, think again. The Supreme Court has just handed down a decision which holds that the provision of the False Claims Act prohibiting whistleblower lawsuits when the information was obtained through an administrative report or audit applies to reports prepared by all governments—not just the feds. Whistleblower suits based on public disclosure of fraud through news reports, court hearings, and congressional/administrative audits were already prohibited against the federal government, but the law regarding local/state governments was murky.

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

A variety of interested parties filed amicus briefs in the case, and it would have been quite a scene if all of them had ended up in the same room, considering some of them are usually fighting each other. Parties filing amicus briefs in support of the Petitioner (Graham County Soil and Water Conservation District) included good ol’ boys (State of Alabama), Green Mountain Boys (State of Vermont), several other states, the U.S. Chamber of Commerce, the Pharmaceutical Research and Manufacturers of America, and the American Hospital Association. Hopefully the states got to share some litigation pointers with each other before they went home to file their latest False Claims Act cases against the hospitals and drug makers! But seriously, we’re sure a good time was had by all.

Unfortunately for the amici brief writers (and certain fragile Supreme Court egos) the decision is not likely to remain law for very long. In the new health care reform legislation, an amendment to the FCA was included which clarifies that private lawsuits under the FCA are barred only if the public disclosure was federal in nature, i.e., from a proceeding in which the federal government is a party or from a federal report, etc. This amendment appears to overrule the decision in the Graham County case, and Justice Stevens acknowledged the law in a footnote. A fight may still loom over whether the new law is retroactive to pending cases or state reports/audits made publicly available prior to the health care bill’s passage.

The upshot of all this is that there is movement on the part of legislators to bar whistleblower lawsuits that are deemed “parasitic” and are based essentially on a relator’s luck of the draw in hearing about the misspending of funds. Until the issue of whether Graham County applies to pending cases involving state/local reports/audits, it may be wise to avoid getting entangled in this tricky area.

For assistance determining whether a reward would be barred under the False Claims Act, please contact one of our FCA whistleblower attorneys.