Are State Contracts Funded With Federal Funds Within the Scope of the False Claims Act?
A Utah federal district court decided two whistleblowers may proceed under the False Claims Act against a consortium of contractors involved in a $1.59 billion Utah Interstate Highway project even though the allegedly fraudulent claims were presented to a federal grantee--the Utah Department of Transportation--not a federal officer. The court declined to follow a 2004 D.C. Circuit opinion that presentment of a false claim to a federal grantee rather than the federal government falls outside of the False Claims Act.
The federal False Claims Act was enacted in response to allegations of fraud, bad weapons, and price--gouging by government contractors supplying the Union Army during the Civil War. The Act was rarely employed until amendments adopted in 1986 provided additional protection to whistleblowers from retaliation. The Act authorizes suits by individuals who are aware of fraud to blow the whistle on wrongdoing by filing suit on behalf of the government and awards
of treble damages to the government and penalties of up to $10,000 per claim.
Last year a panel of the D.C. Circuit held in United States ex. rel. Totten v. Bombardier Corp. that the False Claims Act applied only to fraudulent claims made to the federal government not federal grantees. The panel majority and a dissent, both well written, review in detail the language, legislative history and remedial purposes of the Act.
The Utah decision,United States ex. rel. Mayfield v Wasatch Constructors, Download file ,followed the D.C court dissenter rather than the majority, but noted substantial ground existed for a difference of opinion and certified the issue for immediate appeal.
State and local public owners as well as individuals have successfully pursued claims under the Federal False Claims Act against contractors. In addition, a number of states have adopted "Baby False Claims Acts." Because of the lucrative remedies available under these laws, I predict public owners as well as individuals will make claims under them.