For the second time in as many terms, the U.S. Supreme Court will consider a case testing the scope of the False Claims Act (FCA), 31 U.S.C. § 3729.  The High Court has agreed to review U.S. ex rel. Sanders, et al. v. Allison Engine Co., 471 F. 3d 610 (6th Cir. 2006), cert. granted, 2007 WL 2374900 (Oct. 29, 2007), which held that the FCA applies to a contractor’s claim for payment, regardless of whether the claim was “presented” directly to the government.  The Court’s latest interpretive review of the FCA follows a decision last March clarifying the requirement that private FCA plaintiffs have direct and independent knowledge of their allegations in order to establish “original source” jurisdiction.  Rockwell Int’l Corp. v. U.S., 127 S. Ct. 1397 (2007).  Like Rockwell before it, Allison Engine merits close attention by companies doing business with the federal government.


Allison Engine involves two consolidated FCA suits alleging fraud by subcontractors that supplied generator sets (Gen-Sets) used in the U.S. Navy’s Arleigh Burke-class guided missile destroyers.  The prime contractors, Bath Iron Works and Ingalls Shipbuilding (the shipyards), subcontracted with Allison Engine Company (Allison) to build ninety Gen-Sets in more than fifty destroyers.  Allison subcontracted the assembly of each Gen-Set to General Tool Company (GTC), which in turn subcontracted part of its work to Southern Ohio Fabricators.  The relators, former employees of General Tool Company (GTC), filed qui tam actions naming all of the subcontractors as defendants.  The United States declined to intervene.

The suits alleged that the subcontractors submitted claims for payment to the shipyards despite knowing that the Gen-Sets failed to comply with contract specifications and Navy regulations.  The district court granted judgment as a matter of law to the defendants, holding that FCA liability attaches only to claims actually presented to the government.  Although the subcontractors were paid with government funds, their claims were submitted to the prime contractors – not to the government.

On appeal, the Sixth Circuit reversed, finding actual presentment unnecessary under the FCA, so long as a contractor’s claims are paid out of government funds.

The FCA states in relevant part:

Any person who:

(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States, a false or fraudulent claim for payment or approval;

(2) 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; [or]

(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid


. . . is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person . . .


31 U.S.C. 3729(a).  Section (c) of the FCA defines “claim” to include “any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded, or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.”

The Sixth Circuit in Allison Engine focused on the scope and meaning of subsections a(2) and a(3) of the FCA.  At issue:  Whether these subsections apply solely to claims presented directly to the government, or apply as well to claims submitted to non-governmental entities such as prime contractors.

Finding an explicit presentment requirement only in subsection a(1), the Sixth Circuit held that subsections (a)(2) and (a)(3) cover false claims delivered to parties other than the government so long as the claim will be paid from the public fisc.  For support, the Court cited the legislative history of the FCA’s 1986 amendment, which the Court said reflected Congress’ intent to broaden the reach of the FCA to cover all fraudulent claims submitted by subcontractors that result in loss to the government.  In this regard, the Senate report that accompanied the amendment stated that it was "aimed at correcting restrictive interpretations [of the FCA]," S. Rep. 99-435 (1986) at 5269, and was "intended to reach all fraudulent attempts to cause the Government to pay out sums of money, Id. at 5274.  The Court noted further that the 1986 amendment divided § 3729(a) into subsections, thus establishing a basis for FCA liability independent from situations in which a prime contractor presents a claim directly to the government.


Not all courts agree with that broad interpretation of the FCA.  The leading case on the other side of the divide is Totten v. Bombardier Corp., 380 F. 3d 488 (D.C. Cir. 2004), a decision from the D.C. Circuit Court of Appeals holding that FCA liability attaches only to false or fraudulent claims presented directly to the Government.  At issue in Totten was whether the submission of a false claim to Amtrak violated the FCA.  The relator in that case alleged that Bombardier Corp. and Envirovac, Inc. ran afoul of the FCA by delivering defective rail cars to Amtrak and submitting invoices to Amtrak for payment from an account that included federal funds.

Amtrak, however, is a federal grantee, not part of the government.  Accordingly, in an opinion written by then-Judge (now Supreme Court Chief Justice) John Roberts, the D.C. Circuit held that making a false record to get a false claim paid by Amtrak differs from making a false record to get a false claim paid by the Government under subsection a(2) of the FCA.  The Court reasoned that the “by the Government” language of subsection (a)(2) referred back to the presentment language in subsection (a)(1), thus requiring FCA plaintiffs to show presentment to the government under both provisions.

There are obvious differences between grants and prime contracts.  The former do not necessarily involve the submission of payment requests that will, in turn, be presented or “rolled” into a request for reimbursement by the Government.  In many cases, the Government funds already will have been disbursed to the grantee with no need for further Government action to effect disbursement to lower tier performers.  By contrast, payment requests submitted by subcontractors under flexibly priced contracts will induce, albeit indirectly and without any direct “presentment” to the Government, an actual release of federal funds to the prime contractor.  Whether the Court will find this distinction to be material remains to be seen. Regardless of which theory prevails in the Supreme Court – the D.C. Circuit’s view that FCA liability requires presentment of a false claim to the government, or the Sixth Circuit’s position that liability can attach without presentment – Congress may have the final say on this issue.  A bill introduced in September 2007 by Senator Charles Grassley (R-Iowa) would legislatively overrule the D.C. Circuit’s decision in Totten.   Specifically, S. 2041, the "False Claims Act Correction Act of 2007," would allow the government to recover funds paid as a result of a contractor’s false claim, regardless of whether the false claim was submitted directly to a government employee.  S. 2041 has been referred to the Senate Judiciary Committee.

The Supreme Court is scheduled to hear arguments in Allison Engine on Tuesday, February 26th.

Authored by:

Jesse Williams