Supreme Court Decides False Claims Act Case

On June 9, the Supreme Court decided Allison Engine Co., Inc. v. United States ex rel. Sanders, a qui tam case brought by former employees of General Tool Company (“GTC”).  To read the full opinion, click here

In Allison Engine, the Supreme Court held that a false invoice submitted by a subcontractor to a general contractor would not violate the False Claims Act, in the absence of evidence that the false invoice (or the related false claim that the subcontractor had complied with the contract specifications) were passed along by the general contractor to the Government.  The facts were as follows.  The Navy entered into a contract with two shipbuilders to build a new fleet of missle destroyers.  The shipbuilders, in turn, subcontracted with Allison Engine Company, Inc. (“Allison Engine”) to building generator sets (“Gen-Sets”) for the destroyers.  Allison Engine then subscontracted with GTC to assemble the Gen-Sets.  The Navy’s contract with the shipbuilders, and each of the subcontracts, required that the each delivered Gen-Set be accompanied by a certificate of conformance (“COC”) stating that the unit was manufactured according to the Navy’s specifications.  The relators who brought the qui tam lawsuit alleged, and introduced evidence at trial, that GTC delivered Gen-Sets that did not conform to the Navy’s specifications, while submitted false COC’s to the shipbuilders.  But, during the trial, the relators did not offer into evidence the invoices submitted by the shipbuilders to the Navy.  The relators argued that such evidence was not necessary, and that all that was required to prove a claim under the False Claims Act was that the GTC invoices had been paid by the shipbuilders with Government funds.

A unanimous Supreme Court, in an opinion by Justice Alito, rejected the relators’ argument.  The Court focused on the provision of the False Claims Act that imposes liability on a company that “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.”  The Court reasoned that this language requires that the defendant “must intend that the Government itself pay the claim.”  According to the Court, this does not mean that the subcontractor’s false invoice to the general contractor must literally be presented to the Government.  In a key passage of the opinion, the Court explained:

What [the False Claims Act] demands is not proof that the defendant caused a false record or statement to be presented or submitted to the Government but that the defendant made a false record or statement for the purpose of getting “a false or fraudulent claim paid or approved by the Government.”  Therefore, a subcontractor violates [the False Claims Act] if the subcontractor submits a false statement to the prime contractor to get the Government to pay its claim.

Although Allison Engine was certainly a defeat for the Government (and a victory for a company that had engaged in fairly egregious fraud in connection with the manufacture of critical components of a Navy ship), this passage strongly suggests that the Allison Engine decision may turn out to be of fairly limited application in future cases.  Under the standard described in this passage, the relators’ qui tam claims would have survived if they had presented slightly different evidence at trial, namely, the invoices from the shipbuilders to the Navy or other evidence showing that the shipbuilders had relied upon the GTC COCs in preparing and delivering their own COCs to the Navy. 

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