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Military Contractors Challenging Whistle-Blower Law

May 01, 1989|KIM MURPHY | Times Staff Writer

Midway through the Civil War, somebody in Washington figured something was rotten on the battlefields of Virginia. The cavalry was being sold the same horses two and three times over. The Army tried to fire its gunpowder and found it had been blended with sawdust. Instead of "serviceable muskets and pistols," recounted one journalist of the day, the government got "the experimental failures of sanguine inventors."

An outraged Congress, declaring that "it takes a rogue to catch a rogue," enlisted private citizens in the war on military contracting fraud, adopting a statute that would entice them to come forward by allowing them to file civil fraud lawsuits on behalf of the government and share in any fines or settlements collected. The 1863 statute was little used, however, in part because employees who filed lawsuits against their bosses often found themselves unemployed shortly thereafter.

But, more than a century later in 1986, Congress injected new life into the False Claims Act with a series of amendments that targeted modern-day rogues, provided job protections for private citizens who blew the whistle and increased the amount of money they could collect if they could prove their claims in court.

In the wake of the amendments--and with more than 140 whistle-blower lawsuits on the books alleging billions of dollars in overcharges on programs from the stealth bomber to the Apache helicopter--a federal judge in Los Angeles today will consider the first constitutional challenge to the updated statute.

For the Record
Los Angeles Times Wednesday May 17, 1989 Home Edition Part 1 Page 2 Column 5 Metro Desk 1 inches; 29 words Type of Material: Correction
A May 1 article incorrectly described the Center for Law and the Public Interest as "defunct." While the center no longer has an in-house legal staff, it does contract with outside law firms for legal services.

Some of Southern California's largest defense contractors, including Hughes Helicopters Inc., McDonnell Douglas Inc., Parker Hannifin Corp. and the Northrop Corp., have said Congress erred when it took the responsibility for prosecuting government fraud out of the hands of the Justice Department and gave it to private citizens.

The False Claims Act, they say, has forced major corporations to defend themselves against what may be frivolous claims by disgruntled employees. Some say the statute may actually prevent companies from clamping down on fraud within their subdivisions. Instead of going to their supervisors when they uncover evidence of wrongdoing, they say, employees are encouraged to keep quiet, hire a lawyer and sue the boss.

"The way it's structured, it really pits employees against management, and I think it induces employees not to say anything when something goes wrong," said Phillip Friedman, president of Genisco Technology Corp., which was ordered in November to pay $725,000 in a False Claims Act suit for falsifying test data on several key military components, including a Navy torpedo simulator. A former Genisco employee, Roland Gibeault, will get $131,250 of the settlement.

But defenders of the statute--including the U.S. Senate, which will argue on behalf of the act in court today--say the challenge threatens to disarm what has become one of the nation's principal weapons against fraud on the federal Treasury.

"Fraud, especially in the defense industry, is really an out-of-control problem," said John Phillips, a Los Angeles attorney who drafted the 1986 amendments to the act. "You'd hear daily reports about $500 toilet seats and $200 wrenches, but I had talked to a number of people who'd come into my office over the years and said, gee, they worked for defense contractors, they knew people who were deliberately gouging the government, and what should they do?"

Under the act, private citizens who have knowledge of government fraud can become what is known as qui tam plaintiffs. They are effectively deputized as agents for the government under an old doctrine of English law, qui tam pro domino rege quam pro seipso: "he who as much for the king as for himself."

Such lawsuits are initially filed under seal, giving the Justice Department 60 days in which to investigate a plaintiff's claims and decide whether to join the suit. Of 141 cases filed so far, the department has joined 20, declined to join 68 and has the rest under consideration. Only a handful of the cases have so far been settled.

Even if the government declines to take over as lead prosecutor, a private plaintiff can pursue the case and share up to 30% of whatever damages are collected. And even if the government does decide to intervene, the private plaintiff remains a party to the case and must agree on any settlement ultimately negotiated.

It is the act's delegation of that prosecutorial authority to private citizens that has formed the basis of the two pending constitutional challenges. They allege that Congress violated the Constitution's separation of powers doctrine when--unhappy with the Justice Department's record on defense fraud--it effectively usurped the executive branch's authority.

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