The matter of Allison Engine Company, Inc. et. al. v. United States ex rel. Sanders and Thacker, 2008 U.S. LEXIS 4704 (2008), was a qui tam suit brought by two former defense sub-contractor employees pursuant to the False Claims Act (FCA), alleging that the defendants knowingly used false statements or submitted fraudulent claims in order to obtain payment by the government in violation of 31 U.S.C. § 3792(a)(2) or in the alternative conspired to defraud the Government by getting a false or fraudulent claim allowed or paid in violation of 31 U.S.C. § 3792(a)(3).
The lawsuit stemmed from a Naval contract to build generator sets (Gen Set) for a new fleet of destroyers. The Gen Sets supplied all of the electrical power for the ships. The shipbuilders subcontracted with Allison Engine Company, Inc. Allison Engine in turn subcontracted with General Tool Company (GTC) to assemble the Gen Sets. GTC then subcontracted with Southern Ohio Fabricators, Inc. (SOFCO) to construct the enclosures and bases for the Gen Sets. The Naval contract required that each Gen Set was delivered with a certificate of conformance, certifying that the Gen Set was manufactured in accordance with the Navy's specifications.
Roger Sanders and Roger Thacker, both former employees of GTC, brought a qui tam suit alleging that the subcontractors, including Allison Engine, GTC, and SOFCO, fraudulently sought payment for work that was not done in accordance with the Navy's contractual requirements, in violation of the FCA. The plaintiffs alleged a plethora of defects that violated the contractual specifications. Moreover, plaintiff's maintained that the certificates of conformance were false because each of the subcontractors had knowledge that the Gen Sets did not conform to the necessary specifications.
The matter went to trial and the sub-contractors moved for a judgment as a matter of law, which was granted. The District Court found that plaintiffs did not establish that the claims were submitted directly to the Government to induce payment, and thus, the evidence was insufficient to state a claim under the FCA. However, the appellate court reversed the District Court, holding that claims under the FCA did not require proof of intent to cause a false claim to be paid by the Government, and only required that a party intend to cause a false claim to be paid by a private entity using Government funds.
At issue was whether the language of the FCA requires that the false claim be submitted and paid by the Government, or if false claims paid with Government funds satisfied the FCA. Ultimately, the Supreme Court, in an opinion by Justice Alito, held that the plain language of the FCA required a defendant to "make the false record or statement to get a false or fraudulent claim paid or approved by the Government." Id. at 12.
The Court also determined that even if the alleged false claims were made by the sub-contractors to the shipbuilders, the false statement to the private entity, which was not intended to secure direct payment from the Government, is not made with the intent of purpose of inducing payment of a false claim by the Government. In the end, the Court found that there must be a direct link between the false claim and the government payment.
Although circumstances such as those addressed in Allison Engine may not arise on a daily basis, it does serve as a guideline for navigating FCA claims. It is clear that going forward, plaintiffs, including the government or private individuals via qui tam lawsuits, will have a much higher evidentiary burden and will be required to establish the direct nexus as outlined by the Supreme Court in this decision.
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Dominick Lanzito, an associate in our Chicago office, concentrates his practice in general, construction, class action, civil rights litigation, and intellectual property. Prior to joining Querrey & Harrow, Mr. Lanzito served as an Assistant State's Attorney for the Cook County State's Attorney Office, gaining experience in torts and civil rights litigation, as well as in criminal prosecution and criminal appeals. If you have any questions regarding this article, please contact Dominick via dlanzito@querrey.com, or via 312-540-7592.
