Districts Watching for Decision On 'False Claims' Suits

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Congress certainly wasn't thinking about school districts in 1863 when it passed a law to help stem fraud by federal contractors during the Civil War. But some school leaders are thinking about that law now.

The U.S. Supreme Court took up a case last week that will determine whether local governments, including school districts, can be subject to damages under the federal False Claims Act. The law authorizes citizens to sue in the name of the federal government to root out fraud in federal contracts. They can receive up to 30 percent of the total amount recovered.

The concept has its roots in English common law and is known generally as a qui tam lawsuit, shorthand for a Latin phrase meaning to sue on one's own as well as the king's behalf.

Last year, the federal government recovered $1.2 billion in such suits, with some $160 million going to the private citizens who filed the suits. Most such cases have targeted fraud in programs such as Medicaid and defense. But school districts have been the subject of a handful of the actions.

In 1995, for instance, two auditors sued the Orleans Parish district in Louisiana under the act, claiming the district had long defrauded the federal government in unemployment-insurance and workers'-compensation claims. A federal jury sided with them and set the district's damages at $22 million. The auditors would have split $6 million for their efforts.

But in 2001 the U.S. Court of Appeals for the 5th Circuit, in New Orleans, ruled that districts and other local governments can't be held liable under the act. The law authorizes triple damages, which are punitive, the court said, and agencies are generally not subject to punitive damages.

The U.S. Court of Appeals for the 7th Circuit, in Chicago, ruled the opposite way in a False Claims Act case involving alleged fraud in a federally funded drug-treatment program at Cook County Hospital. The appeals court said that when Congress last amended the act, in 1986, it did not intend to shield local governments from liability.

In Cook County v. United States ex rel. Chandler (Case No. 01-1572), the Supreme Court will resolve the conflict in the lower courts.

Tammany Hall

"There is no indication anywhere on the face of the 1986 amendments that Congress intended to impose such penalties on local governments," Donnal M. Lach, the lawyer for Cook County, Ill., told the justices during the Jan. 14 oral arguments on the case.

But Justice Ruth Bader Ginsburg suggested that Congress was surely aware that some local governments have histories of corruption and fraud.

"I'm from New York, and I remember Tammany Hall. I don't think it was altogether different in Cook County, was it?" Justice Ginsburg said of the county that includes Chicago.

Justice Antonin Scalia, noting that qui tam lawsuits have been eliminated in the English legal system, called them "an invitation to shakedowns." And Justice Stephen G. Breyer said he was "worried about a sudden unleashing of potentially billions of dollars of liability" on local governments.

A decision in the case is expected by late June.

Vol. 22, Issue 19, Page 21

Published in Print: January 22, 2003, as Districts Watching for Decision On 'False Claims' Suits
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