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WASHINGTON � Lawyers representing whistleblowers and the federal government in potentially lucrative suits under the False Claims Act will be forced to scrutinize a whistleblower’s fraud allegations much more closely before going to court because of a recent U.S. Supreme Court decision. That scrutiny is likely to lead, say False Claims Act experts, not only to fewer recoveries for whistleblowers but also to a changed relationship between whistleblowers and the government, frequent “partners” in pursuing fraud under the FCA. The actual impact of the decision in Rockwell International Corp. v. U.S., No. 05-1272, beyond the immediate case itself, probably will figure into the government’s more than 450 FCA investigations under way in the health care industry, said FCA litigator John Degnan, shareholder in Briggs and Morgan’s Minneapolis office. It also may have a profound impact on a “floodgate” of cases involving potential fraud in government contracts to rebuild Iraq that are expected to begin to emerge soon from under court seal, said Peter B. Hutt II, vice chairman of Washington-based Miller & Chevalier’s litigation/government contracts department. “I don’t think the decision has a chilling effect on whistleblowers, but it may have a leveling effect,” said Briggs’ Degnan. “I think there will be less of an incentive for someone just to throw out some claims they think may be fraud because of the high upside of recovery if they are successful.” The high court last week imposed a “more rigorous requirement” on whistleblowers, or “relators” as they’re known under the statute, to show they are the “original source” of the information on which the fraud allegations are based, explained Degnan, adding, “and the government will also say, ‘We need to know the specifics’ from a potential relator” before making a decision on whether to intervene in a relator’s case. The FCA provides that any person who knowingly submits or causes the submission of false claims for government funds or property is liable for damages and penalties. Under the act, the government can prosecute an action on its own, or a private person may bring a qui tam action. The government has the right to intervene in the relator’s lawsuit. If the government declines intervention, the relator has the right to go forward alone. The FCA does not allow actions based upon public disclosure of allegations or transactions unless brought by the U.S. attorney general or a person who is an “original source” of the information. An original source must have “direct and independent knowledge of the information on which the allegations are based.” Not ‘original source’ The Supreme Court, led by Justice Antonin Scalia, agreed 6-2 with Rockwell that a former engineer at Rockwell’s Rocky Flats nuclear weapons plant was not an “original source” of information that served as the basis of a jury’s finding that Rockwell, starting in 1987, violated the act by hiding from the government environmental, safety and health problems related to its processing of nuclear waste. Scalia wrote that the law’s phrase “information on which the allegations are based” refers to knowledge of the actual facts underlying the allegations on which a whistleblower may ultimately prevail and not the information underlying publicly disclosed allegations. The relevant allegations include those in an amended complaint. The engineer’s theory of fraud was incorrect. Justices John Paul Stevens and Ruth Bader Ginsburg dissented, saying a plain reading of the statute makes clear “it is the information underlying the publicly disclosed allegations, not the information underlying the allegations in the relator’s complaint (original or amended) of which the relator must be an original source.” The decision “simply reinforces the notion that the only relator who should be permitted to recover under this generous statutory scheme is the relator who really brings something valuable to the table � who provides information that leads to the government’s recovery,” said Hutt. This principle, he added, may have a significant effect on cases of Iraqi reconstruction fraud about which there have been many public disclosures. If a potential relator’s theory of fraud is wrong, said Hutt, the relator can’t recover. “The Supreme Court said it’s not good enough to set this [action] in motion.” The decision also may give the government greater leverage in negotiating what share of any recovery the whistleblower deserves, said David Shapiro, of counsel to Philadelphia’s Pepper Hamilton. “The whistleblower may be an original source for claim A, but the government investigation may reveal that the claim should be described differently or that the real harm is under claim B,” he said. “ Rockwell suggests that the whistleblower may not be an original source for amended claim A or claim B and may not be entitled to a share of those recoveries, thereby tilting a very typical point of debate on a whistleblower’s share in favor of the government.”

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