Whistleblowers Use False Claims Act to Pursue Allegations of Defense Contract Fraud

In this blog, we have often discussed the use of the False Claims Act (the “Act” or the “FCA”) as a weapon against those who commit health care fraud. While health care fraud is an important target of FCA suits, the Act’s reach goes beyond the health care arena. Generally, the Act can be used to fight back against those who knowingly submit false/fraudulent claims seeking payment from the federal government. Private whistleblowers are key to this fight, bringing attention to fraud and filing claims known as qui tam lawsuits. In addition to fraud involving the Medicare and Medicaid programs, the FCA is often used to stop companies and individuals who submit fraudulent claims pursuant to military contracts. Our California defense contractor fraud attorney is prepared to help these whistleblowers bring an end to schemes involving defense contractor fraud, using the Act to recover money for the government and helping the whistleblower recover a substantial whistleblower reward for their efforts.

Bankruptcy Judge Okays Whistleblower Claims to Proceed Against Defense Contractor

In late March, as reported by the Wall Street Journal, a New York judge paved the way for a $2.3 billion whistleblower lawsuit to move forward despite the company involved in the alleged wrongdoings being in the process of Chapter 11 bankruptcy. Donald Minge and David Kiehl are former employees of TECT Aerospace Inc., a subcontractor for Hawker Beechcraft Corporation, a manufacturer of military aircraft. Together, the pair filed a whistleblower claim pursuant to the FCA alleging that the company provided flawed aircraft parts to the U.S. military. Their complaint includes allegations that workers would use hammers and pry bars to alter defective parts so that they would pass inspection. Not surprisingly, that behavior is not permitted by government contracting specifications.

In May 2012, Hawker Beechcraft filed for Chapter 11 bankruptcy. The company emerged from Chapter 11 in 2013 and was recently sold to Textron Inc. Previously, a bankruptcy judge ruled that the whistleblowers could not bring their FCA claims, refusing to allow them to argue that their claims fit into an exception to the bankruptcy rules that extinguish most debts. In the recent ruling, Judge P. Kevin Castel restored the right of the whistleblowers to argue that their claims fit into an exception that will allow the claims to proceed, effectively reviving the lawsuit.

The False Claims Act and Defense Contracting Fraud
Concerns about defense contractor fraud actually motivated Congress to enact the FCA back in 1863. As noted in a Justice Department FCA primer, Congress enacted the Act amid concerns that suppliers were defrauding the Union Army during the Civil War. The Act has been amended numerous times, including major changes in 1986 and three amendments since that time. As the primer notes, the Act allows private individuals to file claims for FCA violations on the government’s behalf. In legal circles, these private whistleblowers are called realtors and the lawsuits they bring are called qui tam actions. The realtors are protected from retaliation. They are also eligible for a financial award amounting to between 15% and 25% of the recovery if the government intervenes in the case and between 25% and 30% if the government declines involvement.

Working with Whistleblowers on Qui Tam Claims
Qui tam suits under the False Claims Act are essential to the fight against fraud on the government, including fraud committed by government contractors (or in the awarding of such contracts). The recent case is important since it allows FCA claims to survive even if a company declares bankruptcy. Hopefully, other bankruptcy courts will find Judge Castel’s ruling persuasive and reach a similar conclusion, a stance that prevents a company from using bankruptcy law to avoid responsibility for prior fraudulent acts.

False Claims Act claims are subject to a complex set of rules, making legal counsel essential. Our San Francisco defense contract fraud lawyer has the knowledge and experience crucial to guiding whistleblowers through the qui tam process and a False Claims Act lawsuit. If you have witnessed defense contract fraud or other fraud on the government anywhere in California, call today.

(Photo by Brian Turner)