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Tuesday, March 1, 2011

Supreme Court Threatens to Weaken Important Tool for Fighting Corporate Fraud

The Supreme Court will hear oral arguments today in Schindler Elevator Corporation v. United States. This case threatens to end certain court awards that encourage individuals to uncover corporate fraud against the federal government.

Daniel Kirk, an employee of Schindler Elevator Corporation, suspected that Schindler was violating a federal statute requiring companies with large federal contracts to establish affirmative action programs that benefit Vietnam-era veterans. Those suspicions were confirmed after he examined documents he received in response to a Freedom of Information Act (FOIA) request.

Under the False Claims Act, private individuals who uncover fraud against the federal government can sue on behalf of the United States and be awarded a portion of any recovery the government receives from the lawsuit. Schindler Elevator appeals the Second Circuit’s decision to uphold the award Kirk won at trial. The company states that the version of the False Claims Act governing this case bars a private party from recovering when he or she uncovers the fraud as a result of a government “report…or investigation” and that the government’s response to Kirk’s FOIA request constitutes such a report or investigation.

Kirk responds that the report or investigation provision is intended to prevent a person from profiting in a parasitic or free-loading manner from fraud about which the government is already aware. In this case, Kirk contends, merely making documents accessible through FOIA requests does not demonstrate the type of government awareness that Congress believed should preclude an award to a private party.

If the Supreme Court sides with Schindler Elevator, it will undermine whistleblowers, who play a critical role in uncovering fraudulent corporate activity that harms American taxpayers.

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