Counting Down the Worst Decisions of the Corporate Court's 2010-11 Term

This was another very good year for corporate interests at the U.S. Supreme Court, and a very bad one for Americans seeking fairness and justice.

The Corporate Court under Chief Justice John Roberts is radically reshaping the law to insulate corporations from accountability for conduct that discriminates against, defrauds, or injures everyday Americans. In several cases, the five conservative justices were able to force those suffering from corporate malfeasance into arenas where they have to face powerful corporate opponents alone, while ensuring that big business doesn't have to face unified groups of those it has harmed.

Collectively, these decisions could be worth tens of billions of dollars to corporate bottom lines.

Over the next 10 days, AFJ will highlight 10 of the worst decisions of the Corporate Court's 2010-11 term.

#10: Schindler Elevator v. United States ex rel. Kirk

A 5-3 majority (Justice Kagan recused) protected companies that defraud the federal government by narrowing the types of lawsuits whistleblowers can bring to recoup corporate ill-gotten gains.

The case was brought by Daniel Kirk, a Vietnam veteran who suspected that his employer, Schindler Elevator Corp., had illegally accepted a large federal contract while lying about establishing a veteran-assistance program that the contract required. Kirk confirmed those suspicions after examining documents his wife received in response to a Freedom of Information Act request.

Whistleblowers like Kirk who uncover fraud against the federal government can sue under the False Claims Act on behalf of the United States and be awarded a portion of any recovery the government receives from the lawsuit. Indeed, of the nearly $30 billion in damages that have been recovered under the False Claims Act since 1987, 60 percent originated from suits initiated by private individuals. The Department of Justice regards these suits by individuals as "[o]ne of the powerful tools in the effort" to combat fraud. However, individuals cannot sue if the lawsuit is based upon information in a government "report" because, arguably, that information is already known by the government and does not depend on the wistleblower for its discovery.

This case turned on whether the loose documents produced in response to Kirk's FOIA request were a government "report." To find that they were, as the five conservative justices did, let Schindler Elevator's fraud off the hook. The opinion ignored what "report" meant in the context of the relevant statute -- as the results of an investigation -- and inexplicably looked to the dictionary instead. What logic is there in blocking whistleblower lawsuits when the government has no idea that corporate fraud is occurring?

Justice Ginsburg's dissent stated that the ruling "weakens the force of the [False Claims Act] as a weapon against fraud" and "severely limits whistleblowers' ability to substantiate their allegations."

Schindler Elevator v. United States ex rel. Kirk is number 10 on our list of Worst Decisions of the Corporate Court Term because it protects corporations who cheat American taxpayers.

Supreme Court Undermines Whistleblowers’ Ability to Uncover Corporate Fraud

The Supreme Court held today in a 5-3 decision in Schindler Elevator v. United States ex rel. Kirk that a federal agency’s response to a Freedom of Information Act (FOIA) request is a “report” under the False Claims Act (FCA). Therefore, a private party that uncovers corporate fraud against the federal government as a result of a FOIA request may not obtain a court award for doing so.

Daniel Kirk, an employee of Schindler Elevator Corporation and a Vietnam veteran, suspected that his employer 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 his wife received in response to a FOIA request.

Under the FCA, 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. However, the statute prevents courts from hearing a case if the lawsuit is based upon one of several types of public disclosures, including information in a government “report.” The purpose of limiting recovery is to prevent “parasitic” lawsuits in which a party without personal knowledge of a company’s fraud sues and then profits by merely learning about the fraud from a public source. Kirk filed and initially prevailed in his lawsuit against Schindler Elevator, winning an award from the trial court that was affirmed by the Second Circuit.

The Supreme Court’s conservative majority overturned that award, holding that the “broad ordinary meaning of ‘report’” as the word is defined in dictionaries is consistent with the “generally broad scope” of public disclosure methods that prevent private parties from recovering an award. The Court described the information that must accompany a response to a FOIA request and stated that the information falls within those various dictionary definitions of “report” as “‘something that gives information,’ a ‘notification,’ and an ‘official or formal statement of facts.’”

Writing in dissent, Justice Ginsburg picked apart the majority’s arguments by quoting the Second Circuit’s opinion below. The dissent argued that the Court took “report” out of context by giving it a dictionary meaning when all of the other terms in the list of public sources describe “the synthesis of information in an investigatory context.” The Second Circuit stated that the other sources, such as “hearing” and “audit,” apply to information that the government intended to gather for some purpose, not the “mechanistic production of documents in response to a FOIA request made by a member of the public.” Until Mr. Kirk’s suspicions were confirmed by documents he obtained from the government, there was no government “report” or “investigation” that would have exposed Schindler Elevator’s fraud.

Ginsburg added that the Court’s ruling “weakens the force of the FCA as a weapon of fraud [against] Government contractors” who have cheated the government. She stated that it also “severely limits whistleblowers’ ability to substantiate their allegations” before suing and she suggested that Congress should remedy the majority’s holding.

The Supreme Court’s ruling undermines whistleblowers who play a critical role in uncovering fraudulent corporate activity against the government and taxpayers.