DaytonDailyNews.com

WASHINGTON — A federal whistleblower lawsuit with roots in southwest Ohio has wound its way to the U.S. Supreme Court, which is scheduled to hear arguments on Tuesday, Feb. 26.

The case, Allison Engine Co. Inc. v. United States, puts the Civil War-era False Claims Act to a test that could have wide-ranging impact on the Miami Valley because it involves defense and other federal government contractors.

At issue is whether the act applies to government subcontractors who file claims against a government contractor and not the government itself. Under the False Claims Act, citizens can accuse government contractors of fraud and collect some financial reward if their case is successful.

The case

In 1995, two employees of General Tool in Reading — Roger Thacker of Cincinnati and Roger Sanders of Lebanon — accused Indianapolis-based Allison Engine and two local subcontractors, General Tool and then-Southern Ohio Fabricators Inc., of not complying with the terms of a government contract. The whistleblowers filed a claim under the False Claims Act, arguing that it applied in this case because the work was paid for by the federal government.

The companies' lawyer argued that such a claim must actually be presented to the federal government — not to government contractors — to be fraudulent under federal law. "The statute is about defrauding the United States, not about defrauding a contractor," said Glenn Whitaker, a partner in the Cincinnati office of Vorys, Sater, Seymour and Pease and a lawyer for the companies.

The background

Allison, General Tool and Southern Ohio Fabricators were subcontractors of Bath Iron Works and Ingalls Shipbuilding, who were in turn primary contractors to the Navy to build more than 100 Arleigh Burke-class missile destroyers.

Allison subcontracted with General Tool to assemble $3 million semitrailer-size electric generator sets — each ship had three — and General Tool in turn hired Southern Ohio Fabricators to do some of the welding.

James Helmer Jr., a Cincinnati lawyer and expert on the False Claims Act who is representing the whistleblowers, said the contract required Southern Ohio Fabricators to follow rigid Navy specifications. Among them: Only certified welders could work on the generator sets, and all generator sets had to have final quality inspections.

"None of these requirements were met," he said.

Following a five-week trial in Dayton in 2005, U.S. District Judge Thomas Rose dismissed the case, saying there was insufficient evidence to prove that Bath or Ingalls submitted a false claim to the government.

The whistleblowers appealed, and the Cincinnati-based Sixth Circuit Court of Appeals ruled in their favor in a split decision, saying that the companies had in fact submitted false claims to the government.

But there was a snag. The ruling ran counter to a 2004 Washington, D.C., Circuit case, Totten v. Bombardier Corp., where whistleblower Edward Totten accused the Bombardier Corp. of submitting false claims to Amtrak for defective rail cars. In that case, the court found that a false claim had to be presented to the federal government before the company making the claim could be held liable under the False Claims Act. The decision was written by John Roberts, then an appeals court judge and now the chief justice of the U.S. Supreme Court.

The Supreme Court's decision to hear the case, Helmer said, will iron out the conflicting rulings.

The impact

Whistleblower groups, concerned that the case could discourage employees from reporting bad behavior, are among those weighing in on the case.

"If the Supreme Court were to find against the whistleblowers in this case, it will open a loophole by which fraudulent companies will launder their dirty contracts through subcontractors," said Stephen Kohn, president of the National Whistleblower Center, who said that the False Claims Act has recovered more than $20 billion in taxpayer money since 1986.

Helmer said the issue is about whether contractors and subcontractors who cut corners on contracts should be held liable.

"Reputable contractors are not fans of companies that cut corners on contracts," he said. "It's an issue that's important to them. It's their tax dollars here that are being taken as well as everyone else's."

But Whitaker says the case has negative implications for any subcontractor who works on a federal government contract. He argues that under the whistleblowers' theory, "Any time anybody submits what could be characterized as a false claim to an entity that receives federal funding, that in some way they are defrauding the government."