On Tuesday, the Supreme Court takes a new look at an old law – an 1863 law, passed at President Abraham Lincoln’s request, that gives “whistleblowers” an incentive to help the federal government deal with waste and abuse in federal spending. A second hearing tomorrow focuses on a wife’s duty to help pay family debts, in a bankruptcy case, when the couple’s financial woes were caused by the husband.
The Court will broadcast “live” the audio (no video) of the hearings on its homepage, supremecourt.gov To listen, click on “Live Audio” and follow the prompt when the courtroom scene appears lower on the page. The audio also will be available, under the title of each case, on C-Span TV at this link: cspan.org/supremecourt
First case Tuesday: United States, acting through (“ex relatione”) Polansky v. Executive Health Resources The hearing is scheduled for one hour, and will begin at 10 a.m.
Background: As far back as the 7th Century in English legal history (and much earlier in Roman law), governments have counted on the people to help enforce the laws. One specific method involves a person who sues to stop fraud against the government and, if successful, gets a share of the money recovered. In earliest times, citizens aided in enforcing criminal laws, resulting in forfeiture of property.
The concept goes by a Latin shorthand phrase, qui tam. The full phrase is qui tam pro domino rege quam pro se ipso in hac parte sequitur, which translates roughly as “one who sues for the king as well as for himself.”
The idea came to America in 1863. In the midst of America’s Civil War, President Lincoln was faced with widespread fraud by military contractors in over-pricing everything from horses to clothing to ammunition, helping themselves to a good deal of excess profits. Lincoln persuaded Congress to pass the False Claims Act. A private citizen who becomes aware of fraud or abuse in a federal program (the citizen is labeled a “relator”) can sue to recover the ill-gotten gains, and then shares in the proceeds – up to 30 percent of the recovered money. Over decades, it has returned billions of dollars to the U.S. Treasury, and has provided some handsome rewards for whistleblowers.
The law allows the government to take over such a case from the whistleblower, but the government also has the option to stand aside and let the private lawsuit proceed. The case being heard by the Supreme Court on Tuesday raises the question of what happens if the government moves to re-enter the case, after it has once stepped aside, and then persuades a court to dismiss the citizen’s lawsuit.
Facts of this case: Dr. Jesse Polansky was a consultant to a large hospital finances advisory firm, Executive Health Services, Inc., in Newtown Square, PA. He claimed that the firm had a policy of advising hospitals to seek reimbursement under the federal Medicare program for in-patient care, when many of the cases only required out-patient services; Medicare generally pays about $4,000 to $6,000 more per patient for services in a hospital.
To recover for the government what he expected to be hundreds of millions of dollars in excess reimbursement, Dr. Polansky sued in 2012. The government studied the case for several years, and then opted to stand aside. Later, though, after more years had passed, the government decided to get involved again, and persuaded a federal judge to dismiss Dr. Polansky’s case, over his objection. The government apparently believed that the doctor’s claims were exaggerated.
A federal appeals court upheld the dismissal, ruling that the government has a legal right to seek to end a case if It formally seeks and gets permission to rejoin the case, and gives the private individual suing a fair chance to challenge dismissal. The doctor appealed to the Supreme Court, arguing that federal appeals courts across the country are widely split on the two legal questions he raised. The Court agreed to rule.
The questions before the Court: Does the federal government have the legal option to seek dismissal of a private qui tam lawsuit after having stayed out of the case, and, if so, what test must it meet to have the case dismissed?
Significance: By one estimate, the problem of fraud under the federal Medicare law – a program for financing medical care for the elderly – costs the government about $60 billion a year. The Justice Department does not have enough lawyers and legal resources to pursue every incident of such fraud, so it must rely quite heavily on False Claims Act lawsuits pursued by private citizens.
Moreover, fraud against the government in abuse or misuse of federal funds is not limited to the Medicare program, so the qui tam system of private citizens standing in for the government is a vital part of the recovery of federal dollars.
There is a subtle constitutional issue at stake in this case, and that is the government’s argument that attempts by private citizens to limit its options in how federal court cases are conducted interferes with the performance of the government’s duty to “faithfully execute the laws,” as Article II mandates.
Dr. Polansky, on his side, claims that simple fairness is at issue: he says that he ran up some $20 million in lawyers’ fees pursuing the case on behalf of the government, only to have the government come in late to scuttle his efforts.
The Court is likely to decide the case based upon how it reads highly technical language in the False Claims Act.
Second case Tuesday: Bartenwerfer v. Buckley The hearing, scheduled for 70 minutes, will begin after the Medicare case has ended.
Background: Federal bankruptcy law has as one of its central purposes giving those who go deeply into debt a chance to make a fresh start, by allowing them to erase at least some of their debts. To take advantage of that option, though, the debtor must be innocent of wrongdoing in the transactions that led to bankruptcy. The law bars the cancellation of a debt if that is owed on any money or property that the individual debtor had obtained by “false pretenses, a false representation, or actual fraud.”
Federal courts across the country are widely split on whether two people who are partners in a commercial transaction are equally to blame, legally, if only one of them was responsible for a fraud leading to the debt that they seek to cancel.
Facts of this case: Before they were married, a San Francisco couple decided in 2005 to buy a house, renovate it, and sell it to make a gain. Kate Marie Bartenwerfer and David W. Bartenwerfer may have lived in the house for a time, although that is not clear. In any event, the husband made it more or less a full-time job to prepare it for sale. The wife would later say in court that she relied on whatever her husband had told her about the renovations.
The house went on the market in November 2007. The house was bought in early 2008, for $2.1 million, by a local developer, Kieran Buckley. He relied on a statement required by state law that the couple signed, disclosing the physical condition of the property. Later, Buckley discovered water leaks, defective window functioning, and a fire escape that violated the local building code, and found that building permits had not been issued for some of the renovation work. (Buckley ultimately sold the house, making a profit on it.)
Claiming false representations, Buckley sued the couple in state court, and won an award of $539,157.70. The Bartenwerfers filed for bankruptcy in federal court, asking that this state court verdict be cancelled as a debt. A bankruptcy judge sided with the wife’s claim that she was not responsible for the falsehoods about the property, ruling that the husband alone had to pay the debt to Buckley.
A federal appeals court overturned that ruling, concluding that it was not necessary that Mrs. Bartenwerfer have any knowledge about the fraud; it was enough that the couple acted as partners in selling the house so they had to share the debt owed to Buckley.
Mrs. Bartenwerfer took the case to the Supreme Court, arguing that there is a deep split among federal appeals court on when an “innocent partner” must share in paying off a debt that arose out of the other partner’s fraud.
The question before the Court: Does federal bankruptcy law deny a debtor a chance to cancel a debt that arose out of another person’s fraud when the debtor took no action regarding the fraud, had no intent to defraud, and had no knowledge of the fraud?
Significance: Under the Constitution’s Article I, Section 8, Congress has power to enact “uniform laws on the subject of bankruptcy throughout the United States.” It is thus practically a certainty that, when the lower courts are genuinely divided on how to interpret the wording of a bankruptcy provision, the Justices will step in to sort it out, as they have done in this case.
Mrs. Bartenwerfer is going it alone in the Supreme Court; her husband is not directly involved in her plea and has not filed a legal brief of his own. The disappointed buyer, Buckley, is relying heavily on an 1885 Supreme Court decision, Strang v. Bradner, declaring that all partners are obligated to pay a debt in bankruptcy if one of the partners committed fraud.
The Justice Department is siding with Buckley, and will join in the hearing on his side of the case. It, too, is basing part of its argument on that 1885 precedent, arguing that it has never been overruled and that it was not disturbed by Congress when it reformed the entire bankruptcy code in 1978.
Mrs. Bartenwerfer counters that the fundamental goal of the 1978 bankruptcy law was to focus on debtors as individuals, and that Congress was especially concerned that debtors have a fresh start, unless clearly to blame personally for commercial wrongdoing.
Although she is relying on an interpretation of the law’s fraud provision, and the Court probably will limit its review to that wording, not far in the background is a constitutional idea: the Fifth Amendment’s Due Process clause has long been understood to protect individuals from the loss of their property and rights without fair warning that those rights are at risk.
The Court will finish the current round of hearings on Wednesday, with a single case — one of the most important of this term. It is a test of the constitutionality of the theory that state legislatures have broad authority to control how federal elections are run, including counting of the votes and deciding the winners. Tomorrow, this space will provide links to a recent three-part series analyzing that controversy.
