WASHINGTON — The US Supreme Court handed an important victory to the State of Vermont on Monday with a decision that exempts states from citizen-initiated lawsuits under a federal whistle-blower law.
In a 7-to-2 decision, the court ruled that Congress did not intend to make states vulnerable to potential lawsuits filed by ordinary taxpayers seeking to uncover fraud against the government.
The law limits targets subject to suit under the False Claims Act to any "persons" suspected of bilking the federal government. The court determined that states are not "persons," and are not covered by the law.
The case had been closely watched by states rights advocates, who were hoping the court would use the case to further bolster state immunity from private lawsuits and advance its string of federalism decisions.
But the court decided the case solely on statutory grounds. "The FCA was enacted in 1863 with the principal goal of 'stopping the massive frauds perpetrated by large [private] contractors during the Civil War,' " Justice Antonin Scalia wrote for the majority. "Its liability provision ... bore no indication that states were subject to its penalties."
The case stems from a lawsuit filed by a former employee of the Vermont Agency of Natural Resources alleging that the agency had perpetuated a billing scam aimed at bilking the federal government out of environmental aid that the state did not deserve.
The employee sued the agency in 1995 under the federal False Claims Act. The so-called whistle-blower law allows citizens to sue to recover the ill-gotten proceeds of any fraud on the government. Under the law, the government receives three times the amount of the fraud, and the whistle-blower receives up to 30 percent of the recovered funds.
Many states were worried that if the court upheld the suit, it could trigger a flood of similar suits questioning accounting practices in a range of federal-state programs.
Officials in Vermont praised the court's ruling as an important safeguard to the states. "It essentially means that whistleblowers won't be able to second-guess arrangements being made between federal agencies and state agencies in the coadministration of programs," says Ron Shems, Vermont assistant attorney general.
Government watchdog groups say they are worried that the decision may send the wrong signal. "They saved the law in general, which is good, but there is so much money given out to states that this is just a green light for local corruption," says Stephen Kohn of the National Whistle-Blowers Center.
Among other decisions announced on Monday, the high court unanimously ruled that a federal arson law does not apply to a deliberately set fire of a private home.The decision stems from the case of Dewey Jones, who threw a Molotov cocktail into his cousin's home during a dispute.
A central issue in the case was whether Mr. Jones should face the stiff prison sentence and fines under the federal arson law. Jones's lawyer challenged the use of the federal law, saying that only crimes that substantially affect interstate commerce fall within Congress's authority.
Prosecutors responded that the arson did affect interstate commerce because the house was financed through an out-of-state mortgage company, was insured by a company in another state, and was supplied by natural gas piped in from another state.
Jones countered that such effects on interstate commerce were not direct and substantial enough to trigger possible federal authority. A unanimous Supreme Court agreed.
*Staff writers Alexandra Marks and Kris Axtman contributed to these reports.
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