Nonconforming Goods: Liability Under FCA
Atlanta FCA Attorney
The FCA law allows whistleblowers who know about fraud against the Government to file suit on behalf of the Government. The whistleblower brings the suit as a “relator.”
Qui tam attorney Lee Wallace provides these web pages to help potential whistleblowers learn more about the False Claims Act law. Lee Wallace graduated with honors from Harvard Law School, and brings 20 years of experience to the table. Contact her today about your qui tam lawsuit.
This page is devoted to explaining how lawyers who represent the whistleblowers can use the FCA to hold contractors liable for defrauding the Government.
Contractor Is Liable Even If it Thinks the Substitute Items Are Just as Good
If the Government pays for one item but the contractor provides an inferior or defective product instead, it is easy to see that the contractor has defrauded the Government and is liable under the False Claims Act. But under the FCA, a “manufacturer who knowingly supplies nonconforming goods to the government” is liable even if it believed “that the nonconforming goods are just as good as the goods specified in the contract.” United States ex rel. Lyle Compton v Midwest Specialties, Inc., 142 F.3d 296 (6th Cir. 1998).
Why? Under our law, anyone who makes a contract is entitled to get the benefit of what it bargained for. Although the Government could have contracted for a different product, it did not; it contracted to get this product. Furthermore, the manufacturer/supplier could have asked whether the U.S. would accept another product, but instead it unilaterally decided it would send something the U.S. had not agreed to buy.
To put the issue into a context we all can understand, imagine this scenario: you and your family search for months, and finally pick out the house of your dreams. Giddy with excitement, you show up for closing and sign the papers. As the closing attorney hands you the keys, he mentions that actually you just bought a different house. “But it’s worth the same amount!” chirps the real estate agent. But the substitute house is not worth the same amount to you, because you picked out a different home.
Examples of actual cases involving substituted goods:
- In 1950, a California company called National Wholesalers agreed to provide 6600 Delco-Remy generator regulators to the Army for $23.50 each. Although the corporation had originally planned to use World War II surplus regulators, changes in the specifications meant the older models no longer met the contract specifications. National Wholesalers hired a Chinese company to make copies. To hide what it had done, it printed Delco-Remy labels and put them on the generator regulators that it was supplying.Attorneys for National Wholesalers argued that the regulators were the same, and indeed testing showed the products had the same performance. But the court refused to let National Wholesalers off the hook, saying: “one of the finest things for which this country stands is that the American label guarantees contents are the product that the label represents them to be, and that is true whether the label is on Bethlehem’s steel or on Mrs. Lerua’s tamales.” United States v. National Wholesalers, 236 F.2d 944 (9th Cir.1956), cert. denied, 353 U.S. 930, 77 S.Ct. 719, 1 L.Ed.2d 724 (1957).
- Midwest Specialties, Inc., manufactured brake-shoe kits for United States Army jeeps. A whistleblower filed a qui tam lawsuit as a relator, saying that Midwest had not tested the brake shoes appropriately. An investigation by the Army showed that between 60% and 78% of the brake shoes failed testing. The Government obtained a judgment for $381,838.36, which the 6th Circuit Court of Appeals upheld, saying: “a manufacturer who knowingly supplies nonconforming goods to the government” is liable under the False Claims Act even if it supplied the goods “based on a belief that the nonconforming goods are just as good as the goods specified in the contract.” United States ex rel. Lyle Compton v Midwest Specialties, Inc., 142 F.3d 296 (6th Cir. 1998). By not testing the brakes even though it knew the contract required it to do so, the company showed reckless disregard for whether it was telling the truth when it represented that the goods conformed to the contract requirements.
Who Can Be Liable in a Qui Tam Suit Brought Under the False Claims Act?
The False Claims Act only applies to companies that contract with the government. You can stop fraud and save hard-earned taxpayer dollars. The FCA applies to contracts with the U.S., and some states also have their own False Claims Act to protect state taxpayers.
Contact Lee Wallace about legal representation for whistleblowers. She has been named one of Georgia’s Top 100 Trial Lawyers, and one of the state’s Top 100 Lawyers.