Supreme Court Hears First Day of Affordable Care Act Argument

Today, the United States Supreme Court began to hear arguments concerning the constitutionality of the Affordable Care Act. According to news reports from the Court, today's arguments focused on whether the Supreme Court has jurisdiction to hear the case before the Act's punitive provisions have been utilized.

The ACA provides a penalty for persons who do not obtain health insurance. That is commonly known as the "mandate" provision. The law requires the individual to pay this penalty in his income tax filing. However, long ago, Congress passed the Anti-Injunction Act, which provides that courts may not invalidate a tax law before it has gone into effect and resulted in the collection of taxes under the questioned law. The issue before the Court is, whether because the enforcement mechanism is through the filing of income taxes, the Anti-Injunction Act applies to the ACA.

Neither the plaintiffs attacking the ACA nor the government sought to argue the application of the Anti-Injunction Act. The Court raised the issue sua sponte and assigned the briefing and argument to an experienced Washington appellate attorney.

The purpose of the Anti-Injunction Act to to prevent the interruption of tax revenues to the United States. That is why the law requires the monies to be paid before an attack on the tax is ripe for consideration. Because the payment in the ACA is a penalty and not primarily revenue collection, it is unlikely that the Supreme Court will defer from deciding the case at this time based on lack of ripeness. In fact, Court watchers at the argument reported that the justices through their questioning seemed inclined to move forward to the merits.

Tomorrow and Wednesday will see further argument going to the substance of the disputes about the ACA.

White Collar: Supreme Court to Hear "Honest Services" Fraud Appeal

Convicted former Enron CEO Jeffrey Skillings has successfully petitioned the United States Supreme Court to hear the appeal of his conviction. A primary focus of his appeal will be an attack on those counts of conviction that arose from "honest services" fraud. His lawyers will undoubtedly argue that the language of the "honest services" statute is so vague that it does not adequately advise people of what amounts to criminal conduct.

Federal prosecutors do not have a federal criminal statute addressing bribery involving state and local officials. To reach such crimes, traditionally, federal prosecutors invoked mail and wire fraud statutes to obtain criminal jurisdiction. These statutes make illegal participation in schemes to defraud that use either the U.S. Postal Service or interstate couriers for mail fraud or interstate wire transmissions for wire fraud. To combat local corruption federal prosecutors charged these crimes under the theory that the corrupt conduct was a scheme to defraud the citizens of the honest services of their public officials. This theory of prosecution was particularly popular in the 1970's and 1980's.

In the case of McNally v. United States, 483 U.S. 350 (1987), the U.S. Supreme Court held that the wire and mail fraud statutes did not apply to the theory of honest services fraud. The Congress addressed the McNally decision expeditiously, enacting the "McNally fix," 18 U.S.C. Section 1346, in 1988. Section 1346 simply states that a "scheme or artifice to defraud another of the intangible right of honest services" satisfies the requirements of the "scheme or artifice to defraud" language in the mail fraud chapter (mail fraud, wire fraud, bank fraud, health care fraud, and securities fraud). The law does not provide a definition of the "intangible right to honest services." The failure of a definition in the law is the basis of the concern with the statute.

Over the ensuing years, federal courts have interpreted "honest services" provisions in the public employee context to provide a rather clear understanding of what the law holds to be unlawful conduct. Generally, bribery or an undisclosed conflict of interest will cross the line into illegal conduct on the the public employee side.

Unfortunately, as the "honest services" provision has bee applied to those involved in private transactions, the standards of conduct are far less clear. Different courts have provided varying guidance on the level of breach of duty necessary to warrant a criminal charge of a scheme to defraud someone of honest services. The Supreme Court may rule that the statute is too vague as applied or may provide guidance on the use of the theory. The Court's decision could have a profound influence on federal law enforcement in the white collar arena and bears watching.

For more information about the Skillings appeal, please see the following article in the New York Times, "Justices Will Hear Appeal of Former Enron Chief," http://www.nytimes.com/2009/10/14/business/14enron.html?hp

Qui Tam - Supreme Court Clarifies Intent in False Claims Act Suits

In Allison Engine Co., Inc., et al., v. United States ex rel. Sanders et al., the Supreme Court addressed the issue of the level of intent necessary for a False Claims Act ("FCA") action under 31 U.S.C. Sections 3729(a)(2) and (3). In Allison, the United States Navy signed contracts with two shipyards for the construction of a fleet of guided missile destroyers. The contracts required the building of generator sets for the production of electricity on the fleet. The shipyards subcontracted much of the work including the building of the generator sets. As part of this subcontracting the Allison Engine Company, Inc., received the subcontract for the building of the generator sets.

The primary contracts specified that every part of the destroyers be built according to the navy's specifications, which were incorporated into each subcontract. Moreover, each completed and delivered generator set had to be accompanied by a certificate of conformance, which certified manufacture in accord with the navy's specifications.

The relators in the case filed suit in federal district court alleging, inter alia, that the generator sets were defective and that the certificates of conformance were fraudulent.

At trial the relators introduced evidence that the certificates of conformance were false. However, they did not introduce the invoices submitted to the government for payment. As a result, the district court dismissed the complaint, holding that the proof was legally insufficient in the FCA context because the plaintiffs had not offered proof that the false claims had been submitted to the government.

The U.S. Court of Appeals for the Sixth Circuit reversed the lower court's decision. The Sixth Circuit held that Sections 3729(a)(2) and (3) of the FCA allow as a sufficient standard proof of intent to obtain payment for a false claim from a private party using government funds. The court's decision conflicted with the decision of the U.S. Court of Appeals for the District of Columbia in United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), cert. denied, 544 U.S. 1032 (2005).

The Supreme Court decided that under section 3729(a)(2) for recovery a defendant must make a false statement to get a false claim paid or approved for payment by the government. The Court distinguished between getting the government to pay a false claim and getting a false claim paid using government funds. Under section 3729(a)(2) the "defendant must intend that the [g]overnment itself pay the claim." However, this does not mean that the false record or statement must be submitted to the government as the district court had held. It is sufficient if a false statement or record were offered to induce the government to either pay or authorize payment of the false claim. Thus, a false statement by a subcontractor to a prime contractor with the intent that the prime contractor submit the fraudulent statement to the government to get paid would bring the subcontractor's action within the purview of section 3729(a)(2).

The Court continued with an abbreviated analysis of section 3729(a)(3). Using the same rationale as it employed in the discussion of section (a)(2), the Court said that under this conspiracy statute, the plaintiffs must show "that the conspirators had the purpose of 'getting' the false record or statement to bring about the [g]overnment's payment of a false or fraudulent claim.

Thus, the Supreme Court has set the standard of intent under sections 3729(a)(2) and (3) as an intent to induce the government to pay or authorize the payment of a false claim.