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The Schindler Decision: Now It’s Congress’ Turn

With the heightened pleading standard established by the Supreme Court in Twombly and Iqbal, it must follow that Plaintiffs are entitled to some accommodation in the manner and methods used to muster the facts now required to properly plead a case. Apparently this is not so.

In issuing its 5-3 decision (Justice Kagan did not take part in the decision) in Schindler Elevator Corp. v United States, No. 10-188 (May 16, 2011), the Court held that a whistleblower litigating under the Federal False Claims Act (FCA) does not have standing if his or her claims are based on information secured from a Freedom of Information Act (FOIA) request. The FCA precludes whistleblowers from basing claims on government “reports” and in Schindler, the Court had to decide whether the Government’s response to a FOIA request constituted a government report. Justice Thomas opined that because a response to a FOIA request provides information, it must therefore be a “report” within the meaning of the statute. While this may be good news for college students seeking support for the proposition that a one page document suffices as a term paper or report, it is indeed a blow to whistleblowers seeking redress from private contractors that cheat the government.

The whistleblower in Schindler, Daniel Kirk, a Vietnam veteran, claimed that his employer, a government contractor, failed to honor a veterans job preference, which in turn violated a government contract. In support of efforts to prove his claims, Schindler’s wife secured information from the Department of Labor (DOL) through a FOIA request. Mrs. Kirk’s efforts, according to the Court’s opinion, proved fatal to the complaint.

The False Claims Act’s public disclosure bar is designed to preclude the filing of parasitic lawsuits or lawsuits based on public information readily known to the government. Specifically, the statute bars suits based on government audits and reports. If a government agency issues a report documenting fraudulent conduct by a contractor, it would make sense that a private citizen should not be able to use that report, file a lawsuit, and claim a bounty for bringing attention to that which is already known. But a response to a FOIA request is different. First, as a document generated at the behest of a private citizen, it would never be revealed if the private citizen did not know to ask for it. Second, the document may only provide raw data or information absent any analysis and its relevance may only be understood by the individual seeking the information. As Justice Ginsburg noted in her dissent, quoting the Opinion of the Second Circuit which was reversed, the Department of Labor’s responses “did not synthesize the documents or their contents with the aim of itself gleaning any insight or information, as . . . It necessarily would in conducting a ‘hearing” or ‘audit.’ ”

The truth is that Daniel Kirk, the relator in Schindler, was doing exactly what the Court in Iqbal and Twombly required of him; he was mustering very precise facts in order to plead a case. And though he may have filled his complaint with some facts secured from the government itself, there is no evidence that the government was able to put the pieces together absent his aide.

With so much public money being injected into the private sector these days and with insufficient oversight of contractors, does this case — like other recent Supreme Court decisions — merit corrective legislation? As Justice Ginsburg noted in her dissent: “[a]fter today’s decision, which severely limits whistleblower’s ability to substantiate their allegations before commencing suit, that question is worthy of Congress’ attention.

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