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Monday, May 20, 2024 | Back issues
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Supreme Court Hears Unusual Tax Case

(CN) - The federal government's role in False Claims Act cases was the subject of argument in the U.S. Supreme Court Tuesday in a quirky tax challenge brought by a New Yorker.

Irwin Einstein sued New York City under the federal False Claims Act. His rationale was that the city's high taxes work to reduce a taxpayers' federal tax obligation, thereby denying the federal government tax revenue.

Under the False Claims Act, individuals can sue on behalf of the government when they find it is being defrauded. If the case is won, the individual is rewarded with a percentage of the money recovered.

The government has 60 days to intervene after the initial filing. Perhaps predictably, the government chose not to intervene here.

Einstein's case was duly dismissed and he filed an appeal 54 days after the district court's decision, within what he thought was the 60-day limit. But the appeals court denied his request because it was filed after what they ruled was a 30-day limit.

Under the rules of the False Claims Act, the government is granted 60 days to appeal, but all others are given only 30 days.

Einstein argued that he qualified for the 60 day deadline because he had brought the suit in the name of the government. The government was therefore a party in the suit, he said.

Representing Einstein, Gideon Schor with Wilson Sonsini, noted that while the government had not intervened in the case, it had nonetheless expressed an interest by requesting the judicial orders resulting from the case's progress through the appellate courts.

That argument backfired. Justice Antonin Scalia said it favored the position that the government was not a party. "Why would the government have to request the orders if it's a party? This seems to indicate the government is not a party," he said.

"The government satisfies the classic elements of party status," said Schor. It has a direct interest in the result because it would get the bulk of any recovery awarded. The government is names as a plaintiff, and it is bound by a judgment.

Paul Rephen, Corporation Counsel for the City of New York City, and Jeffrey Wall, Assistant Solicitor General, disagreed. They argued that the government was not a "real party of interest."

They argued that the False Claims Act would not require that the government be named in any suit if the government was automatically considered a party. They added that unlike a party, the government has no right to receive copies of discovery if it does not intervene.

They said the government's role was undermined because it cannot withdraw or settle the case without the consent of the individual who brought it.

Justice Ruth Bader Ginsburg appeared to agree with that view and said that regardless of other criteria, if the government had not acted on the case, it is not a party. "We hear the government did nothing," she said. "Not one thing."

"If the government has done nothing at all," she added, "then you have 30 days."

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