Case Study

United States of America ex rel. Russell Hayes, v. CMC Electronics Inc, 297 F. Supp.2d 734

Facts

The former project manager for CMCE (Canadian Marconi Corporation Electronics) filed a qui tam action under the False Claims Act because allegedly CMCE was committing fraud. CMCE was contracted to design and manufacture secured radio communication systems for the government. Allegedly during the contract CMCE began to receive used equipment and government surplus equipment and sale them to the government at full “new” price. On September 30, 1993, contracted with AEC to purchase 97 radio sets, and then resold these radio sets to the Saudi Government pursuant to an letter of offer and acceptance with Saudia Arabia. According to Russell Hayes this action violated a provision by filling the contract with radio sets and multiplexers built with parts and components that were either previously used or obtained from the surplus market.

Issue
Whether or not the Hayes was justified in filing a claim under the false claims act, and if the CMCE actually did violate the provision under the contract by selling used and government surplus parts in radios as new radios.

Rule
In order to bring suit under the False Claims Act, the alleged false or fraudulent claim must be submitted for payment to the Government.

Application
The False Claims Act applies to any person who makes a false or fraudulent statement with the purpose and effect of inducing the Government to immediately part with money. CMCE did in fact submitted invoices to the government in order to be paid for the radio systems, although the government used funds obtained from Saudi Arabia to pay for the radios does not dismiss the claim. The government purchased what they thought were new radio systems from CMCE however CMCE used second hand parts and government surplus parts without the government being aware of the substitution. This substitution also led to an over stated price that the government was... [continues]

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