In the darkest days of the Civil War, while Union armies were bogged down on the battlefields of Northern Virginia, Congress was outraged over mounting evidence of fraud by military contractors. The Army was being bilked for useless guns. Troops were opening boxes of gunpowder at the front, only to find they were filled with sawdust. The cavalry discovered it was paying for the same horses twice -- in some cases, three times.
The upshot was tough new legislation, enacted in 1863, aimed at cracking down on the contractors.
Known as the False Claims Act -- or the Lincoln Law, after the president who strongly urged its passage -- it included a novel provision permitting citizens who had knowledge of fraud against the government to sue contractors on behalf of the Justice Department.
Until recently, that section had long since been forgotten.
But in the past year, thanks to a congressional rewrite and some enterprising lawyers who had read their history books, the Lincoln Law has taken on new life.
A rash of citizen lawsuits have been filed, charging such major firms as Northrop Corp., TRW Inc., Raytheon Co. and others with submitting hundreds of millions of dollars in fraudulent and inflated claims to the government.
These Lincoln Law suits -- about 40 have been filed -- are presenting embarrassing problems for some government contractors and may hold long-term consequences for the Justice Department's war on that ancient hydra-headed enemy -- "waste, fraud and abuse."
The cases invariably have been brought by employes and former employes of the contractors who claim firsthand knowledge of the fraudulent acts they allege.
Moreover, many of the wrongful acts they allege had never before been brought to the attention of government investigators.
But under the Lincoln Law's new provisions, authored last year by Sen. Charles Grassley (R-Iowa) and Rep. Howard Berman (D-Calif.), the would-be whistle blowers acquired a powerful monetary incentive to come forward: If they are successful they stand to collect between 15 percent and 30 percent of any court-awarded recovery, which can be as high as three times the damages sustained by the government.
The result, as one Justice Department official noted, is that "the floodgates have been opened," and Lincoln Law suits now are being brought routinely in courthouses around the country.
To date, the contractors have in all cases denied the charges, and nobody has collected any damages. But in at least eight of these suits, the Justice Department has found the allegations strong enough to intervene on behalf of the plaintiffs and, in effect, assume the costs of litigating their suits. In another 13 cases, the department is still reviewing the allegations, while in it has declined to intervene in 18.
"This really has the potential to revolutionize the enforcement of fraud against the government," says John R. Phillips, the codirector of the Center for Law In the Public Interest, a public interest law firm in Los Angeles that has helped generate many of the Lincoln Law suits.
The most recent example of the revival came two weeks ago when the Justice Department announced that it was intervening on behalf of Karol Schwartzkopf in his lawsuit alleging more than $36 million in fraudulent claims by Raytheon on the assembly and repair of Sidewinder and Sparrow missile systems.
A former project manager at a Raytheon plant in Lowell, Mass., Schwartzkopf claimed that the company "systematically" overcharged the Pentagon by billing for work that was never performed, charging twice for the same guidance and control sections of the missiles and grossly inflating its prices for spare parts.
Schwartzkopf, who worked for Raytheon for 24 years, also alleged in his complaint that he "repeatedly notified" Raytheon's contract managers orally and through "extensive memoranda" about the mischarges, even complaining at one point to an unidentified company vice president.
But, he alleged, the abuses had not ended by the time he retired from the company in September 1983.
In a statement last week, Raytheon Chairman Thomas L. Phillips angrily denied the Schwartzkopf allegations as "unfounded and unproven," adding that he was personally "offended that someone would suggest that we have a systematic, intentional plan to defraud the government."
A company spokesman added that Schwartzkopf had previously sued Raytheon in the French courts in the late 1970s over being transferred from his Paris-based job as an international marketing consultant.
As the Raytheon case suggests, the company strategy in many of these suits is to depict its accusers as disgruntled workers with axes to grind. Yet Schwartzkopf is far from alone:
This summer, J. David Navarette, an engineer at Rockwell International's Rocky Flats nuclear weapons plant in Colorado, filed a suit alleging that the contractor had committed up to $10 million in fraud at the facility.
Navarette charged that Rockwell managers and employes had used a "model shop" -- that was paid for by the Department of Energy and that was supposed to be used to make official display models of nuclear weapons -- to operate an illicit operation making such personal items as coffee mugs, wooden wine racks, foot massagers, radar detector brackets, laser medallion paperweights and belt buckles. Rockwell has denied the charges, but the Justice Department is now reviewing them to determine if intervention is warranted. A House subcommittee has also announced that it intends to look into them.
Last year, a former TRW accountant named Larry Eagleye alleged in a suit that the defense contractor submitted more than $100 million in phony claims for jet engine parts and other work at its Compressor Components division in Cleveland. Eagleyes's allegations prompted the Justice Department to intervene on his behalf in the civil litigation.
It also helped trigger a far-reaching criminal investigation into TRW that extended to other company facilities across the country.
TRW has since acknowledged that many of the fraudulent billings have taken place, but contends that it was not company policy.
The company recently reached a plea agreement over mischarges at one of its facilities in Colorado, consenting to paying $4.2 million in fines and penalties and setting aside another $12.9 million for potential penalties at its other facilities.
Last spring, a doctor named Paul E. Michelson filed suit against Scripps Clinic Medical Group charging the La Jolla, Calif., facility with defrauding the federal Medicare program by billing nonsurgical procedures as surgical, performing unnecessary procedures and charging for unauthorized experimental procedures. The Justice Department in September joined the suit.
The Justice Department itself is less than wildly enthusiastic about the spate of new suits.
Michael Hertz, the lawyer who heads the civil division's False Claims Unit, which is required to examine each of these suits, said the trend has increased his unit's workload "dramatically." To compensate, the unit has been beefed up to about 35 attorneys, about 12 more than a few years ago.
On a more philosophical basis, department officials complain that citizens who have knowledge of government wrongdoing ought to go to their local U.S. attorney's office, not their own private attorneys in hopes of reaping a financial windfall.
"This encourages people to file their own lawsuits" rather than performing their civic duties, said Stuart Schiffer, a deputy assistant attorney general in the civil division.
But public interest lawyer Phillips says the trend is in perfect keeping with the "privatization" philosophy of the Reagan administration -- deputizing private citizens to do the job of government.