The Supreme Court heard oral arguments yesterday in a case that could spell the end of a widespread, lucrative practice that allows whistleblowers to sue for fraud on behalf of the federal government and reap part of the settlement or fine.

The False Claims Act citizen-lawsuit provision has become an effective tool in tracking down government cheats, particularly in defense contracting and health care. Since 1986, the last time the Civil War law was amended, it has earned the U.S. Treasury close to $3 billion, and individual citizens about $443 million, according to Justice Department figures.

Yesterday's case from Vermont actually started out as a modest, little-watched dispute focusing on whether whistleblowers could sue state agencies using the statute. Jonathan Stevens, who worked for the Vermont Agency of Natural Resources, accused the agency of exaggerating the time state workers spent on federally funded environmental protection projects. Vermont countered that a state could not be sued under the whistleblower law that says "persons" can be held liable, but a federal appeals court sided with Stevens.

The Supreme Court agreed to hear the state's appeal on this narrow question. But after all the written briefs were in and oral arguments scheduled, the justices upped the stakes. On Nov. 19 they added a new, far more consequential, question to the dispute: whether the Constitution gives private individuals legal "standing" to sue anyone at all for fraud against the government. That goes to the heart of the False Claims Act provisions known by the Latin phrase of "qui tam" and referring to "he who brings an action for the king as well as for himself."

Yesterday, Justice Department lawyer Edwin S. Kneedler and Theodore B. Olson, representing Jonathan Stevens, argued that the whistleblower provision reflects the dual interests of the government and the person who blows the whistle. Kneedler noted that most of the stake lies with the federal government, but as long as a private citizen earns a portion of the settlement (in this case 25 percent), he has a concrete interest that gives him standing to sue.

"This is one of the least expensive and most effective means of preventing fraud upon the Treasury," Olson added, emphasizing the nation's long history of allowing citizen lawsuits on behalf of the government.

J. Wallace Malley Jr., representing the Vermont Agency of Natural Resources, argued that whistleblowers lack standing to sue, but emphasized as a threshold matter, states do not fall under the False Claims Act qui tam provisions. He added that the federal government has enough "ammunition" in the form of other regulations and statutes to keep the states "squeaky clean."

It was unclear yesterday how far a majority of the court might go in curtailing whistleblower lawsuits. Many of the justices seemed sympathetic to the argument that in this case Vermont should not have been vulnerable to a lawsuit, but some key justices were plainly wary of undercutting the statute altogether. Congress has authorized some form of these citizen lawsuits "from the earliest days," observed Justice Sandra Day O'Connor.

The case of Vermont Agency of Natural Resources v. Stevens is likely to be decided by next summer.