Monday, October 22, 2012

Relators Pursue False Claims Act Defendant Into Bankruptcy

The Wichita Business Journal and the blog from Greene LLP have both highlighted an adversary case recently brought in U.S. Bankruptcy Court in the Southern District of New York (Case no. 12-11873-smb) by two relators against Hawker Beechcraft Corporation. The relators had brought a False Claims Act qui tam in U.S. District Court in Kansas (Case no. 07-1212-MLB) against Hawker, its subcontractor, TECT Aerospace, Inc., and other defendants that had  been pending for five years at the time Hawker sought bankruptcy protection. The suit arose from a government defense contract with Hawker to produce parts for military training aircraft. The suit alleges, according to the Greene blog, that "TECT used unapproved production processes that rendered the parts brittle and susceptible to corrosion . . . . .[and] that Hawker Beechcraft knew about these defects and yet failed to notify the government of the problems, inducing the government to accept defective merchandise. . . . .  [T]he relators have consequently claimed damages of more than $763 million in the case."  Hawker has sought to discharge its False Claims Act liability in bankruptcy. The relators, however, have filed an adversary proceeding alleging that Hawker's False Claims Act liability is not dischargeable in bankruptcy since the claims allegedly arose as a result of Hawker's fraudulent conduct and because the claim is owed to a "domestic governmental unit", both of which are exceptions to discharge in bankruptcy. The relators' adversary complaint can be found here.

A. Brian Albritton
October 22, 2012

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