Legal Costs Related to Fraud Allegations are Allowable Costs if the Company is Not Found Liable
(Editor’s Note. The following case underscores the provision that the outcome of a fraud case determines the allowability or unallowability of the legal related costs.)
Under its operations contracts at the Rocky Flats nuclear weapons plant, James Stone brought a qui tam suit under the False Claims Act (FCA) alleging Rockwell misrepresented or failed to disclose certain environmental problems. A jury award of $4.1 million was made to Mr. Stone but the Supreme Court found the court lacked jurisdiction since Mr. Stone was not an “original source” for the information. Rockwell sought reimbursement for legal costs of defending the Stone lawsuit and the appeals board sided with Boeing, who was the successor to Rockwell, asserting that from the time Stone brought the lawsuit in 1989 to the time the government took it over in 1995, Boeing was entitled to recover the defense costs since legal costs for litigation expenses for which it is not found liable
