United States Ex Rel. Wickliffe v. EMC Corp. , 473 F. App'x 849 ( 2012 )

FILED
United States Court of Appeals
Tenth Circuit
April 4, 2012
UNITED STATES COURT OF APPEALS A. Shumaker
Elisabeth
Clerk of Court
TENTH CIRCUIT
United States of America ex rel.
CHRISTOPHER A. WICKLIFFE and
MARK J. HANSON,
Plaintiffs-Appellants,
v.
Nos. 09-4082 and 10-4174
(D.C. No. 1:06-CV-00064-DAK)
EMC CORPORATION,
(D. Utah)
Defendant,
_________________________
UNITED STATES OF AMERICA,
Interested Party-Appellee.
ORDER AND JUDGMENT *
Before TYMKOVICH, SEYMOUR, and GORSUCH, Circuit Judges.
Christopher A. Wickliffe and Mark J. Hanson (“Relators”) brought this qui
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
tam action under the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq. 1 They
appeal the district court’s dismissal of the action on the government’s motion.
We affirm.
Relators’ complaint alleges EMC Corporation knowingly sold defective
computers to government agencies and fraudulently concealed information
regarding the defect. Before EMC was served with the complaint, 2 the
government asked the district court to dismiss the action under the FCA’s so-
called “first-to-file” bar, 31 U.S.C. § 3730(b)(5), after electing not to intervene. 3
1
The FCA was amended several times after the filing of this lawsuit. See
Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, § 4, 123 Stat.
1617, 1621-25; Patient Protection and Affordable Care Act, Pub. L. No. 111-148,
§ 10104(j)(2), 124 Stat. 119, 901-02 (2010); Dodd-Frank Wall Street Reform and
Consumer Protection Act, Pub. L. No. 111-203, § 1079A(c), 124 Stat. 1376, 2079
(2010). Although some of the statutory changes are retroactive, none of the
affected provisions impact our analysis in this case.
2
When a relator files a qui tam action, “the complaint remains under seal
for at least sixty days, plus any extensions, during which time the Government
has the opportunity to investigate the claim and determine whether it wants to
intervene.” Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 932 (10th Cir. 2005)
(citing 31 U.S.C. § 3730(b)(2) and (3)). During this time, the complaint is not
served on the defendant. “After the Government intervenes or declines to
intervene, the complaint is unsealed and served on the defendant.” Id. (citing 31
U.S.C. § 3730(b)(3)).
3
“When a person brings a[ qui tam] action under this subsection, no person
other than the Government may intervene or bring a related action based on the
facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). This provision
“functions both to eliminate parasitic plaintiffs who piggyback off the claims of a
prior relator, and to encourage legitimate relators to file quickly by protecting the
spoils of the first to bring a claim.” In re Natural Gas Royalties Qui Tam
Litigation (CO2 Appeals), 566 F.3d 956, 961 (10th Cir. 2009).
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The government contended Relators’ action was barred because an earlier-filed
complaint (the “Wade complaint”) alleged the same essential scheme and material
elements as the Relators’ complaint. After considerable procedural maneuvering,
the government ultimately moved to dismiss under 31 U.S.C. § 3730(c)(2)(A),
which allows the government to dismiss a relator’s suit “notwithstanding the
objections of the [relator]” if the relator is given notice and an opportunity for a
hearing. 4 The district court concluded the government had sufficient support for
its § 3730(c)(2)(A) motion to dismiss, and alternatively that Relators’ action was
barred by the first-to-file rule of § 3730(b)(5).
“We review de novo the district court’s interpretation of the FCA and its
determination of what standard to apply to the Government when it moves to
dismiss a qui tam action.” Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 930 (10th
Cir. 2005). “We review the district court’s dismissal of a qui tam action with
4
The district court originally issued an order dismissing this action sua
sponte solely on the grounds of 31 U.S.C. § 3730(c)(2)(A). Judgment was entered
on April 1, 2009, and Relators filed a timely notice of appeal. Without realizing a
notice of appeal had been filed, the district court withdrew its judgment and
ordered supplemental briefing. We ordered the parties to submit supplemental
briefs on jurisdictional questions we raised. We then abated the appeal and
partially remanded the case to the district court to resolve the issues raised in the
supplemental briefing. After further proceedings, the government moved to
dismiss pursuant to § 3730(c)(2)(A). The district court again dismissed Relators’
action under that section, and alternatively under the first-to-file rule of
§ 3730(b)(5). Relators filed a timely appeal. Because the district court entered a
final judgment in its second decision dismissing the action, the jurisdictional
issues originally reserved for the merits panel in this appeal have become moot.
See 28 U.S.C. § 1291.
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prejudice for abuse of discretion.” Id.Relators argue dismissal is improper under the FCA’s first-to-file bar, 31
U.S.C. § 3730(b)(5), contending the earlier-filed Wade complaint was defective
and therefore incapable of barring subsequent actions. Complaints alleging
violations of the FCA must satisfy the heightened pleading standard of Fed. R.
Civ. P. 9(b), which requires allegations of fraud to be “state[d] with
particularity.” See United States ex rel. Lemmon v. Envirocare of Utah, Inc., 614
F.3d 1163, 1171 (10th Cir. 2010). Both Relators and the government maintain
that the heightened pleading standard of Rule 9(b) is relevant to the first-to-file
bar. That is, in their view, an earlier-filed complaint in a pending action does not
trigger the first-to-file bar of § 3730(b)(5) unless it satisfies the heightened
pleading requirement of Rule 9(b). The parties disagree, however, about whether
the Wade complaint met this heightened standard.
The circuits are split regarding whether the first-to-file bar incorporates
Rule 9(b)’s particularity requirement. Compare Walburn v. Lockheed Martin
Corp., 431 F.3d 966, 972-73 (6th Cir. 2005) (holding earlier complaint could not
preempt a later-filed action under the first-to-file bar where it failed to comply
with Rule 9(b)), with United States ex rel. Batiste v. SLM Corp., 659 F.3d 1204,
1210 (D.C. Cir. 2011) (“[F]irst-filed complaints need not meet the heightened
standard of Rule 9(b) to bar later complaints; they must provide only sufficient
notice for the government to initiate an investigation into the allegedly fraudulent
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practices, should it choose to do so.”), and United States ex rel. Branch
Consultants v. Allstate Ins. Co., 560 F.3d 371, 378 n.10 (5th Cir. 2009) (“The
sufficiency of the [earlier] complaint under Rule 9(b) is a matter for that court to
decide in the first instance.”). We admit to being uneasy with the parties’
suggestion that Rule 9(b)’s particularity requirement should be applied to the
first-to-file bar. Such an interpretation of § 3730(b)(5) “would create a strange
judicial dynamic, potentially requiring one district court to determine the
sufficiency of a complaint filed in another district court, and possibly creating a
situation in which the two district courts disagree on a complaint’s sufficiency.”
Batiste, 659 F.3d at 1210.
We need not decide the Rule 9(b) question, however, because we may
resolve this case on the government’s § 3730(c)(2)(A) motion to dismiss rather
than on the first-to-file rule. Although we have characterized the first-to-file bar
as “a jurisdictional limit on the courts’ power to hear certain duplicative qui tam
suits,” Grynberg v. Koch Gateway Pipeline Co., 390 F.3d 1276, 1278 (10th Cir.
2004), we need not reach this issue before deciding whether the government
provided sufficient justification for dismissal under 31 U.S.C. § 3730(c)(2)(A).
As the Supreme Court has explained, “a federal court has leeway ‘to choose
among threshold grounds for denying audience to a case on the merits.’”
Sinochem Int’l Co. v. Malaysia Int’l Shipping Corp., 549 U.S. 422, 431 (2007)
(quoting Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 585 (1999)).
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“Jurisdiction is vital only if the court proposes to issue a judgment on the merits.”
Id. (alteration and internal quotation marks omitted). “If . . . a court can readily
determine that it lacks jurisdiction over the cause or the defendant, the proper
course would be to dismiss on that ground.” Id. at 436. But where the
jurisdictional issue “is difficult to determine” and a non-merits issue “weigh[s]
heavily in favor of dismissal, the court properly takes the less burdensome
course.” Id.
Dismissal under § 3730(c)(2)(A) avoids a decision on the merits, see
Sinochem, 549 U.S. at 431, and “does not entail any assumption by the court of
substantive law-declaring power,” see id. at 433 (internal quotation marks
omitted). Thus, we may address this issue without deciding the complicated first-
impression issue of the applicability of Rule 9(b) to § 3730(b)(5). See Sinochem,
549 U.S. at 435-36 (resolving case under non-merits forum non conveniens
doctrine was proper where “subject-matter jurisdiction presented an issue of first
impression”). 5
The FCA provides that the government may dismiss a qui tam action
“notwithstanding the objections of the person initiating the action if the person
has been notified by the Government of the filing of the motion and the court has
5
Relators also argue that the Wade complaint was jurisdictionally defective
because it violated the FCA’s public disclosure rule. See 31 U.S.C.
§ 3730(e)(4)(A). For the reasons stated above, however, we also need not address
this issue.
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provided the person with an opportunity for a hearing on the motion.” 31 U.S.C.
§ 3730(c)(2)(A). The government is not required to intervene in the action before
moving to dismiss it under § 3730(c)(2)(A). Ridenour, 397 F.3d at 932.
We have not articulated what level of scrutiny a district court should apply
when the government moves to dismiss a qui tam action under § 3730(c)(2)(A)
before the defendant has been served with the complaint. Where the defendant
had been served, the Ninth Circuit held that a qui tam action may be dismissed
pursuant to § 3730(c)(2)(A) if “the government offers reasons for dismissal that
are rationally related to a legitimate government interest . . . .” United States ex
rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1147 (9th
Cir. 1998). The D.C. Circuit subsequently declined to adopt the Sequoia test,
holding instead that § 3730(c)(2)(A) provides the government a virtually
“unfettered right to dismiss [the] action.” Swift v. United States, 318 F.3d 250,
252 (D.C. Cir. 2003). In its view, the government’s decision to dismiss a qui tam
action under § 3730(c)(2)(A) is nearly unreviewable by the court, 6 and “the
function of a hearing when the relator requests one is simply to give the relator a
formal opportunity to convince the government not to end the case.” Id. at 253.
The defendants in Swift had not yet been served with the complaint, id. at 251, but
6
Swift left open the possibility that there may be rare exceptions to this
rule, as in cases involving fraud on the court. See Swift, 318 F.3d at 253; see also
Hoyte v. Am. Nat’l Red Cross, 518 F.3d 61, 65 (D.C. Cir. 2008).
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the D.C. Circuit subsequently applied Swift’s interpretation of § 3730(c)(2)(A) in
a case where the defendant had been served. See Hoyte v. Am. Nat’l Red Cross,
518 F.3d 61, 65 (D.C. Cir. 2008).
In Ridenour, 397 F.3d 925, we were asked to decide what standard applies
when the government moves to dismiss a qui tam action under 31 U.S.C.
§ 3730(c)(2)(A) after the defendant has been served. We adopted the Sequoia
test, which requires the government to identify a valid governmental purpose that
is rationally related to dismissing the action. Id. at 936 (quoting Sequoia, 151
F.3d at 1145). If the government satisfies this test, the burden shifts to the relator
to show that dismissal is “fraudulent, arbitrary and capricious, or illegal.” Id.(internal quotation marks omitted). “[T]o establish a rational relation to a valid
governmental purpose, there need not be a tight fitting relationship between the
two; it is enough that there are plausible, or arguable, reasons supporting the
agency decision.” Id. at 937 (alteration and internal quotation marks omitted).
We expressly declined to decide “whether § 3730(c)(2)(A) gives the judiciary the
right to pass judgment on the Government’s decision to dismiss an action where
the defendant has not been served and where the Government did not intervene in
the action, facts of the sort presented in Swift.” Id. at 936 n.17. As a result, it
remains an open question in this Circuit whether Swift or Sequoia provides the
proper scope of judicial review in cases such as the one before us.
The government urges us to apply Swift, and Relators ask us to extend
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Ridenour and follow Sequoia. The district court found it likely we would follow
Swift but also concluded the government satisfied “the slightly more restrictive
Ridenour standard.” Aplt. App., vol. I at 204. We need not resolve this question
because even under the greater judicial scrutiny imposed by the Sequoia standard,
the government’s motion to dismiss passes muster in this case.
In support of its § 3730(c)(2)(A) motion, the government asserted it had
become aware of the allegations against EMC in 2004, before Relators filed this
suit, and had been investigating EMC since then. It explained that it had resolved
the fraud allegations against EMC by entering into a settlement agreement with
EMC and Mr. Wade in the related Wade action. The government attached the
notice given to Relators in this case regarding the Wade settlement. During oral
argument in this appeal, Relators’ counsel conceded the Wade settlement prevents
the government from recovering additional damages from EMC.
The government has a valid interest in ending duplicative litigation
involving resolved claims. Cf. Grynberg, 390 F.3d at 1279 (“Once an initial qui
tam complaint puts the government and the defendants on notice of its essential
claim, all interested parties can expect to resolve that claim in a single lawsuit.”).
Dismissal of the current action is rationally related to the government’s interest in
ending a duplicative action that would result in no recovery for the government.
Thus the government has met the burden established in Sequoia. See Ridenour,
397 F.3d at 936-37.
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Because the government provided a rational reason for dismissing this
action, the burden shifted to Relators under the Sequoia standard “to demonstrate
that dismissal is fraudulent, arbitrary and capricious, or illegal.” Id. at 937(internal quotation marks omitted). They failed to do so. Relators essentially
argue that dismissal under § 3730(c)(2)(A) is arbitrary and capricious because
they – not Mr. Wade – are the proper relators and are entitled to a share of any
settlement with EMC. See 31 U.S.C. § 3730(d). But the potential merit of a qui
tam action is insufficient to overcome the government’s rational reasons for
dismissing the suit. In both Sequoia, 151 F.3d at 1143, and Ridenour, 397 F.3d at
930, the government conceded for purposes of its motions to dismiss that the suits
were meritorious. In neither case was the merit of the qui tam action sufficient
for the relator to prevent dismissal under § 3730(c)(2)(A). Even “a meritorious
suit may be dismissed upon a proper showing [by the government].” Sequoia,
151 F.3d at 1144. Relators also speculate that their qui tam action provided a
catalyst for, or evidence used in, settlement of the Wade action. Such
speculation, without more, is insufficient to demonstrate the government is
engaging in fraudulent, illegal, or arbitrary and capricious action.
Finally, Relators complain that they were not afforded an adequate hearing
on the § 3730(c)(2)(A) motion. We are not persuaded. A relator’s request for a
hearing under § 3730(c)(2)(A) is “only to be granted if [the] relator[] can show a
‘substantial and particularized need for a hearing.’” Ridenour, 397 F.3d at 931
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(quoting S. Rep. 99-345, at 26 (1986), reprinted in 1986 U.S.C.C.A.N. 5266,
5291). We have noted that Congress intended such hearings “should not pose a
significant burden for the government or courts.” Id. at 931 n.10. Here, Relators
made no effort to show they had a “substantial and particularized need” for an
evidentiary hearing. And, in any event, the issues raised in the government’s
§ 3730(c)(2)(A) motion were addressed during the district court’s hearing on
April 28, 2010. Relators do not claim they were denied a right to present their
argument against dismissal. Their displeasure with the government’s proffered
reasons for dismissal does not render the hearing inadequate.
We AFFIRM.
ENTERED FOR THE COURT
Stephanie K. Seymour
Circuit Judge
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