Norman Rille v. United States , 803 F.3d 368 ( 2015 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 11-3514
___________________________
Norman Rille, United States of America, ex rel.; Neal Roberts, United States of
America, ex rel.,
lllllllllllllllllllll Plaintiffs - Appellees,
United States of America,
lllllllllllllllllllllIntervenor plaintiff - Appellant,
v.
PricewaterhouseCoopers LLP; PWC Consulting LLC; International Business
Machines, Inc.; IBM Global Services Company; Oracle Corporation; Boeing
Company; Cisco Systems, Inc.; Exostar Corporation; Exostar LLC; Lockheed
Martin Corporation,
lllllllllllllllllllll Defendants.
____________
Appeal from United States District Court
for the Eastern District of Arkansas - Little Rock
____________
Submitted: April 15, 2015
Filed: October 5, 2015
____________
Before RILEY, Chief Judge, WOLLMAN, MURPHY, BYE, SMITH, COLLOTON,
BENTON, and SHEPHERD, Circuit Judges, En Banc.
____________
COLLOTON, Circuit Judge.
As the Supreme Court has observed, “[t]he False Claims Act’s qui tam
provisions present many interpretive challenges.” Kellogg Brown & Root Servs., Inc.
v. United States ex rel. Carter, 135 S. Ct. 1970, 1979 (2015). In this case, two private
parties, called “relators,” brought an action in the name of the United States against
several government contractors, alleging that the contractors defrauded the
government. The United States, after investigating the case, elected to proceed with
the action against several defendants in place of the relators, and the government
eventually reached a settlement with two of the contractors. There followed a dispute
between the relators and the government over how much, if any, of the recovery
should be allocated to the relators. The district court awarded the relators a percentage
of the entire settlement.
This appeal raises a legal question under the Act: When the government
proceeds with an action brought by a relator under the False Claims Act, and then
settles both the claim brought by the relator and a different claim that does not overlap
factually with the claim brought by the relator, is the relator entitled to a share of the
proceeds of both claims? The better view according to the text and structure of the
statute is that the relator may recover only from the proceeds of the settlement of the
claim that he brought. Because the district court’s order does not clearly apply this
legal standard or make factual findings that are necessary to resolve the case under
this standard, we vacate the order and remand for further proceedings.
I.
In September 2004, Norman Rille and Neal Roberts, as relators, sued several
government contractors on behalf of the United States, alleging violations of the False
Claims Act, 31 U.S.C. §§ 3729-3733. The contractors were either “systems
integration consultants” who recommend hardware and software products to meet the
government’s information technology needs, or technology vendors who supply those
products. The relators’ original complaint alleged a kickback scheme, under which
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the vendors allegedly paid kickbacks to the consultants in exchange for the consultants
recommending the products of the vendors to the government.
The relators added Cisco Systems, Inc., as a defendant contractor in September
2005. Shortly thereafter, the relators offered the government some 700,000 pages of
documents; according to the relators, these documents contained evidence of
kickbacks and defective pricing involving Cisco and other defendants. Earlier in
2005, the Inspector General in the General Services Administration selected 112
government contracts for review. Among those was a contract with Comstor, a
distributor of Cisco products. Comstor’s contract allowed it to sell Cisco’s technology
products and services to government agencies. After the audit, the Inspector General
concluded that Comstor made inaccurate or incomplete disclosures to the government,
and failed to comply with price reduction obligations under the contract.
In October 2006, the relators amended their complaint to allege that the
defendant contractors failed to provide “current, accurate, and complete disclosure of
their best pricing . . . , thereby causing defective GSA and other government pricing
schedules.” According to the new allegation, the defective pricing resulted in
violations of the False Claims Act “as to both direct sales to the Government by a
Defendant, and indirect sales through [a vendor], with or without a Kickback.” In
April 2007, the government elected to intervene in part of the action, but declined to
intervene against Cisco at that time, as the government had not completed its review
of the company.
In March 2008, the government moved to intervene against Cisco. The
government explained that since April 2007, it had “received and considered
additional information from the Relators,” and that it had “also obtained and assessed
considerable additional information and documents from Cisco, as well as a number
of non-party witnesses that it had not had an opportunity to consider prior to April
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2007.” After the district court granted the motion in April 2008, the government
proceeded with the action as filed by the relators against Cisco and other defendants.
After two years of negotiation, the government reached a settlement with Cisco
and Comstor under which Cisco agreed to pay the government $44.16 million, and
Comstor agreed to pay $3.84 million. According to the agreement, the government
alleged that Cisco and Comstor engaged in the following “Covered Conduct”:
(1) made inaccurate and/or incomplete disclosures and/or false
statements, and/or presented or caused to be presented false claims to the
United States; (2) failed to disclose relevant discount, rebate, true-up,
benefits, credits, value-added, and pricing information to the United
States and, as a result, Contract pricing and orders issued pursuant to the
Contract were inflated; (3) as a result of the defective disclosures of
pricing information, submitted or caused to be submitted false or
fraudulent claims for payment; and (4) failed to comply with price
reduction obligations under the Contract and related letters of supply.
The agreement also provided for the dismissal of the relators’ action against Cisco, but
did not resolve the issue of the relators’ entitlement to a share of the settlement
proceeds.
Following the settlement, the relators moved to recover a share of the proceeds.
The applicable statute allows a relator to receive “at least 15 percent but not more than
25 percent of the proceeds of the action or settlement of the claim, depending upon the
extent to which the person substantially contributed to the prosecution of the action.”
31 U.S.C. § 3730(d)(1). The government objected to recovery on the ground that the
relators’ complaint did not plead the conduct that formed the basis of the claims that
the government ultimately settled with Cisco and Comstor. The government
maintained that the relators’ claims based on an alleged kickback scheme lacked
merit, and that the settlement covered a separate defective pricing scheme.
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The district court rejected the government’s argument and awarded the relators
seventeen percent of the $44.16 million paid by Cisco and fifteen percent of the $3.84
million paid by Comstor. United States ex rel. Rille v. Cisco Sys., Inc., No.
4:04CV00988-BRW, 2011 WL 4352309, at *4 (E.D. Ark. Sept. 19, 2011). The
government appeals the order.
II.
The False Claims Act provides that a private person “may bring a civil action
for a violation of section 3729 for the person and for the United States Government.”
31 U.S.C. § 3730(b)(1). Section 3729 establishes liability for certain acts that
constitute false claims against the government. When a private person brings an
action under § 3730(b), the government has the option to “proceed with the action”
or to “decline[] to take over the action.” Id. § 3730(b)(4). If the government
“proceeds with an action brought by a person under [§ 3730](b),” then the private
person is entitled, with an exception not relevant here, to receive a percentage of “the
proceeds of the action or settlement of the claim.” Id. § 3730(d)(1).
The relators contend that if the government proceeds with an action brought by
a relator, then the relator is automatically entitled to a percentage of any “proceeds”
that the government receives as a result. In their view, it does not matter whether the
claim settled by the government is factually related to the claim brought by the
relators. As long as the settled claim is resolved in an action that was initiated by the
relators, the relators say that they are entitled to recovery. Although the provisions
of the False Claims Act do not always “operate together smoothly like a finely tuned
machine,” Kellogg, 135 S. Ct. at 1979, we conclude that the statute will not bear the
construction advanced by the relators.
The relators are entitled to a share of “the proceeds of the action or settlement
of the claim.” 31 U.S.C. § 3730(d)(1). The Act contemplates that both a relator’s
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“action” and relator’s “claim” are filed in court: Section 3730(e)(4)(A) provides that
“[t]he court shall dismiss an action or claim” brought by a relator under certain
circumstances. The statute also distinguishes between two courses of action for a
relator—“bringing the action” and “settling the claim.” 31 U.S.C. § 3730(d)(2).
When addressing the relator’s right to recover proceeds, the statute’s distinction
between “the action” and “settlement of the claim” reads as though the first object
(“proceeds of the action”) captures proceeds of an action litigated to judgment and the
second object (“proceeds of the . . . settlement of the claim”) encompasses proceeds
of a settlement. If proceeds of a settlement were covered by the first object
concerning “proceeds of the action,” then the second object concerning settlement of
the claim would be superfluous.1
This case involves a settlement. With respect to settlement, § 3730(d)(1) is
clear that the relator’s share is based only on proceeds of “the claim.” The use of the
definite article refers back to the claim that is “brought by” the relator in “an action”
that he initiates. The next subsection of the statute likewise refers to the relator
“settling the claim” that he brought, in a case where the government does not proceed
with the action. 31 U.S.C. § 3730(d)(2) (emphasis added). The settlement language
of § 3730(d)(1) thus does not extend to a different claim that is settled by the
government when that claim was not originally “brought by” the relator. The relators’
right to recovery is limited to a share of the settlement of the claim that they brought.
The relators focus on the phrase “proceeds of the action,” and assert that “once
the Government intervenes in the relators’ action and receives its proceeds,” the
relator is entitled to a share of all the proceeds. Appellees’ Br. at 25. Even assuming
the proceeds-of-the-action language applies in the case of a settlement, the phrase
1
The dissent’s answer is that when a relator brings only a single claim, and the
government settles that claim, the proceeds of the settlement are not “proceeds of the
. . . settlement of the claim.” Post, at 12. We reject that view as contrary to the plain
meaning of the text.
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“proceeds of the action” refers back to “an action brought by a person.” The relators
would have this mean proceeds not of the action as brought by the relators, but of the
action as developed after intervention by the government. As a textual matter, this
seems unnatural. The phrase “proceeds of the action” is paired with “proceeds of the
. . . settlement of the claim,” and the settlement language refers to “the claim” brought
by the relator, not a claim later added by the government. It would be odd to read the
adjoining phrase—“proceeds of the action”—to encompass more than the action as
brought by the relator. It also would be inconsistent with the purposes of the Act to
permit a relator automatically to receive a share of the proceeds when the relator might
have had nothing to do with the government’s recovery on a particular claim that was
added after the government’s intervention.
The relators’ reading would create unwarranted disparities in recovery
depending on how the government pursues a new claim. The government has a
choice: it may add a new claim while proceeding with an action brought by a relator,
or it may pursue the same new claim through the use of an alternative remedy.
Section 3730(c)(5) provides that if the government pursues “its claim through any
alternate remedy available to the Government,” then “the person initiating the action
shall have the same rights” in the alternate proceeding “as such person would have
had” if the government had proceeded with the original action. This means that “the
relator has a right to recover a share of the proceeds of the alternate remedy to the
same degree that he or she would have been entitled to a share of the proceeds of an
FCA action.” United States ex rel. Barajas v. United States, 258 F.3d 1004, 1010 (9th
Cir. 2001) (internal quotation omitted).
When the government recovers from a defendant in an alternate proceeding,
however, a relator is not entitled to a share of whatever recovery the government
obtains, just because the government’s claim could have been added to the original
action brought by the relator. As the Sixth Circuit explained in United States ex rel.
Bledsoe v. Community Health Systems, Inc., 342 F.3d 634 (6th Cir. 2003), a relator
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seeking recovery must establish that “there exists [an] overlap between Relator’s
allegations and the conduct discussed in the settlement agreement.” Id. at 651. A
relator is not entitled to a share of the proceeds derived from a non-overlapping claim
that the government could have added in the original action but instead pursues in an
alternate proceeding. Given the equivalence of recovery required by § 3730(c)(5) and
§ 3730(d), it follows that the relator also has no right to a share if the government adds
the non-overlapping claim to the original action after intervening. Of course, the
government also may settle a non-overlapping claim without filing it in court.
Nothing in the Act requires the government to generate unnecessary litigation.
The question in this case, therefore, is whether the government’s recovery from
Cisco and Comstor is the “proceeds of the . . . settlement of the claim,” that is, “the
claim” brought by the relators. We agree with the Sixth Circuit that these proceeds
of “the claim” must extend to proceeds of a settlement in which “the conduct
contemplated in the settlement agreement . . . overlap[s] with the conduct alleged in
[the] Relator’s complaint.” Bledsoe, 342 F.3d at 651. Otherwise, the government
could deprive the relator of his right to recover simply by recasting the same or similar
factual allegations in a new claim or by pursuing the substance of the relator’s claim
in an alternate proceeding. But there must be a factual overlap for the relators to
recover.
In its September 2011 order determining the relators’ share of settlement
proceeds, the district court did not make adequate factual findings to allow appellate
review of whether the settlement was based on claims that factually overlapped with
the claims brought by the relators. See Fed. R. Civ. P. 52(a); King v. United States,
553 F.3d 1156, 1161-62 (8th Cir. 2009); Darst-Webbe Tenant Ass’n Bd. v. St. Louis
Hous. Auth., 339 F.3d 702, 711-12 (8th Cir. 2003). At one point, the court said that
the allegations in the relators’ complaint “appear to fit within the definition of
Covered Conduct” under the settlement agreement, United States ex rel. Rille, 2011
WL 4352309, at *3, but this cryptic statement is not sufficient to afford this court “a
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clear understanding of the basis of the trial court’s decision.” Allied Van Lines, Inc.
v. Small Bus. Admin., 667 F.2d 751, 753 (8th Cir. 1982).
Elsewhere, the district court apparently relied on its conclusion that the relators
“were the catalyst leading to the Government’s settlement,” while acknowledging that
the relators “were more focused on a kickback scheme that the Government asserts did
not exist.” United States ex rel. Rille, 2011 WL 4352309, at *4. A panel of this court
in Roberts v. Accenture, LLP, 707 F.3d 1011 (8th Cir. 2013), appeared to accept this
“catalyst” theory as a basis for recovery, on the view that a causal connection between
the relator’s claim and a later settlement is sufficient to show that a settlement is
“related” to a claim brought by the relator. Id. at 1017.
Whatever the merit of this theory as a policy matter, it is not derived from the
statute. The statute allows relators to recover a percentage of the proceeds of the
settlement of “the claim” brought by the relators, and only that claim. The Act
contemplates that the government, after it elects to intervene, may “clarify or add
detail” to the claims brought by the relators, or may “add any additional claims.” 31
U.S.C. § 3731(c). Recovery under § 3730(d)(1), however, does not extend to
proceeds of the settlement of such “additional claims,” whether or not they are
causally connected to the claim brought by the relators. The Act does not provide for
an award to relators from the proceeds of settlements that “resulted from” the claim
or were “caused by” the claim; relators are limited to a percentage of “proceeds of the
. . . settlement of the claim.”
For these reasons, we conclude that the case must be remanded for application
of the correct legal standard and adequate findings of fact. To resolve the relators’
claim for recovery, the district court should make findings about whether there is a
factual overlap between the claim or claims settled by the government and the claims
brought by the relators, such that proceeds of the settlement (or any portion thereof)
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should fairly be characterized as “proceeds of the . . . settlement of the claim” brought
by the relators.2
The district court’s order of September 19, 2011, R. Doc. 237, is vacated, and
the case is remanded for further proceedings.
BYE, Circuit Judge, with whom SMITH, Circuit Judge, joins, dissenting.
I would affirm the district court's order awarding Norman Rille and Neal
Roberts (the relators) a statutorily-required portion of the government's settlement of
the relators' action. The district court did not apply an incorrect legal standard to the
undisputed facts of this case, nor were the district court's fact findings inadequate for
us to review and affirm the relators' award. I disagree with the Court's textual
interpretation of the statute, and do not believe we should decide the legal question
framed by the Court because it cannot be squared with the actual facts involved here.
I therefore respectfully dissent from the decision to vacate the district court's award
and to remand for further proceedings.
I
The Court frames the legal question in this appeal as whether a relator is
entitled to a share of settlement proceeds when the government "settles both the claim
brought by the relator and a different claim that does not overlap factually with the
2
In its opening brief, the government argued that the relators are not entitled to
any share of the settlement proceeds because their defective pricing claim was legally
insufficient under Federal Rule of Civil Procedure 9(b). A panel of this court rejected
a comparable contention in Roberts, 707 F.3d at 1017-18, and the government does
not pursue its Rule 9(b) argument before the en banc court. At oral argument, the
government sought a remand for findings on whether the claim settled by the
government overlapped factually with the claims brought by the relators.
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claim brought by the relator." Ante at 2. Because the government never brought a
different claim in the relators' action, the question framed by the Court is not before
us.
I would frame the question as whether proceeds received by the government
after intervening in, settling, and dismissing with prejudice a relator's action constitute
"proceeds of the action" under 31 U.S.C. § 3730(d)(1). Under the facts present in this
case, I agree with the relators' contention that the False Claims Act (FCA) contains
just two preconditions relevant to such an award: (1) the government "proceeds with
an action" originally brought by the relator, and (2) the government receives "proceeds
of the action." This plain and straightforward textual construction reflects the views
expressed by Congress in enacting the FCA that a relator is entitled to a minimum
15% "finders fee" whenever the government elects to intervene in a relator's action
and receives proceeds from the resolution of that action (subject to certain statutory
exceptions not present here). See Roberts v. Accenture, LLP, 707 F.3d 1011, 1016
(8th Cir. 2013) ("If the Government comes into the case, the person is guaranteed a
minimum of 15% of the total recovery even if that person does nothing more than file
the action in federal court." (quoting 132 Cong. Rec. H9382-03)).
To avoid this plain and straightforward reading of § 3730(d)(1), the Court
reasons the phrase "proceeds of the action" does not refer to proceeds derived from
the settlement of an action, but only captures proceeds of an action litigated to final
judgment. The Court, however, does not explain the significance of a distinction
between proceeds derived from the settlement of an action and proceeds derived from
litigating an action to final judgment. Nor does the Court explain what purpose would
be served within the FCA that would necessitate Congress creating such a distinction.
The Court further reasons that if the proceeds derived from the settlement of an
action were covered by the phrase "proceeds of the action," then the phrase
"settlement of the claim" would be superfluous. I do not follow this reasoning. An
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action can be comprised of multiple claims. A single claim within an action can be
settled, or an entire action can be settled, and both are common occurrences in
litigation. If the government settles a single claim in a multi-claim action, the
proceeds of the settlement naturally fall within § 3730(d)(1)'s reference to "settlement
of the claim." If, however, the government settles the entire action, which was the
case here, the proceeds of the settlement naturally fall within § 3730(d)(1)'s reference
to "proceeds of the action." I do not understand why the phrase "settlement of the
claim" is superfluous unless Congress necessarily meant to limit the phrase "proceeds
of the action" to the proceeds of an action litigated to final judgment.3
The Court also rejects the relators' arguments even assuming the phrase
"proceeds of the action" captures the settlement proceeds at issue in this case. The
Court reasons that the proceeds must still derive from the action as originally brought
by the relators, and not as developed after intervention by the government. Although
I disagree with this premise (as I will explain later), the Court's explanation for its
premise is telling because it identifies precisely why the legal question framed by the
Court is not properly before us.
The Court explains that the settlement language referring to a "claim" must refer
to "the claim" brought by the relator, and "not a claim later added by the government."
Ante at 7. The court goes on to note "[i]t would be inconsistent with the purposes of
the Act to permit a relator automatically to receive a share of the proceeds when the
relator might have had nothing to do with the government's recovery on a particular
claim that was added after the government's intervention." Id. (emphasis added). But
those are not the facts of this case. The government never added any claims to the
relators' action after intervening.
3
The Court's reasoning is arguably inconsistent with other provisions in the
FCA, which refer to the government settling the action, not just settling the claim.
See, e.g., 31 U.S.C. § 3730(c)(2)(B) ("The government may settle the action with the
defendant . . .." (emphasis added)).
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As the Court notes, if the government wants to pursue a "different claim" it "has
a choice: it may add a new claim while proceeding with an action brought by a
relator, or it may pursue the same new claim through the use of an alternate remedy."
Id. This first choice is set forth in § 3731(c), which allows the government – after
intervening in the relators' action – to "file its own complaint or amend the complaint
of a person who has brought an action under section 3730(b) to clarify or add details
to the claims in which the Government is intervening and to add any additional claims
with respect to which the Government contends it is entitled to relief." (emphasis
added). In this case, although the government participated in the relators' action for
approximately two and a half years after intervening, the government never filed its
own complaint setting forth a different claim than the claims brought by the relators.
Nor did the government amend the relators' complaint to clarify or add details to the
relators' claims. Nor did the government amend the relators' complaint to add any
additional claims with respect to which it contended it was entitled to relief. Rather,
the only persons who made any claims in the relators' action were the relators. This
is undisputed.
The second of the government's two choices for pursuing a different claim is
set forth in § 3730(c)(5), which says "the Government may elect to pursue its claim
through any alternate remedy available to the Government, including any
administrative proceeding to determine a civil money penalty." In this case, the
government did not pursue a different claim through an alternate remedy under
§ 3730(c)(5), but instead elected to intervene in the relators' action. Again, this is
undisputed.
Identifying a "different" claim the government actually pursued – either within
the relators' action via § 3731(c)'s formal pleading provisions, or outside the relators'
action via § 3730(c)(5)'s alternate remedy provisions – would appear to be a necessary
prerequisite to requiring the district court to compare a relator's claim with the
government's claim to determine whether there is a factual overlap.
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Instead of identifying when and in what manner it pursued a different claim, the
government merely relies upon its inclusion of a reference to a particular contract
between Cisco and Comstor in the settlement agreement, the fact that the Inspector
General in the General Services Administration (GSA) audited that contract, and the
fact that the Department of Energy (DOE), Office of Inspector General (OIG) issued
a subpoena to Cisco as a result. While this certainly describes conduct that could form
the basis for the government to pursue a claim as a result of its DOE/OIG
investigation, it does not establish the government ever actually brought such a claim
in accordance with § 3731(c)'s pleading provisions, or pursuant to § 3730(c)(5)'s
alternate remedy provisions.
Because the only manner in which the government ever pursued its allegedly
different claim was within the confines of the relators' action, such a "claim" can not
as a matter of law be considered a different claim than the relators' claims because the
government never availed itself of the choices available to it under § 3731(c).
Moreover, while "a settlement pursued by the government in lieu of intervening in a
qui tam action asserting the same FCA claims constitutes an 'alternate remedy' for
purposes of 31 U.S.C. § 3730(c)(5)," United States ex rel. Bledsoe v. Cmty. Health
Sys., Inc., 342 F.3d 634, 649 (6th Cir. 2003), the settlement pursued by the
government here was not in lieu of intervening in the relators' action, but within the
relators' action after electing to intervene.
II
The Court's decision has troubling ramifications. First, the Court's approach
necessarily depends upon either ignoring § 3731(c)'s pleading provisions, excusing
the government from complying with § 3731(c) when it advances a post-settlement
litigation position disputing a relator's right to receive a share of the proceeds, or
judicially adding a third option where the government can informally add a claim to
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a relator's action in some manner other than through § 3731(c).4 I am not willing to
ignore § 3731(c)'s pleading provisions, or excuse the government from having to
comply with them. Nor do I believe it is proper to construct a third option for the
government that is not expressly set forth in the FCA.
I wonder what procedures would govern a judicially-constructed option
allowing the government to add a claim to the relators' action in some manner other
than as outlined in § 3731(c). Would this option employ a different definition of
"claim" than the one used by Congress at 31 U.S.C. § 3729(b)(2)(A)? Is the
government required to give the relators notice when it informally adds a claim to
their action? Does the government at least have to inform the district court when it
informally adds a claim to a qui tam action? Does an informally-added claim relate
back to the original complaint for statute of limitations purposes in the same manner
as when the government actually adds a claim in the "Government pleading" discussed
in § 3731(c)? I agree the FCA presents "many interpretive challenges," Kellogg
Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S. Ct. 1970, 1979
(2015), but following the Court's approach would cross the line between interpretation
and legislation.
Second, the Court's factual overlap remand is unsound, and I am concerned it
will confuse the district court in this case and district courts who have to wrestle with
future FCA cases. Describing certain conduct in a settlement agreement does not
equate to pursuing a claim, so where is the "different" government claim the district
4
To the extent § 3731(c)'s use of the word "may" is permissive, it merely
permits the government to choose between filing its own complaint or amending the
relators' complaint. If the government elects to add a claim in one of those manners,
however, the statute does not give the government a second permissive choice
between adding the claim through a formal pleading, or adding the claim in some
other unspecified informal manner. See 31 U.S.C. § 3731(c) (expressly referring to
the "Government pleading" contemplated by Congress).
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court is supposed to compare to the relators' claims? In this case, where the conduct
described by the government as a "different claim" was settled within an action
comprised exclusively of the relators' claims, there is no government claim to compare
to the relators' claims.
Typically, a factual overlap analysis is required in cases arising under
§ 3730(c)(5)'s alternate remedy provisions, not intervention cases governed by
§ 3730(d)(1). When the government elects not to intervene in a relator's action, and
instead pursues a claim through an alternate remedy, courts look to determine whether
there is a factual overlap between the claims pursued in the relator's action, and the
claims pursued in the government's independent action, because "the relator has a
right to recover a share of the proceeds of the alternate remedy to the same degree that
he or she would have been entitled to a share of the proceeds of an FCA action."
United States ex rel. Barajas v. United States, 258 F.3d 1004, 1010 (9th Cir. 2001)
(internal quotation omitted). In such a case, a district court can conduct a side-by-side
comparison of the claims pursued in the relator's action, and the claims pursued by the
government in an alternate proceeding, to determine whether there is a factual overlap.
Significantly, the Court does not cite any cases where a court has held a factual
overlap analysis applies in an intervention case.5 In fact, the Court cites just two cases
when discussing the need for a factual overlap remand – Barajas and Bledsoe. Both
Barajas and Bledsoe involved alternate remedy proceedings arising under
§ 3730(c)(5), not intervention proceedings governed by § 3730(d)(1).
5
One of the government's arguments in Roberts could arguably be construed as
a contention that a "factual overlap" analysis is required in an intervention case. See
Roberts, 707 F.3d at 1017. We rejected the government's argument on the facts,
however, and thus never addressed the legal question framed by the Court in this case.
See id.
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In this intervention case, it is improper to address the legal question whether a
factual overlap analysis applies because the government never brought a separate
claim under § 3731(c). But even if the government had complied with § 3731(c)'s
pleading provisions and had actually added a claim to the relators' action, such that the
question framed by the Court was properly before us, the Court's wholesale adoption
of the alternate remedy factual overlap analysis would still be wrong.
As we discussed in Roberts, Congress expressly outlined the three specific
situations where a relator's recovery may be reduced in intervention cases. See
Roberts, 707 F.3d at 1016. The first statutory exception for reducing a relator's
recovery in an intervention case is where the relator "planned and initiated" the FCA
violation. 31 U.S.C. § 3730(d)(3). The second is where the relator "is convicted of
criminal conduct arising from his or her role in the violation." Id. The third statutory
exception is a limitation of the relator's share of the recovery to "no . . . more than 10
percent of the proceeds" where the relator's "action is one which the court finds to be
based primarily on disclosures of specific information" traceable to a source other than
the relator. Id. § 3730(d)(1).
Congress clearly envisioned situations where the government may add
additional claims to a relator's action under § 3731(c), and yet did not see fit to create
a fourth exception allowing for a reduction of a relator's share of the recovery in such
situations. The Court's adoption of the alternate remedy factual overlap analysis in an
intervention case would create a fourth exception allowing a reduction not
contemplated by Congress. Again, this approach would cross the line between
interpretation and legislation.
Here, the government contends the relators' action was unrelated to what I will
call the "Comstor conduct" outlined in the settlement agreement, and thus relators
should not receive any portion of the settlement proceeds because the government
discovered the "Comstor conduct" through the GSA audit and ensuing DOE/OIG
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investigation. The government further contends the entire settlement is attributable
to the "Comstor conduct."
Under the Court's approach, on remand the district court is supposed to
determine whether that different "claim" (even though the government never added
such a claim to the relators' action) overlaps factually with the relators' claims. If
there is no overlap, the relators will receive no portion of the settlement proceeds
attributable to the "Comstor conduct." And if the district court finds that the entire
settlement of the relators' action was attributable to the "Comstor conduct," then the
relators will receive no portion of the settlement proceeds whatsoever, because such
a "claim" was not part of the action as originally brought by the relators.
With all due respect, that is not how the FCA operates in intervention cases.
In an intervention case, even if the government had asserted and was successful in
showing the "Comstor conduct" was based on disclosures of information traceable to
a source other than the relators, and even if the government had asserted and was
successful in showing the disclosure of the "Comstor conduct" resulted in the relators'
entire action being based "primarily" on those disclosures, the relators would still be
entitled to at least ten percent of the entire recovery, not just the portion of the
recovery attributable to the claims as originally brought by the relators.6 See 31
U.S.C. § 3730(d)(1) ("Where the action is one which the court finds to be based
primarily on disclosures of specific information . . . relating to allegations or
transactions in a . . . Government Accounting Office report, hearing, audit, or
investigation . . . the court may award such sums as it considers appropriate, but in no
case more than 10 percent of the proceeds, taking into account the significance of the
information and the role of the person bringing the action in advancing the case to
litigation."). Thus, the appropriate inquiry requires a review of the entire action to
6
The government has never contended the relators do not qualify as original
sources of the information in their qui tam action under § 3730(e)(4)(A).
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determine the primary basis of the action, and does not involve an analysis of the
factual overlap of individual claims within the action.
Under the Court's approach, if the government had actually added a claim to the
relators' action which was based upon disclosures of specific information traceable to
a source other than the relators (something not done here), and that additional claim
did not overlap factually with the relators' claim, the relators would not be entitled to
any portion whatsoever of the settlement proceeds arising from such a claim. This
approach – essentially a fourth exception for reducing a relator's recovery not set forth
in the FCA – cannot be reconciled with the express provisions found in § 3730(d)(1).7
The government's choice to intervene in this case clearly triggers specific FCA
provisions that require different inquiries than those applicable to alternate remedy
proceedings. An examination of this record always exposes the same fundamental
flaw in the government's position – the government never added any of its own claims
in the relators' action after intervening. The government's failure to avail itself of the
formal pleading provisions set forth in § 3731(c) is dispositive as a matter of law.
7
The government only made two arguments in the district court when
challenging the relators' right to recover a share of the settlement proceeds: (1) its
"different claim" argument; and (2) a Rule 9(b) argument which it chose not to pursue
in these en banc proceedings. Notably, the government has never argued the relators'
recovery should be limited to ten percent pursuant to § 3730(d)(1)'s statutory
exception. The government's ability to rely upon this statutory exception has therefore
been waived, and the fifteen percent to twenty-five percent provisions of § 3730(d)(1)
govern this case. See George K. Baum & Co. v. Twin City Fire Ins. Co., 760 F.3d
795, 803 (8th Cir. 2014) (explaining that arguments not raised in the district court are
waived, as are arguments not raised on appeal).
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III
Finally, even assuming the district court was required to do some sort of factual
overlap analysis under the circumstances present here, I find nothing lacking in the
factual findings actually made by the district court. The district court compared the
facts the government described in the settlement agreement as the "Covered Conduct"
to the allegations in the relators' complaint. The district court then concluded the
relators' claims "appear to fit" with the facts described by the government in the
settlement agreement.
We can quibble about whether the district court's use of the phrase "appear to
fit" is simply a colloquial expression for "does fit" or an equivocal statement. But the
fact of the matter is, the conduct described by the government in the settlement
agreement does fit within the claims made by the relators in their action, and there is
nothing unclear about this record that requires a remand. In the settlement agreement,
the government described the particular GSA contract it contends was the source of
its "different claim," and alleges with respect to that particular contract that Cisco and
Comstor:
(1) made inaccurate and/or incomplete disclosures and/or false
statements, and/or presented or caused to be presented false claims to the
United States; (2) failed to disclose relevant discount, rebate, true-up,
benefits, credits, value-added, and pricing information to the United
States and, as a result, Contract pricing and orders issued pursuant to the
Contract were inflated; (3) as a result of the defective disclosures of
pricing information, submitted or caused to be submitted false or
fraudulent claims for payment; and (4) failed to comply with price
reduction obligations under the Contract and related letters of supply.
This language is indistinguishable in meaning from the claims outlined in the
relators' third amended complaint, which alleged that "Defendants failed to provide
to GSA and other government agencies current, accurate and complete disclosure of
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their best pricing (after all discounts, rebates, and other benefits)." And why would
the government ever include conduct unrelated to the relators' action in the settlement
of the relators' action to begin with? This makes no sense.
It is clear to me the district court saw through the government's transparent
attempt to dissociate the settlement proceeds from a qui tam action comprised
exclusively of relators' claims, and appropriately awarded the relators a share of the
"proceeds of the action."
IV
In sum, the government's position is flawed on at least three levels: (1) it
depends upon a strained and incorrect reading of the phrase "proceeds of the action;"
(2) it is based upon the factually incorrect premise that the government added a
different claim to the relators' action; and (3) it advocates for the wholesale adoption
of a claim-by-claim factual overlap analysis applicable in § 3730(c)(5) alternate
remedy proceedings that cannot be reconciled with express FCA provisions applicable
in intervention cases.
The government's position was correctly rejected in the original panel decision
after exposing its first flaw, without having to address or discuss its other flaws. It
should be rejected now in these en banc proceedings for the same reason.
I respectfully dissent.
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