Title United States ex rel. Merena v. SmithKline Beecham Corporation
Date 2000
By Alito
Subject Misc
Contents
Page 1
LEXSEE 205 F3D 97
UNITED STATES OF AMERICA EX REL. ROBERT J. MERENA v. SMITHKLINE BEECHAM CORPORATION; United States of America, Appellant; UNITED STATES OF AMERICA EX REL. KEVIN J. SPEAR; THE BERKELEY COMMUNITY LAW CENTER; JACK DOWDEN v. SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.; United States of America, Appellant; UNITED STATES OF AMERICA EX REL. GLENN GROSSENBACHER; CHARLES W. ROBINSON, JR. v. SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.; United States of America, Appellant
No. 98-1497, No. 98-1498, No. 98-1499
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
205 F.3d 97; 2000 U.S. App. LEXIS 2948
March 5, 1999, Argued
February 29, 2000, Filed
SUBSEQUENT HISTORY: **1 As Amended April
21, 2000.
PRIOR HISTORY: ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA. (Dist. Ct. Nos. 93-cv--
5974 and 95-cv--6551). District Judge: The Honorable
Donald W. VanArtsdalen. DISPOSITION: Reversed and remanded. LexisNexis(R) Headnotes
COUNSEL: Douglas N. Letter, Freddi Lipstein (ar- gued), United States Department of Justice, Civil Division, Appellate Staff, Washington, D.C., Attorneys for Appellant United States of America.
Marc S. Raspanti (argued), Miller, Alfano & Raspanti, Philadelphia, PA, Attorney for Appellee Robert J. Merena.
Thomas H. Lee, II, Dechert, Price & Rhoads, Philadelphia, PA, Attorney for Appellee Smithkline Beecham.
Normand F. Pizza, Nyda S. Brook, Christopher J. Shenfield, Brook, Pizza, & Van Loon, New Orleans, LA, Attorneys for Appellee William, St. John & LaCorte.
John E. Clark, Goode, Casseb & Jones, San Antonio TX, Attorney for Appellees Charles W. Robinson, Jr., and Glenn Grossenbacher.
Peter W. Chatfield, Phillips & Cohen, Washington, DC, Attorney for Appellees Kevin J. Spear, Berkeley Community Law Center, and Jack Dowden.
Carol S. Dew, Dew & Smith, Monroe, GA, Attorney for
Appellee Jeffrey Clausen.
Lisa R. Hovelson, Taxpayers Against Fraud, **2 Washington D.C., Attorney for Amicus Curiae Taxpayers Against Fraud, The False Claims Act Legal Center.
Daniel Popeo, Paul D. Kamenar, Washington Legal Foundation, Washington, Attorneys for Amicus Curiae Washington Legal Foundation.
JUDGES: Before: ALITO, McKEE, AND GARWOOD,
* Circuit Judges.
* The Honorable Will L. Garwood, Senior Circuit Judge for the United States Court of Appeals for the Fifth Circuit, sitting by designation.
OPINIONBY: ALITO
OPINION:
*98 OPINION OF THE COURT ALITO, Circuit Judge:
In this appeal, the United States challenges the District Court's decision to award a group of qui tam rela- tors approximately $52 million of the government's set- tlement with defendant SmithKline Beecham Clinical
205 F.3d 97, *98; 2000 U.S. App. LEXIS 2948, **2
Page 2
Laboratories of a variety of claims under the False Claims Act, 31 U.S.C. § 3729 et seq. For the reasons explained below, we reverse and remand for further proceedings.
I.
A. In 1992, the United States began to suspect that SmithKline Beecham Clinical Laboratories ("SKB") and several other medical laboratories had adopted the follow- ing scheme that allowed them to bill the federal govern- ment for unauthorized and unnecessary laboratory tests.
**3 The laboratories had "bundled" a standard group- ing of blood tests with some additional tests and had then marketed this grouping to doctors by leading them to be- lieve that the additional tests would not increase costs to Medicare and other government-sponsored health pro- grams.
After the tests were ordered, the laboratories "unbun- dled" the additional tests from the standard grouping for purposes of billing. In many instances, treating physicians had made no determination that the additional tests were medically necessary for the diagnosis *99 or treatment of patients; instead, the physicians had ordered the tests solely because they were sold as a package with other tests that they had deemed necessary. As a result, the laborato- ries submitted bills--and received payment--for tests that were medically unnecessary.
This scheme, which later became known as the "au- tomated chemistry" scheme, attracted national attention in December 1992 when one of the contractors that had engaged in the practice, National Health Laboratories, settled a lawsuit brought under the False Claims Act for
$111 million. See Joint App. at 1432-1441. Public interest grew as the news **4 media reported that the govern- ment had issued comprehensive subpoenas to SKB and other laboratories. See Joint App. at 1442-1450, 1451-
1457, 1470-1473.
B. In November 1993, relator Robert Merena, an SKB employee, filed a qui tam action against SKB in the United States District Court for the Eastern District of Pennsylvania. His complaint contained eight separate claims under the False Claims Act. Merena's complaint alleged that SKB had defrauded the government by, in- ter alia, billing for tests that were not performed, double billing, paying illegal kickbacks to health care profession- als, and adding tests to "automated chemistry" profiles and then separately billing for those tests. App. at 75-103.
One month later, relator Glenn Grossenbacher, an attorney, filed a second qui tam action against SKB in the United States District Court for the Western District of Texas. n1 Relators Kevin Spear, Jack Dowden, and the Berkeley Community Law Center (collectively, "the Spear relators") followed in February of 1995 with a suit
in the Northern District of California. The courts in Texas and California transferred these actions to the Eastern District of Pennsylvania for consolidation with **5 the Merena case.
n1 In August 1995, Dr. Charles Robinson, a for- mer SKB medical director in San Antonio, joined the Grossenbacher complaint.
After Merena's action was filed, the government com- menced an investigation into a series of new claims that were not part of its original investigation. At the same time, the government continued to pursue the original "au- tomated chemistry" investigation that it had begun after the 1992 settlement with National Health Laboratories.
C. In August 1995, the government began formal settlement negotiations with SKB. The government pre- sented SKB with a written settlement framework that al- located a specific dollar amount for each alleged false claim. Joint App. at 1476-1491.
By early 1996, SKB and the government had reached a tentative agreement to settle, for $295 million, cer- tain federal and state claims for losses occurring through December 31, 1994. This agreement was intended to set- tle claims related to the government's original "automated chemistry" investigation, along **6 with additional claims in the qui tam actions filed by relators Merena, Grossenbacher, and Spear. At a meeting on March 22,
1996, counsel for the United States explained to the rela- tors the components of the proposed settlement. See Joint App. at 1537, 1538-1549. During the summer of 1996, the United States negotiated an additional payment from SKB of $30 million to resolve additional claims that arose during 1995 and 1996. Joint App. at 859, 1223.
The government formally intervened in the Merena, Grossenbacher, and Spear actions pursuant to 31 U.S.C.
§ 3730(b)(2). Soon thereafter, the District Court formally approved a settlement agreement between the United States and SKB for $325 million plus interest. See Joint App. at 201-221. Although the False Claims Act provides a specific mechanism for relators to challenge the ade- quacy of a settlement agreement into which the govern- ment enters, *100 31 U.S.C. § 3730(c)(2)(B), Merena, Grossenbacher, and the Spear relators did not challenge the overall statement. See Joint App. at 213.
After approving the settlement agreement, the District
Court dismissed the three qui tam actions with prejudice.
**7 However, the Court expressly retained jurisdiction over, among other things, the "determination of the rela- tors' qui tam shares." Dist. Ct. Op. At 7. See Joint App. at
198, 274-277.
205 F.3d 97, *100; 2000 U.S. App. LEXIS 2948, **7
Page 3
The District Court subsequently disposed of com- plaints that three other relators filed after the Merena, Grossenbacher, and Spear complaints. The Court ana- lyzed these complaints on a claim-by--claim basis in or- der to determine whether each claim was barred under the
"first-to--file" rule imposed by 31 U.S.C. § 3730(b)(5). The Court was able to identify only one claim that had not been raised in one of the previously filed complaints. Accordingly, the Court allowed that claim to survive but barred all the others. The later-filing relators appealed, but we affirmed the District Court's decision. See United States ex rel. LaCorte v. SmithKline Beecham Clinical Lab., 149 F.3d 227, 235-236 (3d Cir. 1998).
The government failed to reach an agreement with relators Merena and Grossenbacher on the amount that they would receive from the settlement agreement. The government maintained that Merena was entitled to ap- proximately $10 million of the $65 million attributable to the **8 non-"automated chemistry" claims and has paid Merena this amount. The government and the Spear relators have a proposed agreement that, if approved, will award the Spear relators 15% of the $13 million that the government attributed to a claim called the "CBC Indices" claim.
D. The core of the current dispute between the United
States and relators Merena, Grossenbacher, and Robinson
(hereinafter "the relators") concerns the relators' right to a share of the settlement proceeds attributable to the "au- tomated chemistry" claims. The relators argue that they are entitled under 31 U.S.C. § 3170(d) to a percentage of the total proceeds that the government obtained in the settlement. The government, on the other hand, maintains that the relators may not receive any portion of the pro- ceeds attributable to the "automated chemistry" claims because the relators' "automated chemistry" claims were jurisdictionally barred under the public-disclosure provi- sion of the qui tam statute, 31 U.S.C. § 3730(e)(4) ("sec- tion(e)(4)"), which provides that "no court shall have ju- risdiction" over any False Claims Act action that is "based upon" certain specified **9 public disclosures unless the action is brought by the Attorney General or an "origi- nal source" of the information. The government contends that the District Court lacked subject matter jurisdiction over the relators' "automated chemistry" claims and, ac- cordingly, could not grant them any share of the settlement allocable to those claims.
The District Court held an evidentiary hearing re- garding this dispute. The government presented evidence concerning the portion of the total settlement that was attributable to each claim. n2 The government also pre- sented evidence showing that the "automated chemistry" claims had been under investigation, and were widely re-
ported in the news media, long before any of the qui tam complaints were filed. Joint App. at 2159-2160, 2204.
n2 The government also presented evidence that the relators had actively participated in the alloca- tion process. See Joint App. at 1476-1491.
In an unpublished opinion, the District Court accepted the relators' position. The Court denied the government's
**10 motion to dismiss the relators' "automated chem- istry" claims under 31 U.S.C. § 3730(e)(4), noting that the qui tam complaints had already been dismissed with prejudice and " did not have to be re-dismissed." Dist.
*101 Ct. Op. At 36. Agreeing with the relators that the question of subject matter jurisdiction was "mooted" when the government formally intervened in the action, the Court declined to decide whether the relators' "au- tomated chemistry" claims would have been subject to dismissal prior to the government's intervention. Id. at
36-37.
The Court also rejected the government's argument that it was necessary to analyze the relators' complaints on a claim-by--claim basis in order to calculate their shares. Id. at 37-43. The Court observed:
The qui tam statute involved makes no men- tion of treating a qui tam complaint as having distinct and divisible claims for the purpose of determining the qui tam Relator's share of the proceeds. The statute provides that where the Government intervenes and pro- ceeds with the action, as it did in these cases, the qui tam Relator shall "receive at least 15 percent but no more than 25 percent of the proceeds of the action **11 or settlement of the claim." (Underlining added). The statute speaks of the action and claim as a single unit or whole entity.
Dist. Ct. Op. at 38. In addition, the Court noted that the government had "never sought to have any of the relators' qui tam allegations dismissed prior to the entry of the or- der settling and dismissing each of the actions with preju- dice," that the government had never sought leave to file an amended complaint, and that the Settlement Agreement and related filings did not break down the settlement on a claim-by--claim basis. Id. at 38-39. Furthermore, the Court stated that "there was absolutely no evidence on the record . . . to establish any allocation." Id. at 41. See also id. at 42 ("Even if dividing the proceeds among sep- arate claims would be appropriate, there is no evidence upon which a fact-finder could rationally make such a determination on the record before me.") The Court con-
205 F.3d 97, *101; 2000 U.S. App. LEXIS 2948, **11
Page 4
cluded that the relators were entitled under 31 U.S.C. §
3170(d) to between 15% and 25% of approximately $306 million. n3 After considering the contributions made by the relators, the Court decided that they should jointly receive n4 an award **12 of 17% of the proceeds -- or more than $52 million. Since the government had already paid Merena about $10 million, the Court entered an or- der awarding the relators approximately $42 million. The United States appealed.
n3 This sum was calculated as follows: the set- tlement proceeds plus interest (about $334 million) minus both the total paid to state Medicaid Fraud units (about $14.5 million) and the agreed alloca- tion to the Spear relators (about $13 million).
n4 The Court found it unnecessary to decide whether either the Merena or Grossenbacher com- plaint was barred under the first-to--file rule of
§ 3730(b)(5) because these relators had "agreed among themselves as to the division of any pro- ceeds, regardless to whom the award or awards were made." Dist. Ct. Op. at 69.
II.
This appeal requires us to decide two chief legal is- sues. The first concerns the application of the relevant provisions of the qui tam statute to a multi-count com- plaint. The second concerns the interpretation of section
3170(e)(4) **13 and its relationship to the provision governing awards to relators in cases in which the United States elects to proceed with the action, 31 U.S.C. §
3170(d). We will discuss each of these issues and then apply our conclusions to the particular situation presented in this case.
A. As we have previously commented, the drafts- mans hip of the qui tam statute has its quirks, see United States ex rel. Mistick v. Housing Authority of the City of Pittsburgh, 186 F.3d 376, 387 (3d Cir. 1999), and one of those quirks is that the statute is based on the model of a single-claim complaint. See id. The District Court in this case stated: "It would seem almost inevitable to me that at least in most qui tam actions there would be allegations *102 of multiple false claims alleged in a complaint," Dist. Ct. Op. At 38, and we are inclined to agree, but the qui tam statute is phrased as if every qui tam complaint contained only one claim. The following provisions illustrate this pattern.
The statute authorizes a qui tam plaintiff to bring a
"civil action for a violation of section 3729," 31 U.S.C.
§ 3730 (b)(1)(emphasis added), but surely such **14 a plaintiff may bring an action containing multiple claims,
each of which alleges a separate violation of section 3729. When a qui tam action is filed, the government may
"proceed with the action," §§ 3730(b)(2) and (4)(em- phasis added) or "decline to take over the action," §
3730(b)(4)(B)(emphasis added), but the government of- ten decides to take over only certain claims in a multi- claim action, and we are aware of no decision holding that this is improper. The statute authorizes the govern- ment to "dismiss the action" and "settle the action," 31
U.S.C. § 3730(c)(2)(A) and (B), but again, we are aware of no decision holding that the government may not settle or dismiss only some of the claims in a multi-claim com- plaint, and we can think of no reason why the government should not be permitted to do so.
Under the "first-to--file" rule of section 3730(b)(5), when a relator "brings an action," "no other person may .
. . bring a related action based on the facts underlying the pending action." But as the District Court's prior rulings in this case illustrate, when it is asserted that a later-filed complaint contains claims that are based on the facts un- derlying certain **15 claims in a pending multi-count complaint, the court must conduct a claim-by--claim anal- ysis in order to determine if section 3730(b)(5) applies. Section 3730(e), provides that no court shall have jurisdiction over "an action" that falls into one of four categories: (1) "an action" brought by a former or present member of the armed forces against a member of the armed forces arising out the plaintiff 's military service,
(2) "an action" against a member of Congress or the ju- diciary or a senior executive branch official if "the ac- tion" is based on evidence or information known to the Government, (3)"an action" based upon allegations or transactions that are the subject of a civil suit or certain administrative proceedings to which the government is a party, and (4) "an action" based on certain publicly dis- closed information (unless the action is brought by the Attorney General or an original source). What happens under these provisions if a relator files a multi-claim suit and some, but not all, of the claims fall into one of these categories? The plaintiff 's decision to join all of his or her claims in a single lawsuit should not rescue claims that would have been doomed by section **16 (e)(4) if they had been asserted in a separate action. And likewise, this joinder should not result in the dismissal of claims that would have otherwise survived.
Thus, in applying section (e)(4), it seems clear that each claim in a multi-claim complaint must be treated as if it stood alone. It follows, therefore, that in determining whether the relators in this case are entitled to a share of any proceeds that are attributable to the "automated chemistry" claims, we must consider whether they would have been entitled to such a share had their complaints
205 F.3d 97, *102; 2000 U.S. App. LEXIS 2948, **16
Page 5
asserted those claims alone. We now turn to that question. B. The government contends that the relators are not entitled to any share of the proceeds attributable to the "au- tomated chemistry" claims because those claims are based upon publicly disclosed information and fall within the ju- risdictional bar of § 3170(e)(4). The government reasons as follows: the District Court lacked subject matter juris- diction over the relators' automated chemistry claims; n5 therefore, the Court could not award them any recovery.
n5 Although Section 3730(e)(4) is framed in jurisdictional terms, the Seventh Circuit has sug- gested that it does not really concern subject mat- ter jurisdiction. See United States ex rel. Fallon v. Accudyne Corp., 97 F.3d 937, 941 (7th Cir. 1996). For the reasons explained in the text, we find it unnecessary to resolve this question.
**17
*103 Perhaps because the government couches its argument in terms of subject matter jurisdiction, the District Court and the relators respond in similar terms. Both argue that any jurisdictional problem that might have existed with respect to the "automated chemistry" claims when the relators' complaints were originally filed was cured when the government elected to proceed with those claims. They note -- and the government does not dis- agree -- that the District Court had subject matter juris- diction over the "automated chemistry" claims, as well as the other claims, once the government intervened. And the relators also rely on an old series of cases in our circuit, n6 which they interpret to mean that even if a relator's claim is originally subject to a jurisdictional bar, intervention by the government cures the jurisdictional defect. The government replies by attempting to draw a distinction between jurisdiction over the automated chem- istry claims as prosecuted by the United States on its own behalf after intervention (which the government agrees the District Court had) and jurisdiction over those same claims as they concerned the relators after intervention
(which the government strenuously **18 contends the District Court lacked). According to the government, the District Court's lack of the second type of jurisdiction mandated the dismissal of the relators as parties with re- spect to the automated chemistry claims.
n6 In chronological order they are: United
States ex rel. Bayarsky v. Brooks, 58 F. Supp. 714
(D.N.J. 1945); United States ex rel. Bayarsky v. Brooks, 154 F.2d 344 (3d Cir. 1946); United States ex rel. Bayarsky v. Brooks, 110 F. Supp. 175 (D.N.J.
1953); United States ex rel. Bayarsky v. Brooks, 210
F.2d 257 (3d Cir. 1954).
We do not agree with the parties that the relators' right to a share of the automated chemistry proceeds turns on a question of subject matter jurisdiction. n7 Suppose that the government is right that the District Court should have dismissed the relators as parties with respect to the auto- mated chemistry claims. It would not necessarily follow that the relators could not be awarded a share of the auto- mated chemistry **19 proceeds. Congress may enact a statute providing for the payment of a reward or bounty to a non-party who assists the government's enforcement ef- forts. See, e.g., 15 U.S.C. § 78u-1. Similarly, suppose that the relators are right that the government's intervention cured any prior jurisdictional defect and that the District Court properly refused to dismiss the relators as parties with respect to the automated chemistry claims. It would not necessarily follow that the relators are entitled to a share of the proceeds. Clearly, Congress need not provide for such relators to obtain a portion of the proceeds just because they remain parties.
n7 Although Section 3730(e)(4) is framed in jurisdictional terms, the Seventh Circuit has sug- gested that it does not really concern subject matter.
The relevant question is not one of jurisdiction but simply whether the qui tam statute authorizes an award when a relator asserts a claim that is subject to dismissal under § 3170(e)(4) but the government **20 inter- venes before the claim is dismissed. In order to ana- lyze this question it is necessary to examine both section
3730(e)(4) and section 3730(d).
Section 3730(e)(4) provides as follows:
(A) No court shall have jurisdiction over an action under this section based upon the pub- lic disclosure of allegations or transactions in a criminal, civil, or administrative hear- ing, in a congressional, administrative, or Government Accounting Office report, hear- ing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the informa- tion.
*104
(B) For purposes of this paragraph, "original source" means an individual who has direct and independent knowledge of the informa- tion on which the allegations are based and has voluntarily provided the information to the Government before filing an action under
205 F.3d 97, *104; 2000 U.S. App. LEXIS 2948, **20
Page 6
this section which is based on the informa- tion.
Thus, if a relator who is not an "original source" as- serts a claim based upon one of the types of public dis- closure specified in this provision n8 and the government does not intervene, the claim must be dismissed, and the relator obviously **21 receives no award. This provi- sion does not expressly address the question whether such a relator is entitled to an award if the government inter- venes before the relator's claim is dismissed -- although it certainly counsels in favor of skepticism about a relator's ability to get an award under those circumstances.
n8 In United States ex rel. Mistick v. Housing
Authority of the City of Pittsburgh, 186 F.3d at 385-
89, we held that a claim is "based upon" a public disclosure if it is based upon information contained in such a disclosure, whether or not the relator ac- tually relied upon that disclosure.
Other sections of the qui tam statute deal directly with awards to relators. Under section 3730(d)(2), if the gov- ernment does not intervene, a relator is entitled to 25-
30% of the proceeds. But if the government intervenes
(and thus takes on the primary burden of prosecuting the action), the share to which the relator is entitled is reduced as specified in section 3730(d)(1). This provision states in **22 pertinent part:
If the Government proceeds with an action brought by a person under subsection (b), such person shall, subject to the second sen- tence of this paragraph, 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. Where the action is one which the court finds to be based pri- marily on disclosures of specific information
(other than information provided by the per- son bringing the action) relating to allega- tions or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, 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 in- formation and the role of the person bringing the action in advancing the case to litigation. Any payment to a person under the first or second sentence of this paragraph shall be made from the proceeds.
The parties in this appeal differ sharply **23 regard- ing the types of cases that fall within the various recovery ranges. The government, as previously noted, takes the position that a relator who asserts a claim that is sub- ject to dismissal under section 3730(e)(4) is not entitled to any award even if the government intervenes. Thus, the government's view is that section 3730(d)(1) has no application in such a case. If the government's view is accepted, we believe that the permissible ranges of recov- ery for various types of cases is captured by the following table:
TABLE A Relator's Share Types of Cases
15-25% 1. relator brings an action that is
not "based upon" publicly disclosed information
2. "original source" brings an action that is "based upon" but not
"primarily based" on publicly disclosed information
3. "original source" brings an action that is "primarily based" on publicly disclosed information, but the
"original source" did not provided the information
</=10% "original source" brings an action
205 F.3d 97, *104; 2000 U.S. App. LEXIS 2948, **23
TABLE A Relator's Share Types of Cases
that is "primarily based" on publicly disclosed information, and
"original source" did not provide that information
0% relator brings an action that is subject to dismissal under
§ 3730(e)(4)
Page 7
*105 The **24 relators read sections 3730(e)(4) and 3730(d) quite differently. As already mentioned, they contend that section 3730(e)(4) does not preclude an award where a relator asserts a claim that is subject to dis- missal under that section but the government intervenes before the claim is dismissed. The award in such a case
consequently would be governed by Section 3730(d). If the relators' position is accepted, we believe that the per- missible recovery ranges for the various types of cases would be as follows:
TABLE B Relator's Share Types of Cases
15-25% 1. relator brings an action that is
not "based upon" publicly disclosed information
2. relator brings an action that is
"based upon" but not "primarily based" upon publicly disclosed information
3. relator brings an action that is
"primarily based" upon publicly disclosed information but relator provided the information
</=10% relator brings an action that is
"primarily based" upon publicly disclosed information, and the relator did not provide the information
We find the government's position much more persua- sive. Under this view, sections 3730(e)(4) and 3730(d)(1) provide a descending scale of recovery **25 ranges that are proportional to the public service provided by the relators. The highest range (15-25%) is reserved for the relators who provide the greatest public service--relators whose claims are not "based upon" a public disclosure and most relators who qualify as "original sources." The lesser range (up to 10% of the proceeds) is provided for the
(presumably unusual) cases in which an "original source"
relator asserts a claim that is "primarily based" on in-
formation that has been publicly disclosed and that the relator did not provide.
In contrast with the government's position, the rela- tors' position produces results that we do not think that Congress intended. First, this interpretation provides a po- tentially huge windfall -- 15-25% of the total recovery -- for most relators whose claims would have been dismissed under section 3730(e)(4) if the government had not inter- vened. It is hard to see why Congress might have wanted the fortuity of government intervention to make such a
205 F.3d 97, *105; 2000 U.S. App. LEXIS 2948, **25
Page 8
difference -- or why Congress might have wanted to pro- vide such a large reward to such a relator, who provides little if any public service. See Federal Recovery Service, Inc. v. United States, 72 F.3d 447, 452 (5th Cir. 1995)
**26 (describing a similar interpretation as "ignoring the False Claims Act's goal of preventing parasitic suits based on information discovered by others" and as requir- ing awards in "even those suits brought by individuals who discovered the defendant's fraud by reading about it in the morning paper").
Second, the relators' interpretation prescribes the same range of awards -- 15-25% -- for two very dissimi- lar groups of relators: first, those relators who provide a substantial public service by bringing claims that are not based upon publicly disclosed information and, second, relators who furnish little if any public service because their claims are "based upon" publicly disclosed infor- mation n9 and would have been dismissed under section
3730(e)(4) if the government had not intervened. It seems unlikely that Congress wanted these two vastly different types of relators to be treated the same.
n9 But not "primarily based" upon such infor- mation.
Third, the relators' interpretation treats original- source relators **27 the same as other relators whose claims are based on publicly disclosed information. Under the relators' interpretation, if a relator's claim is "based upon" (but not "primarily based" *106 upon) publicly disclosed information, the relator is entitled to 15-25% regardless of whether the relator is an original source. Since Congress took pains in section 3730(e)(4)(B) to provide special, favorable treatment for original-source relators, it seems unlikely that Congress wanted a rela- tor's original-source status to be irrelevant in determining the award that a relator receives in a case in which the government intervenes.
The legislative history also supports the government's view. As Table A illustrates, under the government's inter- pretation, the 0% - 10% range applies only when an "orig- inal source" brings a claim that is "primarily based" on publicly disclosed information and the "original source" did not provide that information. By contrast, as previ- ously noted, under the relators' view, this range is not restricted to "original-source" relators. In discussing the provision of § 3730(d) creating the 0% - 10% range, two of the primary sponsors of the 1986 False Claims Act amendments described **28 the cases to which this range would apply, and both stated clearly that this range would apply only to "original sources." Senator Grassley stated:
When the qui tam plaintiff brings an action based on public information, meaning he is an "original source" within the definition un- der the act, but the action is based primarily on public information not originally provided by the qui tam plaintiff, he is limited to a re- covery of not more than 10 percent. In other words a 10-percent cap is placed on those
"original sources" who bring cases based on information already publicly disclosed where only an insignificant amount of that informa- tion stemmed from that original source.
132 Cong. Rec. 28580 (1986) (emphasis added). Similarly, Representative Berman commented:
The only exception to the minimum 15% recovery is in the case where the information has already been disclosed and the person qualifies as an "original source" but where the essential elements of the case were pro- vided to the government or news media by someone other than the qui tam plaintiff.
132 Cong. Rec. 29322 (1986). These statements pro- vide strong support for our interpretation of §§ **29
3730(d)(1) and (e)(4).
For all these reasons, we conclude that a relator whose claim is subject to dismissal under section 3730(e)(4) may not receive any share of the proceeds attributable to that claim.
III
Thus far, we have concluded that the relators' share of the proceeds must be based on a claim-by--claim anal- ysis and that the relators are not entitled to any share of the settlement attributable to claims that would have been subject to dismissal under section 3730(e)(4) prior to the government's intervention. These holdings do not necessarily dictate reversal, however, because the District Court also held (a) that the government waived its right to argue that the relators were not entitled to recover a share of the proceeds attributable to the "automated chemistry" claims and (b) that the government did not offer sufficient evidence to establish the share of the proceeds attributable to those claims. We now consider those issues.
A. The District Court held that, when the government agreed to settle the lawsuit, it waived its right to argue that the relators were barred from recovering proceeds attributable to the automated chemistry claims. Dist. Ct. Op. at 36-37. We disagree. **30
The settlement agreement between the government
205 F.3d 97, *106; 2000 U.S. App. LEXIS 2948, **30
Page 9
and SKB did not dispose of any issues pertaining to the relators' share of the settlement proceeds. The agreement expressly stated that the parties would "request" that the District Court "specifically retain jurisdiction with respect
*107 to any unresolved issues, including . . . relators' share of the settlement proceeds." Joint App. at 214. The Court's order dismissing the actions stated: "this Court retains jurisdiction over . . . determination of . . . rela- tors' share issues." Joint App. at 198. Therefore, by its own terms, the settlement agreement preserved the gov- ernment's right to contest the issue of the relators' share. Accordingly, we hold that the District Court erred in con- cluding that the government waived its right to argue that the relators were barred from recovering proceeds attributable to the automated chemistry claims.
B. The District Court also held that it had no factual basis upon which to determine the percentage of the set- tlement that was attributable to the automated chemistry claims. See Dist. Ct. Op. at 41 ("There is absolutely no evidence on the record before me . . . to establish any allocation among various **31 claims."). The District Court blamed the supposed dearth of evidence on the government, suggesting that the government refused to provide any meaningful response to the relators' discov- ery requests concerning the factual basis for its allocation of the settlement proceeds. Id. at 42-43.
The District Court's conclusion is not supported by the record. The record shows that the government produced substantial evidence related to the allocation of the set- tlement proceeds. During an evidentiary hearing before the District Court, the government introduced a series of documents--created during the government's negotia- tions with SKB--that specified the amount of money the government had demanded for each alleged violation of the False Claims Act. See Joint App. at 1474, 1475-1491. These documents showed that approximately $241 mil- lion were attributable to the automated chemistry claims. The relators, on the other hand, failed to present any evi- dence. By declining to present evidence contradicting the government's allocation of the settlement proceeds, the relators effectively gave up their right to challenge the factual basis of that allocation.
Having reviewed the record, we are satisfied **32 that the government submitted sufficient evidence to en- able the District Court to allocate the settlement proceeds on a claim-by--claim basis. Accordingly, we conclude that the District Court's finding--i.e., that there was "no ev- idence" upon which to determine the percentage of the settlement that was attributable to the automated chem- istry claims--was clearly erroneous. n10
n10 We make no determination with respect to the exact percentage of the settlement that must be attributed to the automated chemistry claims; we simply hold that the District Court had an adequate factual basis for making such a finding.
IV.
It is beyond dispute that, under our circuit's inter- pretation of Section 3730(e)(4) in Mistick, 186 F.3d at
385-89, the relators' automated chemistry claims were
"based upon" a public disclosure specified in that pro- vision. See Joint App. at 1432-1441, 1442-1450, 1451-
1457, 1470-1473; 1492-1498. As we explained above, relators who bring such a claim cannot recover any pro- ceeds attributable **33 to that claim unless they qualify as original sources of information under section (e)(4)(B). The District Court therefore erred in allowing the relators to recover proceeds attributable to the "automated chem- istry" claims without determining whether the relators were "original sources."
On remand, the District Court must determine whether the relators were "original sources" of information--as de- fined by section (e)(4)(B)--with respect to the "automated chemistry" claims. If the District Court determines that they were original sources of information, it may award them a share of the proceeds and will have to determine whether they fall within the 15-25% *108 range or the
0-15% range as set out in Table A supra. n11 However, if the District Court determines that the relators were not original sources of information with respect to those claims, it may not award them any share of the proceeds attributable to them.
n11 We express no view as to whether the Court may properly award any recovery jointly to the per- tinent relators, or whether it must specify each re- lator's award. Consideration of this issue would be premature until (a) it is determined under the correct legal standard that a relators' award is appropriate and (b) the issue is properly brought before us by a party with standing.
**34 V.
For the foregoing reasons, we hold that the District Court erred in awarding the relators 17% of the settlement proceeds. Accordingly, we reverse and remand for further proceedings consistent with this opinion.
Contents
Prev
Next
Last
