-
USCA1 Opinion
United States Court of Appeals
United States Court of Appeals
For the First Circuit
For the First Circuit
____________________
No. 93-1766
IN RE: UNITED STATES OF AMERICA,
EX REL. S. PRAWER AND COMPANY, ET AL.,
Plaintiffs, Appellants,
v.
FLEET BANK OF MAINE, ET AL.,
Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Gene Carter, U.S. District Judge]
___________________
____________________
Before
Breyer, Chief Judge,
___________
Torruella and Stahl, Circuit Judges.
______________
____________________
Jeffrey Bennett with whom Melinda J. Caterine and Herbert H.
________________ ____________________ __________
Bennett & Assoc., P.A. were on brief for appellants.
______________________
James E. Kaplan with whom Derek P. Langhauser, James E. Kaplan &
_______________ ___________________ __________________
Associates, P.A. and Julianne Cloutier were on brief for appellee Amy
_________________ _________________
Bierbaum.
Thomas N. O'Connor with whom Donald L. Cabell and Hale and Dorr
___________________ _________________ _____________
were on brief for appellees Verrill & Dana, P. Benjamin Zuckerman and
Anne M. Dufour.
Joseph F. Shea with whom Paul R. Gupta and Nutter, McClennen &
______________ ______________ ____________________
Fish were on brief for appellee RECOLL Management Corporation.
____
John J. Wall, III with whom Thomas F. Monaghan and Monaghan,
___________________ ___________________ _________
Leahy, Hochadel & Libby were on brief for appellee Fleet Bank of
_________________________
Maine.
Frank W. Hunger, Assistant Attorney General, Jay P. McCloskey,
________________ _________________
United States Attorney, and Douglas N. Letter and Jonathan R. Siegel,
_________________ __________________
Attorneys, Civil Division, Department of Justice, on brief for the
United States, amicus curiae.
____________________
May 5, 1994
____________________
STAHL, Circuit Judge. This appeal arises out of
STAHL, Circuit Judge.
______________
the district court's sua sponte dismissal of a qui tam action
___ ______ ___ ___
brought by plaintiffs-appellants S. Prawer & Company, Gilbert
Prawer, and Harvey Prawer (collectively "Prawer") as relators
under the False Claims Act ("FCA"), 31 U.S.C. 3729 et
__
seq.1 Plaintiffs primarily2 contend that the court erred
____
in concluding that 31 U.S.C. 3730(e)(3),3 a provision
enacted as part of the 1986 amendments to the qui tam
___ ___
provisions of the FCA, bars their claim. The issue is one of
first impression, as no other court has as yet been called
upon to interpret the reach and meaning of this ambiguous
____________________
1. Because of the length of the statutory provisions
relevant to this appeal, we have attached them in an appendix
to our opinion.
2. Employing an extremely literal reading of 31 U.S.C.
3730(b)(1) (an action brought under the FCA "may be dismissed
only if the court and the Attorney General give written
consent to the dismissal and their reasons for consenting"),
plaintiffs also argue that the court erred in proceeding sua
___
sponte and dismissing this action without the approval of the
______
Attorney General. Because, as will be discussed infra, we
_____
believe the court erred in determining that this action was
jurisdictionally barred, we need not and do not address the
merits of this somewhat dubious assertion. See Fed. R. Civ.
___
P. 12(h)(3) ("Whenever it appears by suggestion of the
parties or otherwise that the court lacks jurisdiction of the
__ _________
subject matter, the court shall dismiss the action.")
_____
(emphasis added).
3. Section 3730(e)(3) states: "In no event may a person
bring [a qui tam action] which is based upon allegations or
___ ___
transactions which are the subject of a civil suit or an
administrative money penalty proceeding in which the
government is already a party."
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2
provision. After careful consideration of the arguments
presented, we reverse.
I.
I.
__
BACKGROUND
BACKGROUND
__________
A. Relevant Factual and Procedural History
A. Relevant Factual and Procedural History
___________________________________________
The relevant facts and allegations, recounted in
the light most favorable to plaintiffs, are as follows.4 In
January 1991, the Maine National Bank ("MNB") was declared
insolvent and the Federal Deposit Insurance Corporation
("FDIC") was appointed its receiver. The New Maine National
Bank ("NMNB") was established as a bridge bank through which
the FDIC would conduct certain MNB-related affairs.
On or about July 12, 1991, the NMNB closed, and the
FDIC sold virtually all of its assets to Fleet Bank of Maine
("Fleet"). The contract by which this transfer of assets was
effectuated is known as the "Assistance Agreement." Inter
_____
alia, the Assistance Agreement provided that Fleet had the
____
right to "put," or cause the FDIC to repurchase, any NMNB
loans acquired by it pursuant to the Assistance Agreement
____________________
4. A few of the following facts and allegations appear only
in plaintiffs' brief. Because they help shed light on the
convoluted factual underpinnings of this litigation and have
no effect on our resolution of the question before us, we
have included them in our recitation of the case's
background. Our inclusion of these facts and allegations
should not, however, be construed either as an endorsement of
their veracity or as an indication that they are well-
pleaded.
-3-
3
(provided that said loans did not fall into any one of
several exceptional categories described in the Assistance
Agreement). Included among the transferred assets were five
promissory notes, totalling approximately $1.1 million, given
by Prawer to the NMNB. The notes represented the amount
Prawer had drawn against a $2 million line of credit extended
to it by NMNB.
On July 15, 1991, Prawer entered into a new
agreement with Fleet for an unsecured line of credit (known
as the "Fleet Credit Facility") which permitted it to draw up
to $2 million by executing and/or renewing consecutive,
unsecured 90-day term notes on a note-by-note basis. Prawer
utilized this new line of credit from Fleet to satisfy fully
its obligations under each of the five outstanding NMNB
notes. By May 5, 1992, Prawer had drawn $1.6 million against
its $2 million line of credit under the Fleet Credit
Facility. These borrowings were evidenced by seven unsecured
90-day term notes.
Meanwhile, on April 30, 1992, Prawer sold virtually
all of its then-existing assets to C&S Wholesale Grocers,
Inc. ("C&S"). Gilbert Prawer informed Fleet of the sale on
May 1, 1992. On May 6, 1992, pursuant to the Assistance
Agreement, Fleet put certain Prawer notes back to the FDIC.
-4-
4
The parties hotly contest, however, whether any of the notes
were "putable" under the terms of the Assistance Agreement.5
1. The Collection Case
1. The Collection Case
Subsequently, in November 1992, the FDIC commenced
an action against Prawer, C&S, and a number of individual
defendants to collect upon the notes put back to it pursuant
to the Assistance Agreement. The complaint in that action
not only sought enforcement of the notes, but also alleged
that the April 30, 1992, sale of Prawer's assets to C&S
constituted a fraudulent conveyance and violated Maine's Bulk
Sale Act. More specifically, the FDIC contended that Prawer
had become insolvent, and had peddled its assets for less
than full value in order to satisfy its debts to certain
creditors. Accordingly, the complaint sought damages beyond
the amount allegedly outstanding on the notes.
Prawer responded to this complaint with several
affirmative defenses and counterclaims, as well as filing a
third-party complaint against Fleet and Recoll Management
Corporation ("Recoll"), a Fleet subsidiary which had,
pursuant to an agreement with the FDIC, been seeking to
____________________
5. It has been and is plaintiffs' position that none of the
____
notes were properly putable; defendants apparently now
concede that some of the notes were not putable because
____
plaintiffs' obligations thereunder had been fully satisfied,
but argue that certain other notes were, in fact, putable.
-5-
5
collect upon the notes which were put back to the FDIC. A
variety of charges were made in these defenses,
counterclaims, and third-party claims; among these was an
assertion that the notes were not putable to the FDIC
pursuant to the Assistance Agreement. But see infra note 6.
___ ___ _____
At oral argument, the parties represented that,
since the filing ofthis case, the Collection casehas settled.
2. The Qui Tam Case
2. The Qui Tam Case
___ ___
On June 21, 1993, plaintiffs filed the instant qui
___
tam action. In their complaint, plaintiffs contended that
___
the named defendants -- Fleet, Recoll, Verrill & Dana (the
law firm that served as legal counsel to Fleet, Recoll, and
the FDIC at all times relevant to this matter), P. Benjamin
Zuckerman and Anne M. Dufour (the Verrill & Dana lawyers
involved in this matter), and Amy Bierbaum (an FDIC staff
attorney) -- "created and used, or caused to be created and
used, false records and statements designed to defraud the
Government into paying Fleet approximately $1.6 million" for
the Prawer notes pursuant to the put-back provisions of the
Assistance Agreement.
Nine days later, on June 30, 1993, the district
court sua sponte dismissed plaintiffs' complaint. In so
___ ______
doing, the court relied upon 3730(e)(3), see supra note 3,
___ _____
finding that (1) the allegations made and transactions
implicated in plaintiffs' complaint already were at issue (as
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6
defenses) in the Collection case; and (2) the "government,"
in the person of the FDIC, was a party to that action. See
___
United States ex rel. S. Prawer & Co. v. Fleet Bank of Maine,
_____________________________________ ___________________
825 F. Supp. 339 (D. Me. 1993).
Plaintiffs moved the court to reconsider its sua
___
sponte order of dismissal, arguing, inter alia, that (1) the
______ _____ ____
"government," for purposes of 3730(e)(3), was not a party
to the Collection case; and (2) the qui tam action was not
___ ___
"based upon allegations or transactions which are the subject
of" the Collection case. In a comprehensive memorandum of
decision, the court rejected both of these arguments (as well
as all other arguments made in plaintiffs' motion). In so
doing, however, the court receded slightly from its original
holding on the question of whether there was an identity
between the allegations and transactions which were "the
subject of" the Collection case and those that served as the
basis for the qui tam action. Instead, the court found:
___ ___
To the extent that defenses based
upon the allegations of the qui tam
___ ___
complaint are not pleaded in the related
civil action, that is entirely the result
of the conscious decision of counsel for
the defendants there (and Plaintiffs
here) to abjure their pleading. Clearly
the factual predicate for the false
claims alleged in the qui tam action form
___ ___
the basis for assertion of viable
defenses to the claims made against the
defendant S. Prawer & Company on the
notes in the related civil action. An
effective defense to those claims would
require that those defenses be pleaded
there if counsel, in good faith, believe
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7
the facts put forth here. . . . This
Court believes that the proper
construction of [ 3730(e)(3)] requires
that it be read broadly enough to
encompass not only allegations and
transactions actually put in issue by the
litigants in the related civil suit but
any allegations or transactions that
could legitimately be made a subject
(e.g., [sic] be put in issue) of that
____
suit in the regular course of its
development.
United States ex rel. S. Prawer & Co. v. Fleet Bank of Maine,
_____________________________________ ___________________
Civ. No. 93-165-P-C, slip op. at 3-4 (D. Me. July 12, 1993)
(footnote omitted).6 Accordingly, the court denied
plaintiffs' motion. Id. at 9.
___
B. The Statutory Framework
B. The Statutory Framework
___________________________
Because our resolution of the issue presented in
this appeal necessarily is informed by Congress's intent in
enacting the 1986 amendments to the FCA's qui tam provisions,
___ ___
a brief historical overview of the statute is in order. The
FCA's qui tam7 provisions, see generally 31 U.S.C.
___ ___ ___ _________
____________________
6. Our review of the pleadings in the Collection case
reveals that it is a close question as to whether the
illegitimacy of the put (on grounds of fraud) actually was
raised therein as an affirmative defense. However, because
__ __ ___________ _______
we find that 3730(e)(3) does not bar this action even if
the fraud claim was so raised, we will assume this fact
arguendo and will not address the district court's ruling
________
that the statute also bars qui tam actions based upon
___ ___
allegations or transactions that could have been raised in
_____ ____
another civil action or administrative money penalty
proceeding.
7. "Qui tam" is an abbreviation for "qui tam pro domino rege
___ ___ ___ ___ ___ ______ ____
quam pro seipso," which literally means "he who as much for
____ ___ ______
the king as for himself." United States ex rel. Springfield
_________________________________
Terminal Ry. Co. v. Quinn, 14 F.3d 645, 647 n.1 (D.C. Cir.
________________ _____
-8-
8
3730(b)-(g), empower private persons, known as "relators,"
(1) to sue, on behalf of the government, persons who
knowingly have presented the government with false or
_________
fraudulent claims (as the highlighted terms are defined by 31
______
U.S.C. 3729); and (2) to share in any proceeds ultimately
recovered as a result of such suits, see generally 31 U.S.C.
___ _________
3730(d). Since its enactment in 1863,8 the FCA has
contained several different qui tam provisions. The original
___ ___
provisions contained no significant jurisdictional
limitations and did not preclude plaintiffs from bringing
suit on the basis of information already in the government's
possession. Quinn, 14 F.3d at 649. Despite this invitation
_____
for abuse, however, the provisions were used sparingly in the
first fifty years of their existence. Id. (citing United
___ ______
States ex rel. LaValley v. First Nat'l Bank of Boston, 707 F.
_______________________ __________________________
Supp. 1351, 1354 (D. Mass. 1988)).
During the New Deal and World War II, there was a
notable increase in the number of contracts awarded by the
____________________
1994) (citing John T. Boese, Civil False Claims and Qui Tam
_______________________________
Actions, 1-6 (1993)). Qui tam provisions, which historically
_______ ___ ___
have allowed parties to initiate suit on the government's
behalf and to share in the recovery as bounty, first gained
popularity in thirteenth-century England as a supplement to
ineffective law enforcement. Id. (citing Note, The History
___ ___________
and Development of Qui Tam, 1972 Wash. U. L.Q. 81, 86-87 and
___________________________
Boese, supra, at 1-6).
_____
8. The FCA originally was enacted "in order to combat
rampant fraud in Civil War defense contracts." See S. Rep.
___
No. 345, 99th Cong., 2d Sess. 8, reprinted in 1986
_________ __
U.S.C.C.A.N. 5266, 5273.
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9
government to private individuals and entities. Id. Along
___
with this increase came a concomitant surge in the number of
qui tam actions brought by relators under the FCA. See id.
___ ___ ___ ___
This litigational surge, in turn, brought to the fore the
fact that the qui tam provisions then in effect were too
___ ___
susceptible to abuse by "parasitic" relators. The era of
parasitic qui tam actions reached its apex in United States
___ ___ _____________
ex rel. Marcus v. Hess, 317 U.S. 537 (1943), where the
_______________ ____
Supreme Court allowed a relator to proceed with a qui tam
___ ___
suit that was based solely on the allegations of a criminal
______
indictment to which defendants already had pleaded nolo
____
contendere (and as a result of which defendants already had
__________
paid fines totalling $54,000). See Quinn, 14 F.3d at 649-50;
___ _____
see also S. Rep. No. 562, 99th Cong., 2d Sess. 10, reprinted
___ ____ _________
in 1986 U.S.C.C.A.N. at 5275. In rejecting the government's
__
argument that permitting the action to proceed would thwart
the spirit of the FCA, the Court stated:
Even if . . . petitioner has
contributed nothing to the discovery of
this crime, he has contributed much to
accomplishing one of the purposes for
which the [FCA] was passed. The suit
results in a net recovery to the
government of $150,000, three times as
much as fines imposed in the criminal
proceedings.
Hess, 317 U.S. at 545. Accordingly, because the Court found
____
neither a bar to the suit in the text of the FCA nor an
intent to impose one in the Act's legislative history, id. at
___
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10
546, it declined to establish a judicial bar on its own
initiative, Quinn, 14 F.3d at 650.
_____
In response to public outcry over the Hess
____
decision, Congress acted quickly to restrict the universe of
litigants who could avail themselves of the FCA's qui tam
___ ___
provisions. Id. at 650. The 1943 amendments to these
___
provisions, signed into law by President Roosevelt on
December 21, 1943, codified this restriction. See S. Rep.
___
No. 562, 99th Cong., 2d Sess. 12, reprinted in 1986
_________ __
U.S.C.C.A.N. at 5277. The amendments reflected compromise
between the House and Senate; the House bill would have
repealed the qui tam provisions altogether, while the Senate
___ ___
bill would have precluded suits which were based upon
information already in the government's possession unless the
information underlying the suit was "original with [the]
person [bringing the suit]." Quinn, 14 F.3d at 650 (quoting
_____
89 Cong. Rec. 510, 744 (daily ed. December 16, 1943)); see
___
also S. Rep. No. 562, 99th Cong., 2d Sess. 11-12, reprinted
____ _________
in 1986 U.S.C.C.A.N. at 5276-77. Although the Senate's
__
approach largely prevailed, the provision of the Senate bill
expressly permitting the "original source" of information to
bring a qui tam action was dropped in conference. See S.
___ ___ ___
Rep. No. 562, 99th Cong., 2d Sess. 12, reprinted in 1986
_________ __
U.S.C.C.A.N. at 5277. As a result, the final 1943
legislation precluded all qui tam actions "based on evidence
___ ___
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11
or information the Government had when the action was
brought." 31 U.S.C. 3730(b)(4) (1982) (superseded); see
___
also Quinn, 14 F.3d at 650.
____ _____
Over the next four decades, courts strictly
construed the jurisdictional bar established in the 1943
amendments. See S. Rep. No. 562, 99th Cong., 2d Sess. 12,
___
reprinted in 1986 U.S.C.C.A.N. at 5277. Unsurprisingly,
_________ __
there was a corresponding decrease in the use of the qui tam
___ ___
provisions to enforce the FCA during this same period.
Quinn, 14 F.3d at 650 (citing Boese, supra note 7, at 1-12).
_____ _____
If the Hess decision marks the highpoint of the regime of
____
liberal litigation under the qui tam provisions, the Seventh
___ ___
Circuit's decision in United States, ex rel. State of
____________________________________
Wisconsin v. Dean, 729 F.2d 1100 (7th Cir. 1984), may well
_________ ____
mark the point of greatest retreat from Hess. See Quinn, 14
____ ___ _____
F. 3d at 650.
In Dean, the Seventh Circuit was faced with the
____
question of whether the State of Wisconsin should be allowed
to act as a qui tam relator in a Medicaid fraud action where
___ ___
the State, in accordance with federal regulations, had
already reported the fraud to the federal government. See
___
Dean, 729 F.2d at 1102-04. It was undisputed that (1) the
____
fraud investigation had been conducted by the State; (2) the
State was an original source of the information provided; and
(3) the State had been required to report the fraud. See id.
___ ___
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12
at 1102-03 and n.2. Nonetheless, noting the unambiguous
language of the FCA, the disappearance of the original source
provision from the 1943 Senate bill, and the absence of any
basis for finding an exception to the statutory bar where the
relator was required to report the information, the court
rejected the contentions of both the State and the federal
government, which had filed an amicus brief on behalf of the
______
State, that the FCA's legislative history evinced a "`clearly
expressed legislative intention'" to allow the action to go
forward. See id. at 1104-05 (quoting Consumer Product Safety
___ ___ _______________________
Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980)).
______ ___________________
Accordingly, it reversed the decision of the district court,
which had found such an intention. See id. at 1104-06.
___ ___
In the wake of the Seventh Circuit's opinion in
Dean, there was once again a perception that the qui tam
____ ___ ___
provisions were in need of alteration. See S. Rep. No. 562,
___
99th Cong., 2d Sess. 13, reprinted in 1986 U.S.C.C.A.N. at
_________ __
5278 (recounting that the National Association of Attorneys
General adopted a resolution calling on Congress to rectify
"the unfortunate result" of the Dean decision). Ultimately,
____
Congress responded with the False Claims Amendments Act of
1986, the stated purpose of which was "`to enhance the
Government's ability to recover losses sustained as a result
of fraud against the Government.'" Quinn, 14 F.3d at 650
_____
(quoting S. Rep. No. 562, 99th Cong., 2d Sess. 1, reprinted
_________
-13-
13
in 1986 U.S.C.C.A.N. at 5266). Concerned that sophisticated
__
and widespread fraud was depleting the national fisc, the
drafters of the 1986 amendments concluded that "`only a
coordinated effort of both the Government and the citizenry
will decrease this wave of defrauding public funds.
Accordingly, the Senate bill increases incentives, financial
and otherwise, for private individuals to bring suits on
behalf of the Government.'" Id. at 650-51 (quoting S. Rep.
___
No. 562, 99th Cong., 2d Sess. 1-2, reprinted in 1986
_________ __
U.S.C.C.A.N. at 5266-67).
The 1986 amendments changed the FCA's qui tam
___ ___
provisions in several respects. On the one hand, they
contained several provisions designed to "encourage more
private enforcement suits." See id. at 651 (quoting S. Rep.
___ ___
No. 562, 99th Cong., 2d Sess. 23-24, reprinted in 1986
_________ __
U.S.C.C.A.N. at 5288-89). Among these are the original
source provision eliminated from the 1943 Senate bill, a
provision increasing monetary awards, a lower burden of
proof, and a provision allowing qui tam plaintiffs to
___ ___
continue to participate in the actions after intervention by
the government. Id. (citing United States ex rel. Stinson,
___ _______________________________
Lyons, Gerlin & Bustamante, P.A. v. Prudential Ins. Co., 944
________________________________ ___________________
F.2d 1149, 1154 (3d. Cir. 1991)). On the other hand,
Congress also enacted new provisions designed, inter alia, to
_____ ____
continue the prohibition against strictly parasitic lawsuits.
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14
See generally 31 U.S.C. 3730(e); see also Quinn, 14 F.3d at
___ _________ ___ ____ _____
651.
We think Judge Wald summarized rather well the
objectives of the 1986 amendments:
The history of the FCA qui tam
___ ___
provisions demonstrates repeated
congressional efforts to walk a fine line
between encouraging whistle-blowing and
discouraging opportunistic behavior. The
1986 amendments inevitably reflect the
long process of trial and error that
engendered them. They must be analyzed
in the context of these twin goals of
rejecting suits which the government is
capable of pursuing itself, while
promoting those which the government is
not equipped to bring on its own.
Id.
___
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15
II.
II.
___
DISCUSSION
DISCUSSION
__________
A. The Jurisdictional Question
A. The Jurisdictional Question
_______________________________
As they did before the district court, plaintiffs
here argue that (1) the FDIC is not, for purposes of
3730(e)(3), "the government"; and (2) the instant action is
not "based upon allegations or transactions which are the
subject of" the Collection case. See supra note 3. Because
___ _____
we believe that the second of these two contentions is
ultimately persuasive, and that the statutory bar of
3730(e)(3) therefore does not apply, we turn our sights to
this provision of the statute.
We start by noting the obvious: the breadth with
which we should read the phrase "allegations or transactions
which are the subject of a civil suit" is not readily
___ _______ __
apparent from the text of the statute. Defendants' argument
that, because plaintiffs denied the legitimacy of the put
transaction (alleging fraud) in the Collection case, there is
an identity between the allegations and transactions which
were at least a "subject of" that case and the fraud
allegations which serve as "the basis" of this case certainly
strikes us as being anchored upon a plausible construction of
the phrase "the subject of" in 3730(e)(3). So too,
however, does plaintiffs' argument that, when viewed at an
appropriate level of specificity, the transactions and
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16
allegations which are "the subject of" the Collection case
___
should and must be seen only as Prawer's (1) making of the
sued-upon notes, and (2) alleged failure to satisfy them.
Therefore, we regard the statute as ambiguous.
When faced with a facially ambiguous statutory
provision, we look to the statute as a whole and the history
of its enactment in order to glean congressional intent.
See, e.g., Concrete Pipe & Prods., Inc. v. Construction
___ ____ _______________________________ ____________
Laborers Pension Trust, 113 S. Ct. 2264, 2281 (1993); Gaskell
______________________ _______
v. Harvard Coop. Soc'y, 3 F.3d 495, 499 (1st Cir. 1993);
____________________
United States v. Alky Enters., Inc., 969 F.2d 1309, 1314 (1st
_____________ __________________
Cir. 1992). Here, we think the rather easily-discerned
purposes underlying the 1986 amendments militate strongly in
favor of plaintiffs' reading of the phrase.
As Judge Wald observed in the Quinn decision (and
_____
as we have noted above, see supra at 14-15), "[t]he history
___ _____
of the FCA qui tam provisions demonstrates repeated
___ ___
congressional efforts to walk a fine line between encouraging
whistle-blowing and discouraging opportunistic behavior,"
Quinn, 14 F.3d at 651. Clearly, the 1986 amendments, insofar
_____
as they were responding to a regime in which the preclusion
of opportunistic litigation was too heavily weighted, had as
perhaps their central purpose an expansion of opportunities
and incentives for private citizens with knowledge of fraud
against the government to come forward with that information.
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17
See S. Rep. No. 562, 99th Cong., 2d Sess. 1, reprinted in
___ _________ __
1986 U.S.C.C.A.N. at 5266 ("The purpose of [the 1986
amendments] is to enhance the Government's ability to recover
losses sustained as a result of fraud against the
Government."); id. at 1-2, reprinted in 1986 U.S.C.C.A.N. at
___ _________ __
5266-67 ("The proposed legislation seeks not only to provide
the Government's law enforcers with more effective tools, but
to encourage any individual knowing of Government fraud to
bring that information forward."); id. at 2, reprinted in
___ _________ __
1986 U.S.C.C.A.N. at 5267 ("[The 1986 amendments] increase[]
incentives, financial and otherwise, for private individuals
to bring suits on behalf of the Government."). Indeed, it is
apparent that a primary objective of the 1986 amendments, as
revealed in the above-quoted Senate Report and in published
hearings on the proposed legislation, was to encourage and
provide incentives for the bringing of qui tam actions in all
___ ___ ___
but the several circumstances delineated in 3730(e). See
___ ___
generally id. at 1-17, reprinted in 1986 U.S.C.C.A.N. at
_________ ___ _________ __
5266-82; see also generally False Claims Reform Act: Hearing
___ ____ _________ _________________________________
Before the Subcomm. on Admin. Practice and Proc. of the
_____________________________________________________________
Senate Comm. on the Judiciary, 99th Cong., 1st Sess. (Sept.
______________________________
17, 1985); False Claims Act Amendments: Hearings Before the
__________________________________________________
Subcomm. on Admin. Law and Governmental Relations of the
_____________________________________________________________
Comm. on the Judiciary House of Representatives, 99th Cong.,
________________________________________________
2d Sess. (February 5 and 6, 1986).
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18
Obviously, then, the question becomes: What
circumstances does 3730(e)(3) seek to avoid? It seems
clear that the answer to this question is circumstances
involving "parasitic" qui tam actions which are not otherwise
___ ___
barred by 3730(e). Cf., e.g., Quinn, 14 F.3d at 651
___ ____ _____
(interpreting the 1986 amendments as "still another
congressional effort to reconcile avoidance of parasitism and
encouragement of legitimate citizen enforcement actions").
Thus, when it is not clear whether or not a qui tam action
___ ___
should be barred by the ambiguous provision precluding the
action if it is "based upon transactions or allegations which
are the subject of" another suit or proceeding in which the
government is a party, we think that a court should look
first to whether the two cases can properly be viewed as
having the qualities of a host/parasite relationship. In
answering this question, we think it would be useful for the
court to be guided by the definition of the word "parasite,"
and ask whether the qui tam case is receiving "support,
___ ___
advantage, or the like" from the "host" case (in which the
government is a party) "without giving any useful or proper
return" to the government (or at least having the potential
to do so). See Random House Dictionary of the English
___ __________________________________________
Language 1409 (2d ed. unabridged 1987). If this question is
________
answered in the affirmative, the court may properly conclude
that there is an identity between "the basis" of the qui tam
___ ___
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action and "the subject of" the other suit or proceeding; if
this question is answered in the negative, the court
similarly may gather that such an identity is lacking.
Of course, because Congress's intuition as to what
constitutes "potential useful and proper return" to the
government clearly changed with the enactment of the 1986
amendments, our endorsement of this inquiry would beg the
question entirely without two further points. While the
question of what now constitutes potential useful or proper
return to the government will not always be easily answered
and must necessarily be addressed on a case-by-case basis, we
believe it important to note that one of the most important
perceptions precipitating the 1986 amendments was that
actions which had the potential of providing such return were
being precluded by the then-existing statutory regime. In
light of this, we feel courts should proceed with caution
before applying the statutory bar of 3730(e)(3) in
ambiguous circumstances.
On the other hand, we think it clear that a qui tam
___ ___
suit's potential for adding funds to the government's
coffers, without more, should not be regarded as constituting
_______ ____
useful or proper return to the government. In enacting the
1943 amendments to the FCA's qui tam provisions, Congress
___ ___
clearly rejected the view (espoused in Hess, 317 U.S. at 545)
____
that this potentiality alone was sufficient to render non-
_____
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parasitic (and therefore viable) a qui tam action which is
___ ___
completely derivative of another case in which the government
__________
is a party. And, while the 1986 amendments certainly reveal
an intent to recharacterize as "non-parasitic" actions which
would have been considered "parasitic" under the 1943-1986
regime (which regarded as "parasitic" all qui tam actions
___ ___ ___
based upon evidence or information the government had when
the action was brought), nothing in these amendments suggests
a congressional desire to return to the 1863-1943, pre-Hess
____
regime.
Turning to the instant appeal, we think that two
facts combine to compel the conclusion that this case has the
potential of providing "useful or proper return" to the
government, and therefore is not "parasitic" of the
Collection case. First, the FDIC (which we shall assume
arguendo to be "the government" within the meaning of
________
3730(e)(3)) was not proceeding against the defendants to this
___
action, for fraud or otherwise, in the Collection case.9
Therefore, because this case is seeking to remedy fraud that
the government has not yet attempted to remedy, it is, as a
threshold matter, wholly unlike the one the drafters of
3730(e)(3) almost certainly had in mind and sought to
____________________
9. Of the defendants named here, only Fleet and Recoll were
parties to the Collection case. Moreover, Fleet and Recoll
were only parties to that case because Prawer had filed a
______
series of third-party claims against them.
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preclude (i.e., a qui tam action based upon allegations or
___ ___
transactions pleaded by the government in an attempt to
__ ___ __________
recover for fraud committed against it).
Second, it does not appear that the FDIC could have
_____ ____
sued Fleet for fraud as part of the Collection case as that
__ ____
case was constituted. Had it attempted to do so, the FDIC
____ ___ ___________
not only would have been asserting, as a plaintiff, both the
validity and the invalidity of the sued-upon notes against
separate defendants in the same lawsuit, but it also
seemingly would have been claiming under an entirely
different "transaction or occurrence" (i.e., the put-back of
the notes pursuant to the Assistance Agreement) than the one
(Prawer's making of the notes and alleged failure to satisfy
them) which was the subject matter of the Collection case.
This scenario is not, of course, allowed under the Federal
Rules of Civil Procedure. See Fed. R. Civ. P. 14(a) ("The
___
plaintiff may assert any claim against the third-party
defendant arising out of the transaction or occurrence that
____
is the subject matter of the plaintiff's claim against the
__ ___ _______ ______ __ ___ ___________ _____ _______ ___
third-party plaintiff . . . .") (emphasis supplied); see also
___________ _________ ___ ____
C. Wright, A. Miller, and M. Kane, Federal Practice and
_____________________
Procedure, 1459 at 449 n.4 (1990) ("Plaintiff cannot in
_________
effect substitute, as against the third-party defendant,
another cause of action for that originally commenced by
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him.") (citing Welder v. Washington Temperance Ass'n, 16
______ _____________________________
F.R.D. 18, 20 (D. Minn. 1954)).
Another way to look at this question is to
determine whether defendants' construction of this ambiguous
statutory provision would further the purposes underlying the
1986 amendments. At oral argument, when pressed on this
point, defendants' attorneys acknowledged that their position
necessarily was predicated upon the view that qui tam actions
___ ___
were to be avoided once the government had notice of the
transactions or allegations giving rise to the actions.10
However, such a view must be rejected for two reasons: (1)
Congress has explicitly deemed a "notice" regime insufficient
to protect the government against false claims (indeed, it
was precisely such a regime that Congress sought to abandon
_________ ____ _ ______
in enacting the 1986 amendments); and (2) Congress, when it
wants to establish a notice regime, knows how to do so in far
less ambiguous terms than those utilized in 3730(e)(3), see
___
31 U.S.C. 3730(e)(2)(A) (precluding qui tam actions brought
___ ___
against members of Congress, members of the judiciary, or
senior executive branch officials "if the action is based
upon evidence or information known to the Government when the
action was brought"); 31 U.S.C. 3730(b)(4) (1982)
____________________
10. After all, given the facts noted in the preceding two
paragraphs, the most defendants here can argue is that the
government was, in the Collection case, provided with notice
of the allegedly fraudulent nature of put-back transaction.
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(superseded) (precluding all qui tam actions "based on
___ ___
evidence or information the Government had when the action
was brought").
To sum up, the instant qui tam action has the
___ ___
potential for providing "useful or proper return" to the
government in at least two significant ways: (1) it seeks
recovery from alleged defrauders of the government for fraud
that has not yet been the subject of a claim by the
government; and (2) it has the potential to restore money to
the public fisc that would not and could not have been
restored in the Collection case. As such, we do not think
that it can be characterized as "parasitic." Therefore, we
believe that it would undermine the purposes of the 1986
amendments to construe this action as being "based upon
allegations or transactions which are the subject of" the
Collection case.
B. Other Matters
B. Other Matters
_________________
We recognize that defendants have made several
alternative arguments for affirmance in their respective
briefs. We also recognize that plaintiffs have moved to
dismiss Fleet and Recoll from this action. Given the nascent
state of this litigation (and all that this implies --
including an undeveloped record, an inadequate period of time
for plaintiffs to have cured any defects in their pleadings,
and the lack of a full opportunity for the government to have
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reviewed the pleadings, see 31 U.S.C. 3730(b)), however, we
___
decline either to delve into defendants' other arguments or
to grant plaintiffs' motion to dismiss at this time.
Instead, we leave these matters for the district court to
decide after the government determines whether or not it will
_____
intervene. So too do we leave to the district court all
requests for costs arising out of claims that this action is
frivolous and has been undertaken in bad faith. To the
extent that any such request may be predicated on an argument
that this appeal was frivolous, it is rejected.
III.
III.
____
CONCLUSION
CONCLUSION
__________
For the reasons explained above, we do not think
that the instant qui tam action "is based upon allegations or
___ ___
transactions which are the subject of" the Collection case.
Accordingly, the district court erred in dismissing sua
___
sponte plaintiffs' complaint on the basis of 31 U.S.C.
______
3730(e)(3). The judgment of the district court therefore is
vacated.
Vacated and remanded. No costs.
Vacated and remanded. No costs.
________________________________
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Document Info
Docket Number： 93-1766
Filed Date： 5/5/1994
Precedential Status： Precedential
Modified Date： 9/21/2015