USA ex rel Atkinson v. PA Shipbuilding Co ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
1-12-2007
USA ex rel Atkinson v. PA Shipbuilding Co
Precedential or Non-Precedential: Precedential
Docket No. 04-3374
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
__________
No. 04-3374
UNITED STATES OF AMERICA, ex rel.,
PAUL E. ATKINSON; EUGENE SCHORSCH
v.
PA. SHIPBUILDING CO.; FIRST FIDELITY BANK, N.A.;
SUN SHIP, INC.
Paul E. Atkinson,
Appellant.
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 94-cv-07316)
District Judge: Honorable William H. Yohn, Jr.
Argued on November 15, 2005
Before: FUENTES, BECKER*, and ROTH**, Circuit Judges
(Opinion filed: January 12, 2007 )
John G. Harkins, Jr., Esquire (Argued)
Eleanor M. Illoway, Esquire
David W. Engstrom, Esquire
Harkins Cunningham
2005 Market Street
2800 One Commerce Square
Philadelphia, PA 19103
Counsel for Appellee Sun Ship Inc.
_________________
*This case was argued before the panel of Judges
Fuentes, Becker and Roth. Judge Becker died on May 19,
2006, before the filing of the Opinion. The decision is filed
by a quorum of the panel. 28 USC § 46(d)
**Judge Roth assumed senior status on May 31, 2006.
2
Thomas H. Lee, II, Esquire (Argued)
Veronica B. Rice, Esq.
Dechert LLP
1717 Arch Street
4000 Bell Atlantic Tower
Philadelphia, PA 19103
Joseph O. Click, Esquire
Blank Rome LLP
600 New Hampshire Avenue, N.W., Suite 1100
Washington, DC 20037
Counsel for Appellee PA Shipbuilding Co.
Joseph G. DeRespino, Esquire (Argued)
Robert J. Dougher, Esquire
DeRespino & Dougher
1818 Market Street, Suite 2910
Philadelphia, PA 19103
Counsel for Appellee Fidelity Bank
William N. France, Esquire (Argued)
Healy & Baillie LLP
61 Broadway
New York, NY 10006-2701
Counsel for Appellant
3
OPINION
ROTH, Circuit Judge:
Paul Atkinson claims that certain companies conspired to
and did defraud the United States Navy in connection with a
contract to build oil tankers. Atkinson brought a qui tam action1
under the False Claims Act (“FCA” or “the Act”), 31 U.S.C. §§
3729-33,2 alleging both false claims and “reverse” false claims.
1
Qui tam actions have a long history and were used in
England before the foundation of this country. “Qui tam” is
short for the Latin phrase “qui tam pro domino rege quam pro se
ipso in hac parte sequitur,” which means “who pursues this
action on our Lord the King’s behalf as well as his own.”
Vermont Agency of Natural Res. v. United States ex rel.
Stevens, 529 U.S. 765, 759, n.1, 120 S. Ct. 1858, 146 L. Ed. 2d
836 (2000).
2
31 U.S.C. §§ 3729(a)(2)-(4), and (7) impose liability on a
person or entity who does any of the following:
(2) knowingly makes, uses, or causes to be made
or used, a false record or statement to get a false
or fraudulent claim paid or a p p r o v e d b y t h e
government;
(3) conspires to defraud the Government by
4
Following submission of the Third Amended Complaint, the
District Court dismissed all of the claims, relying on both
jurisdictional and substantive deficiencies. While we will affirm
the District Court, we do so for different reasons.
I. Factual Background
Plaintiff/relator Paul Atkinson brought this action based
on fraud allegedly perpetrated on the Navy by Sun Ship Inc.,
Pennsylvania Shipbuilding Co., and First Fidelity Bank, N.A.
(Fidelity), in connection with the construction of Henry J. Kaiser
class Oiler ships.3 Detailing the alleged fraud requires
getting a false orfraudulent claim allowed or paid;
(4) has possession, custody, or control of property
or money used, or to be used, by the Government
and, intending to defraud the Government or
willfully to conceal the property, delivers, or
causes to be delivered, less property than the
amount for which the person
receives a certificate or receipt; [or]
...
(7) knowingly makes, uses, or causes to be made or used,
a false record or statement to conceal, avoid, or decrease an
obligation to pay or transmit money or property to the
Government . . ..
3
The original contract called for the construction of nine
Oilers at cost of several hundred million dollars. The final
5
discussing both Penn Ship’s corporate history and the events
leading up to the Oiler contract. Although we decide this case
on jurisdictional grounds, we will set forth the facts as Atkinson
has alleged them.4
In 1980, Sun Ship decided to get out of the shipbuilding
business. This enabled Sun Ship’s parent company, Sun Co., to
record a large loss reserve from which it was able to obtain a
substantial tax benefit provided it did not go back into the
shipbuilding business. However, Sun Ship had outstanding
obligations which it could not discontinue without incurring
large contractual liability. Accordingly, Sun Ship decided to
continue to build ships via nominally independent companies.
This enabled Sun Co. to obtain the tax benefit without breaching
any of its contractual obligations.
In accordance with this plan, Sun Ship sold the Chester
Shipyard in Chester, Pennsylvania, to three companies
controlled by Edward E. Paden, Chairman of Levingston
Shipbuilding Co. Atkinson alleges that Levingston was not
contract between the Navy and Penn Ship called for the
construction of two Oilers, and the Navy subsequently exercised
a contract option for Penn Ship to construct an additional two
Oilers.
4
United States ex rel. Dunleavy v. County of Del., 123 F.3d
734, 736 n.2 (3d Cir. 1997) (recognizing that where jurisdiction
is at issue “the norm is not to accord the party whose burden it
is to plead jurisdiction the presumption of truth as to facts
pleaded that must be resolved in answering that question.”)
6
financially sound at the time of sale and that Paden sought Sun
Ship’s help in obtaining Navy work for Levingston prior to the
announcement of the deal. Sun Ship and Levingston allegedly
agreed that Sun Ship would assist Levingston’s pursuit of Navy
contracts and that Levingston would take over Sun Ship’s
existing shipbuilding operations and perform Sun Ship’s
backlog of shipbuilding obligations. The sales agreement
provided that three separate Paden companies would take title
to the Chester Shipyard. Only one of those companies, Penn
Ship, is a party to the current suit. The sales contract contained
restrictive covenants that prevented Penn Ship from guarantying
Levingston’s obligations, making loans to Levingston, or
investing in Levingston. The purpose of these restrictions,
according to Atkinson, was to ensure Sun Company’s tax write-
off.
Two years later, Paden sold a controlling share of his
ownership in Capital Marine Corporation (CMC), the corporate
parent of Paden’s companies including Levingston, to City
Capital Corp., controlled by Thomas C. Weller, Jr., Leland
Moore, and Ronald J. Stevens. The Navy solicited bids for oil
tankers in 1984. According to Atkinson, Penn Ship and Sun
Ship acted together in an effort to misrepresent Penn Ship’s
financial condition to enable it to obtain the Oiler contract. This
was accomplished by the use of allegedly false financial
statements that concealed the fact that Penn Ship, despite the
restrictive covenants in the sales agreement between Sun Co.
and Paden, was propping up Levingston financially. A possible
Levingston bankruptcy could have impeded Penn Ship’s ability
to fulfill the Navy contract because Levingston held a lease on
a floating drydock at the Chester Shipyard – an essential piece
7
of equipment for building the Oilers. If creditors foreclosed on
the drydock, Penn Ship would be unable to continue
construction.
On December 21, 1984, Penn Ship submitted a Best and
Final Offer (BAFO) to build the ships. Of the five bids the
Navy received, Penn Ship’s was by far the lowest. In part, this
was the result of Penn Ship’s failure to include the cost of
architectural and naval drawings necessary for completion of the
project.
Although the Navy’s solicitation offer was silent as to
performance guarantees, after the Navy had accepted Penn
Ship’s bid, it asked Penn Ship to provide security against
reprocurement costs in the event of default. This posed a
problem for both the Navy and Penn Ship because requiring a
performance bond would have necessitated a new solicitation of
offers.5 To avoid this, Thomas Weller, Chairman of Penn Ship,
sent a letter to the Navy suggesting a Trust Indenture.6 The
Navy was to be the beneficiary of a trust, the assets of which
were to be security interests in most of the Chester Shipyard
property. Fidelity was to be appointed trustee.
The letter contained three statements that Atkinson
5
Demanding a performance bond after a bid is accepted is a
significant enough change in the solicitation to require
rebidding.
6
Because Penn Ship proposed the Trust Indenture, the Navy
did not have to re-solicit bids.
8
alleges were false: first, that significant cost overruns were
highly unlikely; second, that the Trust Indenture was
irrevocable; and, third, that the Trust assets would consist of a
security interest in the entire Penn Ship facility at Chester.
On March 26, 1985, the Navy accepted the Trust
Indenture. Under its terms, Penn Ship was to record the security
instruments comprising the res of the trust. Penn Ship failed to
perform this obligation, and the interests were never recorded.
Fidelity, the trustee, never sought to ensure that Penn Ship
recorded the security interests, did not record them itself, and
never informed the Navy of Penn Ship’s failure to record. Penn
Ship and the Navy entered into the Oiler contract on May 6,
1985. Despite the original solicitation offer, the final contract
called for the construction of only two Oilers with an option,
which the Navy later exercised, for two more.
Near the end of 1987, Penn Ship informed the Navy that
it was having trouble paying subcontractors. In the spring of
1989, Penn Ship reported that it had reached a tentative
agreement with Avondale Industries, Inc., to take over
construction of the two additional Oilers ordered pursuant to the
contract option. In June of 1989, the Navy signed Modification
05, which deleted the option Oilers from its contract with Penn
Ship. The Navy renegotiated with Avondale for construction of
the two option ships. In addition, Modification 05 changed
Penn Ship’s compensation structure from a cost reimbursement
incentive price plan to a fixed price contract for $331,400,000.
In January 1989, the Navy and Penn Ship agreed to
Modification 11, which permitted the Navy to make advance
payments to Penn Ship of up to seventeen million dollars and
9
provided that the drydock would act as security.7
After Modification 11 became effective, Penn Ship told
the Navy that it was unable to perform the contract. In late
August 1989, the Navy and Penn Ship signed Modification 17
(the Default Modification), which stipulated that Penn Ship was
in default and provided that the contract would be transferred to
another company for completion. The Trust Indenture was
terminated and Penn Ship was released from liability under the
contract, except for certain reprocurement costs and other
liabilities. To secure these liabilities, the Navy obtained an
additional two million dollar security interest in the floating
drydock, a subordinated mortgage on some real estate that was
mortgaged under the Trust Indenture, and a preferred mortgage
on a floating derrick. The purpose of these interests was to
encourage Penn Ship to use its best efforts to sell collateral so
that some of those funds could be applied to Penn Ship’s
reprocurement obligations.
Atkinson claims that Penn Ship did not use its best efforts
to sell the collateral and, in any event, Penn Ship was
unsuccessful in doing so. After the period for the sale of
collateral had expired, Penn Ship sold the derrick to Maritime
Capital Corp (MCC), a corporation controlled by the Thomas
Weller family of corporations. In its offer of sale to MCC, Penn
Ship incorrectly asserted that title to the derrick was free and
clear of encumbrances. This claim was false because of Penn
Ship’s obligations to the Navy. MCC then sold the derrick to
7
The Navy advanced $10 million pursuant to Modification
11.
10
Donjon Marine Co., Inc., a good faith purchaser for value with
no notice of the Navy’s unrecorded security interest. This bill
of sale also asserted that MCC owned the derrick free of
encumbrances.
On January 13, 1992, Penn Ship and the Navy entered
into Modification 20, which released Penn Ship from all of its
contractual obligations under the Oiler contract. The two ships
under the original contract were never finished and are now
worth only their scrap value, approximately two million dollars.
II. Procedural History
In 1992, Atkinson and then co-relator Eugene Schorsch
brought their first qui tam action based on the circumstances
described above. That action was amended once and then
dismissed without prejudice.
Atkinson and Schorsch filed this, their second qui tam
action, under seal on December 5, 1994. On June 5, 1997, co-
relators filed an amended complaint adding Sun Ship as a
defendant. The next day the government declined to intervene.8
Sun Ship and Fidelity filed separate motions to dismiss.
On December 14, 1998, the District Court placed the action on
the special management track, denied without prejudice the
8
FCA procedure requires relators to allow the government to
take over suits. 31 U.S.C. §§ 3730(a)-(b). If the government
declines to intervene, the relator can proceed as the plaintiff on
the government’s behalf. Id.11
motions to dismiss, and ordered the co-relators to file a second
amended complaint. Only Atkinson was named as a relator in
the Second Amended Complaint.9 The defendants then moved
to dismiss the Second Amended Complaint for failure to state a
claim under FED. R. CIV. P. 12(b)(6) and for failure to plead
fraud with particularity as required by FED. R. CIV. P. 9(b).
The District Court dismissed all of Atkinson’s claims
against Fidelity and Sun Ship and some of his claims against
Penn Ship. Proceeding claim by claim, the District Court
conducted a thorough analysis of all fourteen counts presented
in the Second Amended Complaint. The District Court
concluded that many of Atkinson’s counts were insufficiently
particular under Rule 9(b) or simply failed to state a claim under
Rule 12(b)(6) because, for example, they omitted a required
element of a cause of action. All of the dismissals were without
prejudice to allow Atkinson to file yet another amended
complaint. The District Court cautioned Atkinson that
amendments beyond that were unlikely to be permitted.
Atkinson then filed the Third Amended Complaint which
set forth twelve distinct counts and abandoned some counts
asserted in the Second Amended Complaint. Only Penn Ship
and Fidelity were named as defendants. They moved to dismiss
under FED. R. CIV. P. 12(b)(1) for lack of subject matter
jurisdiction and under FED. R. CIV. P. 12(b)(6) for failure to state
a claim.
9
Schorsch officially withdrew from the case by Stipulation
and Order dated June 21, 1999.
12
The District Court turned its attention first to jurisdiction.
As required by Gould Electronics Inc. v. United States, 220 F.3d
169, 176 (3d Cir. 2000), the District Court determined that it
was dealing with a factual rather than facial challenge to
jurisdiction because “it concerns not an alleged pleading
deficiency, but rather the actual failure of relator’s claims to
comport with the jurisdictional prerequisites contained in 31
U.S.C. § 3730(e)(4).” United States ex rel. Atkinson v. Pa.
Shipbuilding, 255 F. Supp. 2d 351, 362 (E.D. Pa. 2002). This
conclusion permitted the District Court to “consider and weigh
evidence outside the pleadings to determine if it [had]
jurisdiction.” Id. (quoting Gould Elecs. Inc., 220 F.3d at 176).
The District Court then concluded that the pre-1986
version of the FCA’s jurisdictional bar applied to the portion of
Atkinson’s complaint that was derived from events that occurred
prior to the 1986 amendment to the FCA’s jurisdictional
provisions. Id. at 364-67 (citing United States ex rel. Stinson,
Lyons, Gerlin & Bustamante v. Prudential Ins. Co., 944 F.2d
1149, 1153-54 (3d Cir. 1991)).10 The pre-1986 version of the
FCA precluded federal jurisdiction when the relator’s claims
were based on allegations or transactions that had been publicly
disclosed or were based on evidence possessed by the
government at the time that the action was brought. Because the
government had in its possession information regarding the pre-
1986 claims at the time of the suit’s inception, that portion of the
complaint was disallowed. Id. at 366-67.
10
For a more detailed discussion of the history of the FCA’s
jurisdictional requirements see Part IV.B.1.
13
The District Court next turned to the defendants’ primary
jurisdictional argument under 31 U.S.C. § 3730, which, as we
will discuss in more detail below, precludes the federal courts
from exercising jurisdiction over a qui tam action when a
complaint is based on material that is publicly disclosed under
31 U.S.C. § 3730(e)(4)(A) unless the relator is an “original
source” of the information under 31 U.S.C. § 3730(e)(4)(B).11
Proceeding claim by claim under the rubric set forth in
Dunleavy, 123 F.3d at 740, and United States ex rel. Springfield
Terminal Railway Co. v. Quinn, 14 F.3d 645, 654 (D.C. Cir.
1994), the District Court determined that all of Atkinson’s
claims were based upon allegations or transactions that were
publicly disclosed and that Atkinson was an original source only
of the non-recording of the security interests listed in the Trust
Indenture. As to the claims that did not involve the non-
recording, the District Court concluded that it lacked jurisdiction
under 31 U.S.C. § 3730(e)(4)(A) because the information was
publicly disclosed and Atkinson was not an original source of
any of the components of the claims. For the remaining counts
that were based in part on the non-recording as well as on
another essential element that was publicly disclosed but for
11
In conducting its inquiry pursuant to FED. R. CIV. P.
12(b)(1), the District Court declined to consider amendments to
counts that it did not dismiss from the Second Amended
Complaint because Atkinson was not given leave to amend the
non-dismissed counts, nor did he obtain consent to do so from
the adverse parties. FED. R. CIV. P. 15. Atkinson claims that the
District Court’s decision not to permit amendment was an abuse
of discretion. We address and reject that argument in part
IV.B.2.c.
14
which Atkinson was not an original source, the District Court
held that jurisdiction was still lacking because, under the District
Court’s reading of our decision in United States ex rel. Mistick
v. Housing Authority of the City of Pittsburgh, 186 F.3d 376 (3d
Cir. 1999), a relator must be an original source of all essential
elements of a claim to survive a jurisdictional challenge under
section 3730.
The only claim to survive the District Court’s
jurisdictional analysis was the portion of the conspiracy claim
based exclusively on information for which the court found
Atkinson to be an original source – Penn Ship’s failure to record
and Fidelity’s failure to ensure recordation of the security
interests. As to that claim, the District Court partially granted
the defendants’ motion under Rule 12(b)(6) by dismissing the
portion of the count alleging a reverse false claim because the
District Court believed that 31 U.S.C. § 3729(a)(3) did not
support that type of action.12 Also, the District Court dismissed
the portion of the first count that was based on any activity prior
to December 4, 1988, because of the FCA’s six-year statute of
limitations. 31 U.S.C. § 3731(b)(1).
In a later opinion, the District Court granted summary
judgment to Penn Ship and Fidelity on the sole remaining FCA
12
31 U.S.C. § 3729(a)(3) provides liability for “[a]ny person
who–conspires to defraud the Government by getting a false or
fraudulent claim allowed or paid[.]” Reverse false claims are
centered around an alleged fraudulent effort to reduce a liability
owed to the government rather than to get a false or fraudulent
claim allowed or paid.
15
conspiracy claim after determining that no reasonable jury could
conclude that Penn Ship and Fidelity formed an agreement to
defraud the government. The District Court first noted that
recovery under 31 U.S.C. § 3729(a)(3) requires a plaintiff to
show (1) a conspiracy to get a false or fraudulent claim allowed
or paid and (2) an act in furtherance of the conspiracy.
Following an exhaustive review of Atkinson’s proffered
evidence, the District Court concluded that the evidence fell
short of establishing the required agreement. Atkinson filed a
motion to reconsider which was denied on September 15, 2004.
Atkinson then filed a timely notice of appeal.
III. Jurisdiction and Standard of Review
This action was brought under the FCA, 31 U.S.C. §§
3729-33 (1988). The District Court determined that it lacked
subject matter jurisdiction under 31 U.S.C. § 3730(e)(4) over all
but a portion of the first count of the Third Amended Complaint.
The District Court then dismissed the remainder of Atkinson’s
action by way of summary judgment on July 28, 2004. We have
jurisdiction over the District Court’s final order under 28 U.S.C.
§ 1291.
We exercise plenary review of a District Court’s
dismissal for lack of subject matter jurisdiction under the FCA.
Stinson, 944 F.2d at 1152. Because we will dismiss all of
Atkinson’s claims pursuant to the FCA’s jurisdictional bar, we
have no occasion to review the District Court’s grant of
summary judgment.
There is disagreement among the parties as to the nature
16
of the plaintiff’s burden when faced with a Rule 12(b)(1)
challenge to jurisdiction. Under Gould Electronics Inc., 220
F.3d at 178, we must start by determining whether we are
dealing with a facial or factual attack to jurisdiction. If this is a
facial attack, the court looks only at the allegations in the
pleadings and does so in the light most favorable to the plaintiff.
Mortensen v. First Fed. Sav. & Loan Ass’n, 549 F.2d 884, 891
(3d Cir. 1977). If this is a factual attack, however, it is
permissible for a court to review evidence outside the pleadings.
Gould Elecs. Inc., 220 F.3d at 176 (citing Gotha v. United
States, 115 F.3d 176, 178-79 (3d Cir. 1997); Mortensen, 549
F.3d at 891)). The District Court held that this was a factual
challenge “as it concerns not an alleged pleading deficiency, but
rather the actual failure of relator’s claims to comport with the
jurisdictional prerequisites contained in 31 U.S.C. § 3730(e)(4).”
Atkinson, 255 F. Supp. 2d at 362. We agree.
In the interim between the defendants’ partially
successful challenge to Atkinson’s Second Amended Complaint
and the District Court’s disposition of the defendants’ motion to
dismiss for want of jurisdiction in response to the Third
Amended Complaint, the parties conducted extensive discovery
on the jurisdictional issue. Moreover, the defendants’ challenge,
as accurately set forth by the District Court, goes to the actual
facts supporting Atkinson’s qui tam claim, not merely how those
facts were pled. Therefore, the District Court was entitled to
consider and weigh evidence outside the pleadings and properly
placed the burden of establishing jurisdiction on Atkinson.
Gould Elecs. Inc., 220 F.3d at 176-77 (citing Pension Benefit
Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d
Cir. 1993)).
17
Having held that this is a factual challenge to jurisdiction,
we now turn to Atkinson’s claim that, because in his view the
substantive and jurisdictional facts are intertwined, the District
Court should have demanded less in terms of jurisdictional proof
than otherwise customary. Atkinson is correct that, where
jurisdictional and substantive facts are intertwined, we demand
less by way of jurisdictional proof for a plaintiff to survive a
Rule 12(b)(1) challenge. Gould Elecs. Inc., 220 F.3d at 178
(citing Mortensen, 549 F.2d at 891, 897-98). Defendants assert,
however, that this is not a case of intertwined facts, and,
therefore, the relaxed standard does not apply. Defendants have
the better of the argument.
Atkinson’s underlying burden to prove a substantive
violation of the FCA is in no way intertwined with his burden to
establish jurisdiction pursuant to 31 U.S.C. § 3730 and Rule
12(b)(1). The jurisdictional requirements of the FCA involve
assessing whether the allegations and transactions constituting
the bases of the claims were publicly disclosed and whether, if
they were, the relator is an original source – meaning that he has
direct and independent knowledge of the information. 31 U.S.C.
§§ 3730(e)(4)(A)-(B). If a relator gets over these hurdles, he
must then make his substantive case. This requires establishing
that the defendant submitted false claims. 31 U.S.C. §§
3729(a)(2)-(4), (7). To meet this burden, a plaintiff must put
forth proof wholly distinct from that necessary to survive a
jurisdictional challenge under §§ 3730(e)(4)(A)-(B).13 Thus, we
13
Atkinson cites Hughes Aircraft Co. v. United States ex rel.
Schumer, 520 U.S. 939, 951, 117 S. Ct. 1871, 138 L. Ed. 2d 135(1997), for the proposition that the jurisdictional requirements
18
hold that the District Court applied the proper standard in
reviewing the defendants’ Rule 12(b)(1) challenge, and we will
apply the same standard in conducting our plenary review of the
jurisdictional issues.
IV. Discussion
A. Waiver of Claims for Failure to Reassert in
Subsequent Pleading
Before turning to the District Court’s jurisdictional
rulings, we must address Sun Ship’s contention that Atkinson
waived his right to appeal the District Court’s dismissal of Sun
Ship from the Second Amended Complaint by failing to replead
claims against Sun Ship in his Third Amended Complaint. We
agree with Sun Ship and hold that Atkinson has waived his right
to assert error in connection with the dismissal of his claims
of the FCA affect the “substantive rights of the parties . . ..”
This, apparently, is designed to encourage us to hold that
jurisdictional and substantive facts are always intertwined under
the FCA. Hughes Aircraft Co. requires no such result. In
Hughes Aircraft Co., the Court was faced with whether the
FCA’s jurisdictional restrictions applied retroactively. Id.Hughes Aircraft Co. had nothing to do with how a plaintiff must
go about establishing jurisdiction under the FCA. The Court’s
holding in that case in no way impacts the requirement that the
facts necessary to establish both jurisdiction and a right to
substantive relief must be intertwined before any relaxed burden
of proof applies to plaintiffs dealing with factual challenges to
jurisdiction under Rule 12(b)(1).
19
against Sun Ship.
In addition to naming Fidelity and Penn Ship, the Second
Amended Complaint also included claims against Sun Ship. As
discussed above, the District Court dismissed, without prejudice,
all of the claims pertaining to Sun Ship under Rules 9 and
12(b)(6). The District Court specifically granted Atkinson leave
to amend his complaint but warned him that further amendments
would probably not be permitted. When Atkinson filed his
Third Amended Complaint, he once again named Penn Ship and
Fidelity, but Sun Ship was no longer included as a party.
Indeed, when the District Court disposed of the remaining
defendants’ motions to dismiss the Third Amended Complaint,
it remarked that “Sun Ship has been dropped as a defendant.”14
Atkinson, 255 F. Supp. 3d at 361. On appeal, Atkinson now
challenges the District Court’s decision to grant Sun Ship’s
motion to dismiss even though the dismissal was without
prejudice, Atkinson did not include Sun Ship in the Third
Amended Complaint, and Atkinson did not otherwise indicate
14
It appears that the decision to omit Sun Ship from the Third
Amended Complaint was a strategic choice by Atkinson’s then
counsel Storch, Amini & Munves, P.C (“Storch”). At the
hearing before the District Court over Storch’s motion to
withdraw as counsel, Atkinson said that he “strongly protested
the refusal of the Storch firm to rename Sun Ship as a
[defendant] in the [Third Amended Complaint], . . . but . . .
reluctantly agreed to allow [it]” believing that Storch would
rename Sun Ship after discovery produced more evidence
implicating it in the alleged FCA violations. Letter to Judge
Yohn (Sept. 8, 2004).
20
an intention to stand on his dismissed pleading as to Sun Ship.
We conclude that where, as here, it would not have been futile
to replead dismissed claims but those claims are nevertheless
omitted from an amended pleading, the right to challenge the
basis for dismissal on appeal is waived.15
This Court has yet to articulate a rule concerning whether
the failure to include a dismissed claim in an amended pleading
constitutes a waiver of the right to challenge on appeal the basis
for the dismissal. We believe the proper rule allows plaintiffs to
appeal dismissals despite amended pleadings that omit the
dismissed claim provided repleading the particular cause of
action would have been futile.16 As far as our research suggests,
15
Requiring a plaintiff to replead where repleading would be
futile “merely sets a trap for unsuspecting plaintiffs with no
concomitant benefit to the opposing party.” Davis v. TXO Prod.
Corp., 929 F.2d 1515, 1518 (10th Cir. 1991) (citation omitted).
16
The Ninth Circuit, which we decline to follow, has
articulated the most formalistic approach in these circumstances.
E.g., Marx v. Loral Corp., 87 F.3d 1049, 1055-56 (9th Cir.
1996). Holding fast to the general rule that “an amended
complaint ordinarily supersedes the original and renders it of no
legal effect,” International Controls Corp. v. Vesco, 556 F.2d
665, 668 (2d Cir. 1977), the Ninth Circuit has held that “all
causes of action alleged in an original complaint which are not
alleged in an amended complaint are waived.” King v. Atiyeh,
814 F.2d 565, 567 (9th Cir. 1987).
The Tenth and Fifth Circuits take a more flexible
21
no appellate court has yet faced the amended complaint waiver
rule where, as here, the amended complaint leaves out a
defendant rather than merely a cause of action. When a
plaintiff’s amended complaint leaves out a party previously
named in the preceding complaint, the equitable principles we
enunciate here apply even more strongly because parties that do
not appear in amended complaints have a legitimate expectation
that they are no longer involved in the litigation.
Repleading is futile when the dismissal was “on the
merits.” A dismissal is on the merits when it is with prejudice
or based on some legal barrier other than want of specificity or
particularity. In re Burlington Coat Factory Sec. Litig., 114 F.3d
1410, 1435 (3d Cir. 1997) (finding futility, in the context of
discussing leave to amend, where claims would not survive a
Rule 12(b)(6) motion “even if pled with more particularity.”).
For example, dismissals based on subject matter jurisdiction or
preemption should be understood as being on the merits. See
Joyce v. RJR Nabisco Holdings Corp., 126 F.3d 166, 173-74 (3d
Cir. 1997) (declining to find waiver where plaintiff did not file
an amended complaint following a district court’s preemption
based rejection). Repleading is futile in such cases because the
approach. “[W]hile the pleader who amends or pleads over,
waives his objections to the ruling of the court on indefiniteness,
incompleteness or insufficiency, . . . he does not waive his
exception to the ruling which strikes ‘a vital blow to a
substantial part’ of his cause of action.” Davis, 929 F.2d at 1517(quoting Blazer v. Black, 196 F.2d 139, 143–44 (10th Cir. 1952)
(citation omitted); Wilson v. First Houston Inv. Corp., 566 F.2d
1235, 1237-38 (5th Cir. 1978)).
22
legal inadequacy cannot be solved by providing a better factual
account of the alleged claim.17 To the extent that there is
uncertainty as to whether a dismissal is on the merits, doubts
should be resolved against the party asserting waiver.
If a party omits a claim from an amended complaint that
it would not have been futile to replead, that party can still
preserve the claim for appellate review by standing on the
dismissed claim despite leaving it out of the amended
complaint.18 We do not adopt a rigid requirement as to what a
17
Sometimes deciding whether dismissal is on the merits will
require reading the district court’s dismissal order in light of the
plaintiff’s alleged litigating position. For example, in Bastian v.
Petren Resources Corp., 892 F.2d 680, 682-83 (7th Cir. 1990),
the plaintiff’s original complaint charged violations of Rule 10b-
5 and 18 U.S.C. §§ 1961 et. seq. (the RICO statute). The RICO
claim was dismissed with leave to amend because of a technical
pleading deficiency. The 10b-5 claim, however, had what the
district court believed to be a more serious problem: failure to
allege loss-causation. Plaintiff, however, contended that an
allegation of loss-causation was not necessary. Id. at 683.
Although the district court dismissed that claim with leave to
amend (that is, to include facts supporting loss-causation), we
considered the dismissal to have been on the merits for waiver
purposes because the pleading “error” went to the legal
requirements of a 10b-5 action.
18
The practice of standing on a dismissed complaint for
purposes of invoking appellate review is by no means foreign to
this Court. “[A] dismissal without prejudice is not a final
23
plaintiff must do to stand on a dismissed complaint. Adding a
section to an amended pleading specifically preserving the claim
certainly suffices. Smith v. Nat’l Health Care Serv. of Peoria,
934 F.2d 95, 98 (7th Cir. 1991) (involving case where plaintiff
added a “Preserved Claims” section to his amended pleading).
It would also be acceptable for a plaintiff to file a notice with the
district court stipulating that he has decided to stand on his
previous pleading with respect to a claim or party now dropped
from the otherwise operative pleading.
In this case, it is clear from the District Court’s opinion
that it would not have been futile to replead the claims against
Sun Ship because the dismissals were based on pleading
deficiencies rather than substantive disagreements regarding the
legal requirements of the causes of action. The District Court
specifically invited Atkinson to file an amended complaint. The
District Court dismissed count one of Atkinson’s Second
Amended Complaint because Atkinson failed to plead facts
necessary to sustain relief: “[B]ecause the complaint lacks any
allegations supporting an agreement to commit a fraudulent act
entered into by Sun Ship and any other defendant, . . . the court
will dismiss the claim for conspiracy against Sun Ship under the
FCA without prejudice.” United States ex rel. Atkinson v. Pa.
Shipbuilding Co., No. CIV.A.94-7316, 2000 WL 1207162, at
*11 (E.D. Pa. Aug. 24, 2000). Likewise, the District Court
appealable order under § 1291, unless the plaintiff can no longer
amend the complaint or unless the plaintiff declares an intention
to stand on the complaint as dismissed.” Semerenko v. Cendant
Corp., 223 F.3d 165, 172 (3d Cir. 2000) (citations omitted);
Borelli v. City of Reading, 532 F.2d 950 (3d Cir. 1976).
24
dismissed counts two through four based on similar pleading
deficiencies. See, e.g., Atkinson, 2000 WL 1207162, at *14-16
(“Nowhere in the complaint is it alleged, much less with the
particularity required by Rule 9(b), how the actions of Sun Ship
caused Penn Ship to make misrepresentations to the Navy.”).
Atkinson’s Third Amended Complaint did not name Sun
Ship as a defendant. Moreover, Atkinson never informed the
District Court or Sun Ship that he was standing on his
allegations in the Second Amended Complaint vis-à-vis Sun
Ship rather than simply dropping Sun Ship from the suit.
Atkinson filed his notice of appeal from the District Court’s
final order granting Fidelity and Penn Ship summary judgment
on August 17, 2004 – almost four years after Atkinson had filed
his Third Amended Complaint that failed to include Sun Ship as
a defendant. It would be unjust under these circumstances to
enable Atkinson to drag Sun Ship back into this case after Sun
Ship, by Atkinson’s own decision, was dropped as a defendant.
Accordingly, we hold that Atkinson has waived his right to
challenge the District Court’s grant of Sun Ship’s motion to
dismiss.
B. The FCA’s Jurisdictional Bar
The District Court dismissed a portion of count one, and
all of the remaining counts, based on the FCA’s jurisdictional
bar. 31 U.S.C. § 3730. In reaching its conclusion, the District
Court found that Atkinson’s claim was based upon allegations
or transactions that were publicly disclosed but that Atkinson
was an “original source” only of Penn Ship’s non-recording of
the security interests and Fidelity’s failure to ensure recordation
25
under 31 U.S.C. § 3730(e)(4)(B). For the District Court,
Atkinson’s original source status as to this fact did not preserve
those claims that relied on either element for which Atkinson
was an original source because, under our decision in Mistick,
186 F.3d 376 (3d Cir. 1999), the District Court believed that
Atkinson was required to be an original source of all essential
elements of each claim.
Because we hold that Atkinson was not an original source
of the non-recording, we need not address whether Mistick
requires a relator to be an original source of all essential
elements of his claim. Likewise, our holding renders it
unnecessary for us to address Atkinson’s other alleged claims of
error in the District Court.19
1. The FCA’s Jurisdictional Provisions
This Court has previously detailed the history of the FCA
and, in particular, the jurisdictional provisions of 31 U.S.C. §
3730. Dunleavy, 123 F.3d at 738; Stinson, 944 F.2d at 1152-54.
Under certain circumstances, the qui tam provisions allow
private relators to sue, on behalf of the United States, any person
or entity that submits a false claim to the Government. Hughes
Aircraft Co., 250 U.S. at 941, 117 S. Ct. 1871, 138 L. Ed. 2d
135. Before it was amended in 1986, the FCA contained very
restrictive provisions barring qui tam suits if the information on
19
To the extent that the District Court’s discovery orders
affected Atkinson’s ability to formulate his claims, we find that
the District Court did not abuse its discretion in disposing of
Atkinson’s many discovery related motions.
26
which they were based was already in the Government’s
possession. Mistick, 186 F.3d at 382 (citing Hughes Aircraft
Co., 250 U.S. at 941). In an effort to ease the restrictions and
“revitalize” qui tam actions,20 Congress enacted 31 U.S.C. §
3730(e)(4)(A), which provides:
20
Congress sought a middle-ground between a restrictive
approach that essentially eliminated the FCA’s relator
provisions and a free-for-all of parasitic suits based on publicly
available information. In 1943, the Supreme Court had held that
a relator could bring a qui tam action based solely on
information derived from a government criminal indictment.
United States ex rel. Marcus v. Hess, 317 U.S. 537, 63 S. Ct.
379, 87 L. Ed. 443 (1943). In response, Congress amended the
FCA to prohibit relator suits “based on evidence or information
the government had when the action was brought.” 31 U.S.C.
§ 3730(b)(4) (1982) (superseded). The federal courts read this
restriction broadly, going so far as to prohibit the state of
Wisconsin from bringing a qui tam suit based on evidence of
Medicaid fraud when the state was required to report the
information to the Department of Health and Human Services.
United States ex rel. Wisconsin v. Dean, 729 F.2d 1100, 1106
(7th Cir. 1984). The 1986 amendments were passed as a
response to decisions like Dean which drastically narrowed the
availability of suits by private relators. Stinson, 944 F.2d at
1153-54 (detailing the history of the FCA). As a result, the
1986 Amendments “must be analyzed in the context of [the]
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.” Springfield Terminal, 14
F.3d at 651.
27
No court shall have jurisdiction over an action
under this section based upon the public disclosure of
allegations or transactions in a criminal, civil, or administrative
hearing, in a congressional, administrative, or Government
Accounting Office [sic] report, hearing, 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 information.
Under 31 U.S.C. § 3730(e)(4)(B) an “original source” is:
an individual who has direct and independent
knowledge of the information on which the allegations are based
and has voluntarily provided the information to the Government
before filing an action under this section which is based on the
information.
2. Public Disclosure and Original Source Analysis
To determine whether a plaintiff is barred by the FCA’s
public disclosure provisions, we must first assess whether the
relator’s claim is based on publicly disclosed allegations or
transactions. This, in turn, requires a twofold analysis. First, we
determine whether the information was disclosed via one of the
sources listed in § 3730(e)(4)(A). Second, we decide whether
the relator’s complaint is based on those disclosures. To be
“based upon” the publicly revealed allegations or transactions
the complaint need only be “supported by” or “substantially
similar to” the disclosed allegations and transactions. Mistick,
186 F.3d at 385-88 (rejecting a rule that “based upon” means
28
“actually derived from,” because such a rule would render the
original source exception superfluous).
To aid our analysis we are guided by an algebraic
representation of the nature and extent of disclosure required to
raise the jurisdictional bar. Dunleavy, 123 F.3d at 741 (quoting
Springfield Terminal, 14 F.3d at 654).
[I]f X + Y = Z, Z represents the allegation of fraud
and X and Y represent its essential elements. In order to
disclose the fraudulent transaction publicly, the combination of
X and Y must be revealed, from which readers or listeners may
infer Z, i.e., the conclusion that fraud has been committed.
Id. To draw an inference of fraud, both a misrepresented [X]
and a true [Y] state of facts must be publicly disclosed. Id. at
741. So, if either Z (fraud) or both X (misrepresented facts) and
Y (true facts) are disclosed by way of a listed source, then a
relator is barred from bringing suit under § 3730(e)(4)(A) unless
he is an original source.
To be an original source, a relator’s knowledge must be
both direct and independent. “Independent knowledge” is
knowledge that does not depend on public disclosures. Stinson,
944 F.2d at 1160. “Direct knowledge” is knowledge obtained
without any “intervening agency, instrumentality or influence:
immediate.” Id. (quoting Webster’s Third New International
Dictionary 640 (1976)). The FCA “seeks to encourage persons
with ‘first hand knowledge of fraudulent misconduct,’ or those
‘who are either close observers or otherwise involved in the
fraudulent activity’ to come forward.” United States ex rel.
29
Barth v. Ridgedale Elec., Inc., 44 F.3d 699, 703 (8th Cir. 1995)
(internal citations omitted) (quoting S. Rep. No. 345 (1986),
reprinted in 1986 U.S.C.C.A.N. 5266, 5269)).
In making our determination whether a relator is an
“original source,” we have yet to describe the proper analysis
when a relator’s claims are based in part upon public disclosures
covered by § 3730(e)(4)(A), but the relator also asserts original
source status on the basis of a review of public information that
does not qualify under that section.21
We will apply these principles to each of Atkinson’s
claims to determine whether they are barred by §§
3730(e)(4)(A)-(B). In the process, we take this opportunity to
discuss the scope of the original source exception in cases in
which the plaintiff asserts that status based upon learning an
essential element from publicly available information that falls
outside the scope of § 3730(e)(4)(A).
21
A determination that a public disclosure does not qualify
under § 3730(e)(4)(A), as in Dunleavy, does not always end the
inquiry. Where, as here, there is an independent basis upon
which a court finds that an element of a qui tam relator’s claim
was publicly disclosed, the question becomes whether the relator
is an original source of that element under § 3730(e)(4)(B).
Simply because a state record cannot serve as a source of
publicly disclosed allegations and transactions for purposes of
§ 3730(e)(4)(A), Dunleavy, 123 F.3d at 744-45, does not mean
that the public nature of the state record is irrelevant under the
direct and independent knowledge language of § 3730(e)(4)(B).
30
a. Count One: Alleged Conspiracy Between Penn
Ship and Fidelity in Violation of 31 U.S.C.
§3729(a)(3)
The first count of Atkinson’s Third Amended Complaint
alleges a conspiracy between Penn Ship and Fidelity to cause
“false and fraudulent claims and reverse false claims [to be]
allowed or paid in violation of 31 U.S.C. § 3729(a)(3).”
According to Atkinson, Penn Ship’s alleged participation was its
intentional failure to record the security instruments identified
in the Trust Indenture. Fidelity’s alleged role in the conspiracy
was threefold: (1) the attempt to convince the Navy to accept a
version of the Trust Indenture that excluded a provision for
delivery of all recording documents by Fidelity to the Navy, (2)
the failure to secure recordation, and (3) the failure to sign forms
necessary to perfect the Navy’s security interest.22
22
Atkinson now asserts that Fidelity’s alleged role in the
conspiracy contained a fourth element – Fidelity’s failure to
inform the Navy that the security interests were not perfected.
Contrary to Atkinson’s assertions, the District Court was correct
to consider only the three aspects of the claim described above
because Atkinson’s own Memorandum in opposition to
defendants’ motions to dismiss did not challenge the defendants
on the ground that there was this fourth aspect to the claim.
31
Atkinson conceded that the elements of the fraud theory
concerning Fidelity’s alleged role were publicly disclosed.
However, he claims that Penn Ship’s failure to record was not.
The District Court held, and we agree, that the non-recording
claim was based on public disclosures. Both the Navy’s
response to then co-relator Schorsch’s FOIA request and a
Department of Defense Office of the Inspector General Audit
Report of March 25, 1994, (DoD IG Report) constitute public
disclosures within the meaning of § 3730(e)(4)(A) and reveal
the non-recordation. Mistick, 186 F.3d at 383 (holding that a
response to a FOIA request falls within the scope of §
3730(e)(4)(A)’s “administrative . . . report” provision).
Atkinson argues that his first allegation of the non-
recording of the security interests was in his original qui tam
action which predated the FOIA request and the DoD IG Report.
Therefore, his subsequent qui tam action cannot be “based
upon” the transactions revealed in those documents. Had
Atkinson pursued his original FCA suit, he would have a strong
argument that his claim is not “based upon” the transactions
later revealed in response to the FOIA request and DoD IG
Report. Atkinson’s previous assertion of a FCA claim does not,
however, insulate his subsequent action from normal public
disclosure analysis when the allegations in the later action are
“substantially similar to” the information revealed in the FOIA
request and the DoD IG Report. We cannot articulate it any
better than the District Court:
Wholly beside the point, under the straightforward
Mistick analysis, is a relator’s own previous assertion of the
relevant allegation or transaction in a prior action or his previous
32
discovery of such via non-public means. While these
considerations might have precluded the application of the
public disclosure bar in the predecessor action, and although
they certainly impact the original source analysis, . . . they do
not alter the fact that the information was disclosed via a
statutorily-enumerated means prior to its assertion in this action
by relator.
Atkinson, 255 F. Supp. 2d at 373; United States ex rel.
Laird v. Lockheed Martin Eng. & Sci. Serv. Co., 336 F.3d 346,
352 n.2 (5th Cir. 2003) (reaching same conclusion) (quoting
United States ex rel. Jones v. Horizon Healthcare Corp., 160
F.3d 326, 330 (6th Cir. 1998)).
Having determined that count one is based upon the
publicly disclosed FOIA request and DoD IG Report, we must
next decide whether Atkinson is an original source. The District
Court held that Atkinson is an original source after concluding
that Schorsch obtained direct and independent evidence of the
non-recording by examining county records. Leaving aside the
issue of whether Schorsch’s knowledge can be imputed to
Atkinson under the FCA, we hold that Schorsch, and therefore
Atkinson, is not an original source of the failure to record.
As discussed above, an original source must have “direct
and independent knowledge of the information on which the
allegations are based . . ..” 31 U.S.C. § 3730(e)(4)(B). If a
relator’s knowledge is based solely upon public disclosures
within the meaning of § 3730(e)(4)(A), then the relator does not
have direct and independent knowledge under § 3730(e)(4)(B).
Stinson, 944 F.2d at 1160 (citing Houck ex rel. United States v.
33
Folding Admin. Comm., 881 F.2d 494, 505 (7th Cir. 1989)).
We have yet to specifically address for purposes of the original
source analysis, however, the impact of a relator’s reliance upon
information in the public domain that is not a § 3730(e)(4)(A)
public disclosure.
In addressing this issue, we are mindful of the Springfield
Terminal approach utilized to determine whether an FCA claim
is “based upon” public disclosures. Once we determine that an
X or Y element is based upon public disclosures under §
3730(e)(4)(A), we focus on whether the relator is an original
source of the information underlying that element. If the
relator’s knowledge of the element is based solely on a §
3730(e)(4)(A) public disclosure, the relator is not an original
source. Stinson, 944 F.2d at 1160. Where, as here, the relator’s
knowledge of the element is based, in whole or part, on
information available in the public domain that is not a §
3730(e)(4)(A) public disclosure, it is the nature and extent of
reliance upon that information that determines whether the
relator is an original source.
The Tenth Circuit Court of Appeals’ approach to
resolving original source status is informative. In Kennard v.
Comstock Resources, Inc., 363 F.3d 1039 (10th Cir. 2004),
relators brought suit under the FCA against oil and gas well
operators for alleged underpayment of royalties to Indian tribes.
After concluding that there was a prior public disclosure, the
court determined that relators were an original source. Id. The
defense argued that relators were not an original source, in part
because they relied upon public records in reaching their
conclusion that the defendants defrauded the government. Id.34
The court refused to adopt a bright-line rule always
disqualifying relators as an original source when part of the
basis of their information is consultation of public records. Id.
at 1045. Instead, the court articulated a case-by-case approach:
[T]he degree and character of such reliance is
necessarily deserving of our attention. A mere compilation of
documents already in the public domain will not allow a relator
to qualify as an original source. However, a complete and
thorough investigation of a fraud on the Government will likely
necessarily involve some review of contracts, documents, or
other information in the public domain. It is the character of the
relator’s discovery and investigation that controls this inquiry.
Id. (emphasis added).
We conclude that the extent of reliance on information
already in the public domain should be a consideration during
the original source inquiry, even if that information is not a
public disclosure within the meaning of § 3730(e)(4)(A). While
it is true that reliance solely on “public disclosures” under §
3730(e)(4)(A) is always insufficient under § 3730(e)(4)(B) to
confer original source status, reliance on public information that
does not qualify as a public disclosure under § 3730(e)(4)(A)
may also preclude original source status depending on the extent
of that reliance and the nature of the information in the public
domain. See Barth, 44 F.3d at 703-04 (holding that a relator did
not have direct knowledge of an alleged fraud when the
knowledge was obtained in part by review of publicly-filed
payroll records) . Thus, in deciding whether a relator’s reliance
on public records bars him from being an original source under
35
§ 3730(e)(4)(B), courts should consider both “the availability of
the information and the amount of labor and deduction required
to construct the claim.” Kennard, 363 F.3d at 1046. The more
obscure the records and the more significant the investigative
input of the relator, the more likely it is that granting original
source status will fulfill the FCA’s “twin goals of rejecting suits
which the government is capable or pursuing itself, while
promoting those which the government is not equipped to bring
on its own.” Springfield Terminal, 14 F.3d at 651.
We decline to adopt a rigid rule that consultation with
public documents automatically disqualifies a relator from being
an original source. Some reliance on public records or
information is acceptable and, indeed, it is hard to imagine that
a non-insider could ever obtain original source status without at
least some consultation of publicly available information.23
United States ex rel. Grynberg v. Praxair, Inc., 389 F.3d 1038,
1053 (10th Cir. 2004). That said, courts must be mindful of
suits based only on “secondhand information, speculation,
background information or collateral research . . ..” United
States ex rel. Hafter v. Spectrum Emergency Care, Inc., 190
F.3d 1156, 1162-63 (10th Cir. 1999).
23
Although the FCA was most concerned with encouraging
whistle-blowing by insiders with first-hand knowledge, neither
the text of the FCA nor its legislative history suggests that non-
insiders should never be able to bring qui tam actions. The
public disclosure and original source provisions provide
sufficient protection against inappropriate suits by relators
without sufficient direct and independent knowledge.
36
Applying these principles here, we hold that, under §
3730(e)(4)(B), Atkinson is not an original source of the non-
recording because his knowledge of the non-recording is not
direct and independent within the meaning of that section. Any
member of the public could have gone to a county recording
office to see if Penn Ship or Fidelity had recorded the interests
as required by the Trust Indenture. Unlike in Kennard,
Atkinson’s research did not involve “obscure” public records,
nor were the public records only a small part of the information
ultimately uncovered by his investigation. Indeed, it was only
from review of information in the public domain that Atkinson
learned of the failure to record. Looking at the two prongs of
the Kennard test, the availability of the information was high
and the amount of deduction was minimal. It takes little
sophistication to conduct a survey of public recordings to
determine the absence of a filing; anyone interested in knowing
whether Penn Ship recorded the instruments listed in the Trust
Indenture could do so. Moreover, extrapolating from the
absence of a recording to the fact that the instruments were not
recorded does not require much interpretive rigor.
Holding that reliance on state public records can preclude
original source status under § 3730(e)(4)(B) does not run afoul
of our decision in Dunleavy that non-federal administrative
reports are not public disclosures for purposes of §
3730(e)(4)(A). Dunleavy holds that, even if there had there
been no other source of public disclosure, it would be improper
to raise the § 3730(e)(4)(A) jurisdictional bar based only upon
the county public records. Once there is an independent basis
for raising the public disclosure bar, however, the public nature
of the information upon which a relator bases his claim, even if
37
not a “public disclosure” under § 3730(e)(4)(A), is relevant in
determining whether that knowledge is direct and independent
under § 3730(e)(4)(B). Dunleavy simply had nothing to say
about the role of reliance upon information in the public domain
for purposes of the original source analysis.
Having concluded that Atkinson’s first count is based on
publicly disclosed information both under § 3730(e)(4)(A) and
from other public records and that Atkinson is not an original
source of any of that information under § 3730(e)(4)(B), we
hold that the District Court lacked subject matter jurisdiction
over count one of his FCA claim. Thus, while the District Court
was correct to the extent it rejected the bulk of count one on
jurisdictional grounds, it was incorrect in failing to dismiss the
entire count for that reason.
b. Counts Two and Three: Intentional Disclosure
of False Financial Statements
Counts two and three relate to Penn Ship’s September 30,
1984, and December 31, 1984, financial statements. Atkinson
admitted that “the terms of the financial statement[s], and the
bas[e]s for concluding [their] intentional falsity, are based on
public disclosures of which Atkinson is not the original source.”
Atkinson, 255 F. Supp. 2d at 382 (quoting Relator’s Memo. At
44-45). Thus, these counts are barred by the FCA’s
jurisdictional restrictions in §§ 3730(e)(4)(A)-(B).
c. Count Four: Alleged Violation of § 3729(a)(2)
Based on Penn Ship’s BAFO
38
Atkinson attempted to amend count four following the
District Court’s partial dismissal of his Complaint under Rules
12(b)(6) and 9(b). Atkinson, 2000 WL 1207162, at *23. The
District Court, however, did not grant Atkinson leave to amend
count four, and he never sought leave to do so. Therefore, the
District Court reviewed the claim under FED. R. CIV. P. 12(b)(1)
as it was set forth in the Second Amended Complaint. 255 F.
Supp. 2d at 383.
Atkinson now claims that it was an abuse of discretion
for the District Court to reject the Third Amended Complaint
insofar as it altered claims that the District Court did not dismiss
because Atkinson was led to believe that he would be permitted
to amend again after his claims were tested under Rule 12(b)(1).
This argument is unpersuasive. Even assuming that the District
Court’s orders were confusing with respect to how it would
dispose of defendants’ claims under Rules 12(b)(6) and
12(b)(1), if Atkinson wished to alter his non-dismissed claims,
he still needed to move for leave to amend them. FED. R. CIV.
P. 15(a) (providing that a party may amend a pleading once
prior to the filing of a responsive pleading but otherwise must
obtain leave of the court or consent of the adverse party). The
rejection of an unapproved amended complaint is not an abuse
of discretion. Kowal v. MCI Commc’ns Corp., 16 F.3d 1271,
1280 (D.C. Cir. 1994).
However, Atkinson’s real source of consternation appears
to be a substantive one. He believes that the District Court
improperly applied Mistick in ruling on the jurisdictional
challenges. This disagreement does not cause us pause because,
in our view, the proper scope of Mistick is not before us. In any
39
event, having failed to seek leave to amend, Atkinson cannot
turn his substantive disagreement over the scope of Mistick into
an abuse of discretion on the part of the District Court.
We now turn to count four as pled in the Second
Amended Complaint. Atkinson claims that, when Penn Ship
submitted its BAFO, it knew that it would be unable to complete
the Oiler contract for the price in the offer. As the District Court
found, count four contains two main elements. First, Penn
Ship’s BAFO was the lowest bid and set a price of $848,105,300
for nine Oilers. Second, Penn Ship knew at the time it
submitted its offer that its price was too low.
Thus, the question is whether the allegations and
transactions underlying these essential elements were publicly
disclosed under § 3730(e)(4)(A). We conclude that they were.
A July 30, 1989, article in the Philadelphia Inquirer explicitly
referred to Penn Ship’s “low bid” as a factor leading to Penn
Ship’s failure to complete the contract. Also, the March 25,
1994, DoD IG Report stated that, “[t]he Penn Ship target costs
and price proposals were unreasonably low compared with the
other proposals.” The DoD IG Report also disclosed the amount
of the offer in the BAFO.
Because these are public disclosures within the meaning
of § 3730(e)(4)(A) and Atkinson’s knowledge of the alleged
fraud is derived therefrom, Atkinson cannot be an original
source under § 3730(e)(4)(B). Therefore, the District Court
correctly held that it was without jurisdiction to hear this count
40
of the Complaint.24
d. Count Five: Alleged Violation of § 3729(a)(2)
Based on the “Weller” Letter
Atkinson alleges that the March 15, 1985, letter from
Penn Ship to the Navy suggesting a Trust Indenture as a way to
allay the Navy’s fears concerning non-performance contained
intentional misrepresentations designed to induce the Navy into
entering into the Oiler contract with Penn Ship. The three
alleged intentional falsehoods were (1) that significant cost
overruns were highly unlikely even though Penn Ship
knowingly understated its costs of completion, (2) that the Trust
Indenture was irrevocable even though the agreement allowed
Penn Ship to take the assets out of the trust,25 and (3) that the
24
Atkinson appears to argue that this count is not susceptible
to a jurisdictional challenge because when he filed his first qui
tam action the information was not publicly disclosed. We first
note that this is factually inaccurate because Atkinson’s first
action began in 1993, some years after the article in the
Philadelphia Inquirer discussed Penn Ship’s low bid. Even
assuming, however, that Atkinson is correct that public
disclosure of the allegations or transactions did not occur until
after he filed his initial qui tam suit, it does not protect him. As
discussed above, public disclosures occurring after a FCA case
is dismissed, but before a subsequent action, can still raise the
jurisdictional restriction of § 3730(e)(4)(A).
25
Atkinson alleges that in the event of Penn Ship’s default the
Trust Indenture contained a roughly two-week “window” in
41
trust res would consist of a security interest or mortgage in the
entire Penn Ship facility even though seven critical acres of
office space were deliberately excluded.26
Using the formula from Springfield Terminal, we can set
up the following elements of the alleged fraud. With respect to
the first alleged falsity: X–letter states that cost overruns are
unlikely; Y–cost overruns were anticipated by Penn Ship. With
respect to the second alleged falsity: X–letter states that the
trust is irrevocable; Y–trust could be defeated by selling trust
assets. Finally, with respect to the third alleged intentional
misrepresentation: X–letter states that the trust res is composed
of the entire Chester yard; Y–trust res excluded seven critical
acres.
Defendants argue that the X element of all three alleged
misrepresentations was publicly disclosed when the Senate
Chief Investigator provided Schorsch with the Weller letter. We
agree. Documents disclosed to the public during or following
a federal government investigation are quintessential “public
disclosures” under § 3730(e)(4)(A) (“No court shall have
jurisdiction over an action . . . based upon the public disclosure
of allegations or transactions . . . in a congressional . . . report,
which Penn Ship was allowed to sell the assets constituting the
res of the trust, thereby defeating the Navy’s security interest.
Of course, the Navy signed the contract after a full review of its
terms and agreed to the window provision.
26
The metes and bounds of the covered property were set
forth in the Trust Indenture itself.
42
hearing, audit, or investigation . . ..) (emphasis added).
With respect to the alleged misrepresentation involving
the likelihood of cost overruns, defendants argue that the Y
element (Penn Ship’s knowledge that cost overruns were likely)
was publicly disclosed in the Philadelphia Inquirer article from
July 20, 1989, which referred to the low bid, and the 1994 DoD
IG Report, which stated that “[t]he Penn Ship target costs and
price proposals were unreasonably low compared with the other
proposals.” Atkinson, 255 F. Supp. 2d at 384. Both the article
and the DoD IG Report are public disclosures under § 3730
(e)(4)(A). Mistick, 186 F.3d at 383. Penn Ship and Fidelity
also argue that the Y element of the second alleged
misrepresentation (trust could be defeated by selling assets) was
publicly disclosed in the Trust Indenture itself, which was
revealed following a 1990 FOIA request. We have made clear
that government disclosures following FOIA requests are public
disclosures within the meaning of § 3730(e)(4)(A). Mistick, 186
F.3d at 382. Thus, we agree with the District Court that the Y
element of the first two instances of alleged fraudulent
misrepresentation was publicly disclosed under § 3730(e)(4)(A),
thereby precluding Atkinson from being an original source
because his knowledge of the components of the first two claims
is not direct and independent.
Atkinson claims that the Y element of the third alleged
intentional misrepresentation (trust res excluded seven acres of
shipyard) was not publicly disclosed and, even if it was, he is an
original source. The mortgage for the shipyard contained an
explicit clause excepting certain land from the mortgage, and the
Trust Indenture and accompanying mortgage were disclosed to
43
Schorsch pursuant to a FOIA request. This means that the Y
element was publicly disclosed under § 3730(e)(4)(A).
Moreover, Atkinson cannot be an original source when he
obtained his knowledge from qualifying public disclosures
under § 3730(e)(4)(A).27 Id. Thus, the allegations and
transactions of this alleged instance of fraud were publicly
disclosed and Atkinson is not an original source.
Therefore, having found that each X and Y element of all
three purported instances of intentional misrepresentation was
publicly disclosed and that Atkinson is not an original source,
we agree with the District Court that there is no jurisdiction to
hear this count under §§ 3730(e)(4)(A)-(B).28
27
Atkinson argues that his unique knowledge of the Chester
Yard makes him an original source. The gist of his argument is
that a common citizen would not have known the significance
of the excluded property by reading the Trust Indenture. This
argument is unpersuasive. In Springfield Terminal, the D.C.
Circuit set forth a hypothetical situation in which the critical
elements of fraud were publicly disclosed, but in a manner
inaccessible to most people, i.e., blueprints. 14 F.3d at 655.
That court held that an engineer possessing the knowledge and
skill to interpret the blueprints is not granted original source
status for that reason alone. Id. Atkinson’s ability to
“understand” the significance of the excluded acreage is no
different than the ability that any skilled surveyor would
possess.
28
Atkinson argues that this count is justiciable as an act in
furtherance of the conspiracy alleged in count one. Because we
44
e. Count Six: Alleged Violation of § 3729(a)(2)
by Penn Ship for Knowingly Making a False
Misrepresentation that it Would Record
Security Interests Under the Trust Indenture
In his sixth count, Atkinson claims that Penn Ship
violated 31 U.S.C. § 3729(a)(2) by knowingly making false
representations that it would record the security instruments
provided in the Trust Indenture. Using the Springfield Terminal
formula, the X element is that Penn Ship represented that it
would record the Navy’s security interests. The Y element is
that Penn Ship knew that it was not going to record the interests
when it signed the Trust Indenture. The X element was publicly
disclosed when the Trust Indenture itself was produced in
response to a FOIA request. Stinson, 944 F.2d at 1160. For the
same reason, Atkinson is not an original source under §
3730(e)(4)(B) because that public disclosure provided the basis
for his knowledge. Id. The District Court held that the Y
element was also publicly disclosed29 but that Atkinson was an
have held that the conspiracy count is not viable, Atkinson’s
attempt to bootstrap this allegation into that claim is unavailing.
29
A marked up working copy of the Trust Indenture showed
that a provision requiring Fidelity to ensure proper delivery of
all documents was struck out. From this, Atkinson inferred that
Fidelity convinced the Navy to strike the provision because, had
it stayed in the contract, it would have redounded to the Navy’s
benefit. This marked up version was disclosed during the course
45
original source insofar as the intention not to record can be
inferred from the eventual non-recording. Atkinson, 255 F.
Supp. 2d at 391-92. As discussed above in connection with
Count 1, we disagree with the District Court’s conclusion that
Atkinson is an original source of the failure to record the
security interests. Because Atkinson is not an original source of
the Y element, there is no jurisdiction under § 3730(e)(4)(A).30
f. Counts Eight and Nine:31 Alleged Fraudulent
Inducement of the Navy’s Exercise of its
Options for a Third and Fourth Oiler
In his Second Amended Complaint, Atkinson claims that
the Navy’s exercise of the contract option to order two
additional ships under the Oiler deal was based on Penn Ship’s
of a Senate Investigation. The final Trust Indenture was
disclosed pursuant to a FOIA request. Both means of disclosure
satisfy § 3730(e)(4)(A) and thus require Atkinson to
demonstrate original source status before proceeding with the
suit.
30
Atkinson’s argument that this count is sustainable on the
grounds that it is an action in furtherance of an underlying
conspiracy or as part of the alleged Trust Indenture fraud is
rendered moot by our decision that the District Court had no
jurisdiction over those claims.
31
Atkinson did not amend his seventh count after it was
dismissed from the Second Amended Complaint. Therefore, we
will not review it here.
46
false assertion that the BAFO was not a deliberate underbid.32
Thus, the X element is Penn Ship’s assertion that its BAFO was
a bona fide bid. The Y element is the fact that Penn Ship knew
that the BAFO was unreasonably low and deliberately misstated
project costs. We have already established that the BAFO was
publicly disclosed within the meaning of § 3730(e)(4)(A) and
that Atkinson is not an original source because Schorsch learned
of it through the public disclosure. Stinson, 944 F.2d at 1160.
Likewise, we find that the allegations and transactions
constituting the Y element were publicly disclosed. The
allegation that Penn Ship deliberately understated costs was
publicly disclosed by way of the article in the Philadelphia
Inquirer and the 1994 DoD IG Report. The allegation that Penn
Ship never intended to perfect the security interests described in
the Trust Indenture was publicly disclosed when the various
versions of the Trust Indenture were produced following FOIA
requests.
Nor is Atkinson an original source of either the X or Y
elements because his knowledge is based solely upon §
3730(e)(4)(A) public disclosures and information otherwise in
the public domain. Stinson, 944 F.2d at 1160. Therefore, there
32
As discussed above, we will not entertain amendments to
claims that the District Court did not dismiss from the Second
Amended Complaint because Atkinson was not granted leave to
amend and did not obtain the consent of the adverse parties.
FED R. CIV. P. 15.
47
is no jurisdiction to hear these claims under § 3730(e)(4)(A).33
g. Counts Ten and Eleven: Allegations of False
and Reverse False Claims Stemming From
Misrepresentations Regarding Contract
Modifications
These allegations revolve around alleged implicit
representations made by Penn Ship’s President, Ronald J.
Stevens, during negotiations over Modifications 05 and 11 to the
Oiler contract.34 Atkinson asserts that Stevens impliedly
promised that Penn Ship would perform under the Modification
terms and that Penn Ship had perfected the Navy’s security
interests under the Trust Indenture. But, asserts Atkinson, Penn
Ship had no intention of performing under the Modifications and
had not recorded the security instruments. The intent not to
record is gleaned in part from the eventual failure to do so.
Atkinson also alleges that had Fidelity either recorded the
33
Atkinson, as he did for count six, argues that these counts
are viable as acts in furtherance of the conspiracy in count one.
Because there is no jurisdiction over count one, this argument is
unavailing. Similarly, these counts cannot survive as aspects of
the Trust Indenture fraud alleged in count six because there is no
jurisdiction over that claim.
34
Modification 05 deleted the two option Oilers from the
contract and changed Penn Ship’s reimbursement regime to a
fixed price agreement. Modification 11 provided for an advance
payment from the Navy to Penn Ship of up to $17 million to be
secured by a floating drydock.
48
instruments itself or informed the Navy of their non-recordation,
the Navy would never have agreed to the Modifications.
The District Court broke down these counts into three
separate transactions to facilitate the jurisdictional analysis
under Springfield Terminal, and we find this approach helpful.
(A) Penn Ship’s representation that it would
perform under Modifications 05 and 11:
X: Penn Ship implicitly represents that it
will perform.
Y: Penn Ship has no intention of
performing as evidenced by the failure to record.
(B) Penn Ship’s representation that it had
perfected the Navy’s security interests under the
Trust Indenture:
X: Penn Ship implicitly represents that it
has perfected the security interests.
Y: Penn Ship does not record the security
interests.
(C) Fidelity’s breach of its fiduciary duty to the
Navy:
X: Fidelity promises to serve as fiduciary
49
by agreeing to be trustee.
Y: Fidelity breaches the duty by
convincing the Navy not to insist upon a delivery
provision, failing to ensure that the instruments
are promptly and properly recorded, and by
failing to sign the financing statements.
The X element of transactions A and B can be addressed
easily. It is the Modifications themselves that provide the basis
for inferring the existence of an implied representation, and
these were publicly disclosed within the meaning of §
3730(e)(4)(A). Atkinson contends, however, that the Y element
of transactions A and B (failure to record) was not publicly
disclosed.
We have already addressed this argument and held, like
the District Court, that the non-recordation was publicly
disclosed under § 3730(e)(4)(A) in the response to Schorsch’s
1993 FOIA request and in the DoD IG Report. As discussed
above, we part ways with the District Court on its conclusion
that Atkinson is an original source of the non-recordation. We
hold that the District Court was without jurisdiction to hear
these counts to the extent they rely upon allegations and
transactions set forth in transactions A and B.
Turning to transaction C, both the X and Y elements of
this transaction were publicly disclosed as well. The X element,
Fidelity’s promise to serve as fiduciary, was revealed when the
Trust Indenture was turned over following a FOIA request.
Stinson, 944 F.2d at 1160. We have already established that the
50
components of the Y element (Fidelity’s breach of fiduciary
duty) were publicly disclosed under § 3730(e)(4)(A) and
Atkinson does not appear to contest this assertion. Atkinson is
not an original source of the X element because he learned of it
from the Trust Indenture which was publicly disclosed for
purposes of § 3730(e)(4)(A). Likewise, for the reasons now
referred to and relied upon numerous times, Atkinson is not an
original source of Fidelity’s failure to ensure recordation by
mere virtue of the fact that he learned of the non-recordation by
examining publicly available county records. Because each
element of the C transaction is based upon public disclosures
and Atkinson is not an original source, the District Court
properly dismissed these counts under Rule 12(b)(1) for lack of
subject matter jurisdiction.35
h. Count Twelve: Alleged Violations of
§§ 3729(a)(2) and Based on the
Default Modification
The Default Modification stipulated that Penn Ship was
in default under the Oiler contract, provided for the transfer of
the two original ships to another yard, terminated the Trust
Indenture, made Penn Ship liable for certain reprocurement and
other costs, and released Penn Ship from any other liability. The
Navy received an increased security interest in the floating
drydock, another mortgage on some of the land and buildings at
35
Again, although Atkinson argues that these counts survive
as acts in furtherance of the conspiracy or Trust Indenture fraud
alleged in counts one and six respectively, our prior holdings
void these arguments.
51
the Chester Yard, and a preferred mortgage on a large floating
derrick. According to Atkinson, these mortgages were designed
to secure Penn Ship’s obligations to sell collateral to meet its
reprocurement obligations. Under the terms of the deal, if Penn
Ship was unable to sell within thirteen months, it would no
longer be obligated to do so and the Navy’s interests in the land
would disappear.
Atkinson claims that, by agreeing to the terms of the
Default Modification, Penn Ship falsely represented that it
intended to fulfill its obligation to attempt to sell the land,
buildings, and derrick. To support this claim, Atkinson points
to the fact that shortly following the expiration of the thirteen
month period, Penn Ship formed MCC, to which it sold the
derrick. The essential elements of this count are
X: Penn Ship asserts that it will use its
best efforts to liquidate its interests in the covered
property.
Y: When it made that assertion, Penn Ship
had no intention of selling the assets–which is
evidenced by its sale of the assets to MCC, a
corporate entity created by Penn Ship, after the
thirteen month window expired.
First, Atkinson claims that the allegations and
transactions that form the basis of this claim were not publicly
disclosed when he brought his first FCA claim. For the reasons
set forth above, a qui tam relator is not saved from the public
disclosure bar simply because the information was not publicly
52
disclosed at the time he brought a prior, but now dismissed, qui
tam action. Atkinson, 255 F. Supp. 2d at 373; Laird, 336 F.3d
at 352 n.2. Mistick’s “substantially similar to” test forecloses
such a reading of § 3730(e)(4)(A). 186 F.3d at 385-88.
Second, Atkinson claims that because the Trust Indenture
fraud was not publicly disclosed, and the Navy’s agreement to
the Default Modification was a consequence of that fraud, count
twelve should not be dismissed. We have already stated that we
will treat Atkinson’s Second Amended Complaint as operative
for purposes of the claims not dismissed by the District Court
after it ruled on defendants’ 12(b)(6) motions. Thus, any
attempted reformulation of count twelve is unavailing as an
unacceptable modification.36 FED. R. CIV. P. 15(a). Atkinson
argues that the sale of the mortgaged assets to MCC following
the thirteen month window indicates Penn Ship’s intent not to
adhere to the terms of the Default Modification. As so
understood, the X element was publicly disclosed in the 1994
DoD IG Report and during hearings before the Senate in 1995.
The Y element (sale to MCC and then Donjon) was publicly
disclosed in a Coast Guard abstract of title given to Schorsch at
his request. This abstract constitutes an “administrative report”
under § 3730(e)(4)(A) and, in any event, was an exhibit before
the Senate during hearings regarding the propriety of the Oiler
36
In any event, having found no jurisdiction over any of
Atkinson’s claims, it does not matter which version of count
twelve we address. Because we agree with the District Court
that any “reformulation” is an impermissible amendment, we
will follow the District Court and analyze the count as
formulated in the Second Amended Complaint.
53
contract. See Mistick, 186 F.3d at 383-84 (noting that federal
government responses to citizen requests for documents
constitute reports under the FCA’s jurisdictional provisions).
Having determined that both the X and Y elements were
publicly disclosed under § 3730(e)(4)(A), we now turn to
whether Atkinson is an original source under § 3730(e)(4)(B).
We hold that he is not. First, Atkinson’s former co-relator
Schorsch learned of the terms of the Default Modification by
way of the DoD IG Report. Assuming, arguendo, that Atkinson
can utilize Schorsch’s knowledge for purposes of achieving
original source status, DoD IG Reports are public disclosures
under § 3730(e)(4)(A), and thus Schorsch is not an original
source for purposes of § 3730(e)(4)(B). Stinson, 944 F.2d at
1160. Schorsch also learned of the sale of the derrick to MCC
by way of a qualifying public disclosure under § 3730(e)(4)(A)
because Schorsch asked the Coast Guard for an abstract of title
that revealed the derrick’s ownership history. Because the Coast
Guard’s response to Schorsch’s request constitutes a public
disclosure, Mistick, 186 F.3d at 383-84, Schorsch is not an
original source as he derived his knowledge from that document.
Therefore, the District Court correctly dismissed this
Count under Rule 12(b)(1) for a lack of subject matter
jurisdiction under the FCA.37
i. Additional Count: Alleging Violations of §§
37
This count cannot survive as an act in furtherance of a
conspiracy or as part of the Trust Indenture fraud because there
is no jurisdiction over those claims.
54
3729(a)(1) and (2) Based on Biweekly Progress
Reports
We arrive, after a long journey, to relator’s final count
alleging violation of the FCA.38 The gist of this claim is that
Penn Ship submitted false or fraudulent progress reports and
invoices to the Navy that overstated Penn Ship’s costs. In our
now familiar Springfield Terminal algebraic representation:
X: Penn Ship submits biweekly invoices
to the Navy and represents that it has made
expenditures entitling it to reimbursement.
Y: Penn Ship had not spent the money for which it
sought compensation.
We agree with the District Court that both the X and Y
elements of this count were publicly disclosed in the 1994 DoD
IG Report, which provides:
The [DoD Inspector General’s] investigation
38
As with a number of previous counts, Atkinson attempted
to reformulate this count as a part of the overall Trust Indenture
fraud. Because Atkinson was not granted leave to amend this
aspect of his Second Amended Complaint, we consider the
version of this claim as written in that pleading. We reiterate,
though, that our holding that there is no jurisdiction over any of
Atkinson’s claims means that any attempt to link these claims to
a prior count is necessarily ineffectual.
55
addressed allegations that Penn Ship progress
payment submissions included incurred costs for
employee payroll deductions, which Penn Ship
did not remit to the appropriate organizations in a
timely manner. Penn Ship withheld the
deductions beyond the normal 45-day billing
cycle before making payment. Penn Ship also
withheld payments to vendors while the Navy
continued to make progress payments based on
incurred costs.
Atkinson, 255 F. Supp. 2d at 402 (quoting DoD IG Report).
Atkinson’s knowledge of the X and Y elements is not direct and
independent within the meaning of § 3730(e)(4)(B) because he
admits that his knowledge is based on the information in the
DoD IG Report. Therefore, this claim is based upon public
disclosures under § 3730(e)(4)(A) and Atkinson is not an
original source. Accordingly, dismissal was appropriate under
FED. R. CIV. P. 12(b)(1).
C. Conclusion
We hold that Atkinson’s FCA action must be dismissed
in its entirety under FED. R. CIV. P. 12(b)(1) for want of
jurisdiction. All of the allegations and transactions involved in
each of the counts were publicly disclosed under §
3730(e)(4)(A). Moreover, Atkinson is not an original source of
any of the allegations or transactions including the defendants’
failure to record, and failure to ensure recordation, of the
instruments named in the Trust Indenture. We conclude that a
plaintiff/relator cannot rely solely on information available in
56
the public domain to substantiate original source status under §
3730(e)(4)(B). Such a relator does not have direct and
independent knowledge of the information that forms the basis
of the FCA claim. 31 U.S.C. §§ 3730(e)(4)(A)-(B).
For the above stated reasons, we will affirm the District
Court’s order of dismissal of all counts, as applicable, of the
Second and Third Amended Complaints.
57