Dunleavy v. Delaware

Opinions of the United
1997 Decisions States Court of Appeals
for the Third Circuit
8-21-1997
Dunleavy v. Delaware
Precedential or Non-Precedential:
Docket 96-1617
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iled August 21, 1997
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 96-1617
UNITED STATES OF AMERICA, EX. REL.
ANTHONY J. DUNLEAVY
v.
COUNTY OF DELAWARE, EDWIN B. ERICKSON, III
EXECUTIVE DIRECTOR; COUNCIL OF THE COUNTY OF
DELAWARE, WARD T. WILLIAMS, ESQ., CHAIRMAN;
MARYANN ARTY; EDWIN B. ERICKSON; MATTHEW J.
HAYES; WARD WILLIAMS, ESQUIRE
Anthony J. Dunleavy,
Appellant.
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 94-cv-07000)
Argued January 30, 1997
Before: BECKER and ROTH, Circuit Judges
and BARRY,1 District Judge
(Opinion Filed August 21, 1997)
_________________________________________________________________
1. Honorable Maryanne Trump Barry, United States District Court Judge
for the District of New Jersey, sitting by designation.
Regina D. Poserina, Esq. (Argued)
7415 West Chester Pike
Upper Darby, PA 19082
Attorney for Appellant
Francis X. Crowley, Esq. (Argued)
Paul D. McNichol, Esq.
Blank, Rome, Comisky & McCauley
1400 North Providence Road,
Suite 301
Media, PA 19063
Attorneys for Appellees
Priscilla R. Budeiri, Esq.
Lisa R. Hovelson, Esq.
Alan Shusterman, Esq.
Gary W. Thompson, Esq.
Taxpayers Against Fraud
The False Claims Act Legal Center
Suite 501
1220 Nineteenth Street, N.W.
Washington, D.C. 20036
Attorneys for Amicus-Appellant
OPINION OF THE COURT
ROTH, Circuit Judge:
With this appeal, we examine another chapter in the
history of Route 476, known to those in the Philadelphia
area, who for so many years awaited its opening, as the
"Blue Route." In this qui tam action, Anthony J. Dunleavy
(the "Relator") sues Delaware County on behalf of the
United States to recover treble damages in the amount of
$1,450,000, the return of over $16 million in Department of
Housing and Urban Development funds made available to
the County from 1992 to 1995, and various other costs,
interest, and penalties associated with the County's alleged
violations of the False Claims Act (the "FCA" or "Act"), 31
U.S.C. §§ 3729-3733.
2
The district court dismissed Dunleavy's Second Amended
Complaint on the ground that it lacked subject matter
jurisdiction because the action was based solely on
information or allegations that had been publicly disclosed
through various newspaper articles, a pre-trial
memorandum prepared by Delaware County in previous
unrelated litigation, several annual audits prepared by
Delaware County and submitted to the federal government,
and a 1992 Grantee Performance Report ("GPR") prepared
by Delaware County and submitted to HUD. This appeal
raises issues which require us to further define the
circumstances under which a qui tam action will be deemed
to be "based upon the public disclosures of allegations or
transactions." We find that the district court relied upon
assumptions which broadened the FCA's Public Disclosure
Bar beyond its intended scope. Hence, we will reverse and
remand this case for further proceedings.
I. Facts and Procedural History
The following facts are taken from Dunleavy's Second
Amended Complaint. For purposes of this motion to
dismiss, they, in the main, may be taken as true.2
The events challenged here occurred in 1976 while
Dunleavy was working as a consultant to Delaware County.
Dunleavy's role was to advise the County with respect to
HUD's Community Planning and Development programs,
HUD's Community Development Block Grant program
("CDBG"), and other related federal government programs.
_________________________________________________________________
2. We realize 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. See 5A Charles Alan Wright & Arthur R. Miller, Federal Practice
and Procedure § 1350 (Supp. 1996). We are also cognizant that in certain
situations in which our jurisdiction is at issue we may be entitled to look
beyond the pleadings to satisfy ourselves as to the existence or non-
existence of jurisdiction. See, e.g., Mortensen v. First Fed. Sav. and Loan
Ass'n, 549 F.2d 884, 891 (3d Cir. 1977). Neither of these principles
influences the outcome of this case because our review can be
accomplished without relying on these disputed facts and without
consideration of contested matters not appearing in the pleadings.
3
In 1976, the County acquired by way of condemnation a
56.6 acre tract of land adjacent to the Smedley County Park
in Nether Providence Township. The tract is known locally
as the Penza Tract. To make this acquisition, the County
appropriated approximately $1,839,500 in funds provided
by HUD and $685,000 in its own funds.
Despite the County's original plans to expand the park,
on January 26, 1979, it sold a 26.3 acre portion of the
Penza Tract to the Pennsylvania Department of
Transportation ("PennDOT") for $1,988,550. PennDOT
acquired the land for the planned construction of Route I-
476. A short time later, in 1981, the County conveyed an
additional 1.9 acre section of the Penza Tract to PennDOT
for $103,950. Both sales were, however, contingent on
pending environmental litigation being resolved in a way
that would permit the Blue Route to be constructed
through the region. For this reason, the County agreed to
place the proceeds of the two Penza Tract sales in an
escrow investment account.
The completion of the Blue Route remained blocked by
litigation for the next several years. In 1988, however, the
County transferred yet another parcel of the Penza Tract to
PennDOT at a cost of $1,000,000.3 The last litigation
barrier to the construction of the Blue Route was resolved
in 1991, when the remaining actions were settled.
Construction began again and the Blue Route was opened
a short time later.
Dunleavy left the service of Delaware County in 1992
when his consulting firm's contract was terminated. On
November 18, 1994, Dunleavy initiated this qui tam action
against Delaware County, the County Council, and certain
current and former members of the Council and officers in
the County. On March 7, 1995, Dunleavy filed a First
Amended Complaint. Then on August 14, he filed a Second
Amended Complaint without seeking leave of the Court or
the other parties' consent. On September 15, Dunleavy
_________________________________________________________________
3. The County disputes the accuracy of this allegation, contending that
this sale actually involved a different tract of land not subject to HUD
oversight. This is a factual question for resolution on the merits. We
need not address it here.
4
belatedly filed a Petition for Leave to Amend which, despite
the procedural irregularity, was granted by the district
court on November 8, 1995.
This action remained under seal, as required by 31
U.S.C. § 3730(b)(2), until September 5, 1995. During that
period the U.S. Attorney and HUD investigated the viability
of Dunleavy's complaint.4 On August 10, 1995, at the
conclusion of the investigation, the U.S. Attorney issued a
Notice of Declination of Appearance, pursuant to 31 U.S.C.
§ 3730(b)(4)(B), concluding that the matters raised in
Dunleavy's complaint did not constitute fraud within the
meaning of the False Claims Act. At the same time, the U.S.
Attorney turned over control of the investigation to HUD to
review the matter for compliance with CDBG guidelines.
HUD pursued its own investigation of the Penza Tract
fund in March and April of 1996 and issued a Limited
Audit Review on April 29, 1996. As a result of the Audit,
HUD made a demand on the County for the return of
nearly $2 million in HUD funds. At some point the County
and HUD began negotiations to determine the amount of
the funds owing to HUD. After learning of the possibility of
settlement, Dunleavy claimed rights to notice and a hearing
under § 3730(c)(2)(B) of the FCA. He alsofiled numerous
Freedom of Information Act requests on HUD and on the
U.S. Attorney.
Despite Dunleavy's protests against a settlement, HUD
denied him the opportunity to intercede and participate in
the negotiations. On September 11, 1996, HUD agreed to
accept the County's settlement offer of $1,921,699. Under
the terms of the settlement, the County was to remit a
check to HUD, and HUD would then return the funds to
the County's line-of-credit where the monies would be
available for eligible and fundable activities. Dunleavy
unsuccessfully petitioned the district court to stay the
administrative action necessary for settlement.5 Dunleavy
then unsuccessfully sought a stay from this Court.
_________________________________________________________________
4. An unknown party did leak information about the suit to the press in
the interim.
5. As of the date of the consummation of the settlement and of
Dunleavy's application to the district court for a stay, Dunleavy's qui tam
action had already been dismissed by the district court for want of
jurisdiction.
5
Dunleavy's Second Amended Complaint alleges three
counts of violation of the False Claims Act, 31 U.S.C.
§§ 3729(a)(1), (a)(2), & (a)(7), one count of common law
fraud, one count of payment under mistake of fact, and one
count of breach of contract. Dunleavy's theory is that
Delaware County defrauded HUD by not reporting and
returning proceeds from the sale of the Penza Tract.
Specifically, Dunleavy contends that the HUD funds used
to acquire the Penza Tract were subject to a contractual
agreement between the County and the federal government.
This agreement required the County to follow HUD rules
and regulations which limit the permissible uses of the
funds and impose certain reporting requirements on the
County. Dunleavy reasons that, since the Penza Tract was
originally acquired with HUD funds, the County was
required to treat the monies as "program income" and to
provide accounts of the transactions to HUD. Dunleavy
further contends that, once it became apparent in 1991
that the County would not reacquire the Penza Tract, the
defendants should have known, or knew but recklessly
disregarded, their obligation to report the receipt of the
Penza Tract monies in Annual Audits and Grantee
Performance Reports and to repay those moneys to HUD.
On July 12, 1996, the district court dismissed Dunleavy's
Second Amended Complaint, finding that it lacked subject
matter jurisdiction. United States ex rel. Dunleavy v. County
of Delaware, No. 94-7000, 1996 WL 392545 (E.D. Pa. July
12, 1996). The district court held that Dunleavy's action
violated the jurisdictional bar of 31 U.S.C. § 3730(e)(4)(A),
which divests the federal courts of jurisdiction over qui tam
suits "based upon publicly disclosed allegations or
transactions." The trial court found that certain newspaper
articles, a pre-trial memorandum from unrelated litigation,
and the County's annual audits and GPRs publicly
disclosed, prior to the filing of Dunleavy's complaint, both
the misrepresented and the actual facts necessary to
complete the inference of fraud. The district court assumed
that all these documents were acceptable sources of public
disclosure under the Act. The court then concluded that
Dunleavy had not qualified as an original source under the
Act.
6
Dunleavy filed a timely notice of appeal. We have
jurisdiction pursuant to 28 U.S.C. § 1291. Our review of the
district court's dismissal of the complaint for lack of subject
matter jurisdiction is plenary. United States ex rel. Stinson,
Lyons, Gerlin & Bustamante, P.A. v. Prudential Ins. Co., 944
F.2d 1149, 1152 (3d Cir. 1991).
II. Discussion
The False Claims Act has been with us in one form or
another since the Civil War. Act of March 2, 1863, ch. 67,
§ 4, 12 Stat. 698 (1863). The FCA sets out civil and criminal
penalties for persons who knowingly submit false claims to
the government.
The novel aspect of the FCA is the mechanism Congress
has chosen for its enforcement. A private person with
knowledge of fraud against the government, acting as a de
facto "attorney general," can instigate litigation on the
government's behalf against the parties responsible. Such
suits are known as qui tam actions.6
The FCA contains a built in incentive for a private
plaintiff, known as the "relator," to bring suit. Under the
original statute, a prevailing relator could come away with
up to one-half of the damages and forfeitures recovered and
collected.7 S. Rep. No. 345, 99th Cong., 2d Sess., at 10,
reprinted in 1986 U.S.C.C.A.N. 5266, 5275. Congress has
shrewdly "offset inadequate law enforcement resources and
encouraged `a rogue to catch a rogue' by inducing informers
`to betray [their] conspirators.' " United States ex rel. Findley
v. FPC-Boron Employees' Club, 105 F.3d 675, 679 (D.C. Cir.
_________________________________________________________________
6. qui tam action takes its name from the Latin phrase "qui tam pro
domino rege quam pro si ipso in hac parte sequitur" meaning "who sues
on behalf of the King as well as for himself." Black's Law Dictionary 1251
(6th ed. 1990). Qui tam actions have their origins in the Thirteenth
century royal courts of England where they were employed as a form of
legal fiction. Lightly regarded local courts had jurisdiction over private
wrongs. But a recitation that the suit was in the King's interest could
provide access to the royal courts. See John T. Boese, Civil False Claims
and Qui Tam Actions 1-7 (1995).
7. The most recent incarnation of the Act has reduced this percentage
but it still remains substantial. See 31 U.S.C. § 3730(d).
7
1997) (quoting Cong. Globe, 37th Cong., 3d Sess. 955-56
(1863)).
The Act requires a qui tam plaintiff, before proceeding
with suit, to disclose to the government the information on
which the claim is based. 31 U.S.C. § 3730(b). The
government then has sixty days to investigate the matter
and to decide whether to intervene. The government also
has the option to step into the action at a later date. 31
U.S.C. § 3730(c)(3). In either case, the relator is not entitled
to a recovery under the Act if the action is one which runs
afoul of the jurisdictional bars contained in 31 U.S.C.
§ 3730(e).
For example, the public disclosure bar operates under
this section to divest the plaintiffs of subject matter
jurisdiction if: (1) there was a public disclosure; (2) of
"allegations or transactions" of the fraud; (3) "in a criminal,
civil, or administrative hearing, in a congressional,
administrative, or Government Accounting Office report,
hearing, audit, or investigation, or from the news media.";
(4) that the relator's action was "based upon." If the relator
fails the public disclosure bar, he or she can only establish
subject matter jurisdiction if he or she is an "original
source" of the information. 31 U.S.C. § 3730(e)(4).
A. Effect of HUD Settlement
At oral argument, we questioned the parties about the
viability of this suit after HUD's settlement with the County.
Both the parties and this Court agree that, notwithstanding
the settlement, Delaware County continues to have an
interest in the outcome of this qui tam action because
damages may be awarded which exceed the amount paid by
Delaware County to HUD in settlement.
There is no question that under certain circumstances it
is appropriate for the federal government to proceed
administratively against a FCA defendant. The Act expressly
contemplates such a move:
Notwithstanding subsection (b), the Government may
elect to pursue its claim through any alternate remedy
available to the Government, including any
8
administrative proceeding to determine a civil money
penalty. If any such alternate remedy is pursued in
another proceeding, the person initiating the action
shall have the same rights in such proceeding as such
person would have had if the action had continued
under this section.
31 U.S.C. § 3730(c)(5). What is not clear on the record
before us is whether the U.S. Attorney and HUD intended
the settlement with the County to extinguish the
government's claims under the FCA or whether the
settlement addressed a less serious transgression such as
a misinterpretation by the County of its obligations under
the CDBG program.8
However, we need not decide whether the settlement
terminated the government's rights against Delaware
County under the Act, because Dunleavy's right to proceed
with his qui tam action remains unimpaired. Subsection
(c)(5) preserves a relator's right to a percentage of the
recovery even when the government chooses to pursue its
claim administratively. See United States ex rel. Green v.
Northrop Corp., 59 F.3d 953, 963-64 (9th Cir. 1995), cert.
denied, 116 S. Ct. 2550 (1996); United States ex rel.
DeCarlo v. Kiewit/AFC Enterprises, Inc., 937 F. Supp. 1039,
1045 (S.D.N.Y. 1996). Because the government never
exercised its rights to intervene, the settlement between
HUD and Delaware County does not negate Dunleavy's
ability, as the relator, to proceed independently with his qui
tam action.
We agree with the Eleventh Circuit's conclusion that the
False Claims Act's purpose is not limited to punishing the
wrongs against the general public; the FCA alsofills a
remedial capacity in redressing injury to the individual
_________________________________________________________________
8. In its Notice of Declination to Appear, the government stated its belief,
formed after its investigation of the allegations contained in Dunleavy's
complaint, that the County's actions did not amount to fraud within the
meaning of the FCA. Additionally, it is not clear whether the
investigation undertaken by the government even amounted to the type
of alternate proceeding contemplated in § 3730(c)(5). HUD did no more
than conduct an audit and make a demand upon Delaware County for
payment, at which point the parties reached a settlement.
9
relator. See United States ex rel. Neher v. NEC Corp., 11
F.3d 136, 137 (11th Cir. 1994). In Neher, the court
described the reasons for treating a qui tam action as one
addressed to the relator's injuries:
First, a qui tam relator can suffer severe emotional
strain due to the discovery of his unwilling involvement
in fraudulent activity. Moreover, the actual or potential
ramifications on a relator's employment can be
substantial. As several courts have recognized, qui tam
relators face the Hobson's choice of "keeping silent
about the fraud, and suffering potential liability (and
guilty consciences), or reporting the fraud and suffering
repercussions, some as extreme as dismissal." Finally,
the relator can suffer substantial financial burdens as
a result of the time and expense involved in bringing a
qui tam action.
Id. at 138 (quoting United States ex rel. Robinson v.
Northrop Corp., 824 F. Supp. 830, 835 (N.D. Ill. 1993).
The legislative history of the 1986 Amendments to the Act
is also instructive. The report accompanying the Senate
version of the amendments, which Congress passed in lieu
of those in the House bill, explains the Government's right
to proceed administratively as an alternate remedy to an
FCA action. See S. Rep. 99-345, 99th Cong., 2d Sess. 27,
reprinted in 1986 U.S.C.C.A.N. 5266, 5292. While the
Government can compel dismissal or settlement of a qui
tam action if it formally intervenes, 31 U.S.C.§ 3730(c),
Congress believed that "if the Government declines to
intervene in a qui tam action, it is estopped from pursuing
the same action administratively or in a separate judicial
action." Id., reprinted in 1986 U.S.C.C.A.N. at 5292.
Since Dunleavy, if a proper relator, has an interest in
pursuing his claim independently of the government, the
government, which has elected not to intervene, cannot
compromise Dunleavy's claim even if the government has
settled its own claim. A viable case or controversy therefore
continues to exist since Delaware County's potential
exposure in Dunleavy's qui tam action may ultimately
exceed that which it accepted in its settlement with HUD.
10
B. The Public Disclosure Bar
The present language of the Public Disclosure Bar comes
from Congress's extensive amendment of the False Claims
Act in 1986. As recounted more fully in our opinion in
United States ex rel. Stinson, Lyons, Gerlin & Bustamante,
P.A. v. The Prudential Ins. Co., 944 F.2d 1149, 1152-54 (3d
Cir. 1991), the 1986 amendments were an attempt to
correct what Congress perceived as a century old imbalance
between the under-deterrence of the original Act, which
permitted "parasitic" qui tam actions to be brought by
individuals with no independent knowledge of fraud, and
the over-deterrence of the 1943 amendments which denied
jurisdiction over all qui tam actions "based on evidence or
information the government had when the action was
brought." 31 U.S.C. § 3730(b)(4) (1982) (superseded). Given
that the 1943 Act almost entirely prevented the successful
prosecution of qui tam suits, it is apparent from the
legislative history of the 1986 amendments that Congress
was mindful of the need "to encourage persons with first-
hand knowledge of fraudulent misconduct to report fraud."
Stinson, 944 F.2d at 1154. Moreover, Congress sought to
enhance the government's ability to detect fraud by gaining
"the cooperation of individuals who are either close
observers or otherwise involved in the fraudulent activity."
S. Rep. No. 345, 99th Cong. 2d Sess. 4, reprinted in 1986
U.S.C.C.A.N. 5269.
The current version of the Public Disclosure Bar has
generated a host of interpretive issues, some of which are
implicated in this appeal. Among the questions generated
are the following:
(1) whether the alleged "public disclosure" contains
allegations or transactions from one of the listed
sources; (2) whether the alleged disclosure has been
made "public" within the meaning of the False Claims
Act; (3) whether the relator's complaint is "based upon"
this "public disclosure"; and, if so, (4) whether the
relator qualifies as an "original source" under section
3730(e)(4)(B)."
United States ex rel. Fine v. MK-Ferguson Co. , 99 F.3d 1538,
1544 (10th Cir. 1996). We are concerned with only the first
11
two of these four questions. Because we conclude that
jurisdiction is present based on our finding that
"allegations or transactions" of fraud were never contained
in sources qualifying as "public disclosures" under the FCA,
we need not proceed further.
1. Are the Disclosures of "Allegations or Transactions"?
We must first determine whether the County has
identified any sources which publicly disclosed the alleged
fraud or the underlying fraudulent transaction. The County
points to four sources for the jurisdictional bar: (i) several
newspaper articles discussing the acquisition of the Penza
tract; (ii) a pre-trial memorandum filed with the court in
prior unrelated litigation initiated by a community interest
group to challenge the County's use of HUD funds; (iii)
annual financial audits submitted to the federal
government pursuant to the County's obligation under the
Single Audit Act, 31 U.S.C. § 7502; and (iv) a 1992 Grantee
Performance Report prepared by the County and submitted
to HUD as required by § 104(e) of the Housing and
Community Development Act of 1974, 52 U.S.C. § 5304(e).
For the reasons that follow, we conclude that only the
County's GPR, if considered a public disclosure, reveals
information crucial to making an inference of fraud.
In this regard, the crucial question arises from the
statutory language, "based upon the public disclosure of
allegations or transactions." 31 U.S.C. § 3730(e)(4)(A). We
must consider whether the information disclosed
constitutes "allegations or transactions." As another court
has explained, "the Act bars suits based on publicly
disclosed `allegations or transactions,' not information."
Wang v. FMC Corp., 975 F.2d 1412, 1418 (9th Cir. 1992).
It is clear that the FCA's reference to "allegations or
transactions" is in the disjunctive, so that disclosures
which reveal either the allegations of fraud or the elements
of the underlying fraudulent transaction are sufficient to
invoke the jurisdictional bar. Findley, 105 F.3d at 686-87;
United States ex rel. Precision Co. v. Koch Indus., Inc., 971
F.2d 548, 552 n.2 (10th Cir. 1992); see also Hagood v.
Sonoma Water County Agency, 81 F.3d 1465, 1473 (9th
12
Cir.), cert. denied, 117 S. Ct. 175 (1996) ("the jurisdictional
bar may be raised by public disclosure unaccompanied by
an explicit allegation of fraud").
The District of Columbia Circuit has devised a useful
formula for determining the quantum of information that
must be disclosed before the jurisdictional bar comes into
play:
[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.
United States ex rel. Springfield Terminal Ry. Co. v. Quinn,
14 F.3d 645, 654 (D.C. Cir. 1994). The Springfield Terminal
court goes on to explain that the inference of fraud requires
recognition of but two elements: "a misrepresented state of
facts and a true state of facts." Id. at 655. Injected into the
above formula the variables take on the following labels: "X
(misrepresented state of facts) + Y (true state of facts) = Z
(fraud)." Findley, 105 F.3d at 687.
It is not seriously contended that the Z variable has been
disclosed here. The record is devoid of any public
accusation of wrongdoing against the County before
Dunleavy filed his qui tam action. HUD's audit of Delaware
County's CDBG Program Penza Tract Fund did not begin
until March 1996 and was itself a product of this suit.
Therefore, unless we find disclosures in the record of both
the X and Y variables, we have no reason for calling down
the jurisdictional bar.
In everyday language, a "transaction" generally involves
"an exchange between two parties or things that
reciprocally affect or influence one another." Springfield
Terminal, 14 F.3d at 654 (citing Webster's Third New
International Dictionary 55 (1976)). What makes a
particular transaction "fraudulent" within the meaning of
the False Claims Act is less clear. We think it is sufficient,
at least in considering the application of the disclosure bar,
that the transaction merely be one in which a set of
13
misrepresented facts has been submitted to the government.9
This we believe is consistent with the broader definitions of
fraud employed in the False Claims Act. See Wang, 975
F.2d at 1420 ("The Act's scienter requirement is something
less than that set out in the common law").
In discussing the contents of his Second Amended
Complaint, Dunleavy insists that
his allegation of fraud was not Delaware County's mere
failure to return the proceeds to HUD. By contrast, Mr.
Dunleavy alleged that Delaware County only had the
obligation to return the proceeds after the Blue Route
opened. Mr. Dunleavy's allegation of fraud, therefore, is
that after the Blue Route opened, Delaware County had
an obligation to report or return the proceeds to the
government but failed to do so.
Appellant's Br. at 14. By this statement, we understand
Dunleavy to contend that the crucial acts by the County
necessary to the completion of this fraudulent transaction
were its retention of the proceeds from the sale of the Penza
Tract and its failure to inform HUD that it had these funds
after the opening of the Blue Route ripened the obligation
to return the money.
We view the fraudulent scheme pled in Dunleavy's
Second Amended Complaint as having four essential
elements for purposes of our jurisdictional inquiry under
the FCA's public disclosure bar: (1) the County was the
recipient of funds belonging to the federal government; (2)
the County had an obligation to repay those funds to the
federal government; (3) the County failed to repay those
funds to the federal government after the obligation became
owing; and (4) the County failed to disclose to the federal
government that funds belonging to it were in the County's
possession. Elements one through three account for the
"actual state of facts," while the fourth element corresponds
to the "misrepresented state of facts."
_________________________________________________________________
9. This broad statement assumes, of course, the relator's good faith
attempt to make allegations conforming to claims specified in 31 U.S.C.
§ 3729(a).
14
The County identifies three newspaper articles which
appeared in February 1980 and discussed Delaware
County's purchase and sale of the Penza tract as well as its
relationship with HUD.10 One of the articles stated "the
county paid $1.8 million in federal Community
Development funds for the [Penza Tract] property in 1976.
. . . In January [1980] the county sold 26 - acres less than
half the tract - to PennDOT for the Blue Route for $1.9
million . . . ." App. at 90. Another article from the same
year reported in greater detail on the possible uses for the
sale proceeds:
[Delaware County's Council Chairman, Charlie] Keeler
said the original $1.8 million the county spent with
Community Development funds would have to be spent
on projects permitted under that program's
regulations. Any additional property accrued in interest
could be spent for other purposes, including improving
the remaining park area.
App. at 91 (emphasis added). A third article explained the
transaction in which the Penza Tract was sold but
contained no references to what would become of the sale's
proceeds. App. at 92. The district court viewed all three
articles as revealing essential facts about the purchase and
sale of the Penza Tract as well as the use made by the
County of CDBG funds and of the Penza Tract sale's
proceeds.
The district court also relied on a Pretrial Memorandum
prepared on the County's behalf in an unrelated citizens'
suit against the County. Dunleavy refers to this
memorandum in his Second Amended Complaint. Second
Amended Compl. at ¶ 24. In the memorandum, County
officials represented that proceeds from the sale of the
Penza Tract to the Commonwealth would "be returned to
the Community Development program in accordance with
HUD regulations." App. at 33. The district court viewed the
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10. Although these newspaper articles are not mentioned in the
pleadings, there is no reason why they may not be relied upon in
determining whether we possess subject matter jurisdiction. Indeed, the
newspaper articles were appended to the County's Rule 12(b)(1) Motion
to Dismiss filed in the district court.
15
memorandum as a public disclosure of the County's
knowledge of its obligation to return the funds to the
federal fisc.
A third source of information derives from Annual
Financial Audits submitted by the County to the federal
government in accordance with its obligations under the
Single Audit Act, 31 U.S.C. § 7501 et seq. These audits
each contained a Balance Sheet and Statement of
Revenues, Expenditures, and Changes in Fund Balance for
several accounts including one called the Penza Fund. The
Penza Fund was described in the audits as a fund
established to account for the proceeds and related
investment income on the sale of a County owned tract
of land to the Commonwealth of Pennsylvania, the
County's intention is to use these funds for the
purchase of land.
See, e.g., App. at 94. Despite the changes in the status of
the accounts from 1985 to 1993, this description of the
fund's purpose remained a constant. The district court
found that these audits revealed the County's retention of
the proceeds from the sale of the Penza Tract and the
County's use of the interest from these proceeds.
The final source identified by the parties and relied on by
the district court is a 1992 GPR submitted by the County
to the federal government. In this report, the County failed
to account for the proceeds of the sale of the Penza Tract
held in its accounts. The district court found that, by
omitting the Penza Tract fund from the GPR, the County
completed the disclosure of all material elements of the
fraudulent transaction since this act "disclosed the
County's alleged failure to report the proceeds to HUD as
program income." Dunleavy, 1996 WL 392545, at *3.
Dunleavy now contends that no combination of these
documents could have revealed all the necessary elements
to complete the inference of fraud. In particular, Dunleavy
dismisses the GPR as "devoid of any information related to
the Penza tract, the escrow fund, or the fraud scheme."
Dunleavy insists that the GPR does not complete the
disclosure of the fraudulent transaction because
16
[t]he 1992 GPR does not report any program income
related to the sale of the Penza tract. It contains
absolutely no information about the escrowed proceeds
of the sale of a portion of the Penza tract, the obligation
to return those proceeds or the use of those proceeds.
It is absolutely silent as to any issue that is related the
fraud scheme alleged by Mr. Dunleavy.
Appellant's Br. at 22.
The County concedes the accuracy of Dunleavy's reading
of the GPR but argues the significance of this source
derives from what the GPR does not say:
[T]he only allegation which arguably was not disclosed
was the actual non-reporting of the proceeds (and the
interest thereon) as Program Income under the CDBG
program. However, as shown herein, the County did
report the receipt of the proceeds and interest through
other public disclosures (i.e. the articles and audits).
. . . [T]he fact of non-reporting was in the possession of
the Government -- that is, in addition to being the
recipient of most (if not all) of the public disclosures,
the Government also received the annual Grantee
Performance Report ("GPR") which allegedly omitted the
proceeds as Program Income. . . . HUD was in
possession of the public disclosures outlined above and
was in possession of the GPRs allegedly omitting the
Program Income . . . .
Appellee's Br. at 27. The County maintains that it is the
submission of the 1992 GPR to the federal government
which completes the inference of fraud since it publicly
exposed the inconsistencies in the County's other
statements which acknowledged the County's retention and
use of program income and interest, and the non-disclosure
of that Program Income in the GPR itself.
We conclude that the 1992 GPR is the only source that,
if publicly disclosed, would complete the inference of fraud.11
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11. Here there is no evidence that, prior to Dunleavy's filing of his
Complaint, the federal government had done anything more than place
this information, along with countless other reams of paper, in some
government file room.
17
As already stated, no source makes a public allegation of
fraud. The remaining sources disclosed only the actual
state of facts, i.e. the County's retention of the Penza Tract
proceeds and interest. It is undisputed that only the 1992
GPR contained the misrepresented state of facts, i.e., the
County's failure to inform the federal government that it
had these funds in its possession.12
Although neither Dunleavy nor the County has produced
the 1992 GPR as part of the record, they are in apparent
agreement that Delaware County was obliged, but failed, to
disclose its possession of the Penza Tract proceeds in the
1992 GPR. Congress explicitly provided for the submission
of such reports to be used in the Secretary's review of
program implementation:
Each grantee shall submit to the Secretary . . . a
performance report and evaluation report concerning
the use of funds made available under section 5306 of
this title, together with an assessment by the grantee
of the relationship of such use to the objectives
identified in the grantee's statement [of objectives
previously provided to the Secretary]. . . . The
grantee's report shall indicate its programmatic
accomplishments, the nature and reason for changes
in the grantee's program objectives, indications of how
the grantee would change its program as a result of its
experiences, and an evaluation of the extent to which
its funds were used for activities that benefited low-
and moderate-income persons. The report shall include
a summary of any comments received by the grantee
from citizens in its jurisdiction respecting its program.
42 U.S.C. § 5304(e) (1992) (emphasis added). Specifically,
HUD regulations imposed a duty to record program income
received or expended as part of the CDBG program. See 24
C.F.R. § 570.504(a) (1993).
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12. To Dunleavy's way of thinking, disclosures that antedated the
opening of the Blue Route are immaterial to our consideration of the
public disclosure bar. We do not agree. While the inference of fraud may
not have been complete until the County's 1992 GPR disclosed the
misrepresented state of facts, the elements of the fraud disclosed prior
to that point are relevant to such a fraudulent scheme and do not
become immaterial because of the simple passage of time.
18
Without the benefit of Dunleavy's insider position,
someone investigating government fraud would be able to
ascertain that the County had not fulfilled its reporting
obligation only if that individual had access to the GPR.
2. Is the GPR a Public Disclosure?
Our only remaining task then is to determine whether the
County's 1992 GPR constitutes a "public disclosure" within
the meaning of § 3730(e)(4)(A). Neither party focussed on
this issue;13 instead, both litigants concentrate on
identifying the elements of the alleged fraudulent
transactions, under the apparent assumption that the GPR
effected a public disclosure under the "potentially available"
standard developed by this Court in Stinson, 944 F.2d at
1157-60. Indeed, the district court shared this view of the
GPRs in its simple conclusion that "[t]he omission of the
Penza Fund from annual GPRs disclosed the County's
alleged failure to report the proceeds to HUD as program
income." Dunleavy, 1996 WL 392545, at *3. We believe,
however, that this aspect of the case merits more attention
than it has been given.
To answer the question whether a certain fact has been
"publicly disclosed," we must make two distinct inquiries.
The first is to ask whether the source is one recognized by
the Act. The second posits whether the extent of disclosure
is sufficient to support the conclusion that the information
contained therein is now public within the meaning of the
Act. Stinson supports this division of our exploration. 944
F.2d at 1154-60. In Stinson, we also undertook a two-part
inquiry. We first examined whether the term "civil . . .
hearing" as used in § 3730(e)(4)(A) encompassed documents
produced by a litigant but not filed with the court as part
of discovery proceedings during civil litigation. Id. at 1154-
1157. Upon concluding that the statute did indeed
contemplate this aspect of litigation as a source, we next
determined to what extent the disclosure must be made
_________________________________________________________________
13. Dunleavy does note in passing that "[t]he GPR's are not the types of
disclosures enumerated by the statute, and must not be considered as
public disclosures." Appellant's Br. at 16-17.
19
public before the jurisdictional bar is invoked. Id. at 1157-
60.
Similarly, we will first consider whether a GPR represents
a source of disclosure contemplated by Congress in drafting
the jurisdictional bar. Section 3730(e)(4)(A) identifies the
following sources for disclosures: "a criminal, civil, or
administrative hearing, . . . a congressional, administrative,
or Government Accounting Office report, hearing, audit, or
investigation, or . . . the news media . . . ." The prevailing
view is that this list constitutes an exhaustive rendition of
the possible sources. We agree. As explained by the
Eleventh Circuit, we may safely assume that Congress
knew what it was doing when it crafted the FCA:
The list of methods of "public disclosure" is specific
and is not qualified by words that would indicate that
they are only examples of the types of "public
disclosure" to which the jurisdictional bar would apply.
Congress could easily have used "such as" or "for
example" to indicate that its list was not exhaustive.
Because it did not, however, we will not give the
statute a broader effect than that which appears in its
plain language.
United States ex rel. Williams v. NEC Corp., 931 F.2d 1493,
1499-1500 (11th Cir. 1991); see also United States ex rel.
Fine v. Advanced Sciences, Inc., 99 F.3d 1000, 1004 (10th
Cir. 1996) (holding that § 3730(e)(4)(A) "defines the sources
of allegations and transactions which trigger the bar but
. . . does not define the only means by which public
disclosure can occur"); United States ex rel. Doe v. John Doe
Corp., 960 F.2d 318, 323 (2d Cir. 1992) ("Section
3730(e)(4)(A) furnishes an exclusive list of the ways in
which a public disclosure must occur for the jurisdictional
bar to apply."); United States ex rel. LeBlanc v. Raytheon
Co., Inc., 913 F.2d 17, 20 (1st Cir. 1990) (Section
3730(e)(4)(A) "does not deny jurisdiction over actions based
on disclosures other than those specified . . . .").
The only way to bring the GPR, prepared by the County,
within the language of § 3730(e)(4)(A) is for the GPR to be
considered an "administrative . . . report." It is unlikely that
Congress intended the public disclosure bar to be invoked
20
without limitation as to the content or source of such
administrative reports. Indeed, we conclude that Congress
was not referring to administrative reports produced by
non-federal government sources.
As we determined in our review of the FCA in Stinson, we
find that Congress gave us little specific guidance to
determine the scope of public disclosure sources, including
"administrative reports." It is noteworthy, however, that the
terms "report, hearing, audit, or investigation" are modified
by the words "congressional, administrative, or Government
Accounting Office." The word "administrative" is capable of
many meanings. Congress has provided no clear legislative
intent or meaning for it in the FCA. We will, therefore, turn
to the doctrine of noscitur a sociis, which permits us to
treat this word as one which "gathers its meaning from the
words around it." Jarecki v. G.D. Searle & Co., 367 U.S.
303, 307 (1961); In re Continental Airlines, Inc., 932 F.2d
282, 288 (3d Cir. 1991); 2A Sutherland Statutory
Construction § 47:16 (5th ed. 1992). The application of this
doctrine is especially appropriate where, as here, "a word is
capable of many meanings in order to avoid the giving of
unintended breadth to the Acts of Congress." Jarecki, 367
U.S. at 307.
Our reliance upon this maxim leads to the conclusion
that "administrative" when read with the word "report"
refers only to those administrative reports that originate
with the federal government. We take notice of the fact that
Congress and the Government Accounting Office are
entities of our federal government. We find it hard to believe
that the drafters of this provision intended the word
"administrative" to refer to both state and federal reports
when it lies sandwiched between modifiers which are
unquestionably federal in character.
Moreover, a narrow reading of the phrase "administrative
. . . report" does not risk the arbitrary results that
motivated our decision in Stinson. There we expressed
concern that the crabbed interpretation of the word
"hearing" proposed by the relator might produce a situation
where the jurisdictional question turned on whether a
judge was present at a given deposition. Stinson, 944 F.2d
at 1157. Here, in contrast, we have good reasons to treat
21
reports made by the federal government differently from
those produced by state or local governments or by private
individuals. Ordinarily, the party accused of defrauding the
federal government is in control of most of the sources of
information that would effectively reveal wrongdoing. This
information dynamic was, in large part, a motivating factor
behind the 1986 amendments. Congress emphasized its
belief that "[d]etecting fraud is usually very difficult without
the cooperation of individuals who are either close
observers or otherwise involved in the fraudulent activity."
S. Rep. 99-345, 99th Cong., 2nd Sess. 4, reprinted in 1986
U.S.C.C.A.N. 5269. Additionally, the Reporting Committee
perceived the existence of "a conspiracy of silence" to
defraud the federal government. Id. at 6, reprinted in 1986
U.S.C.C.A.N. at 5271.
In these circumstances, the federal government is ill-
equipped to protect itself by having certain information in
its possession. When, as in this case, the defrauding party
is a local government entity required to submit reports to
the federal government, those reports have been compiled
and produced by a party whose principal motivation
(assuming the truth of the fraud claim) is the elimination of
the paper trail of fraud. If state and local government
reports were treated as administrative reports under the
Act, the jurisdictional bar might be invoked through
information submitted by those bent on convincing a
federal agency that no fraud, in fact, was occurring. That
problem is especially evident here where the County's GPR
is the only source from which the public could have learned
of the County's misrepresentations to the federal
government.
Moreover, a broad reading of "administrative reports"
would be fundamentally inconsistent with the purpose and
tenor of the 1986 amendments. Congress undertook the
amending of the FCA to eliminate the draconian
"government knowledge" standard applied since 1943. This
standard barred all actions where it could be shown, no
matter how attenuated the case, that the information on
which the qui tam suit was based had passed into the
possession of the federal government prior to the suit's
filing. See S. Rep. No. 345, 99th Cong., 2d Sess. 10-13,
22
reprinted in 1986 U.S.C.C.A.N. 5266, 5275-78 (discussing
inter alia United States ex rel. Wisconsin v. Dean, 729 F.2d
1100 (7th Cir. 1984), where it was held that the state of
Wisconsin could not maintain an action based entirely on
that state's investigations of the defendant because the
state had conveyed the same information to federal
agencies in routine disclosures required by federal law).
Concerned about the "conspiracy of silence" and the
prevalence of fraud, Congress sought to reforge the balance
between over- and under-deterrence. See S. Rep. No. 345,
99th Cong., 2d Sess. 6, reprinted in 1986 U.S.C.C.A.N. at
5271. The principal intent of the 1986 amendments was to
"have the qui tam suit provision operate somewhere
between the almost unrestrained permissiveness
represented by the Marcus decision and . . . the
restrictiveness of the post-1943 cases, which precluded suit
even by original sources." Stinson, 944 F.2d at 1154.
The expansion of the FCA's definition of "administrative
report" to state and local government reports would in effect
return us to the unduly restrictive "government knowledge"
standard. There is no suggestion that HUD had any access
to information about the misrepresented state of facts
beyond what the County submitted in its 1992 GPR. Nor is
there evidence of any government investigation based on
this information prior to the airing of Dunleavy's
allegations. Although under the Stinson standard, this
information is potentially accessible by any citizen willing to
proceed under the Freedom of Information Act, 5 U.S.C.
§ 552 et seq., we cannot overlook the fact that Stinson dealt
with information produced on the public record in
connection with litigation while here we are concerned with
reports that may be filed away without the receiving agency
being put on notice that there is any reason to give them
close attention.14
For the above reasons, we conclude that Congress meant
to bar reliance only on "administrative reports" originating
with the federal government. Since the 1992 GPR was
_________________________________________________________________
14. We do not by this suggest that Stinson's "potential availability"
standard never applies outside the context of litigation. We only posit the
dangers of extending its reach to the context now before us.
23
prepared by or at the behest of Delaware County, it is not
a source of public disclosure contemplated by Congress.
Because we have answered the first part of our inquiry in
this manner, we do not need to go on to the issue of the
extent of disclosure.
III. Conclusion
We reaffirm our holding in Stinson that "[s]ection
3730(e)(4) applies only when information has been publicly
disclosed through an enumerated method prior to the filing
of a qui tam suit based on that information." 944 F.2d at
1176. However, the facts of this case differ significantly
from Stinson. We read 30 U.S.C. § 3730(e)(4)(A)'s reference
to "administrative reports" as barring only those actions
based on administrative reports that originate with the
federal government. Because the 1992 GPR is the only
source which would reveal that Delaware County had not
fulfilled its reporting obligation to HUD, we must conclude
that not all essential elements of the fraud have been
publicly disclosed. We will, therefore, reverse the decision of
the district court and remand this matter to it for further
proceedings consistent with this opinion.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
24