United States Ex Rel. Wilson v. Graham County Soil & Water Conservation District

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-2345
UNITED STATES OF AMERICA ex rel. KAREN T. WILSON,
Plaintiff - Appellant,
v.
GRAHAM COUNTY SOIL & WATER CONSERVATION DISTRICT; CHEROKEE
COUNTY SOIL & WATER CONSERVATION DISTRICT; RICHARD GREENE,
in his individual capacity; WILLIAM TIMPSON, in his
individual capacity; KEITH ORR, in his individual and
official capacities; RAYMOND WILLIAMS, in his individual
capacity; DALE WIGGINS, in his individual capacity; GERALD
PHILLIPS, in his individual capacity; ALLEN DEHART, in his
individual capacity; LLOYD MILLSAPS, in his official
capacity; BILLY BROWN, in his individual capacity; LYNN
CODY, in his individual capacity; BILL TIPTON, in his
official capacity; C. B. NEWTON, in his individual capacity;
EDDIE WOOD, in his individual capacity; GRAHAM COUNTY,
Defendants - Appellees,
and
GRAHAM COUNTY BOARD OF COUNTY COMMISSIONERS; CHEROKEE COUNTY
BOARD OF COUNTY COMMISSIONERS; CHERIE GREENE; RICKY STILES;
BETTY JEAN ORR; JOYCE LANE; JIMMY ORR; JERRY WILLIAMS, in
his individual capacity; EUGENE MORROW; CHARLES LANE;
CHARLES LANEY; GEORGE POSTELL; LLOYD KISSLEBURG; TED ORR;
BERNICE ORR; JOHN DOE, JR.; JOHN DOE CORPORATION;
GOVERNMENTAL ENTITIES, 1-99,
Defendants.
Appeal from the United States District Court for the Western
District of North Carolina, at Bryson City. Martin K.
Reidinger, District Judge. (2:01-cv-00019-MR)
Argued: December 9, 2014 Decided: February 3, 2015
Before MOTZ and KING, Circuit Judges, and Arenda L. Wright
ALLEN, United States District Judge for the Eastern District of
Virginia, sitting by designation.
Reversed by published opinion. Judge Motz wrote the opinion, in
which Judge King and Judge Allen joined.
Mark Tucker Hurt, Abingdon, Virginia, for Appellant. Sean
Francis Perrin, WOMBLE CARLYLE SANDRIDGE & RICE, PLLC,
Charlotte, North Carolina, for Appellees Raymond Williams, Dale
Wiggins, Lynn Cody, and Graham County. Martin McCracken, NORTH
CAROLINA DEPARTMENT OF JUSTICE, Raleigh, North Carolina, for
Appellees Graham County Soil & Water Conservation District,
Cherokee County Soil & Water Conservation District, Gerald
Phillips, Allen Dehart, Lloyd Millsaps, Bill Tipton, C.B.
Newton, and Eddie Wood.
2
DIANA GRIBBON MOTZ, Circuit Judge:
A long and winding road has brought this False Claims Act
(FCA) case to us on appeal a third time. After two trips to the
Supreme Court, Relator Karen Wilson now appeals the district
court’s dismissal of her qui tam action for lack of jurisdiction
pursuant to the FCA’s public disclosure bar. For the reasons
that follow, we reverse.
I.
We need only briefly recount the factual and procedural
history. Fuller accounts of each can be found in Graham Cnty.
Soil & Water Conservation Dist. v. United States ex rel. Wilson,
559 U.S. 280 (2010), and United States ex rel. Wilson v. Graham
Cnty. Soil & Water Conservation Dist., 528 F.3d 292 (4th Cir.
2008).
When a February 1995 storm caused significant flooding and
erosion in parts of western North Carolina, the United States
Department of Agriculture (USDA) agreed to help the affected
counties cover the costs of cleanup and recovery through the
Emergency Watershed Protection Program (“EWP Program”). See
generally 7 C.F.R. §§ 624.1–624.11. Jointly administered by the
National Resources Conservation Service (NRCS) and the United
States Forest Service, the EWP Program provides financial
assistance to eligible states and political subdivisions “to
3
relieve imminent hazards . . . created by a natural disaster
that causes a sudden impairment of a watershed.” Id. § 624.2.
North Carolina’s Graham and Cherokee Counties applied for
storm relief under the EWP Program and each was deemed eligible
to receive federal funding. As required, each county entered
into a “Cooperative Agreement” with NRCS, see id. § 624.8(c),
agreeing to perform or contract out the necessary recovery work.
NRCS then agreed to reimburse the counties for most of the total
cost. In each county, responsibility for the EWP Program fell
to the respective Soil and Water Conservation District (SWCD), a
local special-purpose government entity. Both the Graham County
SWCD and the Cherokee County SWCD hired independent contractors
to complete the required cleanup and remediation.
Appellant, Relator Karen Wilson, worked at the Graham
County SWCD as a part-time secretary from 1993 until 1997. Soon
after Graham County received approval for the EWP Program,
Wilson began to suspect fraud in its implementation, not only by
her colleagues at the SWCD, but also by NRCS officials who
oversaw the Program. In December 1995, Wilson wrote a letter to
USDA Special Agent Richard Gallo outlining her concerns.
According to Wilson’s letter, two NRCS employees, H. Richard
Greene and William Timpson, had agreed with the independent
contractors to front the cost of supplies in exchange for a
share of the ultimate profits. Wilson’s letter also indicated
4
that the Graham County SWCD had chosen as its “independent”
contractor Keith Orr, who was a salaried SWCD employee and so
ineligible to work on the contract. In addition, Wilson told
Gallo, the Graham County SWCD was at that time “being audited by
county auditors.”
Four months later, in April 1996, those auditors formalized
their findings in an “Agreed Upon Procedures Report” (“the Audit
Report”) detailing several problems with the Graham County
SWCD’s handling of the EWP program. The Audit Report
characterized Orr’s hiring as a likely “violation of the
County’s code of conduct,” and pointed to a lack of proper
documentation surrounding both the bidding and the invoicing of
the EWP contracts. An accompanying cover letter indicated that
Graham County received four copies of the Audit Report, two for
the County’s own records, and one each “for the Graham County
Soil & Water Conservation District and . . . the US Department
of Agriculture, should you be required to distribute copies to
them.” In the cover letter, the independent accounting firm
responsible for the Audit Report also reported sending one copy
to the North Carolina Local Government Commission and one to the
North Carolina Division of Soil and Water Conservation.
The Audit Report failed to put an end to Wilson’s
suspicions. In November 1996, she made a written statement to
another USDA Special Agent, A. Kenneth Golec, not only
5
reiterating and expanding on some of her earlier allegations,
but also raising new ones -- notably that Richard Greene had
stolen logs intended for use in the rebuilding efforts. The
allegations against Greene proved well-founded. In August 1997,
Special Agent Golec completed a Report of Investigation (“USDA
Report”) that concluded Greene had “received payment by checks
issued in his name from a lumber mill for the delivery of trees
removed from the Emergency Watershed Program (EWP), sites he
represented.” The cover page of the USDA Report included a
distribution list to certain state and federal law enforcement
agencies and a warning that it was “not to be distributed
outside your agency . . . without prior clearance from the
Office of Inspector General, USDA.”
In 2001, Wilson filed suit under the FCA’s qui tam
provision, alleging that fraudulent invoices were submitted to
the federal government under the EWP Program in both Graham and
Cherokee Counties. In 2006, Wilson filed her third amended
complaint -- the operative pleading for this appeal -- in which
she named as defendants Graham County, the Graham County SWCD,
and the Cherokee County SWCD, along with several individuals,
including Orr, Greene, and Timpson. Although the intervening
years, and decisions of both this court and the Supreme Court,
have eliminated several of Wilson’s claims for relief, her core
FCA claims pertaining to the EWP Program in both counties
6
survived until the district court dismissed them in the order
from which Wilson now appeals.
II.
In its qui tam provision, the False Claims Act permits
private citizens (known as relators) to bring suit on behalf of
the United States “to recover from those persons who make false
or fraudulent claims for payment to the United States.” Graham
Cnty., 559 U.S. at 283 (citing 31 U.S.C. §§ 3279-3733 (2006)).
The statute’s earlier version, which applies to this
appeal, contains a jurisdiction-stripping provision:
No court shall have jurisdiction over an action under
this section based upon the public disclosure of
allegations or transactions . . . in a congressional,
administrative, or Government Accounting Office
report, hearing, audit, or investigation . . . unless
the action is brought by the Attorney General or the
person bringing the action is an original source.
31 U.S.C. § 3730(e)(4)(A) (2006). This provision, known as the
public disclosure bar, is designed to strike a balance between
empowering the public to expose fraud on the one hand, and
“preventing ‘parasitic’ actions” on the other. United States ex
rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1348 (4th
Cir. 1994) (citation omitted). In short, it mandates the
dismissal of claims brought by a relator if those claims are
7
based on a public disclosure, unless the relator qualifies as an
original source. 1
We asked the district court on remand to make the factual
findings necessary to apply this statutory scheme. Pursuant to
this directive, the court considered (1) whether any relevant
audits, reports, hearings, or investigations had been publicly
disclosed; (2) whether Wilson based her claims on any such
public disclosures; and (3) if so, whether Wilson was
nonetheless an original source of those claims. See United
States ex rel. Wilson v. Graham Cnty. Soil & Water Conservation
Dist., 976 F. Supp. 2d 755, 760 (W.D.N.C. 2013), on remand from
399 F. App’x 774 (4th Cir. 2010). Reaching all three questions,
the court concluded that both the Audit Report and the USDA
Report had been publicly disclosed, that Wilson based her claims
on these reports, and that she was not an original source of any
of those claims. Id. at 770, 772-73, 776. The district court
therefore dismissed Wilson’s action in its entirety, holding
1
The Patient Protection and Affordable Care Act (“PPACA”),
enacted in 2010, amended this provision slightly. See Pub. L.
111-148, 124 Stat. 119 § 10104(j)(2). Rather than depriving a
court of jurisdiction over actions based on public disclosures,
the statute now provides only that “[t]he court shall dismiss
[such] an action or claim.” 31 U.S.C. § 3730(e)(4)(A). The
PPACA, however, is not retroactive. Graham Cnty., 559 U.S. at
283 n.1. We thus apply the statute’s earlier version to this
appeal, a fact that renders the public-disclosure question one
of subject-matter jurisdiction. As is customary, we use the
present tense when discussing the operative version of the
statute.
8
that the public disclosure bar deprived it of subject-matter
jurisdiction. Id. at 776.
Wilson timely noted this appeal. Our review of a district
court’s “jurisdictional findings” is “deferential.” United
States ex rel. Vuyyuru v. Jadhav, 555 F.3d 337, 350 (4th Cir.
2009). When a finding of fact undergirds the district court’s
conclusion with respect to jurisdiction, we leave it undisturbed
unless it is clearly erroneous. Id. at 348. The “legal
conclusions flowing therefrom,” however, are reviewed de novo.
Id.
III.
To sustain the district court’s holding, we must find that
the court correctly concluded that (1) all relevant reports had
been publicly disclosed, and (2) Wilson based her claims on
those public disclosures, and (3) Wilson was not the original
source of her claims. With respect to the first requirement --
public disclosure -- the court concluded that the Audit Report
and the USDA Report, both of which contained allegations of
fraud, constituted public disclosures of relevant reports
because they had been distributed to public officials
responsible for managing the subject forming the basis of the
claims. Graham Cnty., 976 F. Supp. 2d at 770. The distribution
to these officials amounted to a public disclosure under the
9
FCA, the court reasoned, because it put the government on notice
of the possible fraud. Id. Though we find no fault with the
district court’s factual findings, the court applied an
incorrect legal standard in reaching its conclusion as to public
disclosure. Because the district court erred with respect to
this first issue, we must reverse.
A.
The FCA withdraws federal jurisdiction over qui tam actions
“based upon the public disclosure of allegations or
transactions” in an “audit” or “investigation.” 31 U.S.C.
§ 3730(e)(4)(A) (2006). Since the Audit Report and the USDA
Report clearly qualify as eligible sources under controlling
law, 2 the sole question at issue is whether the reports were
“publicly disclosed” prior to the time Wilson filed this action.
The plain meaning of the phrase “public disclosure”
suggests that they were not. “Disclosure” requires an
affirmative act. See Webster’s Third New International
Dictionary 645 (1993) (defining “disclose” as “to open up to
general knowledge,” “to expose to view,” and “to make known”).
2
Under the current iteration of the FCA, amended by the
PPACA, the Audit Report would not qualify as a “public
disclosure” because it is not a “Federal . . . audit.” 31
U.S.C. § 3730(e)(4)(A)(ii) (emphasis added). The version of the
statute controlling this appeal, however, contains no such
modifier and has been held to encompass state and local
materials as well as federal ones. See Graham Cnty., 559 U.S.
at 283.
10
Such an act, in turn, requires a recipient -- a person, group,
or entity to whom the information is revealed. By specifying
that a “disclosure” must be “public,” Congress indicated that
only disclosures made to the public at large or to the public
domain had jurisdictional significance. Neither the Audit
Report nor the USDA Report was distributed to, or intended to be
distributed to, the public. Indeed, the authors of both reports
attached to them distribution lists, limiting distribution to
government entities. And nothing in the record suggests that
either report made it further than its limited intended audience
until Wilson filed suit.
In holding to the contrary -- that the reports were
publicly disclosed -- the district court quoted and almost
exclusively relied on a Seventh Circuit case, United States v.
Bank of Farmington, 166 F.3d 853 (7th Cir. 1999), overruled on
other grounds by Glaser v. Wound Care Consultants, Inc., 570
F.3d 907 (7th Cir. 2009). There the court held that information
on which the relator based her qui tam action had been “publicly
disclosed” because it had been disclosed “to a competent public
official.” Id. at 861. Reasoning that “‘public’ . . . can also
be defined as ‘authorized by, acting for, or representing the
community,’” the Bank of Farmington court held that a
disclosure, “not actually made to the public at large,” but
rather to a “public official,” sufficed to trigger the
11
jurisdictional bar in § 3730(e)(4)(A). Id. (quoting 12 Oxford
English Dictionary 779 (2d ed. 1989)). Here, the district court
similarly held that because the distribution lists accompanying
the Audit Report and the USDA Report included federal agencies
with relevant oversight, the reports had been publicly
disclosed.
No other circuit, however, has adopted the Seventh
Circuit’s interpretation of the public disclosure requirement.
Rather, the other five circuits to consider the question have
rejected the Seventh Circuit’s approach. See United States ex
rel. Oliver v. Philip Morris USA, Inc., 763 F.3d 36, 42 (D.C.
Cir. 2014); United States ex rel. Meyer v. Horizon Health Corp.,
565 F.3d 1195, 1200 & n.3 (9th Cir. 2009); United States ex rel.
Rost v. Pfizer, Inc., 507 F.3d 720, 730 (1st Cir. 2007),
overruled on other grounds by Allison Engine Co. v. United
States ex rel. Sanders, 553 U.S. 662 (2008); Kennard v. Comstock
Res., Inc., 363 F.3d 1039, 1043 (10th Cir. 2004); United States
ex rel. Williams v. NEC Corp., 931 F.2d 1493, 1499-1500 (11th
Cir. 1991); see also United States ex rel. Beauchamp v. Academi
Training Ctr., Inc., 933 F. Supp. 2d 825, 844 (E.D. Va. 2013);
United States v. Smith & Nephew, Inc., 749 F. Supp. 2d 773, 782-
84 (W.D. Tenn. 2010).
Until now, we have had no occasion to weigh in on this
issue. Today we too reject the Seventh Circuit’s view, holding
12
instead that “a ‘public disclosure’ requires that there be some
act of disclosure outside of the government.” Rost, 507 F.3d at
728 (emphasis added). As the Tenth Circuit has explained, a
“public disclosure” must somehow reach the public domain and
“the Government is not the equivalent of the public domain.”
Kennard, 363 F.3d at 1043. To hold otherwise would wrongfully
“equate[] the government with the public,” rendering
“superfluous” the public disclosure bar’s namesake phrase.
Rost, 507 F.3d at 729. For “[b]y its express terms, the public
disclosure bar only applies when allegations or transactions
have been made public through [certain] channels [and] . . .
[t]he government’s own, internal awareness of the information is
not one such channel.” Oliver, 763 F.3d at 42. As we have
noted in the past, “the FCA’s public disclosure bar is far from
a model of careful draftsmanship.” Graham Cnty., 528 F.3d at
305. But it seems clear that by “public disclosure,” Congress
did not somehow mean “disclosure to the government.”
Moreover, “[t]he history of the FCA strongly bolsters this
conclusion.” Oliver, 763 F.3d at 42. When Congress enacted the
statute during the Civil War, “the FCA placed no restriction on
the sources from which a qui tam relator could acquire
information on which to base a lawsuit.” Schindler Elevator
Corp. v. United States ex rel. Kirk, 131 S. Ct. 1885, 1893
(2011). To combat the growing problem of “parasitic” suits,
13
Congress amended the statute to bar “qui tam actions based on
evidence of information in the possession of the United States
. . . at the time such suit was brought.” Id. at 1894 (internal
quotation marks and citation omitted). But “in 1986, Congress
replaced th[is] so-called Government knowledge bar with the
narrower public disclosure bar” that governs this appeal. Id.
(citation omitted). Holding, as the district court did, that
the government’s awareness of potential fraud triggers the
public disclosure bar “would essentially reinstate a
jurisdictional bar Congress expressly eliminated.” Oliver, 763
F.3d at 42. This we decline to do.
In short, while both the Audit Report and the USDA Report
were disclosed to government officials charged with policing the
type of fraud Wilson alleges, nothing in the record suggests
that either report actually reached the public domain. Thus,
the public disclosure bar was not triggered on this basis.
B.
That the reports were disclosed to state and local
government agencies as well as federal agencies does not alter
our conclusion. Graham County directed compilation of the Audit
Report and shared it with other local, state, and federal
entities involved in, or overseeing, the cooperative EWP
Program. The USDA prepared its report and similarly shared it
with state agencies with enforcement responsibilities. In
14
neither instance did the relevant information move beyond a
limited sphere of government actors interacting as part of a
cooperative local-state-federal program.
Moreover, each report made clear on its face that it was
intended for official use only. See J.A. 3 380 (Audit Report)
(“This report is intended solely for your information and should
not be used by those who did not participate in determining the
procedures.”); J.A. 264 (USDA Report) (“This document is FOR
OFFICIAL USE ONLY. It and its contents are not to be
distributed outside your agency, nor duplicated, without prior
clearance from the Office of Inspector General, USDA.”).
The mere fact that local, state, and federal agencies share
official information in the course of a cooperative endeavor
cannot, without more, trigger the public disclosure bar. As the
Supreme Court explained at an earlier juncture in this very
case:
Just how accessible to the Attorney General a typical
state or local source will be, as compared to a
federal source, is an open question. And it is not
even the right question. The statutory touchstone,
once again, is whether the allegations of fraud have
been “public[ly] disclos[ed],” § 3730(e)(4)(A), not
whether they have landed on the desk of a DOJ lawyer.
Graham Cnty., 559 U.S. at 299-300; see also United States ex
rel. Maxwell v. Kerr-McGee Oil & Gas Corp., 540 F.3d 1180, 1184
3
Citations to J.A. refer to the joint appendix filed by the
parties in this appeal.
15
(10th Cir. 2008) (finding certain information transferred
between federal and state government not publicly disclosed
“insofar as the communication does not release the information
into the public domain such that it is accessible to the general
population”). Cooperation -- and thus the flow of information -
- between federal, state, and local agencies is a common and
critical feature of our system of federalism. We simply cannot
conclude that such information has been made public without
contorting the plain meaning of that word. 4
C.
The existence of public information laws also erects no
obstacle to our holding. On appeal, perhaps recognizing the
weight of authority contrary to the district court’s holding,
Appellees pivot slightly from that court’s rationale. They
argue that the Audit Report entered the public domain because it
would have been “available” to the public via a public records
4
We note that the Tenth Circuit has held that a sharing of
information by state and federal agencies constitutes a “public
disclosure” unless the recipient is subject to a duty of
confidentiality. United States ex rel. Fine v. MK-Ferguson Co.,
99 F.3d 1538, 1545 (10th Cir. 1996). But see id. at 1550-51
(Henry, J., dissenting) (opining that “public disclosure” should
hinge upon whether “the state . . . took positive steps to
release [the information] to the public,” not on whether it “has
the [information] in a file cabinet somewhere subject to public
disclosure”); see also section III.C, infra. We prefer to leave
the focus where the statute’s plain language indicates it should
lie: on whether there has been an actual disclosure beyond the
government to the public.
16
request. Appellees contend that the Audit Report was publicly
disclosed because “members of the public could request and
receive the audit,” both “[u]nder the North Carolina Public
Records Act” and through “a federal clearinghouse.” Appellees’
Br. 10-11. The argument is meritless. Appellees fail to
distinguish between information theoretically or potentially
available -- upon request -- and information “‘affirmatively
provided to others not previously informed thereof.’” Graham
Cnty., 399 F. App’x at 776 (quoting United States ex rel.
Ramseyer v. Century Healthcare Corp., 90 F.3d 1514, 1521 (10th
Cir. 1996)). It is the latter that is the talisman of the
public disclosure bar.
To equate eligibility for disclosure with disclosure itself
does more than merely place the cart before the horse; it places
the cart before a horse that may never follow. As one of our
sister circuits has noted, a state agency that has “simply
placed [a] report in its investigative file and restricted
access to those persons clairvoyant enough to specifically ask
for it” has not publicly disclosed that report within the
meaning of the FCA. Ramseyer, 90 F.3d at 1521; accord Meyer,
565 F.3d at 1200-01 (“[A] public disclosure is restricted to
information that is actually made public as opposed to material
that is only theoretically available upon the public’s request.”
(internal quotation marks and citation omitted)).
17
At oral argument, Appellees attempted to return both cart
and horse to their logical positions, suggesting that Wilson
actually received a copy of the Audit Report through the state’s
Public Records Act. But the district court made no such
finding, probably because nothing in the record lends support
for such a finding. The cover letter that accompanied the Audit
Report indicates that of the four copies sent to Graham County,
one was earmarked specifically for the Graham County SWCD, where
Wilson worked. And in deposition, Wilson admitted to receiving
a copy of the Audit Report “[a]s soon as it was available . . .
[b]ut I think I requested that from Graham County.”
Wilson’s recollection comports not only with the cover
letter’s instructions, but also with common sense. As a
secretary at the Graham County SWCD, Wilson spoke with and
provided files to the auditor performing the review. Thus, she
would have been aware of the forthcoming Audit Report. Nothing
indicates that she obtained a copy through a cumbersome Public
Records Act request rather than by simply asking for one. Far
from defeating jurisdiction, then, Wilson’s receipt of the Audit
Report confirms that she is precisely the sort of “whistle-
blowing insider[]” the statute seeks to encourage. Graham
18
Cnty., 559 U.S. at 294 (internal quotation marks and citation
omitted). 5
IV.
Satisfied that nothing triggered the public disclosure bar
in this case, we hold that the district court had jurisdiction
over this action. We emphasize that our holding addresses only
the limited issue of subject-matter jurisdiction. Whether
Wilson’s complaint sufficiently alleges actionable fraud against
the government is an issue not before us today and one on which
we do not opine. For the sole reason that no public disclosure
deprived it of jurisdiction, the judgment of the district court
is
REVERSED.
5
Appellees, like the district court, fleetingly suggest a
third potential public disclosure: the 1998 federal indictment
of USDA employee Richard Greene. The record offers no support
for this conclusion. In fact, two years before the indictment
was filed, Wilson provided substantially all the information in
it to Special Agent Golec. Compare J.A. 247 with Bill of
Indictment (Dec. 8, 1998), ECF No. 261-1. Thus, Wilson could
not have based her claims on the Indictment.
19