Little v. Shell Exploration & Production Co.

Case: 11-20320 Document: 00511940318 Page: 1 Date Filed: 07/31/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 31, 2012
No. 11-20320 Lyle W. Cayce
Clerk
RANDALL L. LITTLE, bringing this action on behalf of the United States
Government; JOEL F. ARNOLD, bringing this action on behalf of the United
States Government,
Plaintiffs-Appellants
v.
SHELL EXPLORATION & PRODUCTION COMPANY; SHELL
DEEPWATER DEVELOPMENT SYSTEMS, INC.; SHELL OFFSHORE,
INC.,
Defendants-Appellees
Appeal from the United States District Court
for the Southern District of Texas
Before SMITH, GARZA, and SOUTHWICK, Circuit Judges.
LESLIE H. SOUTHWICK, Circuit Judge:
This case presents an issue of first impression for our court. Is a federal
employee, even one whose job it is to investigate fraud, a “person” under the
False Claims Act such that he may maintain a qui tam action? We disagree with
the district court and conclude that there is no basis to except such an employee
from personhood. A second question is whether the Act’s “public disclosure bar”
is an impediment to this suit. The district court determined that this bar
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applied but used an overly broad conception of the bar. We REVERSE and
REMAND for further proceedings consistent with this opinion.
FACTUAL AND PROCEDURAL HISTORY
In early 2006, relators Randall Little and Joel Arnold filed two qui tam
suits against Shell in the Western District of Oklahoma. They alleged that Shell
had defrauded the U.S. Department of the Interior of at least $19 million.
Specifically, they charged that from October 2001 through 2005, Shell had
deprived the United States of royalties by taking unauthorized deductions for
expenses to gather and store oil on twelve of its offshore drilling platforms.
At the time their suits were filed, Little was a Senior Auditor and Arnold
a Supervisory Auditor for the Minerals Management Service (MMS), an agency
within the Department of the Interior that administered Shell’s leases.1 Part of
MMS’s mission was to uncover theft or fraud in the royalty programs. Little
reported the information he uncovered to Arnold, his immediate supervisor, and
the two furnished it to their mutual superior, Lonnie Kimball. It is undisputed
that the Shell allegations came to light during the course of their official duties
and that reporting their findings to Kimball was a job requirement. It is also
undisputed that this information was conveyed before the filings of the qui tam
actions. To their knowledge, neither MMS nor any other federal agency has ever
acted on this information.
Special procedures apply to qui tam suits under the False Claims Act.
They are suits brought “for the person and for the United States Government.”
31 U.S.C. § 3730(b)(1). Before a defendant is served, the relator must provide
the complaint and “substantially all material evidence and information” he has
to the United States. § 3730(b)(2). The case remains under seal for 60 days.
The government may intervene in the litigation and then prosecute the action
1
Governmental reorganizations have eliminated the MMS.
2
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itself, or move to have it dismissed. § 3730(c)(2)(A). The court may grant
dismissal “notwithstanding the objections” of relators. Id. Should the
government intervene and continue the suit, the relators receive between 10 and
25 percent of any judgment, whereas their share rises to between 25 and 30
percent if the United States declines participation. § 3730(d)(1), (2).
These procedures were followed. After the government notified the court
it did not wish to intervene, the court ordered the case to be unsealed and the
defendants to be served. The cases were transferred from Oklahoma to the
Southern District of Texas on March 2, 2007, and consolidated there by the
parties’ joint request. See 28 U.S.C. § 1404(a); Fed. R. Civ. P. 42(a).
In April 2011, the district court granted summary judgment to Shell on the
ground that two distinct False Claims Act provisions prohibited the suit: Section
3730(b)(1), describing who may bring suit, and the public disclosure bar
contained in Section 3730(e)(4)(A), (B). Relators timely appeal. As amicus
curiae, the United States urges us to construe the False Claims Act as barring
suits by government employees who discover wrongdoing in the scope of their
official duties.
DISCUSSION
I. Constitutional Standing
We first address the government’s claim that there is no Article III
jurisdiction. Though raised for the first time on appeal, a legitimate question
about jurisdiction must be answered no matter when it is first asked. Arena v.
Graybar Elec. Co., 669 F.3d 214, 223 (5th Cir. 2012).
A plaintiff ordinarily must show (1) an injury in fact, (2) that the injury is
fairly traceable to the challenged conduct, and (3) that a victory in litigation will
likely redress the injury. See Adar v. Smith, 639 F.3d 146, 150 (5th Cir.) (en
banc), cert. denied, 132 S. Ct. 400 (2011). It is settled that qui tam relators who
are not federal employees have constitutional standing. Vt. Agency of Natural
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Res. v. United States ex rel. Stevens, 529 U.S. 765, 773-74 (2000). Standing
exists because “a qui tam relator is, in effect, suing as a partial assignee of the
United States[’s]” claim for damages. Stevens, 529 U.S. at 773 n.4.
Article III grants judicial power over the “Cases” and “Controversies” that
were the traditional concern of the courts in England. Id. at 774. There was a
“long tradition of qui tam actions in England and the American Colonies.” Id.We have interpreted Stevens to hold “that the history of qui tam was ‘well nigh
conclusive’ with respect to resolving the question of whether qui tam relators
filing suit under the [False Claims Act] have Article III standing.” Riley v. St.
Luke’s Episcopal Hosp., 252 F.3d 749, 752 (5th Cir. 2001) (en banc).
The government distinguishes Stevens, which involved relators who were
not federal employees, by arguing employee-relators might not be able to retain
their litigation awards.2 It contends that the prospect of not retaining damages
undercuts Stevens’s rationale. Even assuming a federal employee may not retain
his award, a subsequent decision clarifies that there nonetheless would be
standing. In that decision, the Supreme Court fully embraced the concept that
an “assignee can sue based on his assignor’s injuries.” Sprint Commc’ns Co. v.
APCC Servs., Inc., 554 U.S. 269, 286 (2008). In rejecting the claim that not
benefitting from litigation proceeds creates a redressability problem, the court
held that the inquiry focuses “on whether the injury that a plaintiff alleges is
likely to be redressed through the litigation – not on what the plaintiff
ultimately intends to do with the money he recovers.” Id. at 287.
Thus, claims by federal-employee relators can create a case or controversy.
We now must determine whether the False Claims Act allows such claims.
2
The government states without elaboration that “a violation of the [federal] conflict-of-
interest rules [,5 C.F.R. §§ 2635.101(b)(3), 2635.703(a),] creates a constructive trust on behalf
of the United States” depriving the employee of his share of the proceeds. We discuss these
rules in more detail below.
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II. Who May Bring a False Claims Act Qui Tam Action?
The district court granted summary judgment, which is proper if there are
no genuine disputes of material fact and the movant is entitled to judgment as
a matter of law. Fed. R. Civ. P. 56(a). Our review is de novo, with the evidence
being viewed in the light most favorable to the non-movants. United States ex
rel. Jamison v. McKesson Corp., 649 F.3d 322, 326 (5th Cir. 2011).
The position advocated by Shell and the United States is expressly
contrary to the holdings of the Eleventh Circuit and the en banc Tenth Circuit.
United States ex rel. Williams v. NEC Corp., 931 F.2d 1493, 1501-02 (11th Cir.
1991); United States ex rel. Holmes v. Consumer Ins. Grp., 318 F.3d 1199, 1208-
12 (10th Cir. 2003). Adopting that position would also create tension with the
en banc Ninth Circuit and the Sixth Circuit. United States ex rel. Fine v.
Chevron U.S.A., Inc., 72 F.3d 740, 743-44 & n.5 (9th Cir. 1995); United States ex
rel. Burns v. A.D. Roe Co., 186 F.3d 717, 722 & n.5 (6th Cir. 1999). The First
Circuit, though, has taken the position that at least some federal employees may
not be qui tam claimants. United States ex rel. LeBlanc v. Raytheon Co., 913
F.2d 17, 19-20 (1st Cir. 1990).3 Though we apply our own judgment to every
case, we customarily are “chary to create a circuit split.” Alfaro v. Comm’r, 349
F.3d 225, 229 (5th Cir. 2003). There is something of a split already, though.
A. Statutory Text
The place to start in deciding whether these parties can bring this claim
is the text of the False Claims Act. Med. Ctr. Pharmacy v. Mukasey, 536 F.3d
383, 394 (5th Cir. 2008). The key provision states this:
(b) Actions by private persons.—(1) A person may bring a civil action
for a violation of section 3729 for the person and for the United
States Government. The action shall be brought in the name of the
Government. The action may be dismissed only if the court and the
3
No one in this appeal has advocated for the First Circuit’s approach.
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Attorney General give written consent to the dismissal and their
reasons for consenting.
31 U.S.C. § 3730(b)(1) (2006). When a provision is unambiguous and “the
statutory scheme is coherent and consistent,” there is no need for further inquiry
as to meaning. Schindler Elevator Corp. v. United States ex rel. Kirk, 131 S. Ct.
1885, 1893 (2011) (quotation marks and citation omitted).
“A person” may bring suit, suggesting that any person may do so. See
Stevens, 529 U.S. at 783 n.12. According to the Dictionary Act in 1 U.S.C. § 1,
as well as ordinary usage, a human being is a person. See Mohamad v.
Palestinian Authority, 132 S. Ct. 1702, 1707 (2012). A normal rule of statutory
interpretation is that when Congress uses the same word in different parts of a
statute, it intended each to carry the same meaning. Dep’t of Revenue v. ACF
Indus., Inc., 510 U.S. 332, 341-42 (1994). In determining that municipalities can
be False Claims Act defendants, the Supreme Court embraced a “presumption
that the statutory term person extends . . . to persons politic and incorporate, as
to natural persons whatsoever.” Cook Cnty., Ill. v. United States ex rel.
Chandler, 538 U.S. 119, 125 (2003) (quotation marks and citation omitted).4
We also look at the context of the whole statute to make certain contrary
indications are not found. Bosamia v. C.I.R., 661 F.3d 250, 254 (5th Cir. 2011).
Section 3730 contains four other major parts. Subsection (a) grants the Attorney
General power to enforce the False Claims Act directly, (c) lays out the rights of
qui tam plaintiffs, and (d) describes their share of any recovery. Subsection (e),
entitled “Certain actions barred,” enumerates four statutory limits on
jurisdiction. Among these are a bar by subject, by identity of defendant, and a
4
The Court’s earlier holding that “person” excluded States is not to the contrary. See
generally Stevens, 529 U.S. at 780 (2000). That interpretation was counseled by (i) the False
Claims Act’s structure (below, we conclude the opposite as to government employee relators),
id. at 783-84, and (ii) by the “longstanding interpretive presumption that ‘person’ does not
include the sovereign,” id. at 780. Also, in Stevens it was accepted as clear that the False
Claims Act was directed “at natural persons.” Id. at 782.
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special military exclusion. Suits duplicative of civil suits or administrative
actions with the government as a party are barred. § 3730(e)(3). No suits may
be lodged against members of Congress, the judiciary, or senior executive branch
officials. § 3730(e)(2)(A). Former or current armed services personnel cannot
sue another member of the armed forces for matters “arising out of such person’s
service in the armed forces.” § 3730(e)(1). The (e)(4) exception for public
disclosures is analyzed in detail later.
The existence of these limiting provisions is instructive. When Congress
provides express “exceptions in a statute, it does not follow that courts have
authority to create others.” United States v. Johnson, 529 U.S. 53, 58 (2000).
Instead, we typically infer that Congress wished to limit the statute only as
stated. Id. Shell and the government argue they are not seeking a judicially-
imposed limit. Instead, they claim subsection (b)(1)’s heading of “Actions by
private persons” narrows the universe of relators just to non-governmental
persons. “Private” can mean “belonging to an individual, as opposed to the
public or the government.” Black’s Law Dictionary 1315 (9th ed. 2009).
The argument drawn from the title is that Congress used “private persons”
to exclude government employees. Equally plausible is that this title simply
distinguishes subsection (b)’s provisions pertaining to qui tam suits from the
provisions of subsection (a) entitled “Responsibilities of the Attorney General.”
See Erickson ex rel. United States v. Am. Inst. of Biological Scis., 716 F. Supp.
908, 915 n.12 (E.D. Va. 1989). In that understanding, the title “private persons”
means those filers of suits who are not the Attorney General. Regardless of what
the language in this title means, a title is a form of abbreviation that frequently
“fails to refer to all matters which the framers of that section wrote into the
text.” United States v. Johnson, 632 F.3d 912, 924 (5th Cir.) (quotation marks
and citation omitted), cert. denied, 132 S. Ct. 135 (2011).
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The relators present another reason why the “private persons” title to
subsection (b) is not a limitation on who can be a relator. They argue that
subsection (e)(1), which prohibits members of the armed services from being
relators in suits against other members on claims “arising out of” military
service, would be unnecessary if the title of “private persons” already barred all
suits by federal employees. The argument draws on the “cardinal principle of
statutory construction that a statute ought, upon the whole, to be so construed
that, if it can be prevented, no clause, sentence, or word shall be superfluous,
void, or insignificant.” TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001) (quotation
marks and citations omitted). We are reluctant to put much analytical weight
on this section dealing with the military. The treatment of members of the
armed services under the False Claims Act has been the subject of recurring re-
evaluations and recalibrations almost since the Act was adopted in 1863. Dan
L. Hargrove, Soldiers of Qui Tam Fortune: Do Military Service Members Have
Standing to File Qui Tam Actions Under the False Claims Act, 34 Pub. Cont. L.J.
45, 83-85 (2004). Were we to agree with the relators as to the significance of
subsection (e)(1), it would only confirm a conclusion we have reached for other
reasons. We need not explore this particular argument further.
In earlier suits, the government has argued that no federal employee may
be a relator.5 In this appeal, the government and Shell ask us to interpret
“private” as excluding only some sub-class of federal employees. Perhaps it
would be those who learn of the fraud during their official duties or those
employed to audit or otherwise investigate fraud.6 Fine-tuning such exceptions
5
It unsuccessfully argued to the Eleventh Circuit that the False Claims Act “contained
a general exclusion against all government employees as qui tam plaintiffs.” Williams, 931
F.2d at 1502.
6
Shell claims that those “who are paid to investigate and report fraud and who then
seek to file qui tam suits based on information they developed for the government” may not
be False Claims Act relators. The United States’s proposed construction sweeps a bit more
8
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would be based on little more than our perception of reasonable policy limits.
The exceptions would not arise from the text of the Act. Not only would these
new definitions take us beyond the “ordinary or natural meaning” appropriate
for undefined terms, they would commit us to a process of exposition in future
cases. F.D.I.C. v. Meyer, 510 U.S. 471, 476 (1994); e.g., United States ex rel.
Holmes v. Consumer Ins. Grp., 318 F.3d 1199, 1217 n.2 (10th Cir. 2003) (en banc)
(Tacha, J., dissenting). Because “the federal lawmaking power is vested in the
legislative, not the judicial, branch of government,” we will not undertake
creating exceptions to this statutory language. Nw. Airlines, Inc. v. Transp.
Workers Union of Am., AFL-CIO, 451 U.S. 77, 95 (1981).
Shell directs us to one other phrase in the False Claims Act. It claims
there is an exception embedded in the statutory statement that because the suit
is brought “for the person and for the United States,” government employees are
not contemplated. § 3730(b)(1) (emphasis added). The argument is that because
the government can only act through individuals, a government employee cannot
act “for the United States”; that person is the United States.
We are unconvinced. A person can have two legal identities, one official
and one individual. E.g., Hafer v. Melo, 502 U.S. 21, 27 (1991) (explaining that
a “government official in the role of a personal-capacity defendant . . . fits
comfortably within the statutory term ‘person’”). Second, we take our cue from
the Supreme Court’s early encounter with the False Claims Act. United States
ex rel. Marcus v. Hess, 317 U.S. 537 (1943). The Court determined that the
statute had “no words of exception or qualification” at a time when the virtually
identical clause “as well as for himself as for the United States” was part of the
False Claims Act. An Act to Prevent and Punish Frauds upon the Government
of the United States, ch. 67, 12 Stat. 696 (1863). In granting the statute’s
broadly. It would prohibit suits by any “government employee who obtains information about
fraud in the course of his official duties.”
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language full effect, the Court embraced the notion that “even a district
attorney, who would presumably gain all knowledge of a fraud from his official
position, might sue as the informer.” Hess, 317 U.S. at 546.
The text of the False Claims Act supports the relators’ standing.
B. Conflict of Interest Principles
In the alternative, the government and Shell rely on a statute and
regulations that concern ethical obligations of federal employees. One is the
criminal conflict-of-interest statute. 18 U.S.C. § 208. The other is a set of
federal ethics regulations. See 5 C.F.R. pt. 2635 (“Standards of Ethical Conduct
for Employees of the Executive Branch”); 5 U.S.C. § 7301. Allowing federal
employees to be relators is said to conflict with both these provisions. We accept,
without exploring in detail, that there are potential if not clear difficulties under
those provisions for federal employees to be relators.7
The argument that flows from the possibility that obligations extraneous
to the False Claims Act affect these relators is that we must harmonize different
laws if possible, which is a corollary of the rule that an individual statute should
be construed as a whole. 2B Norman J. Singer, Sutherland on Statutory
Construction § 51.1, at 200 (7th ed. 2008). Nonetheless, “other statutes may not
be resorted to if the statute is clear and unambigious.” Id. at 197. That latter
7
The crime statute on its face pertains only to interested-official acts. It bars
employees from participating “through decision, approval, disapproval, recommendation, the
rendering of advice, investigation” when the “judicial or other proceeding, application, [or]
request for a ruling” is one in which they have a financial interest. 18 U.S.C. § 208. Section
2635.101(b)(3) prohibits the “improper use” of nonpublic information to further private
interest, and various provisos bar employees from “participating personally and substantially
in an official capacity” in matters in which they have a financial interest. 5 C.F.R. §
2635.402(a). The regulation on misuse of government property does not facially encompass
facts learned at work, except in the case of intellectual property that has been purchased. See
§ 2635.704(b)(1) (“Government property includes any form of real or personal property in
which the Government has an ownership, leasehold, or other property interest as well as any
right or other intangible interest that is purchased with Government funds . . . .”).
10
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maxim applies to the unambiguous statement that begins subsection (b): “A
person” may bring suit.
Even were we inclined to venture outside the False Claims Act in search
of meaning, however, it would be inappropriate to draw from the conflict-of-
interest rules. The justification for the in pari materia canon is that Congress
should be assumed to have legislated with reference to the other provision.
Singer, Sutherland on Statutory Construction § 51.1, at 203. Thus, a
conventional limit on the canon is that courts should harmonize only those
“statutes addressing the same subject matter.” Wachovia Bank v. Schmidt, 546
U.S. 303, 316 (2006).8 In Schmidt, the Court concluded that the provisions on
subject matter jurisdiction and venue were not sufficiently similar to be
harmonized. Id. The False Claims Act rules and the ethics guidelines for
federal employees are not the same subject.
The government and Shell also argue that failing to give effect to the
conflict-of-interest and ethics requirements would require us to acknowledge
that those provisions were impliedly repealed, and such repeals are disfavored.
See Jackson v. Stinnett, 102 F.3d 132, 135-36 (5th Cir. 1996). We do not accept
the premise for this argument, namely, that the relevant provisions are
somehow inoperative. How they operate on these relators is an issue for another
time and place. At no stage in this litigation has the government taken the
position that Little and Arnold committed a crime, or violated a specific
regulation. We have no evidence that their federal agency disciplined them.
Nothing in the record indicates that the lawsuit was filed while at work, or
8
It has been noted that even when legislation expressly references other law, an
interpreting court should not assume that because “the reference makes discovery of the prior
act possible,” such a discovery necessarily has occurred. Singer, Sutherland on Statutory
Construction § 51.1, at 203. In the False Claims Act, there is not even that type of cross-
reference.
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otherwise in dereliction of their duties. Were such claims made at some point,
they would be processed in a forum separate from this suit.
Further, using the conflict rules to override the False Claims Act’s terms
would interfere with the other two coordinate branches of our government. We
would thwart a cause of action Congress permitted. See Med. Ctr. Pharmacy, 536
F.3d at 394. As to the ethics prohibitions, which are susceptible to multiple
reasonable interpretations, we would tie the hands of the President who is vested
with discretion to enforce those regulations. See 5 U.S.C. § 7301.
There is evidence the Executive Branch in the past has permitted
employee-relator suits. In 1996, the Department of Justice (DOJ) created a
manual entitled “Relator’s Share Guidelines” to assist government attorneys in
making recommendations for the award, within the statutory range, in qui tam
suits.9 A factor “for consideration for a possible decrease in the percentage”
proposed by the DOJ was that “[t]he relator learned of the fraud in the course of
his Government employment.” Also at oral argument, the question was put to
the government why its authority to intervene could not be a vehicle for
redressing ethical or administrative concerns. It admitted that its existing
authority was up to the task, but that it was unwilling to incur the political costs
associated with dismissing potentially meritorious suits. This candid admission
and the DOJ’s guideline, which counsels reduced but not zero recovery, illustrate
why it is sound for us to follow the statutory text.
C. Other Considerations
1. Legislative History
The text under consideration here is the product of a 1986 congressional
overhaul of the False Claims Act. False Claims Amendments Act, Pub. L. No.
9
See United States ex rel. Alderson v. Quorum Health Grp. Inc., 171 F. Supp. 2d 1323,
1333-34 & n.33 (M.D. Fla. 2001); United States ex rel. Johnson-Pochardt v. Rapid City Reg’l
Hosp., 252 F. Supp. 2d 892, 899 n.2 (D.S.D. 2003).
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99-562, 100 Stat. 3153 (1986). Each party argues that if we study Congress’s
1986 drafting history, a clear purpose supportive of their position will emerge
that should guide our statutory interpretation. We have already determined
that this part of the Act needs no further elaboration.
The divergent messages that can be obtained from legislative history
render the history prone to selective use. See Nalle v. C.I.R., 997 F.2d 1134, 1137
(5th Cir. 1993). Because the 1986 False Claims Act bill was so repeatedly revised
en route to final passage, this is particularly true as to it. See Graham Cnty. Soil
& Water Conservation Dist. v. United States ex rel. Wilson, 130 S. Ct. 1396, 1407
n.15 (2010). That winding path through Congress “provides ample opportunity
to search the legislative history and find some support somewhere for almost any
construction” of its terms. Id. (quotation marks and citation omitted). Shell and
the relators have done just that. Relators point to a U.S. Merit Systems Board
survey cited in the Senate Report recounting that almost 70 percent of federal
employees with knowledge of illegality failed to take appropriate internal action.
By contrast, Shell focuses on the passage in the same report that says the
purpose of the amendments was to “allow and encourage assistance from the
private citizenry.” S. Rep. No. 99-345 at 8 (1986). Given the general and specific
pitfalls associated with legislative history of this Act, we do not search for further
enlightenment in it.
2. Absurdity
If the result we reach is absurd, we might need to proceed beyond the plain
meaning. United States v. Rabanal, 508 F.3d 741, 743-44 (5th Cir. 2007). We
briefly address why our interpretation is not an absurdity.
The government and Shell claim that today’s holding will work “an
unseemly and counter-productive result.” We are aware of the dilemmas
identified. Chief among them is how to ensure employee fidelity to agency
enforcement priorities in the face of personal monetary incentives. Our holding,
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though, does not prevent the government from promulgating new personnel
guidelines (or enforcing old ones) to manage these concerns. Also, as discussed
earlier, the government can intervene and dismiss actions.
Absurdity requires more than questionable policy. Miss. Poultry Ass’n, Inc.
v. Madigan, 992 F.2d 1359, 1365 (5th Cir. 1993). There are plausible reasons for
Congress to have authorized governmental relator suits, which forecloses
recourse to the absurdity canon. Id.; see also Barnhart v. Sigmon Coal Co., 534
U.S. 438, 461-62 (2002). The government has monetary and personnel
constraints that do not enable it to pursue every lead or prosecute every
wrongdoer. By nature, bureaucracies can be slow to act, and on occasion can fall
victim to corruption or restrictive partisan agendas. There is potential for
governmental relators to prompt more agency responsiveness even when suits
are not filed. Additionally, the prospect of monetary awards might provide public
servants with additional incentives to ferret out fraud.10
Our task is still unfinished. Having decided that Little and Arnold’s
employment as government auditors does not deprive them of standing under the
False Claims Act, we now consider whether their particular factual allegations
bring them within the terms of the public disclosure bar. 31 U.S.C. § 3730(e)(4).
III. Public Disclosure Bar
Section 3730(e)(4) expresses a balance of interests Congress struck in
1986. Graham Cnty., 130 S. Ct. at 1407. It implicates the subject matter
jurisdiction of the court in a unique way. Rockwell Intern. Corp. v. United States,
10
These types of arguments can be found in the literature on the Act. See, e.g., Barry
M. Landy, Note, Deterring Fraud to Increase Public Confidence: Why Congress Should Allow
Government Employees to File Qui Tam Lawsuits, 94 Minn. L. Rev. 1239, 1256-64 (2010);
David Wallace, Government Employees as Qui Tam Relators, 1996-Aug. Army Law. 14, 21-22
(1996); Joan R. Bullock, The Pebble in the Shoe: Making the Case for the Government
Employee, 60 Tenn. L. Rev. 365 (1993).
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549 U.S. 457, 467-68 (2007). By virtue of the general grant of federal question
jurisdiction, 28 U.S.C. § 1331, and the False Claims Act, we have power over
these suits until and unless it becomes evident that our jurisdiction to adjudicate
the substantive allegations has been withdrawn. See id. at 468. This typically
occurs at the summary judgment stage. McKesson, 649 F.3d at 326.11
On summary judgment, the opposing party must first identify “public
documents that could plausibly contain allegations or transactions upon which
the relator’s action is based.” McKesson, 649 F.3d at 327. Then, the relator must
put forth “evidence sufficient to show that there is a genuine issue of material
fact as to whether his action was based on those public disclosures.” Id.
A. Public Disclosure
In its motion for summary judgment, Shell designated five categories of
evidence: (1) civil proceedings, (2) news media accounts, (3) two published
articles, (4) certain communications between the company and MMS, and (5) a
2002-2003 audit. This is the full universe of materials appropriately under
consideration. See id. On appeal, the parties’ chief focus has been category one.
Specifically it consists of three prior False Claims Act cases, as well as several
administrative decisions. Relators contend that the information in categories
four and five was never disseminated into the public domain. If true, then they
would not be proper subjects for analysis. See United States ex rel. Reagan v. E.
Tex. Med. Ctr., 384 F.3d 168, 175-76 (5th Cir. 2004); Webster’s Third New
International Dictionary 1836 (1993) (public means “exposed to general view”)
(hereinafter Webster’s).
The public disclosure bar is explained in these provisions:
11
These observations and the following analysis pertain to Section 3730(e)(4) before its
amendment in 2010 by the Patient Protection and Affordable Care Act, Pub. L. 111-148, 124
Stat. 199, 901, § 10104(j)(2) (Mar. 23, 2010). This suit has been pending since 2006 and the
text is not retroactively applicable. See McKesson, 649 F.3d at 326 n.6.
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(4)(A) 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
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.
(B) For purposes of this paragraph, “original source” means 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.
31 U.S.C. § 3730(e)(4) (2006).
Below we explain why Little and Arnold cannot be original sources. The
remaining questions thus are “1) whether there has been a ‘public disclosure’ of
allegations or transactions, [and] 2) whether the qui tam action is ‘based upon’
such publicly disclosed allegations.” McKesson, 649 F.3d at 327 (quotation marks
and citation omitted). We have held that “the publicly disclosed allegations or
transactions need only be as broad and as detailed as those in the relator’s
complaint.” Id. In McKesson, we found sources such as a restatement of the
applicable law and “general statements that [a type of] fraud is ‘proliferating’”
inadequate to trigger the disclosure bar on their own. Id. at 329-330. The bar
applied only because the complaint at issue “described various fraudulent
schemes only generally” and was devoid of “particular allegations against any
defendant.” Id. at 328, 330-31.
By contrast, the complaint here identifies Shell by name, gives a specific
time period, and offers details about the scheme. When specifics are alleged, it
is crucial to consider whether the disclosures correspond in scope and breadth.
A guiding query is whether “one could have produced the substance of the
complaint merely by synthesizing the public disclosures’ description” of a scheme.
Id. at 331. Correlation in detail is not the only question. It can be that
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disclosures “provide[] specific details about the fraudulent scheme and the types
of actors involved in it” such that the defendant’s misconduct would have been
readily identifiable. Id. at 329-30 (discussing In re Natural Gas Royalties, 562
F.3d 1032, 1039 (10th Cir. 2009), while cautioning to use its reasoning sparingly).
An irreducible minimum is that the disclosures furnish evidence of the
fraudulent scheme alleged. The claimed scheme here is a willful violation of
MMS rules and guidelines in order to deduct the costs of gathering (or upstream
costs) from royalty-in-kind payments. Cf. United States ex rel. Maxwell v. Kerr-
McGee Oil & Gas Corp., 540 F.3d 1180, 1187 (10th Cir. 2008).
In granting summary judgment, the district court relied on similarities
between what was publicly disclosed and what was stated in the complaint:
For an action to be based on public disclosure, the disclosure
and the factual basis of the suit need not be identical. Rather, the
public disclosure must have been sufficient for the government to
find related frauds, even though the circumstances of the
transactions may differ.
Little and Arnold say that Shell fraudulently deducted oil
transportation costs on the Mineral Management Service’s Form
2014s for specific oil leases from October 2001 through December
2005. The record shows that the earlier, notorious claims are
parallel to the auditors’ suit. Little and Arnold complain by merely
applying public information – in both senses – to specific leases that
they investigated for the government.
Little and Arnold admit as much in their response to Shell:
“The cases listed by Shell identify wrongful acts committed by
several petroleum companies, in different time periods, on different
leases, and for different products.” Changing 2005 to 2006, carbon
dioxide to gas, on-shore to off-shore, tract A to tract B, and Shell for
Exxon do[es] not change the mechanism of the fraud or the
obviousness that the question would potentially apply to every
operator of a federal lease. Lower payment of royalties are identical
from deducting transportation costs.
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The district court’s ultimate conclusion about public disclosure could be
correct, but the court applied an overly broad definition of such disclosure. The
district court’s listing of what had to be changed from the publicly disclosed
information to what is in the complaint cuts against the conclusion that the
complaint is based on the disclosures. It is not apparent from the district court’s
analysis that Little and Arnold “could have produced the substance of the
complaint merely by synthesizing the public disclosures’ description of” the
scheme. McKesson, 649 F.3d at 331.
We therefore remand for that court to reexamine the summary judgment
evidence. The district court should determine whether the public disclosures
identified in the motion for summary judgment reveal either (i) that Shell was
deducting gathering expenses prohibited by program regulations, or (ii) that this
type of fraud was so pervasive in the industry that the company’s scheme, as
alleged, would have been easily identified. McKesson, 649 F.3d at 329.
B. Original Source
Finally, only if a public disclosure has occurred in this case will it become
relevant whether the relator was an original source for the information. To
qualify, a relator must have “direct and independent knowledge” of the
allegations underlying his complaint, and also must have “voluntarily provided
the information to the Government.” § 3730(e)(4); see Rockwell, 549 U.S. at 471-
73. We agree with the district court, and the other courts to have reached the
issue, that the fact that a relator “was employed specifically to disclose fraud is
sufficient to render his disclosures nonvoluntary.” United States ex rel. Fine v.
Chevron, U.S.A., 72 F.3d 740, 744 (9th Cir. 1995) (en banc); see also Wercinski v.
IBM Corp., 982 F. Supp. 449, 461-62 (S.D. Tex. 1997); United States ex rel. Foust
v. Grp. Hospitalization & Med. Servs., Inc., 26 F. Supp. 2d 60, 73 (D.D.C. 1998);
Webster’s 2564 (“voluntary implies freedom from any compulsion that could
constrain one’s choice” and defining it as “produced in or by an act of choice”).
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Therefore, if the district court determines on remand that there was a
public disclosure, the suit will need to be dismissed because these relators cannot
be the original source.
Lastly, we reject the argument that on remand there is a need to have the
case assigned to a different district judge.
We REVERSE the judgment and REMAND to the district court for further
proceedings.
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EMILIO M. GARZA, Circuit Judge, concurring:
I concur in the majority opinion in full. I write separately to address the
conflict of interest concerns mentioned, but discussed only briefly, in Section II.B.
The Government presents the special standards to which federal employees
are held concerning potential conflicts of interest, all of which may, in some way,
be implicated by our decision today. First, federal employees who file qui tam
actions like the one at issue in this case are now, on a plain reading of 18 U.S.C.
§ 208, potentially criminally liable. Section 18 provides that:
whoever, being an officer or employee . . . of any independent agency
of the United States . . . participates personally and substantially as
a Government officer or employee . . . in a judicial or other
proceeding . . . in which, to his knowledge, he . . . has a financial
interest . . . [s]hall be subject to the penalties set forth in section 216
of this title.
This provision ostensibly applies to the federal government employee who files
a qui tam action, a “judicial [ ] proceeding” in which he or she necessarily “has a
financial interest.” This imposition of criminal liability is rooted in a desire for
impartial judgment on the part of federal employees, and it takes no leap of logic
to conclude that the judgment of an auditor, faced with potential violations which
also come under the purview of the FCA, may be impaired. See United States v.
Miss. Valley Generating Co., 364 U.S. 547, 549 (1961).
Second, the Code of Federal Regulations prohibits government employees
from using “nonpublic Government information” to further their private
interests, 5 C.F.R. §§ 2635.101(b)(3), 2635.703(a), from participating in any
matter in which they have a financial interest, id. §§ 2635.402, 2635.501,
2635.502, and from using government property or time for personal purposes, id.
§§ 2635.704, 2635.705. The government employee who files an FCA claim based
on “nonpublic Government information” obtained in the course of his or her
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duties as an auditor arguably does so to further private interests, arguably
participates in a matter in which he or she has a financial interest, and arguably
uses government property or time to further private interests.
Third, federal auditors are held to an even higher standard than other
government employees. Chapter 3.03 of the Government Accountability Office’s
Generally Accepted Government Auditing Standards (“The Yellow Book”)
provides that all auditors “should be free both in fact and appearance from
personal, external, and organizational impediments to their independence.
Similarly, Chapter 3.04 of The Yellow Book exhorts auditors to avoid situations
that may lead reasonable third parties to conclude that they are unable to
maintain independence or exercise impartial judgment on all issues associated
with their work. Our construction of the FCA today will implicate all of these
mandates.
That said, we are charged as judges with interpreting statutes as written,
and, insofar as they do not interfere with the well-recognized canons of
construction discussed by the majority, the tension now left between the FCA
and the aforementioned conflict-of-interest principles is a matter of political
concern. Congress gives standing under the FCA to all “persons,” with certain
explicit exceptions not implicated in this case, and has written the FCA in such
a way as to give no notice to the conflict of interest principles discussed in
section 208, the CFR, or The Yellow Book. Whether Congress has acted wisely
in granting standing to a “person” who may be criminally or professionally liable
for filing suit is not for us to say.
21