Neal Roberts v. United States

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 11-2054
___________________________
Neal Roberts, United States of America, ex rel; Norman Rille, United States of
America, ex rel
lllllllllllllllllllll Plaintiffs - Appellees
United States of America
lllllllllllllllllllllIntervenor Plaintiff - Appellant
v.
Accenture, LLP, An Illinois limited liability partnership; Accenture, Ltd., a
Bermuda Corporation; Avanade, Inc., a Delaware Corporation; Microsoft
Corporation, a Washington Corporation
lllllllllllllllllllll Defendants
Hewlett-Packard Company
lllllllllllllllllllllIntervenor Defendant
____________
Appeal from United States District Court
for the Eastern District of Arkansas - Little Rock
____________
Submitted: January 12, 2012
Filed: March 1, 2013 (Corrected: 03/04/2013)
____________
Before BYE, SMITH, and COLLOTON, Circuit Judges.
____________
BYE, Circuit Judge.
Relators Norman Rille and Neal Roberts brought a qui tam action against
Hewlett-Packard Company (HP) alleging HP engaged in unlawful kickback and
defective pricing schemes in its sale of computer equipment to the federal
government. The United States intervened in the action and reached a $55 million
settlement with HP, allocating $9 million of the settlement to the kickback scheme
and $46 million to the defective pricing scheme. The district court1 awarded the
relators a 21% share of the kickback settlement and a 15% share of the defective
pricing settlement pursuant to 31 U.S.C. § 3730(d)(1). The United States appeals,
contending the relators are not entitled to any share of the $46 million allocated to the
defective pricing scheme. We affirm.
I
Systems integration consultants (SICs) recommend computer systems and
related technology products to the federal government. SICs sometimes buy
computer products directly from manufacturers and then resell them to the
government; other times SICs recommended a particular manufacturer to the
government and the manufacturer sells its products directly to the government.
Accenture LLP and Accenture Ltd. (collectively Accenture) were SICs.
Norman Rille worked as a senior manager for Accenture from 2000 to 2002. While
working at Accenture, Rille discovered the company was involved in what it called
an "Alliance" relationship with HP and other computer and technology vendors who
1
The Honorable Billy Roy Wilson, United States District Judge for the Eastern
District of Arkansas.
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sold computer equipment to the government. Under these "Alliance" relationships,
SICs received kickbacks from HP and other companies in two forms: (1) lump sum
payments made by HP to SICs for recommending HP products to the government;
and (2) discounts given to SICs when they purchased HP products for resale to the
government.
Rille left Accenture with over 700,000 pages of electronic data related to the
"Alliance" relationships. He shared this information with Neal Roberts, a certified
fraud examiner. Roberts investigated the relationships by studying the data provided
by Rille. On September 8, 2004, Roberts and Rille disclosed the documents
involving the Alliance relationships to the government.
Shortly thereafter on September 17, 2004, Rille and Roberts filed a qui tam
action against HP and other defendants on behalf of the United States. The original
complaint alleged HP violated the Anti-Kickback Act, 41 U.S.C. §§ 51-52, as well
as the False Claims Act (FCA), 31 U.S.C. §§ 3729-3733. The relators alleged the
computer companies defrauded the government out of "hundreds of millions of
dollars" by exchanging unlawful kickbacks to consultants for government referrals
and by engaging in defective pricing schemes.
As relevant to the issues now on appeal, the relators amended their complaint
to set forth the fraud allegations in more detail. The amended allegations regarding
the defective pricing scheme stated HP "exploited the trust the Government ha[d]
reposed in them . . . to provide accurate best pricing information."2 Second Am.
2
HP's contracts with the federal government required HP to disclose its "best
prices," that is, the lowest prices HP offered to "end users" for its products. End users
are buyers who purchase a product for their own use rather than for resale. The
federal government used best pricing information to set its own contract prices with
HP.
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Compl. at ¶ 5, App. at 47. More specifically, the Second Amended Complaint
alleged:
[A]s part of the schemes to defraud the Government and concealment,
Defendants failed to provide to GSA and other governmental agencies
current, accurate, and complete disclosure of their best pricing (after all
discounts, rebates, and other benefits) for any entities, whether such
entity sells to the Government or not, . . . thereby causing defective
GSA and other governmental pricing schedules. This resulted in FCA
violations, as to both direct sales to the Government by a Defendant, and
indirect sales through [a consultant], Alliance, or Technology Vendor,
with or without a Kickback.
Id. at ¶ 6, App. at 48.
During the course of the relators' suit, the relators worked closely with
government investigators and attorneys to corroborate HP's unlawful practices.
Among other things, the relators hosted meetings with government officials in
September 2005 and August 2006 to coordinate prosecution of the fraud action. In
October 2005, the government asked the relators' counsel to draft administrative
subpoenas to issue from the General Services Administration (GSA) Office of
Inspector General (OIG) to all potential defendants, including HP, and compiled
voluminous binders for the government's use, detailing thirty-one separate subpoenas.
Also at the government's request, in November 2006 the relators prepared a "lexicon"
of forms used by HP in Alliance programs. The relators also purchased a document
review software system called "Ringtail" to electronically house the voluminous
documents produced as a result of the subpoenas, along with thirty-eight individual
licenses for federal agents to use the Ringtail system to review the documents.
Federal agents made use of the licenses. For example, over a three-year period
beginning in September 2006, one OIG agent accessed roughly 4,230 documents
using the Ringtail system.
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After responding to the subpoenas, HP notified the government it had hired an
independent third party to assess its business processes to determine whether it had
engaged in defective pricing schemes. In August 2008, HP notified the government
of the results of the independent audit, admitting it had not complied with the price
reductions clause in one particular government contract, GS-35F-0066N (hereinafter
Contract 35F). The government then performed its own audit of Contract 35F and
determined HP had not fully informed the GSA of prices it had given to non-
government end users, resulting in a "defectively priced" GSA contract. Ultimately,
HP changed its practices by lowering its prices by 10%, saving the government
millions of dollars.
The government decided to intervene directly in the relators' action in
December 2006 and filed its own complaint against HP and the other defendants in
the relators' action in April 2007. In its separate complaint, the government
acknowledged the relators' complaint "made detailed allegations regarding the
Relators' direct and independent knowledge of [the] wrongdoing alleged herein."
Government Compl. at ¶ 9. In many respects, the government's complaint simply
paraphrased directly from the relators' complaint.
On August 30, 2010, the government and HP entered into a settlement
agreement of what they labeled the conduct "covered" by the relators' action. Under
the terms of the settlement, the government received $55 million from HP. The
government attributed $9 million of the settlement to the kickback scheme alleged in
the relators' action, and attributed the remaining $46 million to the defective pricing
scheme related to Contract 35F. In the settlement agreement, the government
attributed the defective pricing settlement to HP's "voluntary" disclosure of its false
pricing and the government's subsequent audit. The relators' action was dismissed
with prejudice as a result of the settlement.
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After the district court approved settlement, the relators moved for a
determination of their share of the settlement proceeds pursuant to 31 U.S.C.
§ 3730(d)(1).3 The relators contended the government had no knowledge of HP's
misconduct prior to the relators' complaint, and the relators had devoted substantial
effort and assistance to investigating HP's fraud, including drafting the subpoenas that
caused HP to hire an independent third party to conduct an audit of its pricing
practices. The relators argued they were entitled to a percentage of both the kickback
and defective pricing portions of the settlement award.
In response, the government conceded the relators were entitled to a share of
the $9 million settlement involving the kickback scheme. The government argued,
however, the relators were not entitled to any portion of the $46 million defective
pricing settlement. The government claimed the relators' allegations of defective
pricing failed to satisfy the requirements for pleading fraud under Rule 9(b) of the
Federal Rules of Civil Procedure. In addition, the government contended the
discovery of defective Contract 35F resulted from HP's voluntary disclosure and the
government's own investigation, and was wholly unrelated to the relators' action.
The district court was unpersuaded by both of the government's contentions.
The district court held the government's Rule 9(b) argument was untimely. The
district court also found the defective pricing claim settled by the government was
3
The FCA provides in relevant part:
If the Government proceeds with an action brought by a [private] person
. . . such person shall . . . receive at least 15 percent but not more than 25
percent of the proceeds of the action or settlement of the claim,
depending upon the extent to which the person substantially contributed
to the prosecution of the action.
31 U.S.C. § 3730(d)(1).
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related to the action brought by the relators. The district court found a relationship
between HP's internal investigation and the relators' complaint and assistance in
prosecuting the action, noting "HP began its internal investigation just a few weeks
after the seal was partially lifted [on the relators' complaint and] a copy of Relators'
Complaint [was] provided to HP." The district court also found "[t]he government
had no knowledge of the defective pricing before Relators brought it to light." As a
result, the district court held the relators were entitled to the minimum 15% finder's
fee with respect to the $46 million attributed to the defective pricing settlement. The
district court also determined the relators were entitled to 21% of the $9 million
kickback settlement.
The government filed a timely appeal. On appeal, the government does not
contest the 21% awarded to the relators on the $9 million kickback settlement, but
renews its contentions that the relators are not entitled to any portion of the $46
million defective pricing settlement.
II
We review the district court's factual findings for clear error and its legal
conclusions de novo. Clay v. Bd. of Educ. of City of St. Louis, 90 F.3d 1357, 1361
(8th Cir. 1996). Before reviewing the government's challenges to the district court's
fact findings and legal conclusions, we begin with a brief summary of the overall
structure of the FCA with respect to a relator's right to share in a recovery.
The government has three options when a relator initiates a qui tam action on
behalf of the government under the FCA. The government's ultimate election among
the options has a direct effect on the relator's right to share in a recovery. First, the
government may elect not to intervene in the relator's action. In such situations, the
relator is left to pursue the action on her own on behalf of the government, while the
government sits on the sidelines and is merely served with copies of all pleadings and
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deposition transcripts filed in the action. 31 U.S.C. § 3730(c)(3). If a relator
successfully prosecutes the action on her own, she is entitled to a greater percentage
of any amount ultimately recovered – 25% to 30% of the "proceeds of the action or
settlement" as well as "reasonable expenses . . . plus reasonable attorneys' fees and
costs." Id. § 3730(d)(2). Because the government elected to intervene in this action,
this provision is not in play.
Second, the government may elect to intervene in the relator's action. The FCA
provides that a relator is entitled to a share of a settlement from a qui tam action when
"the Government proceeds with an action brought by a [relator]." 31 U.S.C.
§ 3730(d)(1). In cases where the government elects to intervene, the relator is entitled
to a lesser share of any amount ultimately recovered – 15% to 25% of the "proceeds
of the action or settlement of the claim" depending upon the extent to which the
person substantially contributed to the prosecution of the action. Id. § 3730(d)(1).
This is what occurred here. The action was originally brought by the relators, and the
government subsequently intervened.
In cases such as this where the government intervenes, the minimum share of
15% is viewed as a finder's fee to which a relator is entitled even when he or she
does not substantially contribute to the prosecution of the action. See S. Rep. 99-345,
1986 U.S.C.C.A.N. at 5293 (describing the 15% minimum as a "definite amount"
which could "be looked upon as a 'finder's fee' which the person bringing the case
should receive as of right").
If the Government comes into the case, the person is guaranteed a
minimum of 15% of the total recovery even if that person does nothing
more than file the action in federal court. This is in the nature of a
"finder's fee" and is provided to develop incentives for people to bring
the information forward. The person need do no more than this to
secure an entitlement to a minimum 15%.
132 Cong. Rec. H9382-03.
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There are three statutory exceptions to the 15% minimum finder's fee in
situations where the government elects to proceed with a relator's action and obtains
a judgment or settlement. The statutory exceptions to the minimum finder's fee are
as follows: (1) an additional reduction if the relator himself "planned and initiated"
the FCA violation, see 31 U.S.C. § 3730(d)(3); (2) no share in a recovery if the relator
"is convicted of criminal conduct arising from his or her role in the violation," id.; or
(3) a limitation of the relator's share to "no . . . more than 10 percent of the proceeds"
when the relator's claim is "based primarily on disclosures of specific information"
traceable to a source other than the relator, id. § 3730(d)(1). Thus, in cases where the
government elects to intervene in an action, a relator is entitled to a share of the
recovery between 15% and 25% unless one of the three statutory exceptions
permitting an additional reduction applies.
Finally, the government "may elect to pursue its claim through any alternate
remedy available to the Government, including any administrative proceeding to
determine a civil money penalty." Id. § 3730(c)(5). When the government elects to
pursue an alternate remedy, the relator who initiated the original action "shall have
the same rights in such proceeding as such person would have had if the action had
continued under this section." Id. The government did not elect to pursue an
alternate remedy in this case, and thus this provision is not in play.
In this case, the government's election to proceed with the action originally
brought by Rille and Roberts triggered the 15% to 25% provisions of the FCA. In
addition, the district court found that Rille and Roberts substantially contributed to
the prosecution of the action. Finally, none of the three statutory exceptions
permitting an additional reduction were applicable because (1) neither relator planned
or initiated the FCA violation, (2) neither relator was prosecuted criminally for a role
in the FCA violation, and (3) the relators' action was not based primarily upon
disclosures of information attributable to a source other than the relators. Indeed, the
district court specifically found "the Government had no knowledge of the defective
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pricing before Relators brought it to light," and the government does not challenge
that fact finding on appeal. As a result, the district court correctly awarded the
relators a share of the defective pricing settlement.
The government argues the relators are not entitled to a share of the defective
pricing settlement, despite the government's election to proceed with the relators'
action, on the grounds that the defective pricing claim it settled was not the same
defective pricing claim alleged in the relators' complaint. The government argues if
it pursues a factually unrelated claim not contained in a relator's complaint, the FCA
does not entitle the relator to any share in the corresponding recovery. This argument
fails on both the facts and the law with respect to the circumstances present in this
case.
With respect to the facts involved in this case, the district court found the
defective pricing claim settled by the government was related to the action brought
by the relators. The government has failed to identify on appeal any clear error in that
factual finding, and we find none. As the district court noted, HP began the internal
audit of its pricing practices only after becoming aware of the allegations in the
relators' complaint, and only after responding to the extensive subpoenas drafted by
the relators at the government's request. Thus, the government's claim that HP's
disclosure of its defective pricing on Contract 35F was purely "voluntary," and that
the relators' pending action and assistance in prosecuting the action played no role in
uncovering the defective pricing scheme, is disingenuous.
With respect to the law applicable to this case, the government argues the
defective pricing scheme alleged in the relators' complaint should not be considered
the same defective pricing claim the government settled with HP involving Contract
35F unless the relators' complaint satisfied the heightened pleading requirements of
Rule 9(b) of the Federal Rules of Civil Procedure. The government argues a qui tam
claim which is deficient as measured by Rule 9(b) standards "necessarily lacks the
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type of specific information about fraud that would provide the government any
meaningful assistance." The government therefore urges our court to incorporate the
requirements for surviving a motion to dismiss under Rule 9(b) into the test for
determining whether "the Government proceeds with an action brought by [a relator]"
for purposes of an award to a qui tam plaintiff under 31 U.S.C. § 3730(d). The
government contends if a particular claim is not pleaded with enough sufficiency to
survive a motion to dismiss, it should not be considered part of the action in which
the government elects to intervene.
We reject the contention that Rule 9(b) plays a part in determining whether a
relator is entitled to share in the settlement proceeds resulting from a qui tam action
in which the government elects to intervene. Rule 9(b)'s standards are meant to test
the sufficiency of a complaint at its outset. If a defendant challenges the sufficiency
of a complaint's allegations at the outset of a case, a plaintiff still has the opportunity
to cure the deficiency. In contrast, section 3730(d) only comes into play at the
conclusion of a case, after the action has already proceeded to a judgment or a
settlement. If the government is allowed to contend at the conclusion of a case that
a relator's initial allegations were insufficient, even though the government implicitly
acknowledged the legal sufficiency of the pleadings by choosing to intervene, the
relator no longer has the opportunity to cure the deficiency. We find nothing in the
FCA's statutory text to support this type of post hoc use of Rule 9(b) to deny a relator
the right to a share of the settlement proceeds in an action in which the government
intervenes.
Our conclusion is consistent with an analogous situation addressed by the D.C.
Circuit in United States ex rel. Batiste v. SLM Corp., 659 F.3d 1204, 1210 (D.C. Cir.
2011). Batiste involved a qui tam action alleging SLM Corporation (commonly
called Sallie Mae) was defrauding the government through its administration of
certain student loans by granting forbearances in violation of federal forbearance
regulations. 659 F.3d at 1206. Before Batiste filed his qui tam action, another
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putative relator, Michael Zahara, had already filed a qui tam action making similar
allegations of fraud against Sallie Mae. Zahara's action was still pending when
Batiste filed his complaint, but Zahara's complaint was ultimately dismissed without
prejudice when he was unable to obtain counsel to represent him. Id. at 1207.
After Batiste filed his qui tam action containing fraud allegations similar to
those involved in Zahara's action, the government moved to dismiss Batiste's
complaint under the FCA's first-to-file rule, which provides "[w]hen a person brings
an action under [the qui tam] subsection, no person other than the Government may
intervene or bring a related action based on the facts underlying the pending action."
31 U.S.C. § 3730(b)(5). Batiste opposed the government's motion to dismiss, arguing
Zahara's earlier-filed suit was not a pending action under the first-to-file rule because
his complaint did not meet Rule 9(b)'s heightened pleading standards for fraud
allegations. The district court rejected Batiste's argument, found that his complaint
contained the same material elements of fraud as Zahara's complaint, and granted the
government's motion to dismiss. Batiste, 659 F.3d at 1207-08.
On appeal, the D.C. Circuit affirmed the district court. In explaining its
holding, the court included a discussion of the different purposes served by the FCA
and Rule 9(b)'s heightened pleading requirements:
Rule 9(b) is designed to protect defendants in fraud cases from frivolous
accusations and allow them to prepare an appropriate response. Section
3730(b) is designed to allow recovery when a qui tam relator puts the
government on notice of potential fraud being worked against the
government, but to bar copycat actions that provide no additional
material information. As the district court found, a complaint may
provide the government sufficient information to launch an investigation
of a fraudulent scheme even if the complaint does not meet the
particularity standards of Rule 9(b).
Id. at 1210.
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This analysis applies with equal force when determining whether a relator is
entitled to a share of the proceeds under section 3730(d). A primary purpose of the
FCA is to encourage whistleblowers to come forward with allegations of fraud
perpetrated upon the government, see id., and to reward them when they do so. This
purpose is advanced when a relator files a complaint which "provides the government
sufficient information to pursue an investigation" into the allegedly fraudulent
practices. Id. The FCA's purpose was advanced in this case. The relators' complaint
and assistance in prosecuting the action resulted in HP investigating its pricing
practices. The government then chose to intervene in the relators' action, initiated its
own investigation into HP's defective pricing, and ultimately reached a settlement
favorable to the government. Thus, the relators' action served its intended purpose,
and the relators should be rewarded accordingly.
Two additional cases cited by the government merit our discussion. First, the
government relies upon United States ex rel. Bledsoe v. Community Health Systems,
Inc., 501 F.3d 493 (6th Cir. 2007) (Bledsoe II). Sean Bledsoe brought a qui tam
action in February 1998 alleging the Community Health Systems (CHS) in White
County, Tennessee, were engaging in various fraudulent acts that increased
reimbursements they received from the government through Medicare and Medicaid.
501 F.3d at 497-98. Significantly, prior to Bledsoe filing his action, the Office of the
Inspector General of the Department of Health and Human Services had already
approached CHS about possible irregularities in its Medicare billing practices in the
fall of 1997. Id. at 499. As a result of the government's inquiry, CHS agreed to
perform an audit; the government also began an investigation through the Department
of Justice to determine whether FCA violations occurred as a result of the irregular
billing practices. Id. Although Bledsoe, a respiratory staff therapist at CHS, had met
with a government agent after filing his qui tam action to share his suspicions about
the irregular billing practices (first meeting in June 1998), he was unaware of the
government's separate and already ongoing investigation. Id.
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As a result of the government's own investigation, the government and CHS
reached a settlement agreement in March 2000 which required CHS to pay the
government $30,494,000 in exchange for a release from any civil or administrative
monetary claim arising from the irregular billing practices between October 1994 and
December 1997. This settlement specifically excluded any claims Bledsoe was
bringing in his qui tam action. Id.
In July 2000, after the settlement, Bledsoe filed an amended complaint in his
qui tam action, trying to connect his lawsuit to the settlement and claim a share of it.
The district court denied Bledsoe's request because the government had elected not
to intervene in the qui tam action and instead pursued its own settlement negotiations.
The district court also concluded Bledsoe's complaint did not plead the fraud claims
settled by the government with sufficient particularity. Id. at 499-500.
Bledsoe appealed and won. The Sixth Circuit said the relevant issue was not
the fact that the government pursued settlement without intervening, because the
settlement could constitute an alternate remedy under § 3730(c)(5), in which case
Bledsoe could still be entitled to a share of the proceeds. United States ex rel.
Bledsoe v. Cmty. Health Sys., Inc., 342 F.3d 634, 647 (6th Cir. 2003) (Bledsoe I).
The Sixth Circuit also said the district court abused its discretion by dismissing
Bledsoe's amended complaint for non-compliance with Rule 9(b)'s fraud specificity
requirements, because the issue of whether a plaintiff must comply with Rule 9(b) to
plead an FCA violation was unsettled at the time. Id. at 645. The court remanded the
case to the district court, indicating it could not determine whether the allegations in
the qui tam action sufficiently overlapped with the claims settled by the government,
holding that on remand Bledsoe must provide "concrete evidence that he apprised the
government of Defendants' DRG coding violations" before he could share in the
settlement proceeds. Id. at 651.
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On remand, Bledsoe filed a second amended complaint and again made a claim
for a share of the settlement proceeds. After an evidentiary hearing, the district court
again denied the request, concluding Bledsoe failed to show his disclosures to the
government led in any way to the settlement agreement entered into between the
government and CHS. The district court also dismissed Bledsoe's second amended
complaint. Bledsoe filed a second appeal challenging the dismissal of his complaint
and the district court's denial of his request to share in the settlement proceeds.
In Bledsoe II (the case the government now relies upon) the Sixth Circuit held
Bledsoe's complaint had to comply with Rule 9(b)'s fraud particularity requirements
to survive a motion to dismiss, and Bledsoe's complaint did not satisfy Rule 9(b)'s
requirements because it "lack[ed] specific dates or claims submitted to Medicare or
Medicaid." Bledsoe II, 501 F.3d at 515. The Sixth Circuit also concluded Bledsoe
could not share in the settlement proceeds "because he has not alleged a valid qui tam
action that overlaps in any way with the conduct covered by the Settlement
Agreement." Id. at 522.
Bledsoe II does not guide our analysis here. Unlike here, where the
government elected to intervene in the relators' action, Bledsoe II was a case where
the government chose to pursue an alternate administrative remedy. The government
had already started its own investigation prior to Bledsoe filing his initial qui tam
action, and prior to Bledsoe meeting with government officials. After the fact,
Bledsoe tried to amend his complaint twice to allege a sufficient connection between
his action and the government's existing settlement, and still failed to allege or prove
such a connection, or to show he provided any information to the government that led
to the settlement.
Here, there was no existing government investigation prior to the relators'
action, the government chose to intervene in the relators' action, there is a temporal
connection between the subpoenas issued by the relators and HP's internal audit, and
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the settlement itself was reached in the relators' action. In addition, in Bledsoe II the
relator failed to show that any information he disclosed to the government led to the
settlement. In sharp contrast, the information Rille and Roberts disclosed to the
government was related to the settlement. Indeed, the district court specifically found
"the Government had no knowledge of the defective pricing before Relators brought
it to light," and the government does not challenge that factual finding on appeal.
The second case the government relies upon is Rockwell International Corp.
v. United States, 549 U.S. 457 (2007). Rockwell addressed whether a relator, James
Stone, qualified as an "original source" for jurisdictional purposes under the FCA.
The statute considered by the Supreme Court required a relator to have "direct and
independent knowledge of the information on which the allegations [in a qui tam
action] are based" before a court could exercise jurisdiction over a qui tam action
which itself was based upon publicly disclosed allegations.4 31 U.S.C.
§ 3730(e)(4)(A) (1994). The Supreme Court ultimately determined the relator did not
qualify as an "original source" of the only claim which succeeded at trial – a claim
alleging pondcrete blocks stored at a nuclear weapons plant were leaking hazardous
and nuclear waste due to a faulty mixture of cement and sludge. The Supreme Court
held this successful claim was unrelated to a claim alleged by the relator predicting
the plant would produce insolid pondcrete blocks because of a defective piping
system. The Supreme Court focused on the fact that the relator was no longer
employed at the plant when it changed the ratio of cement to sludge which caused the
leaking to occur:
Stone's prediction that the pondcrete would be insolid because of a flaw
in the piping system does not qualify as "direct and independent
4
Publicly disclosed allegations included those based upon public disclosures
"from the news media," 31 U.S.C. § 3730(e)(4)(A) (1994), and in Rockwell it "was
conceded that the claims on which [the relator] prevailed were based upon publicly
disclosed allegations within the meaning of § 3730(e)(4)(A)." Rockwell, 549 U.S.
at 467.
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knowledge" of the pondcrete defect. Of course a qui tam relator's
misunderstanding of why a concealed defect occurred would normally
be immaterial as long as he knew the defect actually existed. But here
Stone did not know that the pondcrete failed; he predicted it. Even if a
prediction can qualify as direct and independent knowledge in some
cases (a point we need not address), it assuredly does not do so when its
premise of cause and effect is wrong. Stone's prediction was a failed
prediction, disproved by Stone's own allegations. As Stone
acknowledged, Rockwell was able to produce "concrete hard" pondcrete
using the machinery Stone said was defective. According to [the
government's] allegations in the final pretrial order, the insolidity
problem was caused by a new foreman's reduction of the
cement-to-sludge ratio in the winter of 1986, long after Stone had left
Rocky Flats.
Rockwell, 549 U.S. at 475-76.
Rockwell does nothing to advance the government's arguments here. The
action brought by Rille and Roberts was not based upon publicly disclosed
allegations within the meaning of the FCA, and the court's jurisdiction over this
action was never challenged on the grounds that the relators did not qualify as
"original sources." The government has never alleged the relators did not have direct
and independent knowledge of the defective pricing, but instead focused on an after-
the-fact alleged inadequacy in the pleadings alleging the claim. Here, as the district
court specifically found, HP's disclosure regarding Contract 35F resulted from HP's
knowledge of the relators' defective pricing allegations, and from the relators'
assistance in prosecuting the action. The government has not shown this finding of
fact to be clearly erroneous.
In sum, this case turns on fact findings the district court made regarding the
relationship between the relators' action (as well as the relators' assistance in
prosecuting the action) and HP's subsequent disclosure of defective pricing in
Contract 35F. The government has failed to reveal any clear error in the district
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court's factual findings regarding that relationship. Moreover, at least with respect
to those qui tam actions in which the government elects to intervene, a relators' initial
allegations need not satisfy Rule 9(b)'s heightened pleading requirements in order to
accomplish the purpose they were meant to serve, which is to "provide the
government sufficient information to launch an investigation of a fraudulent
scheme[.]" Batiste, 659 F.3d at 1210.
Unlike the dissent, we do not believe the district court's findings of fact were
insufficient to justify awarding the relators a share of the recovery. When the district
court held the government's Rule 9(b) argument was untimely, it specifically rejected
the government's contention that the defective pricing claim covered in the settlement
was not "part of this law suit." R. Doc. 125, at 3. The district court also stated the
fact that the defective pricing claim alleged in the Second Amended Complaint was
"further developed after the Government intervened is not a reason to deprive
Relators of their share of the settlement." Id. at 4. Most significantly, the district
court specifically found the "Government successfully proceeded with claims initially
brought by Relators, and Relators are entitled to a share of the proceeds." Id. at 5.
These comments make it clear the district court found the defective pricing alleged
by the relators was the same defective pricing claim the government settled.
III
For the reasons stated, we affirm the judgment of the district court.
COLLOTON, Circuit Judge, dissenting.
The court’s characterization of this case as one that “turns on fact findings” of
the district court, ante, at 17, obscures a significant legal issue that is central to the
appeal: When the government proceeds with an action brought by a relator under the
False Claims Act, and then settles both the claim brought by the relator and a
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different claim that was not brought by the relator, is the relator entitled to a share of
the proceeds of both claims? The better view according to the text and structure of
the statute is that the relator may recover only from the proceeds of the settlement of
the claim that he brought.
The False Claims Act, 31 U.S.C. §§ 3729-3733, provides that a private person
“may bring a civil action for a violation of section 3729 for the person and for the
United States Government.” Id. § 3730(b)(1). Section 3729 establishes liability for
certain acts that constitute false claims against the government. When a private
person brings an action under § 3730(b), the government has the option to “proceed
with the action” or to “decline[] to take over the action.” Id. § 3730(b)(4). If the
government “proceeds with an action brought by a person under [§ 3730](b),” then
such person shall, with an exception not relevant here, receive a percentage of “the
proceeds of the action or settlement of the claim.” Id. § 3730(d)(1).
This case requires the court to decide what constitutes “the proceeds of the
action or settlement of the claim.” Neal Roberts and Norman Rille are private qui tam
relators who brought an action against Hewlett-Packard Company (“HP”) under
§ 3730(b). The government elected to proceed with the action, and it eventually
reached a settlement with HP. As the court explains, ante, at 5, the settlement
agreement attributed $9 million to a kickback scheme that was alleged in the action
brought by Roberts and Rille, and $46 million to a defective pricing scheme related
to contract number GS-35F-0066N (“Contract 35F”) of the General Services
Administration. HP disclosed the defective pricing scheme after the government took
over the action and HP conducted an independent audit of its business processes. The
question presented is whether the proceeds of the settlement concerning the defective
pricing scheme are “proceeds of the action or settlement of the claim,” such that the
relators are entitled to receive a percentage.
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Roberts and Rille contend that if the government proceeds with an action
brought by a relator, then the relator is automatically entitled to a percentage of any
“proceeds” that the government receives as a result. The text of the statute will not
bear this construction. The relators are entitled to a share of “the proceeds of the
action or settlement of the claim.” 31 U.S.C. § 3730(d)(1). The Act contemplates that
both an “action” and a “claim” are filed in court. See id. § 3730(e)(4)(A). In
distinguishing between “the action” and “settlement of the claim,” § 3730(d)(1) reads
as though Congress meant for the first clause (“proceeds of the action”) to capture
proceeds of an action litigated to judgment and for the second clause (“proceeds of
the . . . settlement of the claim”) to encompass proceeds of a settlement. See also 31
U.S.C. § 3730(d)(2) (“If the Government does not proceed with an action under this
section, the person bringing the action or settling the claim shall receive an amount
. . . .”) (emphasis added). With respect to settlement, § 3730(d)(1) is clear that the
relator’s share is based only on proceeds of “the claim.” The use of the definite
article refers back to a claim that is “brought by” the relator in “an action” that he
initiates. The settlement language does not extend to a different claim that is settled
by the government but not originally “brought by” the relator. This case involves a
settlement. The relators’ right to recovery is thus limited to a share of the settlement
of the claim that they brought.
The relators focus on the phrase “proceeds of the action,” and assert that “once
the government intervenes in the relators’ case and receives proceeds,” the relator is
entitled to a share of all the proceeds. Appellee’s Br. at 28. Even assuming the
proceeds-of-the-action clause applies in the case of a settlement, the phrase “proceeds
of the action” refers back to “an action brought by a person.” The relators would
have this mean proceeds not of the action as brought by the relators, but proceeds of
the action as developed after intervention by the government. As a textual matter,
this seems unnatural. The phrase “proceeds of the action” is paired with “proceeds
of the . . . settlement of the claim,” and the settlement clause plainly refers to “the
claim” brought by the relator, not a claim later added by the government. It would
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be odd to read the adjoining clause—“proceeds of the action”—to encompass more
than the action as brought by the relator. It also would be inconsistent with the
purposes of the Act to permit a relator automatically to receive a share of the proceeds
when the relator might have had nothing to do with the government’s recovery on a
particular claim that was added after the government’s intervention.
The relators’ reading also would conflict with the Sixth Circuit’s approach to
an interrelated provision of the Act. Section 3730(c)(5) provides that if the
government pursues “its claim through any alternate remedy available to the
Government,” then “the person initiating the action shall have the same rights” in the
alternate proceeding “as such person would have had” if the government had
proceeded with the original action. This means that “the relator has a right to recover
a share of the proceeds of the alternate remedy to the same degree that he or she
would have been entitled to a share of the proceeds of an FCA action.” United States
ex rel. Barajas v. United States, 258 F.3d 1004, 1010 (9th Cir. 2001) (internal
quotation omitted). A relator, however, is not entitled to a share of whatever recovery
the government obtains from the defendant in an alternate proceeding, just because
the government’s claim could have been added to the original action brought by the
relator. As the Sixth Circuit explained in United States ex rel. Bledsoe v. Community
Health Systems, Inc., 342 F.3d 634 (6th Cir. 2003), a relator seeking recovery must
establish that “there exists [an] overlap between Relator’s allegations and the conduct
discussed in the settlement agreement.” Id. at 651. A relator is not entitled to a share
of the proceeds derived from a non-overlapping claim that the government could have
added in the original action but instead pursues in an alternate proceeding. Given the
equivalence of recovery required by § 3730(c)(5) and § 3730(d), it follows from
Bledsoe that the relator also has no right to a share if the government adds the non-
overlapping claim to the original action after intervening.
So the question in this case is whether the government’s recovery from HP for
the defective pricing claim is the “proceeds of the . . . settlement of the claim,” that
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is, “the claim” brought by the relators. The Sixth Circuit understandably construed
“the claim” to extend to proceeds of a settlement in which “the conduct contemplated
in the settlement agreement . . . overlap[s] with the conduct alleged in [the] Relator’s
complaint.” Bledsoe, 342 F.3d at 651. Otherwise, the government could deprive the
relator of his right to recover simply by recasting the same or similar factual
allegations in a new claim or by pursuing the substance of the relator’s claim in an
alternate proceeding.
But in its March 2011 order determining the relators’ share of settlement
proceeds, the district court apparently adopted a different theory of
recovery—namely, that the claim brought by the relators caused HP to disclose
additional information that led the government to achieve the settlement of a different
claim. As the district court put it, “HP would not have initiated [its] investigation had
Relators not filed this law suit,” and “[i]t is no coincidence that HP began its internal
investigation just a few weeks after the seal was partially lifted so that a copy of
Relators’ Complaint could be provided to HP.” R. Doc. 143, at 7. The court affirms
the award to the relators on this basis, concluding that HP’s disclosure of its defective
pricing was not purely voluntary, and that the causal connection described by the
district court was sufficient to show that “the defective pricing claim settled by the
government was related to the action brought by the relators.” Ante, at 10.
Whatever the merit of this theory as a policy matter, it is not derived from the
statute. The statute allows relators to recover a percentage of the proceeds of the
settlement of “the claim” brought by the relators, and only that claim. The Act
contemplates that the government, after it elects to intervene, may “clarify or add
detail” to the claims brought by the relators, or may “add any additional claims.” 31
U.S.C. § 3731(c). Recovery under § 3730(d)(1), however, does not extend to
proceeds of the settlement of such “additional claims,” whether or not they are
causally connected to the claim brought by the relators. The Act does not provide for
an award to relators from the proceeds of settlements that “resulted from” the claim
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or were “caused by” the claim; relators are limited to a percentage of “proceeds of the
. . . settlement of the claim.”
To resolve this dispute, therefore, we need additional findings of fact. The
district court should make findings about whether there is sufficient factual overlap
between the defective pricing claim settled by the government and the claim brought
by the relators, such that proceeds of the settlement of the defective pricing claim
should fairly be characterized as “proceeds of the . . . settlement of the claim” brought
by the relators. In its January 2011 order denying the government’s motion for
determination of relators’ status, the district court did find that “defective pricing was
a part of the allegations made by Relators,” R. Doc. 125, at 5, but this brief statement
is insufficient to sustain the award. The court did not explain whether and how any
“defective pricing” alleged by the relators is the same as the defective pricing that
gave rise to the government’s settlement with HP. Without elaboration by the district
court about any asserted factual overlap, there is not a sufficient record to allow for
meaningful appellate review. See Fed. R. Civ. P. 52(a); King v. United States, 553
F.3d 1156, 1161-62 (8th Cir. 2009); Darst-Webbe Tenant Ass’n Bd. v. St. Louis Hous.
Auth., 339 F.3d 702, 711-12 (8th Cir. 2003).
Responding to this dissent, in its penultimate paragraph, the court says the
district court found that “the defective pricing alleged by the relators was the same
defective pricing claim the government settled.” Ante, at 18. The court thinks it most
significant that the district court said “the Government successfully proceeded with
claims initially brought by Relators, and Relators are entitled to a share of the
proceeds.” Id. There are several difficulties with this afterthought.
First, the passages cited by the court do not establish the necessary finding.
The district court did not say that the relators alleged in their complaint that HP
engaged in defective pricing with respect to Contract 35F. The district court said in
its January 2011 order that the relators raised “defective pricing claims.”
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R. Doc. 125, at 5. But an allegation that HP engaged in defective pricing in one
discrete area of its large corporate enterprise (e.g., in failing to disclose discounts the
company offered to resellers) does not present a “claim” with respect to any and all
defective pricing that might later be discovered in other areas of HP’s business (e.g.,
failing to disclose the lowest prices the company offered to end users). In its March
2011 order, the district court appeared to acknowledge that the government’s
settlement of the defective pricing claim with respect to Contract 35F was based on
information disclosed by HP after the government’s intervention, and that the relators
were not a part of the ensuing investigation. R. Doc. 143, at 7. The court found,
however, that “HP would not have initiated this investigation had Relators not filed
this law suit.” Id. In other words, the court found in the March 2011 order that the
relators’ claims were a catalyst that resulted in the disclosure of new information that
led to part of the government’s settlement, but the court did not find that the relators
actually brought a claim alleging defective pricing with respect to Contract 35F.
Second, even if the January 2011 order could be construed as a finding that the
relators brought a claim concerning defective pricing under Contract 35F, the order
does not afford this court “a clear understanding of the basis of the trial court’s
decision,” as required by Rule 52(a). See Allied Van Lines, Inc. v. Small Bus. Admin.,
667 F.2d 751, 753 (8th Cir. 1982) (internal quotation omitted). The January 2011
order does not explain how the court concluded that the relators’ second amended
complaint raised a claim concerning defective pricing under Contract 35F. The
March 2011 order suggests, if anything, that the court thought the defective pricing
claim that the government settled was an additional claim added after the
government’s intervention, see 31 U.S.C. § 3731(c), albeit as a result of an internal
HP inquiry that was prompted by the relators’ lawsuit.
Third, although the court asserts in the end that the district court found that the
relators brought the same claim that the government settled, the court never reviews
whether such a finding is supported by the record. The court affirms the district
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court’s award based on a different theory—that is, that the relators’ action played a
role in uncovering the defective pricing scheme that was the subject of the
government’s settlement. Ante, at 10. But as discussed, the court’s theory is legally
flawed, because the statute does not give relators the right to a share of recovery
based on additional claims that the government brings or settles after it intervenes in
an action to pursue a claim or claims brought by relators.
For these reasons, I would vacate the judgment and remand for further
proceedings.
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