Developments Under The False Claims Act

Michael D. NewmanCrowell & Moring LLP

I. BACKGROUND

The False Claims Act (FCA) was enacted in 1863 in response to fraudperpetrated by contractors supplying the Union Army during the Civil War.The Act included a provision allowing qui tam actions. The phrase “qui tam”denotes an action brought by any person on behalf of both the person and thegovernment. A qui tam plaintiff is referred to as a “relator” or, colloquially,as a “whistleblower.”

Congress amended the FCA in 1986 with the intent to encourage moreprivate enforcement. The encouragement consisted of enhanced incentivesfor qui tam plaintiffs, both financial and procedural. These incentives haveclearly been effective.

According to the Department of Justice, from the 1986 amendments to May31, 2000, the latest date for which government statistics were available, 3194qui tam cases have been filed. That is an increase of 235 since October 1,1999. The government has intervened or otherwise pursued 511 and declined1861. The rest are settled, dismissed, inactive or still under investigation.Through May 31, 2000, the total amount recovered under the FCA since 1986where there was an associated qui tam case was over $3.799 billion. Of thatamount, $3.588 billion was recovered in cases in which the governmententered or otherwise pursued and $211 million was recovered in casespursued by relators where the government declined to intervene. Relatorsaverage about 17 percent of the recovery when the government intervenesand about 26 percent when it does not.

The trend is up for qui tam cases involving the Department of Health andHuman Services. While in FY 1987 only 12 percent of the qui tam casesinvolved that department, in FY 1998 the number was 61 percent. In total,1026 filed cases involved the Department of Defense, while 1524 involved theDepartment of Health and Human Resources.

II. OUTLINE OF AN FCA ACTION

A. False Claims

1. Offenses under the FCA. It is an offense when aperson:

a. Knowingly presents or causes to be presenteda false or fraudulent claim. 31 U.S.C.§ 3729(a)(1).

(1) A reasonable interpretation of the Cost AccountingStandards does not preclude a finding of falsity of aclaim. Whether the contractor complied with the“unquestionably technical and complex”regulations, as interpreted by the court, determineswhether the practices the contractor followedresulted in a false claim. However, thereasonableness of the interpretation bears on theelement of knowledge, and an “innocent mistake” isnot an offense. United States ex rel. Oliver v. TheParsons Co., 195 F.3d 457 (9th Cir. 1999), cert.denied, 120 S. Ct. 2657 (2000).

b. Knowingly makes, or causes to be made orused, a false record or statement to get aclaim paid or approved by the government.§ 3729(a)(2).

(1) There is a split among the circuitsabout whether the false statement mustbe “material.” Compare, e.g., Harrisonv. Westinghouse Savannah River Co., 176F.3d 776, 785 (4th Cir. 1999) (holdingfalse statements or claims must bematerial, that is capable of influencingagency action); United States ex rel.Lamers v. City of Green Bay, 168 F.3d1013, 1019 (7th Cir. 1999) (holding Actnot violated where allegedmisrepresentations were eitherimmaterial or only minor, technicalviolations); Tyger Constr. Co. v. United

States, 28 Fed. Cl. 35, 55 (1993) (statingthe civil False Claims Act “covers onlythose false statements that arematerial”); United States v. Snider, 502F.2d 645, 652 n.12 (4th Cir. 1974)(holding materiality is essential elementof criminal false claim under 18 U.S.C.§ 287) with United States v. Upton, 91F.3d 677 (5th Cir. 1996), cert denied subnom. Barrick v. United States, 520 U.S.1228 (1997); United States v. Taylor, 66F.3d 254, 255 (9th Cir. 1995), cert. denied,117 S. Ct 1105 (1997); United States v.Parsons, 967 F.2d 452, 455 (10th Cir.1992); United States v. Elkin, 731 F.2d1005, 1008 (2d Cir.), cert. denied, 469 U.S.822 (1984) (all holding materiality notan element); see United States ex rel.Cantekin v. University of Pittsburgh, 192F.3d 402 (3d Cir. 1999), cert. denied, 2000WL 1210687 (U.S. Oct. 2, 2000), (statingin dicta materiality may not be anelement of the offense, citing Neder v.United States, 527 U.S. 1, 23 n.7 (1999));cf. United States v. Job Resources for theDisabled, 2000 WL 1222205 (N.D. Ill. Aug.24, 2000) (holding that materiality is anelement where the falsity involves anomission as opposed to an affirmativefalse statement).

(a) See United States ex rel. Berge v.Board of Trustees of the Univ. ofAlabama, 104 F.3d 1453, 1460 (4thCir.), cert. denied, 118 S. Ct. 301(1997) (holding materiality undercivil FCA is question for the court,not jury). But see United States v.Job Resources for the Disabled,2000 WL 1222205 (N.D. Ill. Aug. 24,2000) (holding materiality is a juryquestion).

(b) In United States v. Intervest Corp., 104 F.Supp. 2d 691 (S.D. Miss. 2000), the courtdeclined to award attorney fees and costs todefendant under the Equal Access to JusticeAct (EAJA”), 28 U.S.C. § 2412 (d)(1)(A),because issue of whether materiality is anelement of FCA was an open question in theFifth Circuit and therefore the governmentwas “substantially justified” within themeaning of EAJA.

(2) A relator’s allegation that schooldistrict falsely certified that it wascomplying with rules about qualifyingspecial education students for federalfunding provided no basis for FCA suitas the school district’s certification wasnot a “prerequisite to obtaining agovernment benefit.” United States exrel. Hopper v. Anton, 91 F.3d 1261, 1266(9th Cir. 1996), cert. denied, 519 U.S.1115 (1997); see United States ex rel.Plumbers & Steamfitters Local UnionNo. 38 v. C. W. Roen Constr. Co., 183 F.3d1088, 1092 (9th Cir. 1999), cert. denied,120 S. Ct. 2195 (2000) (holding that falsecertification under Davis-Bacon Actregarding payment of prevailing wageswas a “prerequisite to payment” andthus actionable under the FCA);Harrison v. Westinghouse SavannahRiver Co., 176 F.3d 776, 785-86 (4th Cir.1999) (holding that statementssubmitted to gain approval of asubcontract, rather than only thosedirectly demanding payment are alsoactionable under the FCA if thestatement or certification was acondition of getting paid); Lum ex rel.United States v. Vision Service Plan, 104F. Supp. 2d 1237 (D. Haw. 2000) (holdingdefendant made no implied certification

of compliance with the prohibition oncharging copayments when billingproper charges for Medicaidreimbursement).

(3) A false statement may be expressed or itmay be implied from conduct havingthe effect of representing compliancewith requirements for payment. SeeShaw v. AAA Eng’g & Drafting, Inc., 213F.3d 519, 531-33 (10th Cir. 2000) (holdingimplied certification of compliance withcontract requirement regarding silverrecovery provides basis for FCA claimdespite fact that invoices billed correctcontract amount and contained nofactual misrepresentations); Ab-TechConstr., Inc. v. United States, 31 Fed. Cl.429.(1994), aff’d, 57 F.3d 1084 (Fed. Cir.1995) (holding submission of claimimplied continuing compliance withminority contracting requirements andthus provided basis for FCA claim). Butsee United States ex rel. Siewick v.Jamieson Science & Eng’g, Inc., 214 F.3d1372 (D.C. Cir. 2000) (holding that animplied certification of compliance withrevolving door criminal statute, 18 U.S.C. § 207, provides no basis for FCAaction, as such implied certification wasno prerequisite to payment); UnitedStates ex rel. Swafford v. Borgess Med.Center, 98 F. Supp. 2d 822 (W.D. Mich.2000) (citing Luckey v. BaxterHealthcare Corp., 183 F.3d 730 (7th Cir.1999), to reject implied certificationthat delivery of medical services fellshort of requisite standard of care);United States ex rel. Mikes v. Straus, 84F. Supp. 2d 427 (S.D.N.Y. 1999) (grantingdefendants’ summary judgment on theground that physicians’ Medicare

claims did not impliedly certifycompliance with a certain testingprocedure, only that certain tests weredone, and stating implied certificationonly applies in exceptionalcircumstance where government wouldhave refused payment had it beenaware of the claimant’s noncompliance).

(4) A false statement to induce the government tocontract may also provide a basis to assert FCAliability even though the later claims were not inand of themselves false. United States ex rel.Marcus v. Hess, 317 U.S. 537 (1943); see Harrisonv. Westinghouse Savannah River Co., 176 F.3d 776,787-88 (4th Cir. 1999).

c. Conspires to defraud the government bygetting a false or fraudulent claim paid.§ 3729(a)(3).

b. Has possession, custody or control ofgovernment money or property and intendingto defraud or willfully conceal, delivers orcauses to deliver, less than is due to thegovernment. § 3729(a)(4); see United States exrel. Aakhus v. Dyncorp, Inc., 136 F.3d 676 (10thCir. 1998) (holding the statutory mention of“certificate or receipt” means those createdby government at time property is returned).

c. Intending to defraud the government makesor delivers a receipt for government propertywithout knowing that the information on thereceipt is true. § 3729(a)(5).

d. Knowingly buys from a governmentrepresentative not authorized to sell.§ 3729(a)(6).

e. Knowingly makes, uses, or causes to be madeor used, a false record or statement toconceal, avoid, or decrease an obligation to

pay or transmit money or property to thegovernment. § 3729(a)(7); see United States v.Q International Courier, Inc., 131 F.3d 770(8th Cir. 1997) (stating that the term“obligation” refers to “a present duty to paymoney or property that was created bystatute, regulation, contract, judgment oracknowledgement of indebtedness ratherthan “potential fines or sanctions”). See alsoAmerican Textile Mfrs. Institute, Inc. v. TheLimited, Inc., 190 F.3d 729, 738 (6th Cir. 1999)(holding that contingent obligations thatmight arise only after government officialexercises discretion are not obligationswithin § 3927(a)(7)); United States v. PemcoAeroplex, Inc., 195 F.3d 1234, 1237-38 (11th Cir.1999) (en banc) (stating there was no need toreach question of whether a potentialobligation was within § 3927(a)(7) becausehere the defendant was contractuallyobligated to pay for or transmit excessgovernment property and thus its allegedfalse statement on an inventory form wassufficient to plead a violation of the statute).

2. Penalties and Damages

f. Civil penalty of not less than $5,000 and notmore than $10,000, plus three times theamount of damages sustained by thegovernment, plus the costs of the civil actionto recover the penalty or damages. § 3729(a).

(1) Normally, damages are based on thedifference between contract value andthe market value of the item received.See United States v. Bornstein, 423 U.S.303, 317 n.13 (1976). In certain cases,where market value is not readilyavailable, government may resort toproof of how much it costs to remedythe defect, so long as that is not clearlydisproportionate to the probable loss in

value due to the defect. See CommercialContractors Inc. v. United States, 154F.3d 1357 (Fed. Cir. 1998).

(a) In United States v. Cabrera-Diaz, 106 F.Supp. 2d 234 (D.P.R. 2000), the courtpermitted use of a statistically valid randomsample to extrapolate damages in a caseinvolving false claims for Medicarereimbursement.

(1) Where a contractor fraudulentlyclaimed payment for nonconformingparts, government was entitled to treblethe costs it incurred in testing andrepairing the parts. See Daff, Trustee inBankruptcy v. United States, 78 F.3d1566, 1571 n.7 (Fed. Cir. 1996). But seeUnited States ex rel. Roby v. Boeing Co.,79 F. Supp. 2d 877 (S.D. Ohio 1999)(holding consequential damages are notrecoverable under the FCA).

(2) In Hudson v. United States, 522 U.S. 93(1997), the Supreme Court said that itsdecision in United States v. Halper, 490U.S. 435 (1989), was “ill-considered.”The Court held that a criminalindictment charging offenses for whicha civil penalty and debarment had beenimposed was not barred by the DoubleJeopardy Clause, which precludes onlysuccessive criminal prosecutions. TheCourt said that remedies, if any, are tobe found in the Due Process and EqualProtection Clauses and in the EighthAmendment’s prohibition againstexcessive fines; see United States v.Byrd, 100 F. Supp. 2d 342 (E.D.N.C. 2000)(rejecting double jeopardy claim thatgovernment was seeking penalties forthe same offense, food stamp fraud, for

which defendant had already beensentenced).

(3) Grocery store operator who exchangedcash for food stamps which were then,when submitted to government,credited to the store’s account wascaught in a sting operation. Theoperator challenged the actual damagesaward of $180, the value of the foodstamps. The court of appeals affirmedthe district court’s finding of $180 inactual damages (plus $22,500 inpenalties - $7,500 for three separateclaims). Lyerly v. United States, 120 F.3d261 (4th Cir. 1997).

(a) Citing the Supreme Court’s Excessive Finesclause case, United States v. Bajakajian, 524U.S. 321, 334 (1998), for its “grosslydisproportional to the gravity of the offense”test, the court in United States v. Byrd, 100F. Supp. 2d 342 (E.D.N.C. 2000), grantedsummary judgment to the government wherethe FCA damages trebled were $255,036 andthe penalties at $5,000 each for 264 claimstotaled $1,575,036. The defendant had alsobeen criminally convicted of food stampfraud and sentenced to a 27-month prisonterm, fined $50,000, and ordered to pay$335,263.20 as restitution); cf. United Statesv. Sazama, 88 F. Supp. 2d 1270 (D. Utah2000) (noting that government allowed assetoff of treble damages the amount alreadypaid as part of criminal restitution).

(b) Citing United States v. Halper, 490 U.S. 435(1989), the court in United States v. Cabrera-Diaz, 106 F. Supp. 2d 234, 242 (D.P.R. 2000),deemed all penalties “excessive” whencompared to actual damages and thereforedid not impose them.

(4) In United States ex rel. Compton v.Midwest Specialties, Inc., 142 F.3d 296(6th Cir. 1998), the court concluded thatdamages would be based on either theentire contract price or on thedifference between value of goodspromised minus the value of the goodsdelivered, as the brake shoes deliveredwere worthless to the government. Thecourt said the government bargainedfor tested products and also for theconfidence that comes with a testedproduct.

(6) Some courts have held that proof of damages is nota necessary element of an FCA claim. Rabushka exrel. United States v. Crane Co., 122 F.3d 559, 563(8th Cir. 1997); United States ex rel. Morris v. Crest,2000 WL 432781 (S.D. Ohio March 29, 2000).

b. Alternatively, not less than two times theamount of damages sustained by thegovernment plus the cost of the civil action torecover the penalty or damages in the eventthat:

(5) The perpetrator informs the responsiblegovernment officials of all relevantinformation within 30 days after firstobtaining knowledge; § 3729(a)(A).

(6) The perpetrator fully cooperates in anygovernment investigation of theviolation, § 3729(a)(B); and,

(7) No criminal, civil, or administrativeproceeding had been commenced basedon the violation and the perpetrator didnot have any knowledge of theexistence of an investigation relating tothe violation. § 3729(a)(C).

(8) This information provided by theperpetrator is exempt from disclosureunder the Freedom of Information Act.§ 3729(d).

3. Definition of “knowing” and “knowingly”

a. The terms “knowing” and “knowingly” withrespect to information (on which a claim isbased) means that the person:

(9) has actual knowledge of theinformation § 3729(b)(1);

(10) acts in deliberate ignorance of the truthor falsity of the information § 3729(b)(2);or,

(11) acts in reckless disregard of the truth orfalsity of the information. § 3729(b)(3).

The legislative history indicates thatthis is a standard of “gross negligence”and includes instances where the claimsare so imprudently prepared under thecircumstances that they result inovercharges to the government(sloppy-bookkeeping) and cases of“ostrich-with-his-head-in-the-sand”problems. Legislative History P.L. 99-562, False Claims Amendments Act of1986, 20-21.

g. No proof of specific intent to defraud isrequired. § 3729(b)(3).

(1) In United States ex rel. Plumbers &Steamfitters Local Union No. 38 v. C.W.Roen Constr. Co., 183 F. 3d 1088, 1092-93(9th Cir. 1999), cert. denied, 120 S. Ct.2195 (2000), the court noted that some ofits earlier pronouncements suggestedthat proof of an intentional lie wasnecessary to trigger liability. The court

went on to repudiate those suggestions,reverting to the statutory definition of“knowingly;” cf. Wang v. FMC Corp., 975F.2d 1412 (9th Cir. 1992). “Bad math isno fraud.” Id. at 1420. “Proof of one’smistakes or inabilities is not evidencethat one is a cheat.” Id. at 1421.

(2) United States v. Catton, 89 F.3d 387 (7thCir. 1996) (although criminal FCAconviction is reversed, court foundinstruction on willfulness unnecessaryas “implicit in the filing of a knowinglyfalse claim is that the claimant intendsto defraud the government. . . .”), appealafter remand, 130 F.3d 805 (7th Cir.1997).

(3) “Innocent mistake is a defense to thecriminal charge or civil complaint. Sois mere negligence. The statutorydefinition of ‘knowingly’ requires atleast ‘deliberate ignorance’ or ‘recklessdisregard’. . . . The requisite intent isthe knowing presentation of what isknown to be false.” United States ex rel.Hagood v. Sonoma County Water Agency,929 F.2d 1416, 1421 (9th Cir. 1991), aff’dafter remand, 81 F.3d 1465, 1478 (9thCir.), cert. denied, 519 U.S. 865 (1996)(“the statutory phrase ‘known to befalse’ does not mean incorrect as amatter of proper accounting methods, itmeans a lie”); see United States ex rel.Durcholz v. FKW, Inc., 189 F.3d 542, 545(7th Cir. 1999) (holding that followinggovernment’s instructions regardingthe pricing of a contract negatedrelator’s claim of fraud against thecontractor); United States ex rel.Hochman v. Nackman, 145 F.3d 1069,1073-74 (9th Cir. 1998) (failure to

provide evidence that defendants knewthat guidelines on which they relied didnot apply warranted imposition ofsummary judgment against the relator);United States ex rel. Butler v. HughesHelicopters, Inc., 71 F.3d 321 (9th Cir.1995) (holding that government’sknowledge of the falsity may serve tonegate the contractor’s intent; alsoholding that under facts of case DD-250was not a claim or a false statement);United States v. Southland Mgt. Corp.,95 F. Supp. 2d 629, 641 (S.D. Miss. 2000)(holding HUD’s awareness of allegedlyunsanitary conditions at apartmentcomplex precluded finding that ownersof federally subsidized dwellingknowingly submitted false claims forhousing assistance payments); cf. Shawv. AAA Eng’g & Drafting, Inc., 213 F.3d519 (10th Cir. 2000) (assuming that proofof government’s knowledge wouldnegate intent requirement, court findsproof lacking to sustain this defense).

(4) “[T]he best reading of the [FCA] definesreckless disregard as an extension ofgross negligence,” rather than as asubstitute for willful misconduct.United States v. Krizek, 111 F.3d 934, 942(D.C. Cir. 1997), on remand, 7 F. Supp.2d 56 (D.D.C. 1998), appeal afterremand, 192 F.3d 1024 (D.C. Cir. 1999).

(5) Where contract clause wasunambiguous, the contractor’sinterpretation was so unreasonable asto defeat its claim that it acted in goodfaith. Commercial Contractors, Inc. v.United States, 154 F.3d. 1357 (Fed. Cir.1998); see United States ex rel. Cantekinv. University of Pittsburgh, 192 F.3d 402(3d Cir. 1999), cert. denied, 2000 WL

1210687 (U.S. Oct. 2, 2000) (finding noambiguity in grant applicationrequiring disclosure of all sources offunding).

(6) Where contractor complies with testingrequirements, its failure to undertake additionaltests does not subject it to an FCA violation,particularly in the absence of any misleading half-truths about the tests performed. Luckey v. BaxterHealthcare Corp., 183 F.3d 730, 732 (7th Cir. 1999).

(7) In an FCA case based on violations of the Truth inNegotiations Act, the court concluded that thegovernment did not establish that the doctrine ofcollective knowledge was applicable. Even if thedoctrine did apply, the contractor established thatits actions were the product of negligence,inadvertence and mistake. United States v. UnitedTechnologies Corp., Sikorsky Aircraft Div., 51 F.Supp. 2d 167, 196-99 (D. Conn. 1999).

4. Liability is joint and several

a In United States v. Cabrera-Diaz, 106 F. Supp. 2d 234(D.P.R. 2000), both an anesthesiologist and his billingsecretary were held jointly and severally liable forviolations of FCA by submitting false Medicarereimbursement claims.

b In United States v. Southern Maryland Home HealthSvcs., Inc., 95 F. Supp. 2d 465 (D. Md. 2000), the courtdeclined to hold an employer vicariously liable for the actsof its low level employee who, acting within the scope ofher employment caused the employer to submit falseclaims. Relying on Kolstad v. American Dental Assoc.,527 U.S. 526 (1999), the court rejected the government’sclaim of employer vicarious liability based on theemployee’s apparent authority where the claim for trebledamages and penalties was over a million dollars butactual damages were only about $60,000. Finding theclaim punitive in nature, the court said that unless thegovernment could show the employer authorized, ratified,

knew of or acted with reckless indifference to theemployee’s misdeeds, the government could not prevail.

5. Definition of a “claim”

The definition of a “claim” includes “any request ordemand, whether under a contract or otherwise,for money or property which is made to acontractor, grantee, or other recipient if the UnitedStates Government provides any portion of themoney or property which is requested ordemanded, or if the government will reimbursesuch contractor, grantee, or other recipient for anyportion of the money or property which isrequested or demanded.” § 3729(c).

a. In seeking Medicare reimbursement,defendant used HCFA 1500 form whichtotaled the amounts due for each of theprocedures (CPTs) checked on the form.Reversing the district court, the District ofColumbia Circuit held that how thegovernment processed the claims wasirrelevant. Instead, the conduct of thedefendant, here submitting the HCFA 1500form, was the claim subject to an FCApenalty. United States v. Krizek, 111 F.3d 934940 (D.C. Cir. 1997), on remand, 7 F. Supp. 2d56 (D.D.C. 1998), appeal after remand, 192F.3d 1024 (D.C. Cir. 1999).

b. In United States ex rel. Costner v. URSConsultants, Inc., 153 F.3d 667 (8th Cir. 1998),the court held that only actions which havethe purpose and effect of causing the UnitedStates to pay out money it is not obligated topay or depriving intentionally the UnitedStates of money it is lawfully due areactionable under the FCA. Thus whereallegation was that false claims were madeagainst a privately provided fund notcontrolled by the government, the case shouldhave been dismissed on 12(b)(6) grounds;

accord, United States ex rel. Bustamonte v.United Way/Crusade of Mercy, Inc., 2000 WL690250 (N.D. Ill. May 25, 2000) (holding thatUnited Way, in administering combinedfederal campaign, was handling employeefunds not federal funds).

6. Exclusion

a. The False Claims Act does not apply to claimsunder the Internal Revenue Code of 1986.§ 3729(e).

b. Congress, in establishing the government corporation,Federal Prison Industries, Inc., as a “corporation of theDistrict of Columbia,” did not waive sovereign immunityunder the act establishing the company or the FCA.Galvan v. Federal Prison Indus., Inc., 199 F.3d 461 (D.C.Cir. 1999).

B. Civil Actions For False Claims By Qui Tam Relators

1. Actions by private persons

a. A private person may bring a civil action forhimself (qui tam plaintiff/relator) and theUnited States. § 3730(b)(1).

(1) In Vermont Natural Resources Agency v. UnitedStates ex rel. Stevens, 120 S. Ct. 1858 (2000), theSupreme Court held that a qui tam relator hasstanding to bring an FCA action. Rejecting thetheory that the relator is merely the statutorilydesignated agent of the government, the Court heldthat the doctrine that an assignee of a claim hasstanding to assert the injury in fact that theassignor has suffered provided an adequate basisfor a relator’s suit. The Court buttressed thattheoretical justification for relator’s standing by itsreview of the long history of qui tam actionstraditionally resolved by the judicial process. In afootnote, the Court expressed no view on the

question of whether qui tam suits violate Article II,in particular the Appointments Clause or the “takeCare” Clause.

(2) In Riley v. St. Luke’s Episcopal Hosp., 196 F.3d514), rehearing granted, 196 F.3d 561 (5th Cir.1999) (en banc), a divided panel of the court heldthat qui tam relators had standing to sue when thegovernment did not intervene in the lawsuit. Inreaching this conclusion, the majority felt bound bythe circuit’s earlier decision in United States ex rel.Foulds v. Texas Tech Univ., 171 F.3d 279, 288 n. 12(5th Cir, 1999), cert. denied, 120 S. Ct. 2194 (2000),concluding that in order to reach that case’sEleventh Amendment question the case orcontroversy standing issue was necessarily decidedand thus not dicta. But see Vermont NaturalResources Agency v. United States ex rel. Stevens,120 S. Ct. 1858 (2000) (resolving issue of statutoryinterpretation and thus avoiding constitutionalquestion of jurisdiction). The panel majority, afterdisposing of the standing issue, went on to void thequi tam provisions of the FCA on a differentconstitutional ground. The panel held that the quitam provisions violate the Constitution’s Article II,§ 3 clause mandating that the executive “take Carethat the Laws be faithfully executed.” The panelfound the qui tam provisions of the FCA exceededeach of the four criteria set forth in Morrison v.Olson, 487 U.S. 654 (1988), regarding transfer ofthe executive’s litigative function to an outsider.Finally, the panel deemed it unnecessary toaddress defendants’ other argument that the quitam provisions of the FCA violated theConstitution’s Appointments Clause, Article II, § 2,cl. 2, on the ground that only a duly appointed“officer” could conduct litigation on behalf of thegovernment.

b. The action must be in the name of the United States.§ 3730(b)(1).

c. The action may be dismissed only if the court and theattorney general give written consent and reasons forconsenting. § 3730(b)(1).

(1) See Gravitt v. General Electric Co., 680 F. Supp.1162 (S.D. Ohio) (court refused to approvesettlement), appeal dismissed, 848 F.2d 190 (6thCir.), cert. denied sub nom. General Elec. Co. v.United States, 488 U.S. 901 (1988).

(2) Even though government refused to intervene inthe district court and on appeal, it can still appealwhere it actively participated in district courtproceedings arguing against settlement and reliedin good faith on its interpretation of the FCA. TheFCA gives the government a right to vetosettlements entered into between a relator and acontractor. Therefore, the Fifth Circuit vacated avoluntary dismissal which would have precludedsome potential government claims. Searcy v.Philips Electronics North America Corp., 117 F.3d154 (5th Cir. 1997); accord, United States v. HealthPossibilities, P.S.C., 207 F.3d 335, 339 (6th Cir.2000). But see Killingsworth v. Northrop Corp., 25F.3d 715, 722 (9th Cir. 1994) (holding that once itdeclines to intervene, the government has noabsolute right to block a relator/defendantsettlement).

(3) In United States ex rel. Fender v. Tenet HealthcareCorp., 105 F. Supp. 2d 1228 (N.D. Ala. 2000), thecourt held that as the government had waived itsright to intervene, its consent to settle lawsuit wasno longer required. Under such circumstance, thegovernment could no longer keep the case sealed orreceive copies of pleadings, motions and discoveryfiled in the case.

d. The government may intervene in the action.

(1) A copy of the complaint and writtendisclosure of substantially all material

evidence and information must beserved on the government. § 3730(b)(2).

(a) In Castenson v. City of Harcourt, 86 F. Supp.2d 866 (N.D. Iowa 2000), plaintiffs failure tofile suit in name of the United States underseal and to serve a copy of the complaint onthe government along with a writtendisclosure of material evidence was held tobe a curable procedural defect, not ajurisdictional bar, citing United States ex rel.Lujan v. Hughes Aircraft Co., 67 F.3d 242,245 (9th Cir. 1995).

(6) The complaint will be filed in camera,will remain under seal for at least 60days, and will be served on thedefendant only when ordered by thecourt. § 3730(b)(2).

(7) The government may, for good cause,move for an extension of the 60 dayperiod during which the complaintremains sealed. § 3730(b)(3).

(8) The government may elect to intervenewithin 60 days, plus extensions, afterreceipt of the complaint and thematerial evidence. § 3730(b)(4).

e. If the government elects not to intervene, then the quitam plaintiff has the right to conduct the action.§ 3730(c)(3).

f. No person other than the government may intervene orbring a related action based on the same facts.§ 3730(b)(5).

(1) In United States ex rel. Lacorte v.Smithkline Beecham Clinical Labs., Inc.,149 F.3d. 227 (3d Cir. 1998), the courtaffirmed the dismissal of a qui tam suiton the ground that the suit had thesame material elements as an earlier

filed suit. Even though later filed suitalleged greater detail, the statutory baroperates where the second suit allegesthe same material elements, not justwhere identical facts are pled. “[O]ncethe government knows the essentialfacts of a fraudulent scheme, it hasenough information to discover relatedfrauds.” Id. at 234.

(2) In United States ex rel. LaCorte v. Wagner, 185F.3d 188 (4th Cir. 1999), the Fourth Circuit refusedto permit petitioners to intervene in a qui tamaction brought by others over petitioners’ claimthat “but for” an earlier action they filed the newallegations brought by other relators would nothave come to light.

(3) In Webster v. United States, 217 F.3d 843 (4th Cir.2000), the court affirmed the refusal to let Wagnerintervene in FCA case brought by the governmentafter she had voluntarily dismissed a qui tamcomplaint alleging the same wrongdoing as thegovernment’s later filed complaint.

(4) In United States ex rel. Merena v. SmithklineBeecham Corp., 2000 WL 1231435 (E.D. Pa. Aug. 3,2000), the court found a relator, Robinson, to be an“original source” but denied him a share of theaward because a different relator had filed anaction involving the same underlying facts onemonth and three days earlier. Based on thisfinding, the court dismissed Robinson’s claim eventhough the government had already intervened inhis case.

g. If the government declines to intervene initially, the courtmay permit the government to intervene at a later timeupon a showing of good cause. § 3730(c)(3); United Statesex rel. Kelly v. Boeing Co., 9 F.3d 743, 746 (9th Cir. 1993),cert. denied, 510 U.S. 1140 (1994).

h. The defendant has 20 days from unsealing and service ofthe complaint to respond. § 3730(b)(3).

2. Rights of the parties to qui tam actions

h. The government, if it proceeds, has theprimary responsibility for the action and isnot bound by any action of the qui tamplaintiff. § 3730(c)(1).

i. The government may dismiss the action overthe objection of the qui tam plaintiff after thecourt has provided the qui tam plaintiff withan opportunity for a hearing on the motion.§ 3730(c)(2)(A); see United States ex rel.Sequoia Orange Co. v. Baird-Neece PackingCorp., 151 F.3d 1139, 1144-45 (9th Cir. 1998),cert. denied, 119 S. Ct. 794 (1999) (permittinggovernment intervention and dismissal ofadmittedly meritorious suit where dismissalwas based on valid government purpose ofeliminating legal battles in the citrusindustry and not on improper factors).

j. If the court determines a settlement to be fairafter a hearing, the government may settlethe case over the objection of the qui tamplaintiff. §3730(c)(2)(B).

k. The court may restrict the participation ofthe qui tam plaintiff:

(1) Upon a showing by the government thatunrestricted participation wouldinterfere with the case, unduly delaythe case, or be repetitious, irrelevant, orfor purposes of harassment.§ 3730(c)(2)(C).

(2) Upon a showing by the defendant thatunrestricted participation would be forpurposes of harassment or would causethe defendant undue burden orunnecessary expense. § 3730(c)(2)(C).

l. The court may stay discovery by the qui tamplaintiff, initially for 60 days, upon a showingby the government that discovery wouldinterfere with the government’s investigationor prosecution arising from the same facts.§ 3730(c)(4).

The court may extend the 60 day period upona further showing by the government.§ 3730(c)(4).

m. The government may elect to pursue its claimthrough an alternate remedy, includingadministrative proceedings. § 3730(c)(5).

n. The qui tam plaintiff has the same rights inthat proceeding as he would in the falseclaims action. § 3730(c)(5).

Final findings of fact or conclusions of law inthat proceeding are conclusive on all partiesin an action under the False Claims Act.§ 3730(c)(5).

3. Award to qui tam plaintiff

o. If the government proceeds with the action,the qui tam plaintiff shall receive: (1) 15 to 25percent of the proceeds or settlementdepending on his contribution to the action;and (2) reasonable expenses and attorneys’fees and costs. § 3730(d)(1).

(1) Where defendant agreed to settle caseincluding count in which governmentdid not intervene, it could not claimattorneys’ fees it must pay wereunreasonable on the ground thatplaintiff relator would have lost oncount on which government did notintervene. United States ex rel.Fallon v. Accudyne Corp., 97 F.3d 937,940 (7th Cir. 1996) (court refuses to letAccudyne “weasel out” of its bargain).

(2) Once the relator requests attorney’s fees, he does soon behalf of the attorney and the fees should bepaid by the defendant to such counsel, not to therelator. United States ex rel. Virani v. Jerry M.Lewis Truck Parts & Equip., Inc., 89 F.3d 574, 580(9th Cir. 1996), cert. denied sub nom. United Statesex rel. Virani v. Hall & Phillips, 519 U.S. 1109(1997) and sub nom. Jerry M. Lewis Truck Parts &Equip., Inc. v. Hall & Phillips, 519 U.S. 1109(1997).

(3) If the court finds that action is primarily based ondisclosures of specific information obtained fromproceedings or reports other than informationoriginally provided by the qui tam plaintiff, thenthe qui tam plaintiff shall receive not in excess of10 percent of the proceeds based on the significanceof the information he provides and his role in thelitigation. § 3730(d)(1); see United States ex rel.Merena v. Smithkline Beecham Corp., 2000 WL1231435 (E.D. Pa. Aug. 3, 2000) (awarding full 10percent share after reluctantly concluding that theaction was primarily based publicly disclosedinformation).

(4) Law firm’s allegation that government’s separatecase against defendant insurance company wasbased upon allegations law firm had made in quitam case, even if true, would not entitle law firm toshare of proceeds gained by government in theseparate action, as law firm was found not to be aproper relator in the qui tam case it had filed. Thecourt holds that only a proper relator is entitled toshare in proceeds of government’s recovery.Stinson, Lyons & Bustamonte, P.A. v. UnitedStates, 79 F.3d 136, 138 (Fed. Cir. 1996); seeFederal Recovery Services, Inc. v. United States, 72F.3d 447, 451-52 (5th Cir. 1995).

(5) The amount actually received by the federalgovernment, not the lump sum of the judgment, isthe amount on which the relator’s share isdetermined. United States ex rel. Fox v. Northwest

Nephrology Assocs., P.S., 87 F. Supp. 2d 1103 (E.D.Wash. 2000).

(6) The proceeds of a settlement of an FCA claimordinarily should include the value of releasedclaims if they are released in return for thegovernment’s release of FCA claims. United Statesv. United States ex rel. Thornton, 207 F.3d 769 (5th

Cir. 2000).

(7) Relators’ claims must be analyzed separately todetermine how much they should receive from theproceeds of the FCA action. But where their claimsmust be dismissed under the public disclosurejurisdiction exception, they would be entitled tonothing even though the government intervened intheir complaints. United States ex rel. Merena v.Smithkline Beecham Corp., 205 F.3d 97 (3d Cir.2000).

b. If the government does not proceed, the quitam plaintiff shall receive: (1) 25 to 30percent of the proceeds or settlement; and (2)reasonable expense and attorneys’ fees andcosts. § 3730(d)(2).

(1) Relator’s attempt through writ of garnishment tocollect judgment against defendant from moniesdue it from the federal government fails becausethe government has not waived sovereignimmunity. Nor does FCA confer to relator thegovernment’s debt collection power. Shaw v.United States, 213 F.3d 545 (10th Cir. 2000).

(2) In United States ex rel. Poulton v. AnesthesiaAssocs. of Burlington, Inc., 87 F. Supp. 2d 351 (D.Vt. 2000), the court awarded as attorney fees thelodestar amount plus 10 percent to account forlitigation risk.

p. If the qui tam plaintiff planned or initiatedthe violation upon which the suit wasbrought, the court may reduce the plaintiff’s

share of the proceeds taking into account therole of the qui tam plaintiff in advancing thecase to litigation and any other relevantcircumstances pertaining to the violation.However, if the qui tam plaintiff is convictedof criminal conduct arising from theviolation, then the qui tam plaintiff isdismissed from the civil action and will notreceive a share of the proceeds. § 3730(d)(3).

4. Protection for the qui tam defendant

a. If the claim was clearly frivolous, clearlyvexatious, or brought primarily for purposesof harassment, and if the government doesnot proceed with the action and thedefendant prevails, then the defendant maybe awarded reasonable attorneys’ fees andexpenses. § 3730(d)(4); see Stewart v. FleetFinancial, 2000 WL 1176881 (6th Cir. Aug. 10,2000) (upholding award of reasonableattorney fees and costs after dismissingclearly frivolous and vexatious lawsuit, andfurther upholding injunction requiringrelator to post $25,000 bond before filing anyfurther lawsuits against any defendant orjudicial officer or employee); cf. United Statesex rel. Mikes v. Straus, 98 F. Supp. 2d 517(S.D.N.Y. 2000) (denying fees and costs to oneof three defendants on some of plaintiff’sclaims due to that defendant’s falsetestimony).

b. Under Rule 54(d)(1), the prevailing party is generallyentitled to costs except against the government. InUnited States ex rel. Berge v. Regents of the Univ. ofAlabama, 203 F.3d 824 (4th Cir. 2000), the court held thatthe FCA did not waive the government’s sovereignimmunity from bearing such costs where it did not pursuethe case on the merits. Thus the relator had to pay thecosts to the defendants.

2. Certain actions are barred

a. No action can be brought by a former orpresent member of the armed services againsta member of the armed services for actionswhile serving in the armed services.§ 3730(e)(1).

b. No action can be brought against a member ofCongress, a member of the judiciary or asenior level executive branch official if theaction is based on information known to thegovernment at the time the action is filed.§ 3730(e)(2).

c. No action can be brought based on allegationsthat are the subject of a civil oradministrative proceeding in which thegovernment is already a party. § 3730(e)(3).

In United States ex rel. Costner v. URSConsultants, Inc., 153 F.3d 667 (8th Cir. 1998),the fact that EPA was involved in prior suitover clean-up activity at a particular site wasno bar to jurisdiction as the FCA suit wasbased on allegations of fraud that governmenthad not attempted to remedy.

d. No action can be brought based on publiclydisclosed allegations or transactions unlessthe action is brought by the attorney generalor by the qui tam plaintiff who is the originalsource of the information. § 3730(e)(4)(A).

C. Retaliation By Employers

1. Retaliatory actions against employees because ofparticipation in, or furtherance of, an action underthe False Claims Act entitles the employee to allrelief to make him whole:

e. Reinstatement with the same seniority,§ 3730(h);

f. Double the amount of back pay plus intereston back pay, § 3730(h); and,

g. Special damages including litigation costsand reasonable attorneys’ fees. § 3730(h).

B. Miscellaneous

1. A subpoena requiring a witness at a trial or hearingmay be served any place in the United States.§ 3731(a).

2. The statute of limitations is the longer of (1) sixyears from the date of the violation or (2) threeyears from the date when the material facts areknown or reasonably should have been known bythe official of the United States charged withresponsibility to act in the circumstances, but in noevent more than 10 years after the date of theviolation. § 3731(b).

a. The equitable tolling provisions are for thebenefit not only of the government, but alsofor the relator, but even so, relator mustbring suit within three years of when heknew or should have known of facts materialto the right of action, otherwise he could letthe charges accrue for the full 10 years beforebringing them to the attention of agovernment official. United States ex rel.Hyatt v. Northrop Corp., 91 F.3d 1211, 1214(9th Cir. 1996); accord, United States ex rel.Saaf v. Lehman Brothers, 123 F.3d 1307 (9thCir. 1997).

a. In United States v. Van Oosterhout, 96 F.3d1491, 1494 (D.C. Cir. 1996), the court ofappeals affirmed the district court’s dismissalon statute of limitations grounds. The courtstated that the event of the “claim” occurredwhen the SBA transferred the debtor toliquidation status and thereby becameobligated to the lender.

2. The standard of proof is preponderance of theevidence. § 3731(c).

3. A verdict after trial, plea of guilty, or plea of nolocontendere in a criminal case results in collateralestoppel in a civil false claims action. § 3731(d).

D. Jurisdiction And Venue

4. The action can be brought in any judicial district inwhich any of the defendants can be found, resides,or transacts business, or any judicial district inwhich any act violating the False Claims Actoccurred. § 3732(a).

a. The summons may be served at any place inthe world. § 3732(a).

a. Although title of § 3732 is “False claimsjurisdiction,” it is really only a venueprovision. United States ex rel. Thistlewaite v.Dowty Woodville Polymer, Ltd., 110 F.3d 861,866 (2d Cir.), on remand, 976 F. Supp. 207(S.D.N.Y. 1997).

2. The district court has jurisdiction over any actionunder state law for recovery of funds paid by astate or local government if the action arises fromthe same transaction or occurrence as the actionbrought under the False Claims Act. § 3732(b).

3. In Vermont Agency of Natural Resources v. UnitedStates ex rel. Stevens, 120 S. Ct 1858 (2000), theSupreme Court, resolving a circuit split, held that astate is not a “person” subject to liability within themeaning of the FCA in a qui tam suit in which thegovernment does not intervene. The Courtexpressed no opinion on the state’s EleventhAmendment immunity.

4. In United States v. Marovic, 69 F. Supp. 2d 190 (N.D. Cal. 1999),the court dismissed the government’s common law countsagainst prime contractors who unknowingly passed on asubcontractor’s allegedly false invoices. The court ruled that the

common law claims were not intimately bound up with the FCAcase against the subcontractor, and therefore its jurisdiction waspreempted by the Contract Disputes Act, 41 U.S.C. § 605(a).

THE PUBLIC DISCLOSURE BAR

E. The Jurisdictional Bar Based Upon Public Disclosure(31 U.S.C. § 3730(e)) Applies If The Action:

5. is based upon a public disclosure

6. of allegations or transactions

7. in a criminal, civil or administrative hearing, in acongressional, administrative or GovernmentAccounting Office report, audit, or investigation, orfrom the news media.

8. unless it is brought by the Attorney General or thequi tam plaintiff who is an original source of theinformation.

C. The “Public Disclosure” Bar

1. Discovery between two civil litigants when theinformation is not filed with the court is not apublic disclosure. United States ex rel. Mathews v.Bank of Farmington, 166 F.3d 853, 860 (7th Cir.1999); United States ex rel. Springfield TerminalRailway Co. v. Quinn, 14 F.3d 645, 652-53 (D.C. Cir.1994). But see United States ex rel. Mistick PBT v.Housing Authority of Pittsburgh, 186 F.3d 376 (3dCir. 1999) (holding civil deposition testimony was apublic disclosure without discussing whether thedeposition was publicly filed in the court).

2. Information in court records which the relatorattorney was barred by a protective order fromdisclosing, but were not in fact sealed, was publiclydisclosed because it was available to anyone whowished to consult the court file. United States exrel. Kreindler & Kreindler v. United TechnologiesCorp., 985 F.2d 1148, 1158 (2d Cir.), cert. denied, 508U.S. 973 (1993); see United States ex rel. Harshmanv. Alcan Elec. & Eng’g, Inc., 197 F.3d 1014 (9th Cir.

1999) (holding previous filing in unrelatedcomplaint was a public disclosure even though theearlier complaint did not identify the allegedwrongdoers).

a. Allegations made in an administrative complaint not filedunder seal were publicly disclosed within the meaning ofthe FCA. Grayson, United States ex rel. v. Advanced Mgt.Technology, Inc., 221 F.3d 580 (4th Cir. 2000).

3. If all allegations save one were previously publiclydisclosed in the media, the one will not escape thejurisdictional bar where the one new allegationwas deduced from previously disclosed facts and apublicly available federal quality assurancespecification. United States ex rel. LeBlanc v.Raytheon Co., 874 F. Supp. 35, 38-39 (D. Mass.), aff’d,62 F.3d 1411 (1st Cir. 1995), cert. denied, 516 U.S.1140 (1996).

a. A relator’s unique ability to recognize the legalconsequences of a publicly disclosed fraudulenttransaction does not remove the public disclosure bar.A-1 Ambulance Service, Inc. v. California, 202 F.3d 1238,1245 (9th Cir. 2000); see United States ex rel. Settlemire v.District of Columbia, 198 F.3d 913, 919 (D.C. Cir. 1999);United States ex rel. Findley v. FPC-Boron Employees’Club, 105 F.3d 675, 688 (D.C. Cir. 1997).

4. A General Accounting Office audit report whichcriticized insurers including Blue Cross and BlueShield of Florida did not trigger the jurisdictionalbar because the report did not constitute a publicdisclosure of transactions or allegations thatBCBSF knowingly violated the law. United Statesex rel. Cooper v. Blue Cross & Blue Shield ofFlorida, 19 F.3d 562, 567 (11th Cir. 1994).

5. Where each of several documents failed to meet atleast one of the four elements of the jurisdictionalbar, the bar was not triggered. United States ex rel.Lindenthal v. General Dynamics Corp., 61 F.3d 1402,1409 (9th Cir. 1995), cert. denied sub nom. United

States ex rel. Willis v. General Dynamics Corp., 517U.S. 1104 (1996) (setting forth four elements of thepublic disclosure jurisdictional bar).

6. The Fourth Circuit held that a relator’s action isbased upon publicly disclosed allegations onlywhere the relator actually derives the allegationsin his action from the public disclosure. UnitedStates ex rel. Siller v. Becton Dickinson & Co., 21F.3d 1339, 1349 (4th Cir.), cert. denied, 513 U.S. 928(1994); accord, United States ex rel. Mathews v.Bank of Farmington, 166 F.3d 853, 863-64 (7th Cir.1999).

In Siller, the court criticized those courts whichinterpreted “based upon public disclosure” to applywhen a relator’s allegations are the same orsubstantially similar to those that have beenpublicly disclosed regardless of whether the relatoractually derived his information from the publicdisclosure. Compare United States ex rel. Doe v.Doe Corp., 960 F.2d 318, 323 (2d Cir. 1992); UnitedStates ex rel. Kreindler & Kreindler v. UnitedTechnologies Corp., 985 F.2d 1148, 1158 (2d Cir.),cert. denied, 508 U.S. 973 (1993); United States ex rel.Precision Co. v. Koch Industries, Inc., 971 F.2d 548(10th Cir. 1992), cert. denied, 507 U.S. 951 (1993);United States ex rel. Springfield Terminal Ry. Co. v.Quinn, 14 F.3d 645 (D.C. Cir. 1994); Siller at 1349.See also United States ex rel. Mistick PBT v.Housing Authority of Pittsburgh, 186 F.3d 376 (3dCir. 1999); United States ex rel. Jones v. HorizonHealthcare Corp., 160 F.3d 326, 332-33 (6th Cir. 1998);United States ex rel. Biddle v. Board of Trustees ofLeland Stanford, Jr. University, 147 F.3d 821, 828-29(9th Cir. 1998); United States ex rel. McKenzie v.BellSouth Communications, Inc., 123 F.3d 935 (6thCir. 1997), cert. denied, 118 S. Ct. 855 (1998); UnitedStates ex rel. Ackley v. International BusinessMachines Corp., 76 F. Supp. 2d 654 (D. Md. 1999)(holding complaint partially based on publicdisclosures is subject to jurisdictional bar).

1. Newspaper articles revealing the financial woes ofa pension fund were not sufficient to trigger thejurisdictional bar in a qui tam action brought byshareholders of the fund’s parent corporationalleging fraudulent activities designed to shiftpension liabilities to the Pension Benefit GuarantyCorporation. United States ex rel. Rabushka v.Crane Co., 40 F.3d 1509, 1512-13 (11th Cir. 1994),cert. denied, 515 U.S. 1142 (1995), appeal afterremand, 122 F.3d 559 (8th Cir. 1997), cert. denied,118 S. Ct. 1336 (1998).

2. Where an employee found evidence that heremployer had submitted phony Medicaid billingsand a state agency in a report later made similarfindings, the employee was still allowed to bringsuit as a relator as the report, although accessibleby the public under certain conditions, had notbeen made public and the report’s disclosure toemployees of defendant, who had no incentive toreport publicly on its allegations, likewise was nota public disclosure. United States ex rel.Ramseyer v. Century Healthcare Corp., 90 F.3d 1514,1520-21 (10th Cir. 1996). But see United States exrel. Doe v. John Doe Corp., 960 F.2d 318 (2d Cir.1992).

3. The Third Circuit has held that newspaper articlesand audit reports revealed the actual facts and thata HUD Grantee Performance Report (“GPR”) whichfalsely failed to list certain income combined tomake public the inference of fraud regarding thetransaction on which the qui tam suit was based.Nevertheless, the court of appeals, reversing thedistrict court, permitted the suit to proceed,holding that the FCA precludes suits based onpublic disclosures in administrative reports, butsuch reports must be produced by federalgovernment sources, not as here the allegedlydefrauding party. United States ex rel. Dunleavy v.County of Delaware, 123 F.3d 734 (3d Cir. 1997); seeUnited States ex rel. Hansen v. Cargill, Inc., 2000

WL 1060451 (N.D. Cal. July 24, 2000) (holdingdisclosure of fraud allegations in stateadministrative investigation does not satisfy publicdisclosure bar); cf. A-1 Ambulance Service, Inc. v.California, 202 F.3d 1238 (9th Cir. 2000) (findingpublic disclosure in a local administrativeproceeding warranted the application of the publicdisclosure bar, and distinguishing Dunleavy onbasis that disclosure in a report, as opposed to ahearing, must be from a federal source).

4. Information disclosed in Inspector General’ssemiannual report to Congress is a publicdisclosure within the meaning of § 3730(e). SeeUnited States ex rel. Hochman v. Nackman, 145 F.3d1069, 1072 (9th Cir. 1998).

11. Disclosure of previously undisclosed loan guaranty togovernment official responsible for managing the guaranty inresponse to his question about why he was subpoenaed for adeposition in a suit between guarantor and bank was a publicdisclosure in an “administrative investigation” within themeaning of 31 U.S.C. § 3730(e)(4)(A). United States ex rel.Mathews v. Bank of Farmington, 166 F.3d 853, 862 (7th Cir.1999); see United States ex rel. Ben-Shlush v. St Luke’s-RooseveltHosp., 2000 WL 169895 (S.D.N.Y. March 10, 2000) (statingpublic disclosure must be to official with direct responsibility forthe claims being made).

12. Information disclosed in response to FOIA request is a publicdisclosure in an administrative report within section 3730(e)’sjurisdictional bar to suits based on publicly disclosed allegationsor transactions. United States ex rel. Mistick PBT v. HousingAuthority of Pittsburgh, 186 F.3d 376 (3d Cir. 1999).

13. Whether or not the government intervenes in a qui tam suit, arelator who is not an original source is subject to the publicdisclosure jurisdictional bar and may not proceed with his case.Eitel v. United States, No. 99-35099, 2000 U. S. App. LEXIS26123 (9th Cir. Oct. 16, 2000), aff’g, United States ex rel. Eitel v.Reagan, 35 F. Supp. 2d 1151 (D. Ariz. 1998); Federal RecoveryServices, Inc. v. United States, 72 F.3d 447, 449 n.1 (5th Cir.1995); see United States ex rel. Merena v. Smithkline Beecham

Corp., 205 F.3d 97, 103 (3d Cir. 2000) (stating that the relevantquestion was whether the FCA authorized an award to a relatorwhere despite intervention by the government his claim wassubject to the public disclosure bar).

F. Cases On The “Original Source” Exception,§ 3730(e)(4)(B), To The Public Disclosure Bar

1. The statute defines “original source” as “anindividual who has direct and independentknowledge of the information on which theallegations are based and has voluntarily providedthe information to the Government before filing [aqui tam] action . . . which is based on theinformation.” § 3730(e)(4)(B).

a. In United States ex rel. Hafter v. Spectrum EmergencyCare, Inc., 190 F.3d 1156, 1162 (10th Cir. 1999), the courtmade clear that conclusory allegations of direct andindependent knowledge are insufficient to establish theserequirements of “original source.”

2. Application of the plaintiff’s expertise to previouslydisclosed facts does not qualify the plaintiff as anoriginal source. United States ex rel. LeBlanc vRaytheon Co., 874 F. Supp. 35 (D. Mass.),aff’d, 62 F.3d 1411 (1st Cir. 1995), cert. denied, 516 U.S.

1140 (1996).

3. A relator who began with innocuous publicinformation, but bridged the gap with informationindependent of the public information, was anoriginal source. United States ex rel. SpringfieldTerminal Railway Co. v. Quinn, 14 F.3d 645, 652-53(D.C. Cir. 1994). But where part of allegation wasbased on publicly disclosed information and therest was not difficult to unveil, the relator failed tosatisfy the “independent knowledge” requirementof “original source.” United States ex rel. Mathewsv. Bank of Farmington, 163 F.3d 853, 864-65 (7th Cir.1999). Moreover, relators who did not “see thefraud with their own eyes or obtain theirknowledge of it through their own labor

unmediated by anything else . . .” do not qualify asan “original source” as their knowledge is not“direct.” The fact that these relators confirmedinformation they received from the person withdirect knowledge did not change the outcome, asthe relators did not make “a genuinely valuablecontribution to the exposure of the alleged fraud.”United States ex rel. Devlin v. California, 84 F.3d358, 361-62 (9th Cir. 1996); see United States ex relMistick PBT v. Housing Authority of Pittsburgh,186 F.3d 376 (3d Cir. 1999); United States ex rel.Hansen v. Cargill, Inc., 2000 WL. 1060451 (N.D. Cal.July 24, 2000).

4. In United States ex rel. Mathews v. Bank of Farmington, 166F.3d 853, 866 (7th Cir. 1999), the court held that satisfying therequirement to file a written statement of material evidence isinsufficient to meet the separate requirement to voluntarilyprovide the government information about the allegations onwhich the suit is based; see United States ex rel. Ackley v.International Business Machines Corp., 76 F. Supp. 2d 654, 668(D. Md. 1999) (holding that “quite likely two weeks” in advanceof filing complaint would satisfy the voluntary submission to thegovernment requirement).

5. In contrast to the view held by other circuits, the Fourth Circuitdecided that the qui tam plaintiff need not be the original sourceof the information provided to the disclosing entity to qualify forthe original source exception. The court stated that the originalsource exception requires only that the relator have direct andindependent knowledge of the allegations and voluntarilyprovide the information to the government before filing suit.United States ex rel. Siller v Becton Dickinson & Co., 21 F.3d1339 (4th Cir.), cert. denied, 513 U.S. 928 (1994); accord, UnitedStates ex rel. Mathews v. Bank of Farmington, 166 F.3d 853,864-65 (7th Cir. 1999); United States ex rel. Fine v. AdvancedSciences, Inc., 99 F.3d 1000, 1006-07 (10th Cir. 1996); UnitedStates ex rel. Stinson v. Prudential Ins. Co., 944 F.2d 1149, 1160(3d Cir. 1991); United States ex rel. Merena v. SmithklineBeecham Corp., 2000 WL 1231435 (E.D. Pa. Aug. 3, 2000)(rejecting government argument that to be an original sourcerelator must have made a voluntary disclosure to thegovernment before the public disclosure of his allegations);

United States ex rel. Butler v. Magellan Health Svcs., Inc., 74 F.Supp. 2d 1201, 1212 (M.D. Fla. 1999).

a. But see United States ex rel. Kreindler &Kreindler v. United Technologies Corp., 985F.2d 1148,1159 (2d Cir.), cert. denied, 508 U.S.973 (1993), stating “there is an additionalrequirement that a qui tam plaintiff mustmeet in order to be considered an “originalsource” namely, a plaintiff also must havedirectly or indirectly had a hand in the publicdisclosure of the allegations on which the suitis based.” ); accord, United States ex rel. Lujanv. Hughes Aircraft Co., 162 F.3d 1027, 1034 (9th

Cir. 1998); Wang v. FMC Corp., 975 F.2d 1412,1418 (9th Cir. 1992); United States ex rel. Dickv. Long Island Lighting Co., 912 F.2d 13 (2dCir. 1990).

a. The District of Columbia Circuit in UnitedStates ex rel. Findley v. FPC-Boron Employees’Club, 105 F.3d 675, 690-91 (D.C. Cir. 1997), cert.denied, 118 S. Ct. 172 (1997), took a thirdapproach. To be an original source, a relatormust have first-hand knowledge (direct) andknow the information without reliance ordependence on public disclosures(independent). The relator must also haveinformed the government (not the disclosingentity) before the information becomes publicto qualify as an original source; accord,United States ex rel. Settlemire v. District ofColumbia, 198 F.3d 913, 920 (D.C. Cir. 1999);United States ex rel. Jones v. HorizonHealthcare Corp., 160 F.3d 326, 334-35 (6th Cir1998) (holding that allegations must bereported to federal government, not state,before public disclosure); United States ex rel.McKenzie v. BellSouth Telecommunications,Inc., 123 F.3d 935 (6th Cir. 1997), cert. denied,118 S. Ct. 855 (1998).

6. A retired Inspector General auditor who based his qui tamaction on audit working papers and other financial records hereviewed in the course of his employment was not an originalsource, as his provision of information to the government, hisemployer, was not “voluntary” within meaning of FCA. UnitedStates ex rel. Fine v. Chevron, USA., Inc., 72 F.3d 740, 744 (9thCir. 1995) (en banc), cert. denied, 116 S. Ct. 1877 (1996); seeUnited States ex rel. Biddle v. Board of Trustees of LelandStanford, Jr. University, 147 F.3d 821, 830-32 (9th Cir. 1998)(ACO does not act “voluntarily” in bringing fraud allegations, asdoing so is part of his job).

This same auditor was not successful in bringingsuit in New Mexico where the district courtdismissed allegations based on an audit reportwhich had been publicly disclosed to a stategovernment. Therefore, in the view of this court,the auditor did not qualify as an original source asto these allegations. United States ex rel. Fine v.MK-Ferguson Co., 861 F. Supp. 1544 (D.N.M. 1994),aff’d, 99 F.3d 1538, 1544-45 (10th Cir. 1996); seeUnited States ex rel. Fine v. Advanced Sciences, Inc.,99 F.3d 1000, 1005-07 (10th Cir. 1996) (affirminggrant of summary judgment on ground thatdisclosure of transaction occurred in a statutorilyidentified source, audit reports, and that therelator made them public in a letter to thecontracting officer, a stranger to the fraud. Thecourt also held that relator was not an originalsource because his knowledge was derivative of theinformation of the original auditors).

III. CASES ON RETROSPECTIVE APPLICATION OF THE 1986AMENDMENTS TO THE FCA

A. In Hughes Aircraft Co. v. United States ex rel. Schumer, 520 U.S.939, on remand, 119 F.3d 796 (9th Cir. 1997), the SupremeCourt refused to give retroactive effect to the 1986 FCAamendment which permits a qui tam relator to proceed with asuit even though the government had the information on whichthe suit was based already in its possession. The Court heldthat although the 1986 amendment did not subject thedefendant to greater penalties than previously existed, the

amendment nonetheless created a new cause of action wherenone in these circumstances previously existed and thusattached a new disability with respect to completedtransactions. Id. at 1877.

1. In United States ex rel. Cantekin v. University of Pittsburgh, 192F.3d 402 (3d Cir. 1999), cert. denied, 2000 WL 1210687 (U.S.Oct. 2, 2000), the court concluded that in determining whetherthe pre-1986 version of the Act applied, the relevant fact waswhen the Act was violated not when the government hadknowledge of the violation. Thus, even though the governmentgained knowledge after 1986 of false claims filed before, since ithad that knowledge before the suit was filed in 1991 that part ofthe action was barred; United States ex rel. Newsham v.Lockheed Missiles & Space Co., 190 F.3d 963, 968-69 (9th Cir.1999) (both false claim and disclosure to government occurredbefore the 1986 amendments, thus barring suit).

D. Where a company made its decision to fire employee before 1986FCA amendments, even if done in retaliation for givinginformation to the government, there can be no whistleblowerclaim under section 3730(h) as that provision is not retroactive.Hyatt v. Northrop Corp., 80 F.3d 1425 (9th Cir. 1996), opinionwithdrawn in part, reinstated in part, 137 F.3d 1179 (9th Cir.1998).

E. Reverse false claim provision found in § 3729(a)(7) is held to benot retroactive by the Eighth Circuit. Rabusbka ex rel. UnitedStates v. Crane Co., 40 F.3d 1509 (8th Cir. 1994), cert. denied,515 S. Ct. 1142 (1995), appeal after remand, 122 F. 3d 559 (8th

Cir. 1997), cert. denied, 118 S. Ct. 1336 (1998).

II. Developments on Settlements

A. An integrated plea agreement stating that it is the parties’entire agreement precludes the receipt of parole evidence as tothe meaning of the agreement and therefore the court of appealsheld that the contractor could not stop the government fromchanging its previous decision not to intervene in a qui tam suitknown to the parties at time of a plea agreement. Language inthe plea agreement that the government had decided not tointervene was found to be a statement of fact, not a binding

promise. United States v. Rockwell Int’l Corp., 124 F.3d 1194,1200 (10th Cir. 1997), cert. denied, 118 S. Ct. 1559 (1998).

B. A “general release” of all claims against a company executed bya former employee, without the consent of the government, insettlement of an action brought in state court is not enforceablein a subsequent qui tam action under the FCA. United States exrel. Green v. Northrop Corp., 59 F.3d 953 (9th Cir. 1995), cert.denied, 518 U.S. 1018 (1996); see United States v. Brekke, 97F.3d 1043 (8th Cir. 1996), cert. denied, 117 S. Ct. 1281 (1997),appeal after remand, 152 F.3d 1042 (8th Cir. 1998), in whichrelease of all claims by SBA in civil FCA case held not topreclude subsequent filing of criminal case based on same facts.The Brekke court also held the civil settlement did not warrantissue or claim preclusion in the criminal case. But see UnitedStates ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230,233 (9th Cir. 1997) (distinguishing Green on ground that thegovernment was aware of the allegations Hall had maderegarding defendant’s alleged false certifications and thereforerelator’s qui tam suit was dismissed as encompassed in statecourt release of all claims).

C. The government may not both withhold its consent to thesettlement and refuse to intervene, and thus force the relatorand defendant to continue the litigation when they want tosettle. However, the government may, upon a showing of goodcause and without intervening, object to a settlement. UnitedStates ex rel. Killingsworth v. Northrop Corp., 25 F.3d 715, 724(9th Cir. 1994), appeal after remand, 69 F.3d 545 (9th Cir. 1995),cert. denied, 516 U.S. 928 (1996).

D. A relator is entitled to discovery in a hearing over the relator’sobjection to a proposed settlement. United States ex rel.McCoy v. California Medical Review, Inc., 133 F.R.D. 143, 148-49 (N.D. Cal. 1990).

E. Administrative settlement does not preclude qui tam relator’sright to pursue separate FCA claim. United States ex rel.Dunleavy v. County of Delaware, 123 F.3d 734 (3d Cir. 1997)(citing 31 U.S.C. § 3730(c)(5)).

F. In United States ex rel. Gibeault v. Texas Instruments Corp., 104F.3d 276 (9th Cir. 1997), cert. denied sub nom. Law Offices of

Herbert Hafif v. United States, 520 U.S. 1252 (1997), the NinthCircuit held a law firm jointly and severally liable to thegovernment for a portion of a settlement turned over by the firmto the relators, despite the fact the settlement amount waslabeled by the parties “legal fees.”

G. In United States ex rel. Barajas v. Northrop Corp., 147 F.3d 905(9th Cir. 1998), the court upheld dismissal on res judicatagrounds of a severed portion of the relator’s complaint. Thecourt said that although relator reserved the right to pursue his“cold temperature” claim after the government settled theadmitted “false testing” claim, the reservation was to no effectbecause even though the claim for payment for the flight datarecorders might have been false for different reasons, there wasonly one false claim and that matter was resolved by settlement.

H. In United States ex rel. Sharma v. University of Southern California,217 F.3d 1141 (9th Cir. 2000), despite settlement agreement languagedeclaring the agreement null and void if district court did not acceptthe agreement as written, the court of appeals affirmed the districtcourt’s modification which excluded the inclusion in the agreement ofattorney fees and costs as part of the proceeds of the FCA case onwhich the relator’s 30 percent share was calculated.

MISCELLANEOUS DEVELOPMENTS

H. During settlement negotiations, when rejecting thegovernment’s offer to settle, the defendant wrote a letter to thegovernment which stated that its position was based on legaladvice of in-house counsel and attached a copy of an internalmemorandum containing the advice and signed by one of itsattorneys. The court ruled that the defendant had therebywaived its attorney-client privilege regarding documentscontaining such advice. United States ex rel. Mayman v. MartinMarietta Corp., 886 F. Supp. 1243 (D. Md. 1995).

I. False representations, certifications, and claims that acontractor complied with environmental regulations as requiredby its contract with DOD can be the basis for a FCA action.United States ex rel. Fallon v. Accudyne Corp., 880 F. Supp. 636,637 (W.D. Wis. 1995), aff’d on other grounds, 97 F.3d 937 (7thCir. 1996).

J. A qui tam plaintiff’s action survives his death and can be carriedon by his personal representative. United States ex rel. Neher v.NEC Corp., 11 F.3d 136, 139 (11th Cir. 1994).

K. An in-house attorney under an injunction not to revealemployer’s confidences which were the basis of his qui tamaction could not serve as relator in this action, which thegovernment had settled with the employer, and hence could notshare in the settlement. “If the information contained in thecomplaint falls under the umbrella of materials and informationthat [the attorney] was enjoined from disclosing . . . then hecannot use the complaint to meet the requirements of section3730(b)(2).” United States ex rel. Doe v. X Corp., 862 F. Supp.1502, 1509 (E.D. Va. 1994).

L. Notice to the government of the defendant’s intent to engage inallegedly fraudulent activity will not stop the government frompursuing a FCA action based on that activity. The defendantdid not claim that a contract modification resulted from thenotification. United States ex rel. Mayman v. Martin MariettaCorp., 894 F. Supp. 218 (D. Md. 1995) (denial of motion todismiss).

M. Over the government’s objection, the Ninth Circuit ruled that arelator has 60 days, not 30, to notice an appeal from adversesummary judgment ruling as the government, even though ithas not intervened, is a party to the case. United States ex rel.Haycock v. Hughes Aircraft Co., 98 F.3d 1100 (9th Cir. 1996),opinion supplemented, 99 F.3d 1148, cert. denied, 117 S. Ct.1693, 1694 (1997); accord, United States ex rel. Russell v. EpicHealthcare Mgt. Group, 193 F.3d 304 (5th Cir. 1999). But seeUnited States ex rel. Petrofsky v. Van Cott, Bagley, Cornwall &McCarthy, 588 F.2d 1327 (10th Cir. 1978), cert. denied, 444 U.S.839 (1979).

N. Tax deductibility of settlement amount over single damageestimate depends on whether excess is meant to becompensatory or punitive. Even though the settlement amountwas less than double damages to which the government wasthen entitled, that fact alone was insufficient to establishcompensatory purpose which would make the deductionallowable. Talley Indus. Inc. v. Commissioner, 116 F.3d 382,388 (9th Cir. 1997).

O. In United States ex rel. O’Keefe v. McDonnell Douglas Corp., 132F.3d 1252 (8th Cir. 1998), the court upheld the district court’sruling that the Department of Justice attorneys were barredunder state ethics law adopted by the district court fromcontacting present employees of the defendant without firstcontacting and obtaining the consent of the defendant’s counsel.As to former employees, the court held that while notice andconsent were not required, the government had to maintain alist of all former employees interviewed and had to makeavailable to defendant their statements, notes and responses toquestions. The court declared that the government’s reliance on28 C.F.R. § 77.10(a), requiring notice only where the controlgroup was to be contacted, was misplaced, as the regulation wasnot authorized by any statute and therefore was invalid.

P. In United States ex rel. Plumbers & Steamfitters Local UnionNo. 342 v. Dan Caputo Co., 152 F.3d 1060 (9th Cir. 1998), thecourt acknowledged the doctrine of primary jurisdiction to allowfor a deferral to Department of Labor on issue of laborclassification under the Davis-Bacon Act, but said that suchdeferral warranted a stay rather than a dismissal of the qui tamsuit.

Q. In In re Special Grand Jury 89-2, 143 F.3d 565 (10th Cir. 1998),the court said that access to grand jury transcripts by qui tamrelator, the government and the defendant could only be gainedby showing a particularized need as to each witness rather thanextrapolating that memory loss of a few warranted disclosure ofall the transcripts. Additionally, redaction of irrelevant matteris duty of court, not counsel or the witness.

K. In United States v. Chevron, Inc., 186 F. 3d 644 (5th Cir. 1999), thecourt held enforceable an IG subpoena even though use of itcircumvented FCA protection afforded under civil demand procedure.

L. In In re Grand Jury Subpoena, 175 F.3d 332 (4th Cir. 1999), the FourthCircuit affirmed an order quashing a grand jury subpoena based onfindings that the subpoena was being used to circumvent a potentialstay of civil discovery.

M. The government got contract carriers to stay indefinitely overpaymentdeterminations in connection with defendants' pending Medicarereimbursement claims while the government pursued a separate FCA

case against the defendants. The district court’s writ of mandamusrequiring HCFA to have the carriers proceed with the overpaymentdeterminations was affirmed on appeal. United States ex rel. Rahmanv. Oncology Assocs., Inc., 204 F.3d 277 (4th Cir. 1999).

EMPLOYEE RELATORS

B. Incentives to Become Relator

1. Monetary windfall

1. Satisfy grudge against employer

2. Federal and state laws and some common lawwrongful discharge doctrines protect employees intheir whistleblowing activities from adverseemployment consequences.

C. Which Employees Are Possible Relators?

3. In general, under 31 U.S.C. § 3730, an employee maybe a relator so long as he or she does not fall withinone of the statutory exclusions in § 3730(e)(1)-(4).

4. Specific employees

a. Lawyers are not barred per se from serving asrelators against clients. E.g., United States exrel. Hagood v. Sonoma County Water Agency,929 F.2d 1416 (9th Cir. 1991), aff’d afterremand, 81 F.3d 1465, cert. denied, 519 U.S.865 (1996); United States ex rel. Doe v. X Corp.,862 F. Supp. 1502 (E.D. Va. 1994).

a. Government employees may sue as relatorsunless, under the particular circumstances,they fall within one of the § 3730(e)exclusions. E.g., Hagood, supra; Erickson v.American Inst. of Biological Sciences, 716F. Supp. 908, 913 (E.D. Va. 1989); United Statesex rel. LeBlanc v. Raytheon Co., 913 F.2d 17, 20(1st Cir. 1990), cert. denied, 499 U.S. 921 (1991);United States ex rel. Williams v. NEC Corp.,931 F.2d 1493, 1501-03 (11th Cir. 1991).

D. Protections Under 31 U.S.C. § 3730(h)

1. An employee who suffers adverse employmentaction from his employer because of his or herlawful acts in furtherance of a FCA action may filea claim in federal district court seeking all reliefnecessary to make him or her whole. § 3730(h).

5. To succeed in such a claim, the claimant must showthat (1) he or she is or was in fact an employee; (2)he or she was engaged in lawful acts in furtheranceof a FCA; (3) he or she suffered adverseemployment action; and (4) that there is a causallink between his or her lawful acts in furtheranceof a FCA action and the adverse employmentaction.

a. Who is an “employee” for purposes of§ 3730(h)?

(1) In general, common law agencydoctrine determines whether a personis an “employee” for § 3730(h) purposes.United States ex rel. Vessell v. DPSAssocs. of Charleston, Inc., 148 F.3d 407(4th Cir. 1998) (applying common lawagency principles, relator’s retaliationclaim properly denied as he was anindependent contractor, not anemployee. Only employees areprotected under the statute); Shapiro v.Sutherland, 835 F. Supp. 836, 837(E.D. Pa. 1993) (common law agency testapplies to whether individual who wasshareholder, officer, and director ofcorporation and brought suit under§ 3730(h) was employee or not);Godwin v. Visiting Nurse Ass’n HomeHealth Services, 831 F. Supp. 449, 453-454 (E.D. Pa. 1993), aff’d, 39 F.3d 1173(3d Cir. 1994) (whether bookkeeper-agent of nonprofit Medicare providerwho brought suit under § 3730(h) was

independent contractor or employeedepends on her actual relationship withthe provider and the applicable rules ofagency law, and not on the parties’characterization of their relationship);Hardin v. DuPont Scandinavia, 731F. Supp. 1202, 1205 (S.D.N.Y. 1990)(“employee” in § 3730(h) describes theconventional master-servantrelationship as understood by commonlaw agency doctrine; independentcontractors and partners are notemployees).

(1) Federal employees are not “employees”under this section. Daly v. Departmentof Energy, 741 F. Supp. 202, 204-05 (D.Colo. 1990) (§ 3730 is inapplicable tofederal employees because they areprotected by Civil Service Reform Actin their whistleblowing and otheremployment activities).

b. What are “lawful acts” in furtherance of anFCA action?

(1) In general, they include any acts doneby the employee on behalf of herself orothers that are in furtherance of anaction, including investigation for,initiation of, testimony for, orassistance in an actual or prospectiveFCA action. § 3730(h).

Even though employee was unaware ofFCA and its qui tam provisions andfurther was reluctant witness in ahearing related to employer’s allegedfalse claims, her assistance wasrendered at a time that an FCA actionwas a “distinct possibility” which is allthat is needed to satisfy the “action tobe filed” language of § 3730(h) barring

retaliation. Childree v. UAP/GA AGChem., Inc., 92 F.3d 1140, 1146 (11th Cir.1996); Eberhardt v. Integrated Design &Constr., Inc., 167 F.3d 861-69 (4th Cir.1999) (telling employer that billingswere illegal and that it was advisable toget counsel was sufficient to putemployer on notice that acts were infurtherance of FCA action); see UnitedStates ex rel. Yesudian v. HowardUniversity, 153 F.3d 731 (D.C. Cir. 1998)(even an investigation withoutcontemplation or knowledge of the FCAmay be sufficient to come within theprotection afforded by § 3730(h)). Butsee United States ex rel. McKenzieBellSouth Telecommunications, Inc., 217F.3d 508, 516 (6th Cir. 2000) (holding thatthe “in furtherance” language requiresmore than merely reportingwrongdoing to supervisors in casewhere plaintiff’s complaints weredirected to the stress she suffered fromthe alleged demand to falsify repairrecords not toward an investigationinto fraud on the government).

(2) Internal whistleblowing is a lawful actin furtherance of a FCA action. SeeNeal v. Honeywell Inc., 33 F.3d 860, 862-64 (7th Cir. 1994); Elliott v. Lake CountyCommunity Action Project, 2000 WL949746 (N.D. Ill. July 6, 2000) (denyingmotion to dismiss even though allegedwrongdoer was cleared after aninvestigation); Clemes v. Del NorteCounty Unified Sch. Dist., 843 F. Supp.583, 595-96 (N.D. Cal. 1994); UnitedStates ex rel. Kent v. Aiello, 836 F. Supp.720, 723-24 (E.D. Cal. 1993) cf. Luckey v.Baxter Healthcare Corp., 183 F.3d 730(7th Cir. 1999) (while investigation,testimony and litigation are protected,

suggestions for improvements are not tobe treated as precursors to litigation).

(3) In-house counsel relator was enjoinedfrom disclosing confidential companydocuments; however, preliminaryinjunction compelling return ofdocuments was not warranted. XCorp. v. Doe, 805 F. Supp. 1298 (E.D. Va.1992).

(4) In United States ex rel. Bustamonte v. UnitedWay/Crusade of Mercy, Inc., 2000 WL 190250 (N.D.Ill. May 25, 2000), the court dismissed a relator’sretaliation claim after first finding that allegedlyfraudulently obtained money was governmentemployees’ money, not government’s money.Consequently, permitting whistleblower suit toproceed would not further any FCA goal.

c. Adverse employment action includesdischarge, demotion, suspension, threats,harassment, or any other discrimination inthe terms and conditions of employment.§ 3730(h).

d. In order for there to be a causal link betweenthe employee’s protected activity and theadverse employment action, the employermust know of the employee’s actions infurtherance of a FCA action.

(4) No causal connection between in-housecounsel’s secret copying and removal ofdocuments from corporate employer’sfiles and his subsequent dischargebecause employer had no knowledge ofthe activity. X Corp. v. Doe, 816 F. Supp.1086, 1095-96 (E.D. Va. 1993).

(5) No causal connection between in-housecounsel’s expressions of concern andcirculation of memoranda regarding

employer’s regulatory compliance andhis subsequent discharge because thoseactions were within his job duties ofraising relevant legal issues. Id.;accord, United States ex rel. Hopper v.Anton, 91 F.3d 1261 (9th Cir. 1996), cert.denied, 519 U.S. 1115 (1997); UnitedStates ex rel. Ramseyer v. CenturyHealthcare Corp., 90 F.3d 1514, 1522-23(10th Cir. 1996).

(6) No causal connection betweenemployee’s voicing of concerns to hissuperiors about lack of verification foradditional charges to government andhis subsequent discharge when he gaveno indication that he felt that hisemployer might be defrauding thegovernment. Robertson v. BellHelicopter Textron, 32 F.3d 948, 952 (5thCir. 1994), cert. denied, 513 U.S. 1154(1995); see Zahodnick v. InternationalBusiness Machines Corp., 135 F.3d 911(4th Cir. 1997) (holding that reportingconcern to supervisor aboutmischarging does not suffice toestablish “in furtherance” requirement).

(7) Government contracting officer’sretaliation claim properly dismissed forfailure to plead that she was retaliatedagainst for taking steps in furtheranceof an FCA action and that hergovernment supervisors knew she wasso engaged. Kaminski v. TeledyneIndus., Inc., 121 F.3d 708 (6th Cir. 1997).

(5) In order to recover on a retaliation claim, plaintiffneeds to establish that his discharge was solelybecause of his protected activity. A “dual motiveexonerates the employer.” Norbeck v. Basin Elec.Power Cooperative, 215 F.3d 848 (8th Cir. 2000).

2. What constitutes “all relief” to make an employeewhole?

a. All relief necessary to make the employeewhole includes “reinstatement with the sameseniority status that the employee would havehad but for the adverse employment action,two times the amount of back pay, interest onthe back pay, and compensation for anyspecial damages sustained as a result of thediscrimination, including litigation costs andreasonable attorneys’ fees.” § 3730(h).

b. All relief does not include recovery that anemployee could have had in a qui tam suit.Neal v. Honeywell Inc., 33 F.3d 860, 864-65 (7thCir. 1994).

c. Where there is a finding of retaliatorydischarge, plaintiff is statutorily entitled toprejudgment interest on the back pay hemissed. Ebehardt v. Integrated Design &Constr., Inc., 167 F.3d 861, 872 (4th Cir. 1999).

d. “Special damages” permitted by the statute includedamages for emotional distress caused by the retaliatorydischarge. Neal v. Honeywell Inc., 191 F.3d 827 (7th Cir.1999).

e. “Reasonable attorneys fees” recoverable in retaliationaction as part of costs need not be based on actual costsbut on what is reasonable. Neal v. Honeywell Inc.,191 F. 3d 8276 (7th Cir. 1999).

f. In Hammond v. Northland Counseling Center, Inc., 218F.3d 886, 892 (8th Cir. 2000), the court, assuming as theparties did that damages were an element of an FCA case,concluded that it would have been improper to double theback pay award and then setoff that amount with amitigating amount. Since plaintiff on the day she wasfired got a new job that paid her a higher salary than theone she received from defendant, she suffered nopecuniary injury warranting a back pay award.

g. In United States ex rel. Falus v. Interamerican College ofPhysicians & Surgeons, Inc., 1999 WL 813473 (S.D.N. Y.Oct. 12, 1999), the court, in the context of a discoverydispute, ruled that entitlement to back pay award andinterest did not preclude a duty to mitigate damages andthus required plaintiff to turn over his tax returns.

3. What employers are subject to § 3730 (h) claims?

a. Past employers may be liable under § 3730(h)if they interfere with the claimant’ssubsequent employment and there is a causalconnection between that interference, theclaimant’s whistleblowing activities, and theclaimant’s discharge. United States ex rel.Kent v. Aiello, 836 F. Supp. 720 (E.D. Cal.1993).

b. A state government agency has been heldexempt from liability as an employer underthis section. United States ex rel. Moore v.University of Mich., 860 F. Supp. 400 (E.D.Mich. 1994) (state employee’s claim againststate must be dismissed because § 3730(h)does not expressly eliminate 11th Amendmentimmunity).

c. Federal government is not liable as anemployer under this section. LeBlanc v.United States, 50 F.3d 1025, 1030 (Fed. Cir.1995); Daly v. Department of Energy, 741F. Supp. 202, 205-06 (D. Colo. 1990) (§ 3730(h)does not waive sovereign immunity).

4. How long does an employee have to file a § 3730(h)claim?

a. The statute of limitations for a § 3730(h) claimis ordinarily six years from the date of thefalse claim. Neal v. Honeywell Inc., 33 F.3d860, 865-66 (7th Cir. 1994) (§ 3731 supplies thestatute of limitations for all § 3730 actions,

including those under § 3730(h)). Butcompare United States ex rel. Truong v.Northrop Corp., 1991 WL 496831 (C.D. Cal.Nov. 26, 1991) (applying state statute oflimitations for wrongful termination casesthat runs from the date of discharge); UnitedStates ex rel. Casares v. Delco SystemsOperations, 166 F.3d 344 (9th Cir 1998) (table);United States ex rel. Lujan v. Hughes AircraftCo., 162 F.3d 1027, 1034-35 (9th Cir. 1998)(noting that six year statute of limitationapplies only to violations of section 3729, notretaliation claims under section 3730 (h)); seealso Neal v. Honeywell Inc., 33 F.3d 860, 866(7th Cir. 1994) (suggesting in dictum thatequitable tolling or estoppel may apply if firmintentionally waits until statute expiresbefore retaliating); Grand ex rel. UnitedStates v. Northrop Corp., 811 F. Supp. 333, 337(S.D. Ohio 1992) (similar).

b. Res judicata barred prosecution of a retaliatory dischargeclaim that was based on the same operative facts as asettled FCA claim. The Eleventh Circuit reasoned that itwould not permit relators to sever strategically theirclaims to obtain a second bite of the apple. Ragsdale v.Rubbermaid, Inc., 193 F.3d 1235 (11th Cir. 1999).

E. Many State Statutes And Some Common LawWrongful Discharge Doctrines Also ProtectEmployees in Their Whistleblowing Activities

1. In Campbell v. The Aerospace Co., 123 F.3d 1308 (9thCir. 1997) cert. denied, 118 S. Ct. 1794 (1998), thecourt of appeals held that after a removal of statecourt wrongful and tortious discharge case, thedistrict court was without jurisdiction to hold ajury trial which found for contractor becauseplaintiff’s invocation of the FCA as the policy hisdischarge violated did not “implicate a federalinterest sufficiently substantial to confer federalquestion jurisdiction.” Id. at 7. To permitjurisdiction would effectively allow a state law

claimant to circumvent the detailed requirementsfor proceeding under § 3730(h).

2. In Hoefer v. Fluor Daniel, Inc., 92 F. Supp. 2d 1055 (C.D. Cal.2000), the court held that FCA did not preempt state wrongfuldischarge tort action.

F. Possible Employer Counterclaims To Employee’sQui Tam Claim

6. In the Ninth Circuit, a defendant-employer maybring counterclaims against an employee-relator solong as the defendant-employer seeks independentdamages, i.e., those that are not dependent on theemployer’s liability for the substantive allegationsalleged in the qui tam action. Such counterclaimsmay include 1) breach of duty of loyalty and breachof fiduciary duty, 2) breach of implied covenant ofgood faith and fair dealing, 3) libel, 4) trade libel,5) fraud, 6) interference with economic relations,7) misappropriation of trade secrets, and8) violations of state labor laws. United States exrel. Madden v. General Dynamics Corp., 4 F.3d 827,830-31 (9th Cir. 1993).

7. But a defendant-employer may not assertcounterclaims against a relator if the defendant-employer seeks indemnification and/orcontribution, and not independent damages.Madden, supra; Mortgages, Inc. v. United StatesDist. Court for the Dist. of Nev., 934 F.2d 209 (9thCir. 1991).

8. Where relator did not respond to defendant’sdiscovery requests and magistrate imposed $10,000sanction, failure to appeal this ruling to districtcourt bars further appeal to court of appeals. Caseis remanded for district court to considerimposition of Rule 11 sanctions as fact that relatoris proceeding pro se is not itself enough to precludetheir imposition. Simpson v. Lear Astronics Corp.,77 F.3d 1170, 1177 (9th Cir. 1996).

G. Immunity For Defendant

In Samuel v. Holmes, 138 F.3d 173 (5th Cir. 1998), the courtheld that FCA provides no immunity to defendants accused bywhistleblower of retaliation.

VIII. SELECTED CRIMINAL FALSE CLAIMS ACT CASES

A. Medicare claim submitted to private insurance carrier for knowinglyunnecessary tests is sufficient to invoke criminal FCA, 18 U.S.C. § 287.United States v. Campbell, 845 F.2d 1374 (6th Cir.), cert. denied, 488U.S. 908 (1988).

B. Progress payment invoices were knowingly inflated and therefore mayserve as basis for criminal FCA conviction even though government infixed price contract would not pay more than total contract price.United States v. Leahy, 82 F.3d 624 (5th Cir. 1996); see United States v.Green, 210 F.3d 373 (6th Cir. 2000) (holding proof of amount of moneyinvolved in false reimbursement claim is not an element of criminalFCA violation).

C. In United States v. Brown, 151 F.3d 476, 484-85 (6th Cir.), cert. denied,119 S. Ct. 560 (1998), the court upheld a criminal conviction on thebasis of an implied false statement.

1056448

DEVELOPMENTS UNDER

THE

FALSE CLAIMS ACT

Michael D. Newman