Paramjeet Malhotra v. Robert Steinberg
2014 U.S. App. LEXIS 20713
9th Cir.2014Background
- Paramjeet and Sunita Malhotra (relators) filed a qui tam suit under the False Claims Act alleging that bankruptcy trustee Robert Steinberg obtained trustee fees by presenting false certifications to the bankruptcy court.
- The complaint alleged two schemes: (1) a "kickback" scheme where agent James Grace paid referral fees (a cut of commissions) to Steinberg, and (2) "straw man" below-market sales flipped for profit with side payments to Steinberg.
- The Malhotras investigated and gave information to the Office of the United States Trustee, which later subpoenaed records and deposed Grace under Bankruptcy Rule 2004 as part of an internal Trustee’s Office investigation; Grace admitted the referral-fee arrangement at that deposition, which the Malhotras attended.
- About a year later the Malhotras filed their FCA action; defendants moved to dismiss for lack of subject-matter jurisdiction under the FCA public-disclosure bar, arguing the Grace deposition publicly disclosed the kickback transactions.
- The district court held the Grace deposition was a public disclosure and that the Malhotras were not "original sources" of the kickback information because they only learned of the kickbacks at the deposition; the court dismissed and awarded costs.
- On appeal, the Ninth Circuit affirmed: it found the deposition was a public disclosure under Seal and that the Malhotras lacked independent knowledge required to be original sources as to the kickback allegations.
Issues
| Issue | Malhotra's Argument | Steinberg/Defendants' Argument | Held |
|---|---|---|---|
| Whether the Grace Rule 2004 deposition constituted a "public disclosure" under 31 U.S.C. § 3730(e)(4)(A) | Deposition was not a public disclosure as to them because it occurred in their bankruptcy case and they were effectively "insiders" or did not intend to use the information for an FCA suit | Deposition was part of an administrative investigation by the Trustee’s Office and thus a public disclosure to outsiders who attended | Held: Deposition was a public disclosure as to the Malhotras under Seal; they were outsiders to the Trustee’s Office investigation |
| Whether the Malhotras qualify as "original sources" under § 3730(e)(4)(B) for the kickback allegations | Their extensive prior investigation and suspicions show direct and independent knowledge predating the deposition | They lacked independent knowledge; the specific kickback details were first learned at the deposition | Held: Malhotras not original sources for the kickback scheme because their knowledge of those payments derived from the deposition and was not independent |
| Whether the public-disclosure bar applies when disclosure is made to a single individual who attends an administrative investigation | Malhotras argued their attendance and case-specific context distinguish this from Seal | Defendants relied on Seal reasoning that disclosure to an outsider to an investigation can be a public disclosure as to that outsider | Held: The Seal framework controls; disclosure to an outsider-attendee of an administrative investigation can be a public disclosure as to that outsider |
| Whether any asserted independent knowledge of the "straw man" transactions saves jurisdiction | Malhotras did not press straw man theory on appeal as an independent basis; they relied on kickback theory | Defendants argued the suit was based on transactions disclosed in the deposition (kickbacks) and original-source analysis should focus on those | Held: Original-source inquiry is claim-by-claim; because the suit was based on kickback allegations (not straw man) and relators conceded they lacked independent kickback knowledge, jurisdiction fails |
Key Cases Cited
- Seal v. Seal A, 255 F.3d 1154 (9th Cir. 2001) (disclosure to an outsider to a government investigation can be a "public disclosure" under the FCA)
- A-1 Ambulance Serv., Inc. v. California, 202 F.3d 1238 (9th Cir. 2000) (material elements of a fraudulent transaction, once disclosed, trigger the public-disclosure bar)
- United States ex rel. Meyer v. Horizon Health Corp., 565 F.3d 1195 (9th Cir. 2009) ("based upon" means substantially similar; independent-knowledge timing for original-source analysis)
- Rockwell Int'l Corp. v. United States, 549 U.S. 457 (2007) (original-source standing requires direct and independent knowledge)
- United States v. Wang, 975 F.2d 1412 (9th Cir. 1992) (public-disclosure is a threshold for applying the FCA jurisdictional bar)