CAUSE OF ACTION, Plaintiff-Appellant, v. CHICAGO TRANSIT AUTHORITY, an Illinois municipal corporation, Defendant-Appellee.
No. 15-1143.
United States Court of Appeals, Seventh Circuit.
Argued Sept. 10, 2015. Decided Feb. 29, 2016.
815 F.3d 267
Before FLAUM, RIPPLE, and SYKES, Circuit Judges.
Muse‘s brief in this court ignores his waiver and
AFFIRMED
Rachel L. Kaplan, Attorney, Chicago Transit Authority Law Department, Chicago, IL, for Defendant-Appellee.
RIPPLE, Circuit Judge.
Cause of Action, a nonprofit government watchdog organization, brought this action against the Chicago Transit Authority (“CTA“) under the qui tam provision of the False Claims Act (“FCA” or “Act“),
I
BACKGROUND
A.
Under the Urbanized Area Formula Program (“UAFP“),
The CTA is a municipal corporation providing public transportation services in the greater Chicago area; it receives federal grant funding through the UAFP. In 2005, the Illinois House of Representatives adopted Resolution Numbers 479 and 650, which, among other matters, directed the Illinois Auditor General (“IL-AG“) to conduct a performance audit of the CTA. During the course of this audit, Thomas Rubin, a subcontractor on the IL-AG audit team, helped prepare a twenty-five page report titled “Chicago Transit Authority Overreporting of Motor Bus Vehicle Revenue Miles,” which examined in detail the CTA‘s VRM reporting practices (“Technical Report“).1 Mr. Rubin‘s Technical Report concluded that the CTA, from possibly as
In March 2007, the IL-AG released its final performance audit report (“Audit Report“). On page seventy-two of the Audit Report, the IL-AG explained that its review, which included the Technical Report, had “raised questions about the accuracy of [the] CTA‘s reporting of revenue vehicle hours and miles” and concluded, based on the “clear[] differences in reported hourly values for [the] CTA and the peer group,” that the “CTA may [have been] incorrectly reporting some deadhead hours/miles as revenue hours/miles.”2
In 2009, Mr. Rubin notified the Department of Transportation Office of Inspector General (“DOT-OIG“) of the CTA‘s misreporting and provided it with a copy of his Technical Report. Mr. Rubin also provided copies of the Technical Report, the Audit Report, and a sworn affidavit to Cause of Action. On March 28, 2012, Cause of Action sent a letter to the Department of Justice requesting an investigation into the CTA‘s reporting practices.
Approximately one month later, on April 27, 2012, the FTA sent a letter to the CTA explaining that the FTA had conducted an “in-depth review” of the CTA‘s reporting of VRM data (“FTA Letter“).3 The FTA
B.
Cause of Action brought this qui tam action under the FCA in the United States District Court for the District of Maryland in May 2012. In its complaint, Cause of Action alleged two counts of fraudulent conduct by the CTA based on its inaccurate VRM reporting and sought damages, a declaratory judgment, and injunctive relief. Cause of Action attached to its complaint the Technical Report, the Audit Report, and Mr. Rubin‘s affidavit. The federal court in Maryland transferred the case to the Northern District of Illinois. The United States then declined to intervene, and the complaint was unsealed.
The CTA then moved for dismissal on the ground that Cause of Action had failed to establish subject matter jurisdiction under the FCA‘s public-disclosure bar,
The district court did not decide whether the 2010 version of
DISCUSSION
The applicable standard of review is not in dispute. Although the district court did not specify whether it dismissed Cause of Action‘s complaint under Federal Rule of Civil Procedure 12(b)(1) or 12(b)(6), in either case, “[w]e review de novo challenges made pursuant to the FCA‘s bars.” United States ex rel. Absher v. Momence Meadows Nursing Ctr., Inc., 764 F.3d 699, 707 (7th Cir. 2014).
A.
First enacted in 1863 to combat rampant fraud and price-gouging in Civil War defense contracts, the FCA enables the United States Government to recover losses sustained as the result of fraud committed against it. The Act imposes liability upon any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” to the Government.
In its initial form, the FCA “did not limit the sources from which a relator could acquire the information to bring a qui tam action.” Graham Cty. Soil & Water Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280, 293-94, 130 S.Ct. 1396, 176 L.Ed.2d 225 (2010). Consequently, relators were not obligated to supply any new information before filing a complaint under the FCA. Yet, “[d]espite this invitation for abuse, the qui tam provisions were used sparingly during their first half-century.” United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 649 (D.C. Cir. 1994). With the proliferation of New Deal and World War II government contracts, however, came both an increase in fraud and a corresponding surge in qui tam litigation. Id. And due to the liberality of the provisions then in effect, individuals who had played no part in uncovering a fraud were free to bring “parasitic” lawsuits based on information that was entirely the product of the Government‘s own investigation. See United States ex rel. Marcus v. Hess, 317 U.S. 537, 545-46, 63 S.Ct. 379, 87 L.Ed. 443 (1943) (upholding relator‘s recovery in qui tam suit based solely on information contained in a criminal indictment to which it had not contributed). Such purely duplicative litigation “not only diminished the government‘s ultimate recovery without contributing any new information,” but also “put pressure on the government to make hasty decisions regarding whether to prosecute civil actions.” United States ex rel. Findley v. FPC-Boron Emps.’ Club, 105 F.3d 675, 680 (D.C. Cir. 1997).
Responding to this opportunism, Congress amended the qui tam provisions in 1943 “to preclude qui tam actions ‘based upon evidence or information in the possession of the United States, or any agency, officer or employee thereof, at the time
In 1986, Congress again overhauled the Act in order “to encourage any individual knowing of Government fraud to bring that information forward.” S.Rep. No. 99-345, at 2 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5266-67. On the whole, the 1986 reforms were meant to broaden the qui tam provisions in order to encourage private individuals to disclose fraudulent conduct. See id. at 6-8. As the legislative history indicates, however, this time Congress also “sought to resolve a tension between encouraging people to come forward with information and preventing ‘parasitic’ lawsuits.” False Claims Act Implementation: Hearing Before the Subcomm. on Admin. Law and Gov‘t Relations of the H. Comm. on the Judiciary, 101st Cong. 5 (1990) (statement of co-sponsor Sen. Grassley); accord Springfield Terminal, 14 F.3d at 649 (noting that Congress sought “the golden mean between adequate incentives for whistle-blowing insiders with genuinely valuable information and discouragement of opportunistic plaintiffs who have no significant information to contribute of their own“). Accordingly, the 1986 amendments repealed the government-knowledge bar and replaced it with the more circumscribed public-disclosure bar to qui tam jurisdiction:
No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney Genеral or the person bringing the action is an original source of the information.
To determine if an action is barred under
1.
Under the first step of the
a.
We turn first to the language “in the public domain.” In construing this phrase, we have recognized the uncontroversial proposition that material is in the public domain when the information is open or manifest to the public at large. Id. (defining “public” as “accessible to or shared by all members of the community” (quoting Webster‘s Ninth New Collegiate Dictionary 952 (1987))); see United States v. Bank of Farmington, 166 F.3d 853, 860 (7th Cir. 1999) (“A plain and ordinary meaning of ‘public’ is ‘open to general observation, sight, or cognition, ... manifest, not concealed‘; that of ‘disclosure’ is ‘opening up to view, revelation, discovery, exposure.‘” (citation omitted) (quoting 12 Oxford English Dictionary 780 (2d ed. 1989); 4 id. at 738)). For instance, the critical elements of a fraud “[c]learly” entered the public domain through a series of government audits that were covered by the news media, United States ex rel. Gear v. Emergency Med. Assocs. of Ill., Inc., 436 F.3d 726, 728-29 (7th Cir. 2006), but not through unfiled discovery materials that were merely “potentially accessible to the public,” Bank of Farmington, 166 F.3d at 860.
Beyond revelation to the general public, however, we further have recognized that the phrase “in the public domain” has an alternative meaning: where the “facts disclosing the fraud itself are in the government‘s possession.” Absher, 764 F.3d at 708. In United States v. Bank of Farmington, 166 F.3d 853 (7th Cir. 1999), we explained that “[t]he point of public disclosure of a false claim against the government is to bring it to the attention of the authorities, not merely to educate and enlighten the public at large about the dangers of misappropriation of their tax money.” Id. at 861. This purpose, we noted, was in accord with “a standard meaning of ‘public,’ which can also be defined as ‘authorized by, acting for, or representing the community.‘” Id. (quoting 12 Oxford English Dictionary 779 (2d ed. 1989)). We therefore held that the “[d]isclosure of in-formation to a competent public official ... [is a] public disclosure within the meaning of
Since Bank of Farmington, we have embraced the proposition that because “the purpose of a public disclosure is to alert the responsible authority that fraud may be afoot,” the Government‘s possession of the information exposing a fraud is alone sufficient to trigger the public-disclosure bar. Glaser, 570 F.3d at 914 (quoting Feingold, 324 F.3d at 496). Building on this rationale, we held in Feingold that administrative reports containing the critical elements of fraud, when generated by the responsible authority itself, “are publicly disclosed because, by their very nature, they establish the relevant agency‘s awareness of the information in those reports.” 324 F.3d at 496. Six years after Feingold, we invoked Bank of Farmington again, this time in the context of an administrative investigation. Glaser, 570 F.3d at 913-14. In Glаser v. Wound Care Consultants, Inc., 570 F.3d 907 (7th Cir. 2009), the qui tam relator alleged that the defendant, a wound-care services provider, had been allowing its nurse practitioner to bill Medicare at a higher rate by representing that the practitioner‘s services were “incident to” the services of a physician when, in reality, they were provided without supervision. Id. at 911. Prior to the filing of the complaint, however, the Centers for Medicare & Medicaid Services (“CMS“)
With this precedent in mind, we examine first whether the FTA Letter was publicly disclosed within the meaning of the statute.7 The district court, relying on our decision in Glaser, held that the review described in the FTA Letter “amount[s] to precisely the type of active investigation that the Seventh Circuit identified in Glaser. Accordingly the CTA‘s inaccurate reporting was publicly disclosed in the FTA‘s investigation by the time the complaint was filed in May 2012.”8 Cause of Action attempts to distinguish Glaser by asserting that “[i]n this case, by contrast, the government has done nothing to recover the money that [the] CTA should not have
The distinction that Cause of Action identifies is not relevant to our analysis. In Glaser, we were clear that “mere governmental awareness of wrongdoing does not mean a public disclosure occurred.” 570 F.3d at 913. There, the CMS‘s letters were significant because they indicated that the responsible authority had proceeded beyond mere “knowledge of possible improprieties” to the point of “actively investigating those allegations,” which placed them in the public domain. Id. at 914. Here, like in Glaser, the FTA, as the responsible authority, was not “simply aware” of the misreporting. Id. The FTA Letter specifically references the agency‘s “in-depth review” of the CTA‘s reporting practices, facilitated at least in part by the CTA‘s cooperation, and describes in some detail the results of the inquiry.10 There is no support in either the FCA or our case law for attaching jurisdictional significance to the outcome of an administrative investigation beyond its undertaking. Thus, under our precedents, the FTA Letter was “placed in the public domain” when it was sent to the CTA. Feingold, 324 F.3d at 495.
Some of our sister cirсuits have criticized our reading of this term. In their view, “a ‘public disclosure’ requires that there be some act of disclosure to the public outside of the government.” United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 728 (1st Cir. 2007) (emphasis added).11 These courts rely primarily on the text of
There is significant force in the position of the other circuits. If the FTA letter were the only document before us in this case, respect for the position of the other circuits would warrant in-depth reconsideration of our precedent. However, we need not address squarely the correctness of Bank of Farmington today because, as Cause of Action concedes, the Audit Report was “in the public domain” at the time the complaint was filed.13
Because the Audit Report14 was in the public domain at the time Cause of Action filed its complaint, we examine whether that document contained “the critical elements exposing the transaction as fraudulent.” Feingold, 324 F.3d at 495; see United States ex rel. Found. Aiding the Elderly v. Horizon W., Inc., 265 F.3d 1011, 1014 (9th Cir. 2001) (“[W]e ... determine whether the content of the disclosure consisted of the allegations or transactions giving rise to the relators’ claim, as opposed to mere information.” (internal quotation marks omitted)). Section 3730(e)(4) withdraws subject matter jurisdiction “only when either the allegation of fraud or the critical elements of the fraudulent transaction themselves ... already have been publically disclosed.” Absher, 764 F.3d at 708 (emphasis in original) (internal quotation marks omitted). Thus, in the absence of an explicit allegation of fraud, the public-disclosure bar “may still apply so long as ... facts establishing the essential elements of fraud—and, consequently, providing a basis for the inference that fraud has been committed—are in the government‘s possession or the public domain.” Id. (internal quotation marks omitted).
Absher is the only case in which we have addressed directly the quantum and quality of factual content necessary to expose a transaction as fraudulent and thus trigger the public-disclosure bar. In that case, two former employees of Momence Meadows Nursing Center, Inc. (“Momence“) brought a qui tam action alleging that the nursing facility had “knowingly submitted thousands of false claims tо the Medicare and Medicaid programs in violation of the FCA.” Id. at 704 (internal quotation marks omitted). On appeal, Momence maintained that
Relying on Absher, Cause of Action now contends that it would be “unreasonable to infer” from the Audit Report that the CTA possessed the scienter required by the FCA.15 We disagree. In Absher, the facts in the public domain were government survey reports detailing instances of Momence‘s noncompliant care. We rejected the proposition that these regulatory violations necessarily implied that Momence knowingly misrepresented the level of care it provided when it submitted claims for reimbursement. Absher, 764 F.3d at 709 n. 10. We held that the public-disclosure bar removes jurisdiction only where one can infer, as a direct and logical consequence of the disclosed information, that the defendant knowingly—as opposed to negligently—submitted a false set of facts to the Government. However, it does not necessarily withdraw jurisdiction over cases where, in order to infer the presence of scienter, one must disregard an equally plausible inference that the defendant was merely mistaken and thus lacked the knowledge required by the FCA. See United States ex rel. Baltazar v. Warden, 635 F.3d 866, 867 (7th Cir. 2011) (“[A]lthough bills for services never performed likely reflect fraud, miscoded bills need not; the errors may have been caused by negligence rather than fraud (which means intentional deceit).“). Absher presented the latter scenario; the regulatory scheme required Momence to make qualitative judgments about its “compl[iance] with a wide variety of regulations and standards of care.” 764 F.3d at 703. Thus, one could no sooner have inferred from the regulatory violations that Momence knowingly misrepresented its level of care in seeking reimbursement than one could have inferred that Momence mistakenly believed that it was compliant and then later was found to have violated the standard of care.16
Here, by contrast, the Audit Report provided a sufficient basis to infer directly that the CTA knew it was presenting a false set of facts to the Government. Unlike Absher, the regulatory scheme here does not involve any qualitative judgments. The CTA is required by statute to submit its transit data to the NTD annually in order to secure grant funding under the UAFP. See
2.
Having determined that the allegations in Cause of Action‘s сomplaint were publicly disclosed in the Audit Report, we proceed to the second step of the
Cause of Action‘s allegations are substantially the same as the information disclosed in the Audit Report. Its complaint provides only two additional pieces of information. First, Cause of Action alleges throughout that the CTA knowingly misreported its VRM data to the NTD. Importantly, though, this particular claim is not based on Cause of Action‘s direct knowledge of the CTA‘s scienter or lack thereof. Rather, it is an inference drawn from the available facts, and, as discussed above, the Government was in an identical position to infer scienter from the publicly disclosed Audit Report. See United States ex rеl. Bellevue v. Universal Health Servs. of Hartgrove Inc., No. 11 C 5314, 2015 WL 1915493, at *7 (N.D. Ill. Apr. 24, 2015). Second, Cause of Action emphasizes that, although the Audit Report analyzed the CTA‘s transit data for only the years 1999 through 2004, its complaint alleges misreporting that spans a broader timeframe. In this context at least, the allegation of a
Cause of Action urges, however, that our decision in United States ex rel. Heath v. Wisconsin Bell, Inc., 760 F.3d 688 (7th Cir. 2014), requires a different result. In that case, an auditor retained by several Wisconsin school districts to audit telecommunications bills brought a qui tam action alleging that defendant Wisconsin Bell was “fraudulently over-charg[ing] school districts, libraries and the United States for telecommunication services.” Id. at 690. These allegations were based on the relator‘s “extensive review of the charges administered by Wisconsin Bell,” and comparisons of the rates paid by the schools to one another and to a publicly available service agreement between Wisconsin Bell and the state. Id. at 689, 692. We held that the public-disclosure bar was not triggered because the relator‘s allegations “required independent investigation and analysis to reveal any fraudulent behavior.” Id. at 691; see also United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1017 (1999) (holding public disclosure bar did not apply where relator “walked the streets” as a “private investigator” observing the school bus operations at issue).
The present case, however, is markedly different from Heath. Here, Cause of Action has not conducted any independent investigation or analysis to reveal the fraud it alleges. Mr. Rubin, the author of the Technical Report, provided the details of the CTA‘s inaccurate reporting to Cause of Action, who in turn styled them as a complaint with references to the statutes and regulations that support its legal theory of fraud. Because that is the extent of Cause of Action‘s contribution, “the allegations in [its] complaint are substantially similar to publicly disclosed allegations.” Glaser, 570 F.3d at 920; see also United States ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1160 (3d Cir. 1991) (“[T]he relator must possess substantive information about the particular fraud, rather than merely background information which enables a putative relator to understand the significance of a publicly disclosed transaction or allegation.“).
3.
Cause of Action could still avoid the public-disclosure bar if it were able to establish that it is “an ‘original source’ of the information upon which the allegations in [its] complaint were based.” Glaser, 570 F.3d at 921. To do so, Cause of Action
First, Cause of Action has not established that its knowledge is independent of the publicly disclosed information. To satisfy this requirement, a relator‘s knowledge of the alleged wrongdoing must not “derive[] from or depend[] upon” the public disclosure. Bank of Farmington, 166 F.3d at 864. Instead, the relator must be “someone who would have learned of the allegation or transactions independently of the public disclosure.” Id. at 865; compare Glaser, 570 F.3d at 921 (holding relator was not an original source where her “only knowledge that [the defendant]‘s billing practices were improper came from [her attorney], with whom [she] had no prior relationship and who contacted her out of the blue“), with Leveski, 719 F.3d at 837 (holding relator was an original source where knowledge was “personal and specific to her; it [wa]s not second- or third-hand evidence learned from another source“). Here, Cause of Action has maintained throughout that it was not until Mr. Rubin provided his Technical Report, the Audit Report, and an affidavit that Cause of Action learned of the CTA‘s misreporting. Had it not been for Mr. Rubin‘s overture, there is no reason to believe thаt Cause of Action would have ever learned of the wrongdoing it now alleges. Second, because Cause of Action‘s allegations are substantially similar to those contained in the Audit Report, its information has not “materially add[ed]” to the public disclosure.
Cause of Action therefore is not an original source of the allegations in its complaint within the meaning of
Conclusion
The allegations in this case fall within the public-disclosure bar to the qui tam statute, and, therefore, the district court properly dismissed the complaint. The judgment of the district court is affirmed.
AFFIRMED
Mitchell ALICEA, Plaintiff-Appellant, v. Aubrey THOMAS, Alejandro Alvarez and the City of Hammond, Defendants-Appellees.
No. 15-1255.
United States Court of Appeals, Seventh Circuit.
Argued Sept. 11, 2015.
Decided March 1, 2016.
Notes
The Federal Transit Administration (FTA) has conducted an in-depth review regarding the way in which Vehicle Revenue Miles (VRM) and Vehicle Revenue Hours (VRH) are reported to the National Transit Database (NTD) by the Chicago Transit Authority (CTA). As a result of our review, CTA should revise its data for the 2011 Report Year to reflect the definition of “revenue serviсe” in the NTD Reporting Manual and should continue to follow the definition of “revenue service” from the NTD Reporting Manual for future report years. The FTA will not, however, require CTA to revise its annual NTD Reports from prior years.
The initial inquiry was made regarding CTA‘s relatively low percentage of “deadhead” mileage compared to other large transit agencies. In your October 2011 memorandum you stated that efficient scheduling practices, the convenient location of CTA bus garages, and frequent midday bus service explained the high VRM reported to the NTD. You also noted that CTA cannot speak for the scheduling or reporting practices of other transit agencies.
To further study this situation, we asked you to send FTA detailed data on the patterns and blocks used by CTA to schedule its buses. FTA selected 10 bus trip blocks from this data for analysis. Upon selecting the data set, FTA mapped each trip from the pull-out from the bus garage, through the revenue service trip, and then to thе return pull-in to the bus garage. In 7 of the 10 bus blocks analyzed, FTA found that the bus left the garage, traveled a short distance on one bus route (recorded as “revenue service“), and then moved to the primary bus route, which the bus served for the bulk of the block.
FTA appreciates CTA‘s efforts to operate transit service as efficiently as possible and to minimize “deadhead” time in favor of revenue service. However, FTA‘s funding formulas rely upon applying a consistent definition of “revenue service” across all transit systems in the country in order to ensure a fair and equitable distribution of formula funds.
As such, FTA established the following three-part definition of revenue service in its 2011 NTD Urbanized Area Reporting Manual (page 212): (1) that the service must be advertised as being available to the general public; (2) there must be a marked stop that is advertised in the schedule; and; (3) there must be an indication on the bus (e.g., head sign, window board) that the bus is in revenue service.
Using the data you provided (see enclosure), FTA examined CTA‘s published schedules and found that each bus that arrived at the primary route was reflected on the schedules. FTA did not, however, find the bus routing between the garage and the primary route to be included on the published schedules. Therefore, although buses traveling on this secondary route between the garage and the primary route may stop at marked bus stops and may indicate “revenue service” on their head signs, this travel does not meet the NTD definition of “revenue service.”
R.55-1 at 2-3.