FEDERAL RECOVERY SERVICES, INC., United States, ex rel., et al., Plaintiffs-Appellants, and Michael H. Piper, III and Louis R. Koerner, Jr., Movants-Appellants, v. UNITED STATES of America, Intervenor-Appellee, and Crescent City E.M.S., Inc., dba Medic One, et al., Defendants-Appellees.
No. 94-30545
United States Court of Appeals, Fifth Circuit
Dec. 22, 1995
Rehearing Denied Jan. 31, 1996
72 F.3d 447
the defendants’ asserted qualified immunity defense.
Julian R. Murray, Jr., Chehardy & Sherman, Metairie, LA, for Crescent.
Lucy Eldridge, Laurence J. Freedman, Trial Attorneys, U.S. Dept, of Justice, Washington, DC, for U.S.
Before REYNALDO G. GARZA, KING and HIGGINBOTHAM, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
This case came with a host of issues attending the question whether Federal Recovery Services, Inc. or Michael Boatright, a minority shareholder of FRS, was a proper party under the False Claims Act,
I.
On October 8, 1990, Priority E.M.S. sued its competitor, Crescent City E.M.S., Inc., in Louisiana state court, alleging that Crescent City was engaging in unfair trade practices by filing fraudulent claims for reimbursement for ambulance services rendered to individuals not needing them.
On November 7, 1991, the president of Priority E.M.S., Michael Boatright, and his attorneys, Michael Piper and Louis Koerner, incorporated Federal Recovery Services, Inc. The attorneys control a majority of the corporation‘s stock under a subscription agreement, although shares were not formally issued. They also served as directors and officers in the corporation.
On November 12, 1991, FRS filed a sealed complaint attempting to state a claim in the name of the United States of America against Crescent City E.M.S., Inc., Blue Cross & Blue Shield of Arkansas, and other individual defendants. The complaint alleged that, beginning in January 1989, Crescent City submitted claims seeking reimbursement for the transportation of dialysis
On March 1, 1993, the United States filed a notice of its partial election to intervene in the action pursuant to
On June 2, 1993, Crescent City moved to dismiss FRS for lack of subject matter jurisdiction. Crescent City argued that FRS was not entitled to bring this action because the facts underlying the complaint had been previously disclosed in the prior Louisiana state court litigation and that FRS was not the original source of that information. In addition, Crescent City argued that Michael Boatright was improperly joined as a party plaintiff.
Attempting to cure the jurisdictional defect identified by Crescent City, on August 3, 1993, FRS and Boatright filed a motion to substitute Boatright for FRS as the relator. On August 12, 1993, the district court granted Crescent City‘s motion to dismiss FRS for lack of subject matter jurisdiction. The court, construing FRS‘s first amended complaint filed on March 3, 1993 as a motion for leave to amend its complaint, rejected FRS‘s attempt to add Boatright as an additional relator. On August 30, 1993, the district court confirmed its August 12th ruling and issued its memorandum explaining the ruling.
With FRS and Boatright out of the picture, the United States proceeded with the litigation against Crescent City and prepared the case for trial. Before trial, the United States and Crescent City reached a settlement in which Crescent City agreed to pay over $1.8 million, and, on August 2, 1994, both joined in filing a stipulation of dismissal pursuant to Rule 41(a)(1)(ii). That same day, almost a year after they had been dismissed from the case, FRS and Boatright filed a motion for reconsideration of the district court‘s August 30, 1993 ruling. In addition, FRS filed a motion to strike the stipulation of dismissal. Prompted by FRS‘s actions, the United States filed a motion to dismiss the suit pursuant to Rule 41(a)(2) on September 9, 1994.
While the motion for reconsideration was pending, on August 30, 1994, FRS‘s attorneys, Louis Koerner and Michael Piper, both filed motions for award of attorneys’ fees summing to $190,000. On September 21, 1994, the district court denied FRS‘s motion for reconsideration, holding that “[n]o argument or authority cited in support of FRS‘s Motion for Reconsideration ... has given this Court cause or pause to question its prior ruling.” Moreover, the court noted that FRS‘s and Boatright‘s attempt to reenter the litigation at this stage in the litigation—on the eve of the settlement of suit—were particularly unwelcome.
Turning to the motion for attorneys’ fees, the district court ruled that FRS‘s attorneys were not entitled to fees because FRS was not a proper party to the litigation. In addition, the court noted that there had been no finding that Crescent City violated the False Claims Act. Accordingly, the district court entered its judgment on September 23, 1994,
FRS, Boatright, and FRS‘s attorneys timely appealed to this court, contesting the propriety of the district court‘s orders dismissing FRS, denying FRS leave to add Boatright as an additional relator, and denying attorneys’ fees for FRS‘s attorneys, Koerner and Piper.
After oral argument, the United States negotiated a settlement agreement with FRS, Boatright, and the two attorneys. Pursuant to the settlement agreement, the United States agreed to pay Boatright $186,250, 10% of the proceeds of its recovery from Crescent City. The agreement contemplated that Boatright, Koerner, and Piper would share in the proceeds of this settlement. In return, FRS, Boatright, and the attorneys released their claims against the United States. The agreement expressly provided, however, that it did not affect the right of FRS and its attorneys to pursue this appeal for the purposes of challenging the district court‘s denial of an award of attorneys’ fees and expenses against Crescent City.
II.
A.
No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
Following the statutory framework, we ask 1) whether there has been a “public disclosure” of allegations or transactions, 2) whether the qui tam action is “based upon” such publicly disclosed allegations, and 3) if so, whether the relator is the “original source” of the information. Cooper v. Blue Cross & Blue Shield of Florida, Inc., 19 F.3d 562, 565 n. 4 (11th Cir. 1994).
The filings in the Louisiana state court suits brought by Priority E.M.S. were “public disclosures” within the meaning of the statute. “[A]ny information disclosed through civil litigation and on file with the clerk‘s office should be considered a public disclosure of allegations in a civil hearing for purposes of section 3730(e)(4)(A).” United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1350 (4th Cir.), cert. denied, 513 U.S. 928, 115 S.Ct. 316, 130 L.Ed.2d 278 (1994). This includes civil complaints. Id. at 1350-51.
In October 1990, more than a year prior to the filing of this qui tam action, Priority E.M.S. filed two different complaints against Crescent City in Louisiana state court, both
FRS‘s qui tam action is “based on” these public disclosures. Wang v. FMC Corp., 975 F.2d 1412, 1415 (9th Cir. 1992). FRS has conceded as much, noting in its Motion to Partially Lift Seal filed on August 10, 1992 that “[t]he claim of Priority E.M.S., Inc. against Crescent City E.M.S. for unfair trade practices is based upon the same factual matters as the claim against Crescent City E.M.S., Inc. in this proceeding.” FRS now contends that its qui tam action is not based on the prior Louisiana state court litigation because only one instance of fraud—that involving Urban Chastant—is common to both the state and federal litigation. FRS presses that its investigation unearthed additional instances of fraudulent conduct by Crescent City that were not a part of the earlier, state court litigation. We are not persuaded.
“[A]n FCA qui tam action even partly based upon publicly disclosed allegations or transactions is nonetheless ‘based upon’ such allegations or transaction.” United States ex rel. Precision Co. v. Koch Industries, Inc., 971 F.2d 548, 552 (10th Cir. 1992) (Koch I), cert. denied, 507 U.S. 951, 113 S.Ct. 1364, 122 L.Ed.2d 742 (1993); see also Cooper, 19 F.3d at 567 (holding that
B.
Nor does FRS qualify as an “original source” immune to the jurisdictional bar of
In Koch I, the Tenth Circuit rejected a virtually identical claim. There, Precision Company filed a qui tam action against Koch Industries, Inc., alleging that Koch had been understating the amount of crude oil and natural gas it had produced from federal lands. Precision had obtained the information regarding Koch‘s conduct from Precision‘s majority shareholder, William Koch, and its president, William Presley. Nevertheless, the Koch I court held that Precision was not the original source of the information that Koch and Presley had collected prior to Precision‘s incorporation. 971 F.2d at 554 (noting that “Precision is the qui tam plaintiff in the present action, not William Koch or William Presley“).
There is no suggestion that this litigation is based upon information collected by FRS. To the contrary, like Precision, FRS was not incorporated until well after Priority E.M.S. had investigated Crescent City‘s conduct and filed the state court suits against Crescent City. See id. (finding that Precision did not come into existence as corporate entity until well after related state court litigation had been commenced). Indeed, FRS was incorporated only days before this qui tam action was filed.
FRS responds that, even if it is not the original source of the information collected prior to its incorporation, it is the original source of that information obtained after its incorporation. FRS presses that it undertook a substantial amount of investigative work, work that disclosed additional fraudu- lent
The Tenth Circuit in Koch I rejected an identical argument, holding that Precision was not the original source of the information that Koch and Presley obtained after Precision‘s incorporation. The court concluded that “this information is best characterized as a continuation of, or derived from Mr. Presley‘s and Mr. Koch‘s individual investigations.” 971 F.2d at 554. Comparing the information obtained by Koch and Presley prior to Precision‘s incorporation with that obtained after its incorporation, the court noted that the latter information was “weak, informal and strikingly redundant.” Id.
FRS‘s status in this litigation differs from Precision‘s status in Koch I in no meaningful way. FRS never demonstrates that the work that it performed unearthed qualitatively different information than what had already been discovered. Rather, as FRS concedes, FRS participated in this litigation solely as the nominal plaintiff-relator. Indeed, FRS was incorporated with the express purpose of pursuing qui tam litigation based on the information that others, either Priority E.M.S. or Boatright, had already obtained. Any information collected after FRS‘s incorporation was the product and outgrowth of the information that others had obtained prior to FRS‘s incorporation. In short, FRS had no “direct and independent” knowledge of the information upon which this qui tam action is based.3
Finally, FRS attempts to end-run the “original source” inquiry by arguing that the United States’ intervention in the action cured any jurisdictional defect. According to this reading of
The United States may properly intervene in a suit by a putative source regardless of jurisdictional failures in the underlying suit. United States v. Pittman, 151 F.2d 851 (5th Cir. 1945), cert. denied, 328 U.S. 843, 66 S.Ct. 1022, 90 L.Ed. 1617 (1946). Such intervention does not, however, confer subject matter jurisdiction over the relator‘s claims. Such a reading of the jurisdictional bar of
Nor does our interpretation of
III.
FRS also argues that, even if it cannot pursue this litigation, Michael Boatright can. In this vein, FRS contends that the district court erred in denying its attempt to amend its complaint to name Boatright as an additional relator and in denying FRS‘s attempt to substitute Boatright as the relator. We disagree.
We recognize that the Tenth Circuit in United States ex rel. Precision Co. v. Koch Industries, Inc., 31 F.3d 1015, 1019 (10th Cir. 1994) (Koch II), held that a qui tam relator over whom the district court does not have subject matter jurisdiction may amend its complaint to include a proper relator. The Tenth Circuit dismissed the analysis of Judge Ainsworth in Summit Office Park as a “technical position” that was “subject to the equally technical response that at the time the amended complaint was filed no determination of standing had been made.” Id.
We do not take such a sanguine view of the federal courts’ limited subject matter jurisdiction. That FRS sought to include Boatright as a relator prior to the district court dismissing it from this suit is of no moment. In Hillman, we rejected Aetna‘s attempt to substitute USF & G as plaintiff, even though Aetna filed its amended complaint prior to the district court‘s determination that there was no subject matter jurisdiction over Aetna‘s claims. In short, regardless of when the district court actually determines it lacks subject matter jurisdiction over the original plaintiff, “Rule 15 ... do[es] not allow a party to amend to create jurisdiction where none actually existed.” Hillman, 796 F.2d at 776.
Koerner and Piper created FRS only days before filing this suit. Its sole, corporate purpose was to prosecute this suit. Koerner and Piper controlled the corporation. Michael Boatright, the alleged original source of the information underlying this suit, held less than half of its shares. Koerner and Piper contend that they created FRS to protect Boatright‘s safety, but that contention is belied both by the attorneys’ control over FRS and by the fact that the state court litigation had already disclosed Boatright‘s identity. FRS‘s origins and capital structure suggest that the attorneys created FRS to control the proceeds of this litigation. The attorneys bypassed a suit by Boatright, their client, in favor of an entity they controlled. It was only a year later, when confronted by the reality that the district court had no jurisdiction over the claims of FRS and after the government had intervened under the statute, that Koerner and Piper attempted to sue on behalf of their client. Neither the record before us nor the oral argument of counsel offer any other credible explanation.
We are sensitive to the reality that Congress allows cupidity of counsel and client to effectuate congressional goals. Most private attorneys-general litigation does so as well. That said, even here there are limits. Under the statutory scheme before us, there is a right to reasonable attorneys’ fees, but the statute did not dispense with the tradition that a lawyer must represent his client‘s interest, not his own. The attorneys’ effort to control Boatright by creating FRS overreached, and the resulting loss of counsel fees is its price. This is not a gratuitous observation. Rather, it is to explain that while the law of standing in this circuit dictates the result in this case, it works no “technical” or unfair result.
IV.
Neither FRS nor Boatright were proper parties to this qui tam litigation. Their attorneys, Koerner and Piper, are not statutorily entitled to attorneys’ fees and expenses.