Norman RILLE, United States of America, ex rel.; Neal Roberts, United States of America, ex rel., Plaintiffs-Appellees, United States of America, Intervenor, Plaintiff-Appellant, v. PRICEWATERHOUSECOOPERS LLP; PWC Consulting LLC; International Business Machines, Inc.; IBM Global Services Company; Oracle Corporation; Boeing Company; Cisco Systems, Inc.; Exostar Corporation; Exostar LLC; Lockheed Martin Corporation, Defendants.
No. 11-3514
United States Court of Appeals, Eighth Circuit
October 5, 2015
803 F.3d 368
Submitted: April 15, 2015.
Filed: Oct. 5, 2015.
Michael Raab, U.S. Department of Justice, argued, Washington, DC. (Michael E. Robinson, Douglas N. Letter, U.S. Department of Justice, Washington, DC., on the brief), for Plaintiff-Appellant.
Before RILEY, Chief Judge, WOLLMAN, MURPHY, BYE, SMITH, COLLOTON, BENTON, and SHEPHERD, Circuit Judges, En Banc.
COLLOTON, Circuit Judge.
As the Supreme Court has observed, “[t]he False Claims Act‘s qui tam provisions present many interpretive challenges.” Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, — U.S. —, 135 S.Ct. 1970, 1979, 191 L.Ed.2d 899 (2015). In this case, two private parties, called “relators,” brought an action in the name of the United States against several government contractors, alleging that the contractors defrauded the government. The United States, after investigating the case, elected to proceed with the action against several defendants in place of the relators, and the government eventually reached a settlement with two of the contractors. There followed a dispute between the relators and the government over how much, if any, of the recovery should be allocated to the relators. The district court awarded the relators a percentage of the entire settlement.
This appeal raises a legal question under the Act: When the government proceeds with an action brought by a relator under the False Claims Act, and then settles both the claim brought by the relator and a different claim that does not overlap factually with the claim brought by the relator, is the relator entitled to a share of the proceeds of both claims? The better view according to the text and structure of the statute is that the relator may recover only from the proceeds of the settlement of the claim that he brought. Because the district court‘s order does not clearly apply this legal standard or make factual findings that are necessary to resolve the case under this standard, we vacate the order and remand for further proceedings.
I.
In September 2004, Norman Rille and Neal Roberts, as relators, sued several government contractors on behalf of the United States, alleging violations of the False Claims Act,
The relators added Cisco Systems, Inc., as a defendant contractor in September 2005. Shortly thereafter, the relators offered the government some 700,000 pages of documents; according to the relators, these documents contained evidence of kickbacks and defective pricing involving Cisco and other defendants. Earlier in 2005, the Inspector General in the General Services Administration selected 112 government contracts for review. Among those was a contract with Comstor, a distributor of Cisco products. Comstor‘s contract allowed it to sell Cisco‘s technology products and services to government agencies. After the audit, the Inspector General concluded that Comstor made inaccurate or incomplete disclosures to the government, and failed to comply with
In October 2006, the relators amended their complaint to allege that the defendant contractors failed to provide “current, accurate, and complete disclosure of their best pricing ..., thereby causing defective GSA and other government pricing schedules.” According to the new allegation, the defective pricing resulted in violations of the False Claims Act “as to both direct sales to the Government by a Defendant, and indirect sales through [a vendor], with or without a Kickback.” In April 2007, the government elected to intervene in part of the action, but declined to intervene against Cisco at that time, as the government had not completed its review of the company.
In March 2008, the government moved to intervene against Cisco. The government explained that since April 2007, it had “received and considered additional information from the Relators,” and that it had “also obtained and assessed considerable additional information and documents from Cisco, as well as a number of non-party witnesses that it had not had an opportunity to consider prior to April 2007.” After the district court granted the motion in April 2008, the government proceeded with the action as filed by the relators against Cisco and other defendants.
After two years of negotiation, the government reached a settlement with Cisco and Comstor under which Cisco agreed to pay the government $44.16 million, and Comstor agreed to pay $3.84 million. According to the agreement, the government alleged that Cisco and Comstor engaged in the following “Covered Conduct“:
(1) made inaccurate and/or incomplete disclosures and/or false statements, and/or presented or caused to be presented false claims to the United States;
(2) failed to disclose relevant discount, rebate, true-up, benefits, credits, value-added, and pricing information to the United States and, as a result, Contract pricing and orders issued pursuant to the Contract were inflated; (3) as a result of the defective disclosures of pricing information, submitted or caused to be submitted false or fraudulent claims for payment; and (4) failed to comply with price reduction obligations under the Contract and related letters of supply.
The agreement also provided for the dismissal of the relators’ action against Cisco, but did not resolve the issue of the relators’ entitlement to a share of the settlement proceeds.
Following the settlement, the relators moved to recover a share of the proceeds. The applicable statute allows a relator to receive “at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action.”
The district court rejected the government‘s argument and awarded the relators seventeen percent of the $44.16 million paid by Cisco and fifteen percent of the $3.84 million paid by Comstor. United States ex rel. Rille v. Cisco Sys., Inc., No. 4:04CV00988-BRW, 2011 WL 4352309, at *4 (E.D.Ark. Sept. 19, 2011). The government appeals the order.
The False Claims Act provides that a private person “may bring a civil action for a violation of section 3729 for the person and for the United States Government.”
The relators contend that if the government proceeds with an action brought by a relator, then the relator is automatically entitled to a percentage of any “proceeds” that the government receives as a result. In their view, it does not matter whether the claim settled by the government is factually related to the claim brought by the relators. As long as the settled claim is resolved in an action that was initiated by the relators, the relators say that they are entitled to recovery. Although the provisions of the False Claims Act do not always “operate together smoothly like a finely tuned machine,” Kellogg, 135 S.Ct. at 1979, we conclude that the statute will not bear the construction advanced by the relators.
The relators are entitled to a share of “the proceeds of the action or settlement of the claim.”
This case involves a settlement. With respect to settlement,
The relators focus on the phrase “proceeds of the action,” and assert that
The relators’ reading would create unwarranted disparities in recovery depending on how the government pursues a new claim. The government has a choice: it may add a new claim while proceeding with an action brought by a relator, or it may pursue the same new claim through the use of an alternative remedy. Section 3730(c)(5) provides that if the government pursues “its claim through any alternate remedy available to the Government,” then “the person initiating the action shall have the same rights” in the alternate proceeding “as such person would have had” if the government had proceeded with the original action. This means that “the relator has a right to recover a share of the proceeds of the alternate remedy to the same degree that he or she would have been entitled to a share of the proceeds of an FCA action.” United States ex rel. Barajas v. United States, 258 F.3d 1004, 1010 (9th Cir.2001) (internal quotation omitted).
When the government recovers from a defendant in an alternate proceeding, however, a relator is not entitled to a share of whatever recovery the government obtains, just because the government‘s claim could have been added to the original action brought by the relator. As the Sixth Circuit explained in United States ex rel. Bledsoe v. Community Health Systems, Inc., 342 F.3d 634, 651 (6th Cir.2003), a relator seeking recovery must establish that “there exists [an] overlap between Relator‘s allegations and the conduct discussed in the settlement agreement.” Id. at 651. A relator is not entitled to a share of the proceeds derived from a non-overlapping claim that the government could have added in the original action but instead pursues in an alternate proceeding. Given the equivalence of recovery required by
The question in this case, therefore, is whether the government‘s recovery from Cisco and Comstor is the “proceeds of the ... settlement of the claim,” that is, “the claim” brought by the relators. We agree with the Sixth Circuit that these proceeds of “the claim” must extend to proceeds of a settlement in which “the conduct contemplated in the settlement agreement ... overlap[s] with the conduct alleged in [the]
In its September 2011 order determining the relators’ share of settlement proceeds, the district court did not make adequate factual findings to allow appellate review of whether the settlement was based on claims that factually overlapped with the claims brought by the relators. See
Elsewhere, the district court apparently relied on its conclusion that the relators “were the catalyst leading to the Government‘s settlement,” while acknowledging that the relators “were more focused on a kickback scheme that the Government asserts did not exist.” United States ex rel. Rille, 2011 WL 4352309, at *4. A panel of this court in Roberts v. Accenture, LLP, 707 F.3d 1011 (8th Cir.2013), appeared to accept this “catalyst” theory as a basis for recovery, on the view that a causal connection between the relator‘s claim and a later settlement is sufficient to show that a settlement is “related” to a claim brought by the relator. Id. at 1017.
Whatever the merit of this theory as a policy matter, it is not derived from the statute. The statute allows relators to recover a percentage of the proceeds of the settlement of “the claim” brought by the relators, and only that claim. The Act contemplates that the government, after it elects to intervene, may “clarify or add detail” to the claims brought by the relators, or may “add any additional claims.”
For these reasons, we conclude that the case must be remanded for application of the correct legal standard and adequate findings of fact. To resolve the relators’ claim for recovery, the district court should make findings about whether there is a factual overlap between the claim or claims settled by the government and the claims brought by the relators, such that proceeds of the settlement (or any portion thereof) should fairly be characterized as “proceeds of the ... settlement of the claim” brought by the relators.2
BYE, Circuit Judge, with whom SMITH, Circuit Judge, joins, dissenting.
I would affirm the district court‘s order awarding Norman Rille and Neal Roberts (the relators) a statutorily-required portion of the government‘s settlement of the relators’ action. The district court did not apply an incorrect legal standard to the undisputed facts of this case, nor were the district court‘s fact findings inadequate for us to review and affirm the relators’ award. I disagree with the Court‘s textual interpretation of the statute, and do not believe we should decide the legal question framed by the Court because it cannot be squared with the actual facts involved here. I therefore respectfully dissent from the decision to vacate the district court‘s award and to remand for further proceedings.
I
The Court frames the legal question in this appeal as whether a relator is entitled to a share of settlement proceeds when the government “settles both the claim brought by the relator and a different claim that does not overlap factually with the claim brought by the relator.” Ante at 370. Because the government never brought a different claim in the relators’ action, the question framed by the Court is not before us.
I would frame the question as whether proceeds received by the government after intervening in, settling, and dismissing with prejudice a relator‘s action constitute “proceeds of the action” under
To avoid this plain and straightforward reading of
The Court further reasons that if the proceeds derived from the settlement of an action were covered by the phrase “proceeds of the action,” then the phrase “set-
The Court also rejects the relators’ arguments even assuming the phrase “proceeds of the action” captures the settlement proceeds at issue in this case. The Court reasons that the proceeds must still derive from the action as originally brought by the relators, and not as developed after intervention by the government. Although I disagree with this premise (as I will explain later), the Court‘s explanation for its premise is telling because it identifies precisely why the legal question framed by the Court is not properly before us.
The Court explains that the settlement language referring to a “claim” must refer to “the claim” brought by the relator, and “not a claim later added by the government.” Ante at 373. The court goes on to note “[i]t would be inconsistent with the purposes of the Act to permit a relator automatically to receive a share of the proceeds when the relator might have had nothing to do with the government‘s recovery on a particular claim that was added after the government‘s intervention.” Id. (emphasis added). But those are not the facts of this case. The government never added any claims to the relators’ action after intervening.
As the Court notes, if the government wants to pursue a “different claim” it “has a choice: it may add a new claim while proceeding with an action brought by a relator, or it may pursue the same new claim through the use of an alternate remedy.” Id. This first choice is set forth in
The second of the government‘s two choices for pursuing a different claim is set
Identifying a “different” claim the government actually pursued—either within the relators’ action via
Instead of identifying when and in what manner it pursued a different claim, the government merely relies upon its inclusion of a reference to a particular contract between Cisco and Comstor in the settlement agreement, the fact that the Inspector General in the General Services Administration (GSA) audited that contract, and the fact that the Department of Energy (DOE), Office of Inspector General (OIG) issued a subpoena to Cisco as a result. While this certainly describes conduct that could form the basis for the government to pursue a claim as a result of its DOE/OIG investigation, it does not establish the government ever actually brought such a claim in accordance with
Because the only manner in which the government ever pursued its allegedly different claim was within the confines of the relators’ action, such a “claim” can not as a matter of law be considered a different claim than the relators’ claims because the government never availed itself of the choices available to it under
II
The Court‘s decision has troubling ramifications. First, the Court‘s approach necessarily depends upon either ignoring
Second, the Court‘s factual overlap remand is unsound, and I am concerned it will confuse the district court in this case and district courts who have to wrestle with future FCA cases. Describing certain conduct in a settlement agreement does not equate to pursuing a claim, so where is the “different” government claim the district court is supposed to compare to the relators’ claims? In this case, where the conduct described by the government as a “different claim” was settled within an action comprised exclusively of the relators’ claims, there is no government claim to compare to the relators’ claims.
Typically, a factual overlap analysis is required in cases arising under
Significantly, the Court does not cite any cases where a court has held a factual overlap analysis applies in an intervention case.5 In fact, the Court cites just two cases when discussing the need for a factual overlap remand—Barajas and Bledsoe. Both Barajas and Bledsoe involved alternate remedy proceedings arising under
In this intervention case, it is improper to address the legal question whether a factual overlap analysis applies because the government never brought a separate claim under
As we discussed in Roberts, Congress expressly outlined the three specific situations where a relator‘s recovery may be reduced in intervention cases. See Roberts, 707 F.3d at 1016. The first statutory exception for reducing a relator‘s recovery in an intervention case is where the relator “planned and initiated” the FCA violation.
Congress clearly envisioned situations where the government may add additional claims to a relator‘s action under
Here, the government contends the relators’ action was unrelated to what I will call the “Comstor conduct” outlined in the settlement agreement, and thus relators should not receive any portion of the settlement proceeds because the government discovered the “Comstor conduct” through the GSA audit and ensuing DOE/OIG investigation. The government further contends the entire settlement is attributable to the “Comstor conduct.”
Under the Court‘s approach, on re-mand the district court is supposed to determine whether that different “claim” (even though the government never added such a claim to the relators’ action) overlaps factually with the relators’ claims. If there is no overlap, the relators will receive no portion of the settlement proceeds attributable to the “Comstor conduct.” And if the district court finds that the entire settlement of the relators’ action was attributable to the “Comstor conduct,” then the relators will receive no portion of the settlement proceeds whatsoever, because such a “claim” was not part of the action as originally brought by the relators.
With all due respect, that is not how the FCA operates in intervention cases. In an intervention case, even if the government had asserted and was successful in showing the “Comstor conduct” was based on disclosures of information traceable to a source other than the relators, and even if the government had asserted and was successful in showing the disclosure of the “Comstor conduct” resulted in the relators’ entire action being based “primarily” on those disclosures, the relators would still be entitled to at least ten percent of the entire recovery, not just the portion of the recovery attributable to the claims as originally brought by the relators.6 See
Under the Court‘s approach, if the government had actually added a claim to the relators’ action which was based upon disclosures of specific information traceable to a source other than the relators (something not done here), and that additional claim did not overlap factually with the relators’ claim, the relators would not be entitled to any portion whatsoever of the settlement proceeds arising from such a claim. This approach—essentially a fourth exception for reducing a relator‘s recovery not set forth in the FCA—cannot be reconciled with the express provisions found in
The government‘s choice to intervene in this case clearly triggers specific FCA provisions that require different inquiries than those applicable to alternate remedy proceedings. An examination of this record always exposes the same fundamental flaw in the government‘s position—the government never added any of its own claims in the relators’ action after intervening. The government‘s failure to avail itself of the formal pleading provisions set forth in
III
Finally, even assuming the district court was required to do some sort of factual overlap analysis under the circumstances present here, I find nothing lacking in the factual findings actually made by the district court. The district court compared the facts the government described in the settlement agreement as the “Covered Conduct” to the allegations in the relators’ complaint. The district court then concluded the relators’ claims “appear to fit” with the facts described by the government in the settlement agreement.
We can quibble about whether the district court‘s use of the phrase “appear to fit” is simply a colloquial expression for “does fit” or an equivocal statement. But the fact of the matter is, the conduct described by the government in the settlement agreement does fit within the claims made by the relators in their action, and there is nothing unclear about this record that requires a remand. In the settlement agreement, the government described the particular GSA contract it contends was the source of its “different claim,” and alleges with respect to that particular contract that Cisco and Comstor:
(1) made inaccurate and/or incomplete disclosures and/or false statements, and/or presented or caused to be presented false claims to the United States;
(2) failed to disclose relevant discount, rebate, true-up, benefits, credits, value-
added, and pricing information to the United States and, as a result, Contract pricing and orders issued pursuant to the Contract were inflated; (3) as a result of the defective disclosures of pricing information, submitted or caused to be submitted false or fraudulent claims for payment; and (4) failed to comply with price reduction obligations under the Contract and related letters of supply.
This language is indistinguishable in meaning from the claims outlined in the relators’ third amended complaint, which alleged that “Defendants failed to provide to GSA and other government agencies current, accurate and complete disclosure of their best pricing (after all discounts, rebates, and other benefits).” And why would the government ever include conduct unrelated to the relators’ action in the settlement of the relators’ action to begin with? This makes no sense.
It is clear to me the district court saw through the government‘s transparent attempt to dissociate the settlement proceeds from a qui tam action comprised exclusively of relators’ claims, and appropriately awarded the relators a share of the “proceeds of the action.”
IV
In sum, the government‘s position is flawed on at least three levels: (1) it depends upon a strained and incorrect reading of the phrase “proceeds of the action;” (2) it is based upon the factually incorrect premise that the government added a different claim to the relators’ action; and (3) it advocates for the wholesale adoption of a claim-by-claim factual overlap analysis applicable in
The government‘s position was correctly rejected in the original panel decision after exposing its first flaw, without having to address or discuss its other flaws. It should be rejected now in these en banc proceedings for the same reason.
I respectfully dissent.
COLLOTON
CIRCUIT JUDGE