UNITED STATES еx rel. Ruth RITCHIE, Plaintiff/Relator-Appellant, v. LOCKHEED MARTIN CORP. and Lockheed Martin Space Systems Co., Defendants-Appellees, United States of America, Amicus Curiae.
Nos. 07-1295, 08-1112
United States Court of Appeals, Tenth Circuit.
March 6, 2009.
558 F.3d 1161
We therefore affirm the district court‘s conclusion that WCLI has met the Hollinger elements as a matter of law entitling it to summary judgment on its claim for rescission of the Butts Policy.
3. Defendants’ Counterclaim
Defendants’ bad faith counterclaim depends on the existence of a valid and enforceable insurance policy. Because we affirm the district court‘s ruling that Butts‘s nondisclosure voided the Butts Policy entitling WCLI to rescission, Defendants’ counterclaim fails.
IV. CONCLUSION
Because WCLI was entitled to rescission of the Butts Policy, the district court‘s decision is affirmed.
Mark J. Meagher, McKenna Long & Aldridge LLP, Denver, CO (Sandra B. Wick Mulvany, McKenna Long & Aldridge LLP, Denver, CO; and Jennette C. Roberts, McKenna Long & Aldridge LLP, Los Angeles, CA, with him on the briefs), for Appellees.
Henry C. Whitaker, Attorney, Appellate Staff, Department of Justice, Washington, D.C. (Gregory G. Katsas, Assistant Attorney General, Washington, D.C.; Troy A. Eid, United States Attorney, Denver, CO; Michael S. Raab, Attorney, Appellate Staff, Department of Justice, Washington, D.C., with him on the briefs), for Amicus Curiae.
Before BRISCOE, EBEL, and MURPHY, Circuit Judges.
MURPHY, Circuit Judge.
Relator-Appellant Ruth Ritchie filed these consolidated appeals following a grant of summary judgment in favor of Defendant-Appellee Lockheed Martin Corporation (“Lockheed“).1 Ritchie filed the instant qui tam action alleging, inter alia, fraud on the part of Lockheed in relation to its billing practices under certain federal contracts. The district court granted summary judgment on the basis of releases signed by Ritchie prior to the filing of the qui tam suit. Ritchie argues the releases are unenforceable because they were signed without the government‘s consent and because their enforcement would be contrary to the federal policies underlying the False Claims Act. Before Ritchie signed the releases, Lockheed disclosed the fraud allegations to the federal government, which conducted its own audit and investigation of the charges billed under the federal contract. Because the federal interests served by enforcing releases signed after disclosure to the federal government outweigh the interests served by not enforcing them, this court concludes the releases are enforceаble. Ritchie also argues the district court erred in refusing
I. Background
Ritchie worked for Lockheed and its predecessor companies from 1979 until 2004. In 2002 she was assigned to oversee and validate the Mission Success Incentive Program (“MSI“) and Critical Skills Incentive Program (“CSI“) databases. These databases contained information about special pay incentives for certain employees working under expiring contracts with the U.S. Air Force. Ritchie began to raise concerns about fraud in connection with the programs almost immediately after she began validating the databases. She believed Lockheed managers were falsifying records to increase incentive payments to Lockheed employees. The incentives would be paid by thе U.S. Air Force, and thus, in Ritchie‘s view, the falsifications constituted fraud against the federal government.
A. Investigations into Fraud
Ritchie initially brought her concerns to the attention of various parties within Lockheed. In June of 2002, Ritchie contacted a Human Resources Business Manager to suggest a review of irregularities in the MSI database. Lockheed proceeded to conduct an internal audit of the MSI program, and Ritchie participated in the audit. The auditors released a report in August of 2002 identifying inconsistencies and inaccuracies in the MSI program and outlining corrective procedures. In May of 2003, unconvinced the problems had been fixed, Ritchie contacted Lockheed‘s Corporate Ethics Officer to raise concerns about discrepancies in the databases and retaliation by her supervisors. This triggered more internal investigations regarding Lockheed‘s charging practices under the MSI and CSI programs. Several Lockheed employees investigated Ritchie‘s allegations with respect to the CSI program and retaliation by her supervisors (“the ethics investigation“) and concluded the allegations were unsubstantiated. An internal auditor conducting a second audit found inaccuracies in the MSI database, but concluded they did not result in over-accrual of incentive payments and thus did not result in a negative fiscal impact to the government.
After Ritchie made her May 2003 complaint, Lockheed informed the Air Force that allegations had been made regarding payments under the incentive plans. When the ethics investigation and the second audit were complete, Lockheed briefed the Air Force and the Defense Contract Management Agency2 on the results of each audit and investigation conducted in response to Ritchie‘s complaints. The parties dispute the thoroughness of this briefing.
Shortly after the briefing, the Defense Contract Audit Agency (“DCAA“), a federal agency which audits defense contracts, commenced its оwn audit of the MSI database for fiscal year 2001. Ritchie assisted with this audit, communicating with the auditor at least five times and serving as the auditor‘s contact person at Lockheed. The DCAA auditor testified she was informed by Ritchie, in detail, of Ritchie‘s allegations regarding improper charging under both the MSI and CSI programs. Ritchie claims she informed DCAA of alterations in the relevant databases but did
B. Litigation History
Believing she was the subject of retaliation because of her whistleblowing activities,3 Ritchie sent a letter to Lockheed requesting $850,000 in damages. The parties participated in mediation and arrived at a settlement. The settlement contained a “General Release of Claims,” which was defined as “a waiver and release of any and all claims [Ritchie] might have under federal, state or local law.” Under the settlement, Ritchie was placed on administrative leave for about four months and then terminated, at which time she received lay-off benefits. She also received $24,000, payable in two installments: one immediate payment of $19,000, and another payment of $5000 payable upon her termination so long as she agreed to sign a supplemental release. Upon her discharge she signed the supplemental release, which contained the same language as the first release, and received the $5000 payment.4
Ten days after signing the supplemental release, Ritchie filed the present qui tam action. Fifty of the 112 paragraphs in her complaint restated material from the demаnd letter she had sent to Lockheed. Ritchie stated three causes of action under the False Claims Act (“FCA“): (1) knowingly presenting false claims for the purpose of obtaining payment in violation of
The case was referred by the district court to a magistrate judge for pretrial proceedings. The magistrate judge‘s scheduling order set February 3, 2006, as the final date for the amendment of pleadings and joinder of parties. The magistrate judge also set a discovery deadline of October 20, 2006, and a dispositive motion deadline of November 20, 2006. On November 20, 2006, Lockheed filed a motion for summary judgment, arguing the releases signed by Ritchie prevented her from bringing her claims. Prior to filing a response to the summary judgment motion, Ritchie filed a “Motion for Leave to Amend to Add a Co-Relator, or, in the Alternative, to Substitute Relators,” seeking to add Blair Froistad, a former Lockheed auditor, as a relator. Ritchie attempted to explain this delay in adding Froistad to the case by arguing she had only just learned of Froistad‘s departure from Lockheed. The magistrate judge recommended rejecting the motion to amend. The district court accepted that recommendation and also granted sum-
After granting summary judgment, the district court awarded costs to Lockheed. Ritchie objected to the award of costs, arguing
II. Discussion
A. Motion to Amend
The district court accepted the magistrate judge‘s recommendation to deny Ritchie‘s motion for leave to amend. This court reviews the decision of the district court to deny leave to amend for abuse of discretion. Minter v. Prime Equip. Co., 451 F.3d 1196, 1204 (10th Cir. 2006).
The district court analyzed the motion to amend under both
Once the time for amendment as a matter of course has passed, pleadings can be amended only by consent of the opposing party or leave of the court.
The motion for leave to amend was made after the close of a long discovery period and after Lockheed had filed a motion for summary judgment premised upon the releases signed by Ritchie. At a minimum, the proposed amendment would have required the reopening of discovery regarding Froistad‘s jurisdictional eligibility to be a relator.5 Lockheed‘s time and effort in preparing the summary judgment motion would have been wasted, since the motion focused upon a defense personal to Ritchie. The additional expense of adjudicating Froistad‘s eligibility and the lost expense of preparing the summary judgment motion would have prejudiced Lockheed.
Ritchie argues she was justified in waiting to add Froistad as a relator because she only learned of his departure from Lockheed approximately one month before the motion for leave to аmend was filed. She argues her counsel could not have contacted Froistad before that point because he was represented by Lockheed‘s counsel.
Froistad‘s delay in joining the suit despite his earlier knowledge of the fraud allegations would have unduly prejudiced Lockheed because it would have necessitated the re-opening of discovery and rendered worthless the time and effort Lockheed expended on its motion for summary judgment. Cf. Utah Ass‘n of Counties v. Clinton, 255 F.3d 1246, 1250-51 (10th Cir. 2001) (holding motion for intervention timely under
B. Enforceability of Releases
The district court granted summary judgment to Lockheed by enforcing the releases Ritchie signed after the mediation. This court reviews a grant of summary judgment de novo, applying the same standard applied by the district court. King v. PA Consulting Group, Inc., 485 F.3d 577, 585 (10th Cir. 2007). Summary judgment is only appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.
As a threshold matter, this court must determine whether the language in the releases is broad enough to еncompass qui tam claims. The releases purport to cover “any and all claims [Ritchie] might have arising under federal, state or local law.” Ritchie argues the FCA claims are not claims she “might have” because they belong to the United States. This argument is undercut by the language of the FCA and by Supreme Court precedent. The FCA states relators “may bring a civil action for a violation of [the FCA] for the person and for the United States Government.”
Ritchie attacks the district court‘s ruling on two other grounds. First, she argues the FCA requires consent by the Attorney General prior to the settlement of qui tam claims, and in the absence of such consent the releases are unenforceable. Second, she argues the enforcement of the releases
1. Attorney General Consent
Ritchie points to
The statute itself only mentions the “dismissal” of a qui tam action and further requires the consent of the court. When there is a release preceding the filing of the qui tam action, as in this case, no action has been filed, so there is neither an action to dismiss nor a judge to consent to the agreement. As a consequence, the statute only governs the enforceability of settlement agreements made after the filing of a qui tam claim. See United States ex rel. Green v. Northrop Corp., 59 F.3d 953, 960 (9th Cir. 1995). The statute is of no assistance to Ritchie in this case because she signed her releases before filing the qui tam case.6
2. Does federal policy preclude the enforcement of these releases?
Ritchie contends the court should decline enforcement of her release on policy grounds even if the FCA does not bar enforcement. Her release is a contract and its enforceability is ordinarily a question of state law. United States v. McCall, 235 F.3d 1211, 1215 (10th Cir. 2000). Federal common law may supplant state law, however, whеn “a significant conflict exists between [a] federal policy or interest and the operation of state law, or the application of state law would frustrate specific objectives of federal legislation.” Boyle v. United Techs. Corp., 487 U.S. 500, 507 (1988).
The goal of the FCA is to prevent and rectify fraud perpetrated by government contractors. Green, 59 F.3d at 963. The qui tam provisions of the FCA provide an incentive to private individuals to uncover and prosecute FCA claims by giving them a portion of the amount recovered for the United States. United States ex rel. Springfield Terminal Ry. v. Quinn, 14 F.3d 645, 649 (D.C. Cir. 1994). Private individuals are enlisted in this effort because they have information about fraud that may be unavailable to the government and because the government lacks the resources to prosecute every fraud claim it may have. Green, 59 F.3d at 963.
Settlements of qui tam claims directly implicate this federal interest in combating fraud. When an individual prevails in a qui tam lawsuit, she is only entitled to a percentage of the amount recovered on behalf of the government. Id. at 965. If the individual signs а general release in exchange for money, however, she will probably keep the entire amount.6
The protection of this interest, in turn, should not vary from state to state based upon variations in state contract law. Id. at 961. Additionally, state-by-state variations might allow parties to use choice-of-law clauses to select “as governing law the law of a state that is most likely to uphold the release.” Id. Under these circumstances, a uniform federal rule is appropriate to protect the federal interest at stake. Id. Therefore, this court shall apply federal common law to determine the enforceability of the releases.
In determining the federal common law standard to be applied, both parties and the United States as amicus curiae rely upon Ninth Circuit precedent. Green, 59 F.3d 953; United States ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230 (9th Cir. 1997). In Green, an employee brought a lawsuit against a government contractor for state-law causes of action stemming from termination of his employment. 59 F.3d at 956. In settling those claims, the employee signed a general release. Id. The government had not yet been apprised of wrongdoing at the company. See id. at 966. Green later brought a qui tam action. Applying federal common law, the Ninth Circuit adopted a balancing test to determine the enforceability of the releases, analyzing whether the interest in “‘enforcement is outweighed in the circumstances by a public policy harmed by enforcement of the agreement.‘” Id. at 962 (quoting Town of Newton v. Rumery, 480 U.S. 386, 392 (1987)). The court allowed the qui tam action to proceed because the significant public interest in deterrence and restitution of fraud against the government outweighed the interest of encouraging the settlement of litigation. Id. at 963-69. In so doing, the court deemed it critical that the government did not learn of the fraud allegations until the filing of the qui tam action. Id. at 966.
In Hall, an employee of a company manufacturing nuclear reactor rod components notified the Nuclear Regulatory Commission of alleged defects in the construction of the components. 104 F.3d at 231. The NRC investigated the allegations and subsequently decided they were baseless. Id. at 231-32. After the employee complained to the NRC, he was suspended from work and ultimately fired. Id. at 232. Following his termination he brought state law claims against the company in state court. Id. That action settled and he signed a general release of claims. Id. Some ten months later the employee filed a qui tam action naming the same defendants and making the same allegations of fraud as he had in the state proceedings. Id. Distinguishing Green, the court enforced the release to bar the qui tam action. Id. at 233. Because the government already had full knowledge of the аllegations as a result of the NRC complaint, the interest in bringing information forward was absent. Id. Further, because the allegations were deemed baseless by the government, the interest in supplementing federal enforcement of FCA claims was not implicated. Id. The court concluded that no federal policies overrode the general policy in favor of encouraging settlement, and thus enforced the release. Id.
We adopt the Ninth Circuit‘s framework for analyzing releases of FCA claims as a workable method for protecting the federal interests at stake. To determine the enforceability of Ritchie‘s releases, we must
In Green and Hall, the Ninth Circuit focused heavily upon the federal interest in the disclosure of fraud. In Green, the government had no knowledge of the fraud prior to the filing of the qui tam suit, while in Hall the government had already been apprised of the allegations due to prior disclosures to a federal agency. Not surprisingly, Ritchie likens the facts of this case to Green, while both Lockheed and the United States as amicus curiae argue this case is closer to Hall.
Ritchie contends the government lacked full knowledge of the scope of the fraud at the time she signed the release, and thus its enforcement would fail to protect the federal policy favoring the disclosure of fraud. Although Lockheed voluntarily disclosed to the federal government Ritchie‘s allegations of fraud, she characterizes those disclosures as a “whitewash” because Lockheed also informed the government it believed the allegations lacked merit. Ritchie also argues the government‘s audit of the databases in question was incomplete, as it only covered database entries for one year. Thus, she asserts, it could not have provided the government with a full picture of the fraud.
The disclosures to the government in this case were sufficient to satisfy the public interest in uncovering fraud. Even if Ritchie is correct in characterizing Lockheed‘s disclosures to the government as a “whitewash,”7 the government subsequently conducted its own inquiry into the matter. Although the parties dispute the amount of information Ritchie provided to the DCAA auditor, it is undisputed that the scope of the audit expanded in response to Ritchie‘s disclosures and her allegations were taken seriously enough to warrant referral to criminal investigators. Under these circumstances, the federal government had ample opportunity to uncover and prosecute any fraud that had taken place.8
Enforcing releases of qui tam claims only when the allegations of fraud have been disclosed to the government before the release also has the benefit of encouraging voluntary disclosure by government contractors. Although Lockheed believed Ritchie‘s allegations were baseless, it still relayed them to the government. Imрortant to our analysis, Lockheed gave the DCAA auditor full access to Ritchie, even making her the auditor‘s point of contact. These steps enabled the government to conduct its own inquiry into the alleged fraud. Contractors like Lockheed have an interest in settling qui tam claims prior to the filing of a lawsuit. If they can settle qui tam claims only after fraud allegations have been disclosed to the government, then contractors effectively have an incentive to disclose. On policy grounds, then, conditioning the enforceability of releases of qui tam claims upon the prior disclosure of the fraud allegations to the government promotes the federal interest in uncovering fraud against the government. Additionally, allowing for settlement of qui tam claims in these circumstances furthers the general federal interest in encouraging settlement. Hall, 104 F.3d at 233.
The Hall court identified one factor favoring settlement in that case which is not present here. Namely, in Hall, the feder-
C. Costs
Ritchie argues the district court‘s award of costs to Lockheed pursuant to
Awards of costs are reviewed for an abuse of discretion. Rodriguez v. Whiting Farms, Inc., 360 F.3d 1180, 1190 (10th Cir. 2004). An abuse of discretion occurs, inter alia, when a district court makes an error of law. United States v. Yarbrough, 527 F.3d 1092, 1101 (10th Cir. 2008). Unless a statute provides otherwise, costs should ordinarily be awarded to prevailing parties.
Ritchie first argues
Ritchie next argues the district court should have exercised its discretion to refuse an award of costs under
The district court did not abuse its discretion in rejecting Ritchie‘s generalized, policy-based rationale for why Lockheed should not be awarded costs. If this court were to hold otherwise, it would effectively legislate a per se rule preventing prevailing FCA defendants from recovering costs, since Ritchie‘s policy-based argument would be equally applicable in every FCA case.
D. Discovery Issues
During discovery, Ritchie filed an untimely motion to compel, and Lockheed sought a sanction in the amount of the fees incurred in responding to the motion. Ritchie objected to the amount of money sought by Lockheed, and the district court awarded a smaller sanction than what Lockheed sought. For the first time on appeal, Ritchie argues the sanction was contrary tо the intent of the FCA because discovery sanctions could deter relators from bringing qui tam suits. This FCA preclusion argument was not presented below, and we decline to hear it for the first time on appeal. See Ansari v. Qwest Commc‘ns Corp., 414 F.3d 1214, 1221 (10th Cir. 2005).
Ritchie also appeals the partial denial of her second motion to compel, arguing Lockheed wrongfully withheld discoverable evidence. Because we affirm the district court‘s grant of summary judgment solely on the basis of the releases signed by Ritchie, we do not reach this issue.
III. Conclusion
For the foregoing reasons, the decisions of the district court granting summary judgment and awarding costs to Lockheed are hereby affirmed.12
BRISCOE, Circuit Judge, concurring and dissenting:
I join Parts I, II(A), II(B)(1), and II(D) of the majority‘s opinion, concur in the opening section of Part II(B), concur in part and dissent in part from Part II(B)(2), and dissent from Part II(C).
In the opening section of Part II(B) of its opinion, the majority concludes that “the language in the releases” referring to “any and all claims [Ritchie] might have arising under federal, state or local law,” is broad enоugh to preclude her from filing this qui tam action. Maj. Op. at 1167. More specifically, the majority concludes, citing both the language of the FCA and Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 773 (2000), that “[t]he portion of the claim assigned to the relator, namely the amount the relator is entitled to recover in a successful action, belongs to the relator to a sufficient degree that it should be considered under the releases signed in this case as a claim Ritchie ‘might have under federal... law.‘” Maj. Op. at 1167.
I respectfully disagree with this conclusion. To be sure, the Supreme Court concluded in Vermont Agency, in the context of analyzing a qui tam relator‘s standing to maintain a suit under the FCA, that “[t]he FCA can reasonably be regarded as effecting a partial assignment” from the government to the qui tam relator. 529 U.S. at 773. Importantly, however, the Court emphasized that this partial assignment was only “of the Government‘s damages claim.” Id. (emphasis added). Moreover, the Court noted that “[a] qui tam relatоr has suffered no... invasion” of a “legally protected right,” id. at 772-773, and emphasized that “the ‘right’ he seeks to vindicate does not even fully materialize until the litigation is completed and the relator prevails,” id. at 773. Further, the Court characterized “the relator‘s suit” as one simply for “bounty,” id., and distinguished between “a bounty and an express cause of action,” id. at 777.
Interpreting the Court‘s language in Vermont Agency, the Second Circuit recently concluded, and I agree, that “while the False Claims Act permits relators to control the False Claims Act litigation, the claim itself belongs to the United States.” United States ex rel. Mergent Serv. v. Flaherty, 540 F.3d 89, 93 (2d Cir. 2008) (citing Vermont Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 774-75 (2000)). Applying that principle to the facts presented here, the FCA claims ultimately asserted by Ritchie belonged to the United States, not Ritchie. Thus, it is far from certain in my view that the release language quoted by the majority encompassed those FCA claims.
Having said this, I note that Paragraph 11 of each release provided:
Employee understands that if this Agreement were not signed, Employee would have the right to voluntarily assist other individuals or entities in bringing claims against Employer. Employee hereby waives that right and will not provide any such assistance other than assistance in an investigation or proceeding conducted by the United States Equal Employment Opportunity Commission. Employee and Employer further agree that Employee may provide information pursuant to any valid subpoena, provided that Employee first notifies Employer in writing of the proposed disclosure in order to provide Employer an opportunity to seek a Protective Order.
In my view, this language was sufficiently broad to have encompassed Ritchie‘s right to serve as a relator in a qui tam action.
Does federal policy preclude the enforcement of these releases?
I agree with the majority‘s conclusions, in Part II(B)(2), that “there is a federal interest in protecting the federal govern-
I disagree with the majority‘s decision, however, to adopt the Ninth Circuit‘s analysis in United States ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230 (9th Cir. 1997). Several related public interests are undoubtedly at stake under the FCA‘s enforcement scheme. These include (1) incentivizing insiders to come forward with information about fraud against the government, (2) supplementing government efforts to recoup monies lost due to fraud, and (3) deterring fraud against the government. See, e.g., False Claims Amendment Act of 1986, S.Rep. No. 99-345, at 7 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5272 (“In addition to detection, investigative and litigative problems which permit fraud to go unaddressed, perhaps the most serious problem plaguing effective enforcement is a lack of resources on the part of Federal enforcement agencies.“); id. at 8 (“[a]n additional problem... exists when large, profitable corporations are the subject of a fraud investigation and able to devote many times the manpower and resources available to the Government.“); id. (“The Committee believes that the amendments... which allow and encourage assistance from the private citizenry can make a significant impact on bolstering the Government‘s fraud enforcement effort.“); id. at 23-24 (amending the FCA‘s qui tam provision in order “to encourage more private enforcement suits“). The Ninth Circuit‘s analysis in Hall focuses primarily on the first interest: providing insiders with incentives to come forward with information about fraud against the government. See Hall, 104 F.3d at 233. Most of the cases applying the Green/Hall framework have likewise focused on these incentives. See, e.g., United States ex rel. Longhi v. Lithium Power Tech., Inc., 481 F.Supp.2d 815, 818-21 (S.D.Tex.2007).
The problem with the Hall exception is that it undermines one of the other public interests under the FCA: the Government‘s compensatory interest in recouping funds lost due tо fraud. Presumably, the Government has two potential reasons for declining to pursue a civil fraud claim independently when it knows of the allegations: (1) the suit lacks merit, or (2) the Government lacks the resources to be an active party to the litigation. The FCA is designed to help remedy the latter scenario:
[P]erhaps the most serious problem plaguing effective enforcement is a lack of resources on the part of Federal enforcement agencies. Unlike most other types of crimes or abuses, fraud against the Federal Government can be policed by only one body—the Federal Government. State and local law enforcement are normally without jurisdiction where Federal funds are involved.
Taking into consideration the vast amounts of Federal dollars devoted to various complex and highly regulated assistance and procurement programs, Federal auditors, investigators, and attorneys are forced to make ‘screening’ decisions based on resource factors. Allegations that perhaps could develop into
S.Rep. No. 99-345, at 7; see also Ridenour v. Kaiser-Hill Co., L.L.C., 397 F.3d 925, 931 n. 9 (10th Cir. 2005) (“The increased incentives to private individuals have proven effective at helping the Government recover substantial sums of fraudulently obtained payments.“); Green, 59 F.3d at 968 (“The relator‘s right to recovery exists solely as a mechanism for deterring fraud and returning funds to the federal treasury.“); cf. United States v. Health Possibilities, 207 F.3d 335, 343 n. 6 (6th Cir. 2000) (“There is absolutely no statutory authority for the proposition that simply because the government decides not to expend the resources to proceed with an action itself, it thereby authorizes the relator to settle the government‘s claims in whatever manner he wishes. Indeed, such a construction would only force the government to unnecessarily intervene in qui tam cases and thereby frustrate the efficacy of the qui tam framework.” (citations omitted)); United States ex rel. DeCarlo v. Kiewit/AFC Enter., Inc., 937 F.Supp. 1039, 1047 (S.D.N.Y.1996) (“[T]he government‘s decision not to participate in the qui tam action is not equivalent to a consent to voluntarily dismiss a claim against a defendant with prejudice. Non-intervention does not necessarily signal governmental disinterest in an action, as it is entitled to most of the proceeds even if it opts not to intervene.“). By allowing contractors to buy off relators whose resources would otherwise be available to pursue fraud claims on behalf of the Government, the exception from Hall disregards the Government‘s compensatory interest in recouping funds lost due to fraud.
As I see it, a better rule would be that prefiling releases are unenforceable under the FCA unless the Government—and more specifically, the Attorney General—has provided its express written consent.1 An express consent rule is сonsistent with the FCA‘s post-filing settlement requirements. See
An express consent rule also decreases the risk that the relator and contractor will bargain away the Government‘s claim. See Health Possibilities, 207 F.3d at 340-41 (concluding that “the power to veto a privately negotiated settlement of public claims is a critical aspect of the government‘s ability to protect the public interest in qui tam litigation,” and that without such power “the public interest would be largely beholden to the private relator“); Searcy v. Philips Elec. N. Am. Corp., 117 F.3d 154, 160 (5th Cir. 1997) (noting that the express consent provision of
Moreover, if we require the Government‘s express consent, then contractors will be forced to disclose enough information to satisfy the Government. This will help the Government investigate the alleged fraud, and it will ensure that the Government is satisfied with its investigation before a relator can be released. Along these same lines, an express consent rule eliminates a very difficult task for the courts: attempting to determine, based on the conflicting evidence and testimony of two adverse parties (the contractor and the relator), whether a third party (the Government) is satisfied with its knowledge and investigation of the alleged fraud. In the case before us, as in any case which involves a representation that a party will “tell all,” it is very difficult to determine whether all relevant information was in fact disclosed by Lockheed and whether, as a consequence, the extent of the alleged fraud was fully investigated by the Government. From my distant vantage point in this case, the exchange of information and the extent of the Government‘s investigation appears superficial.
I fully recognize that requiring express consent will likely deter more settlements than under the Hall framework. If the Government withholds its express consent, then the parties will have to value the settlement to include the probability of the relator filing a subsequent qui tam action. If that probability is high, then the value of settling, from the contractor‘s perspective, will be correspondingly low. This may well result in fewer settlements, which will impinge on the parties’ interest in resolving disputes. As the Ninth Circuit has pointed out, though, the settlements at most risk of falling apart in this context are those in which the contractor is most likely to have committed fraud. Green, 59 F.3d at 969. This, in my view, is not necessarily a bad result.
I also recognize, relatedly, that an express consent requirement may make it more difficult for parties to craft an agreeable prefiling release. Most likely, the Government will not be bound by the prefiling release between the relator and the contractor, so the Government will still be able to bring its own claim for the alleged fraud. See Hall, 104 F.3d at 233 (“The government, of course, was not a party to the release, and is therefore not barred by it from pursuing a claim against Teledyne.“). This is one way in which prefiling consent will differ from post-filing consent: in the post-filing settlement context, the FCA claim is usually dismissed with prejudice, and the Government is barred from pursuing it further. The contractor has several potential solutions to this problem,
Because I favor adoption of an express consent rule, I must in turn conclude, since the Government never consented to Ritchie‘s release, that we must reverse the district court‘s grant of summary judgment in favor of Lockheed. That is, I would conclude that the release does not bar Ritchie‘s subsequent qui tam action under the FCA.
Costs
Because I would reverse the district court‘s grant of summary judgment in favor of Lockheed, I would also, necessarily, reverse the district court‘s award of costs to Lockheed pursuant to
Dennis CHASTAIN; Arthur Schricker; Larry Patterson; R.C. Walker, individually and on behalf of all others similarly situated, Plaintiffs-Appellants,
v.
AT & T, Defendant-Appellee.
No. 07-6288.
United States Court of Appeals, Tenth Circuit.
March 9, 2009.