UNITED STATES of America, ex rel. Richard F. MILLER, Plaintiffs,
v.
BILL HARBERT INTERNATIONAL CONSTRUCTION, INC., et al., Defendants.
United States District Court, District of Columbia.
*21 *22 *23 Robert B. Bell, Gregory B. Reece, Howard M. Shapiro, Jennifer M. O'Connor, Jonathan Goldman Cedarbaum, Matthew B. Baumgartner, Michael J. Gottlieb, Monya Monique Bunch, Wilmer Cutler Pickering Hale & Dorr, Kevin Michael Henry, Sidley Austin, LLP, Carolyn Gail Mark, Michael F. Hertz, U.S. Department of Justice, Keith V. Morgan, U.S. Attorney's Office, Washington, DC, for Plaintiffs.
Charles Anthony Zdebski, June Ann Sauntry, Troutman Sanders LLP, Barry Coburn, Trout Cacheris, PLLC, Charles Samuel Leeper, Jeffrey J. Lopez, Michael Reilly Miner, Elizabeth Ewert, Michael J. McManus, Drinker, Biddle & Reath, Phillip Craig Zane, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, David Schertler, Schertler & Onorato, L.L.P., Andrew Lawrence Hurst, Stephen Printiss Murphy, Reed Smith LLP, Washington, DC, Brian P. Watt, Bryan B. Lavine, James J. Mills, Timothy J. Kozik, Troutman Sanders LLP, Charles C. Murphy, Jr., Vaughan & Murphy, Atlanta, GA, for Defendants.
MEMORANDUM OPINION & ORDER
LAMBERTH, District Judge.
Before the Court are a number of matters related to the form of judgment to be entered in this case. Based upon the papers submitted by the parties, the applicable law, and the entire record herein, which now includes the verdict of the jury following trial of the False Claims Act claims in this case, the Court holds that the government may not pursue its equitable claims since they would result in a double recovery, and holds that relator Richard Miller is entitled to judgment on the pleadings on all of defendant HII's counterclaims.
I. Motion for Entry of Judgment: Common Law Equity Claims
The government seeks judgment on its common law claims of unjust enrichment *24 and payment under mistake of fact, and HII and HC have opposed, arguing that the government is not entitled to a judgment on those claims that would be duplicative of the judgment in the FCA case. See Response of HII and HC to Mot. for Entry of Judgment [871]. For its part, the government claims that it "does not seek a double recovery for both its False Claims Act claims as well as its common law claims," but is nonetheless "entitled to a finding of liability on its common law claims." Mot. for Entry of Judgment [863] at 13. The government acknowledges that "[o]nce the False Claims Act judgment is satisfied, then the United States' common law claims would be deemed extinguished." Id. at 14.
The claims for unjust enrichment and payment under mistake of fact are essentially duplicative of each other and seek the same relief that has been awarded under the jury's verdict in the FCA case. See Ellipso, Inc. v. Mann,
It is true that the government in an FCA case generally may plead theories in the alternative, even if different claims seek relief for the same injury, so long as there is ultimately only one recovery. See United States v. United Technologies Corp.,
The government has received a verdict in its favor on the FCA claims, and judgment is being entered. The Court will not proceed with the academic exercise of considering liability on the equitable claims, since any recovery under them Would be duplicative.
II. Motion for Judgment on Pleadings: Counterclaims
Relator Richard Miller has filed a Motion for Judgment on the Pleadings [861] on HII's counterclaims against him, which were asserted in HII's Answer.[1] [408] The first counterclaim is for breach of fiduciary duty, while the other two seek *25 contribution and indemnification for the government's equitable claims.
Under Rule 12(c) of the Federal Rules of Civil Procedure, "[a]fter the pleadings are closed but within such time frame as not to delay the trial, any party may move for judgment on the pleadings." Fed.R.Civ.P. 12(c). Such motion shall be granted "if the movant shows, at the close of pleadings, that no issue of material fact remains to be resolved, and that he or she is entitled to judgment as a matter of law." Johnson v. District of Columbia,
A. Fiduciary Duty Counterclaim
As to the fiduciary duty claim, HII alleges that Miller was an officer at J.A. Jones Construction Co. from 1986 to 1991, and then became an officer at J.A. Jones, Inc., the former's corporate parent. Counterclaim ¶ 7; Answer [408] at 18. J.A. Jones Construction was a joint venture partner with certain of the Harbert companies in bidding and performing on Contract 20A and Contract 07, and in bidding on Contract 29. Id. at ¶ 18. HII was an investor in the Harbert companies. Id. HII alleges that Miller became aware of evidence of the bid rigging conspiracy at issue in this case, hints that he had a role in perpetrating or at least concealing the fraud, and asserts that he violated a fiduciary duty to HII by failing to report the fraud to HII or the government at an earlier time.
1. Fiduciary Duty Counterclaim: Viability Under False Claims Act
Miller argues that the claim for breach of fiduciary duty is foreclosed under the False Claims Act. A number of cases have barred particular counterclaims in FCA cases. In what appears to be the first case to so hold, the court rested its consideration on policy grounds, reasoning that:
To permit the counterclaim pleaded would set a precedent that would be a strong deterrent to the institution of genuine informer's actions. We may assume that some informers would get their information of the fraud on the government by being implicated in the perpetration of the fraud. Fear of a counterclaim, based on the charge that the informer himself was solely involved and the defendants relied upon his judgment and integrity, would in the average case discourage the institution of qui tam actions. The reason Congress gave a genuine informer a share in the recovery was to encourage qui tam actions in the interest of the government. It seems to me that a sensible application of the qui tam statute should bar the plea of a counterclaim against the informer.
United States ex rel. Rodriquez v. Weekly Publications,
In Rodriquez, the counterclaim was premised on the allegation that the qui tam relator himself was responsible for the fraud and had led the defendant astray, so it was in the nature of an action for indemnification. Later cases that followed Rodriquez elaborated more fully on its logic, and the principal such case is Mortgages, Inc v. U.S. District Court for the District of Nevada (Las Vegas),
The Ninth Circuit began its analysis by pointing out that the FCA does not mention a right to contribution or indemnification, and nothing about its history or purpose suggests that Congress intended to provide one. "The FCA is in no way intended to ameliorate the liability of wrongdoers by providing defendants with a remedy against a qui tam plaintiff with `unclean hands.'" Id. at 213. Nor was such a right to be found in federal common law, as it would serve only private interests and, by punishing relators and thus discouraging them from bringing suit, would actually imperil the federal interests which the FCA seeks to vindicate. Id. The congressional intention to not allow counterclaims was supported by the fact that Congress did choose to include explicit provisions for reducing the award of a wrongdoing relator and otherwise acknowledging his misdeeds, but with the benefit redounding to the government, not to the other wrongdoers. See, e.g., 31 U.S.C. § 3730(d)(3). If Congress had intended to allow wrongdoers to shift costs to relators, it would have done so explicitly. This is especially true because any right to contribution from a relator would upset the carefully calibrated framework under which relator compensation is to be figured.
The unavailability of contribution and indemnification for a defendant under the False Claims Act now seems beyond peradventure. United States ex rel. Taylor v. Gabelli,
On the other hand, courts have held that "a qui tam defendant may maintain a claim for independent damages; that is, a claim that is not dependent on a finding that the qui tam defendant is liable." United States ex rel. Stephens v. Prabhu,
These cases demonstrate that there are two ways in which an FCA defendant's counterclaim may seek "independent damages" and thus be permissible. The use of the word "independent" has led to some confusion, and courts would be better served to describe the permissible claims as "not dependent on the fact of FCA liability." In short form, claims by an FCA defendant have been properly permitted where the success of the FCA defendant's claim does not require a finding that the defendant is liable in the FCA case.
The first and most obvious of the two categories is where the conduct at issue is distinct from the conduct underlying the FCA case. This can be so even where there is a close nexus between the facts, so long as there is a clear distinction between the facts supporting liability against relator and the facts supporting liability against the FCA defendant. For instance, claims by FCA defendants have been held to be independent where a relator allegedly breached her fiduciary duty to her employer the FCA defendant by failing to deliver to it a subpoena that was sent to her as the employer's agent, United States ex rel. Grandeau v. Cancer Treatment Centers of America,
The second category of permissible claims by an FCA defendant is where the defendant's claim, though bound up in the facts of the FCA case, can only prevail if the defendant is found not liable in the FCA case. This is where the word "independent" has sewn confusion. These *28 claims are actually quite dependent, but they depend on a finding that the FCA defendant is not liable, whereas the impermissible class of claims depend on the FCA defendant being found liable. The FCA defendant thus has a cause of action for damage to him independent of his FCA liability. These claims have surfaced in the form of libel, defamation, malicious prosecution, and abuse of process claims that succeed upon a finding that the relator's accusations were untrue. Once the question of FCA liability has been determined in the defendant's favor, there is less of the risk, envisioned by Mortgages and other cases, of deterring would-be relators, and no risk that a wrongdoer will be allowed to shift its costs. The simple rule that emerges from these cases is therefore that a claim by an FCA defendant which requires for its success a finding that the FCA defendant is liable is the kind of claim barred by the FCA.
Illustrations are provided by the cases. For instance, in Burch ex rel. U.S. v. Piqua Engineering, Inc.,
Similarly, in United States ex rel. Stephens v. Prabhu,
These cases come together to form a sensible rule.' If a defendant's counterclaim is predicated on its own liability, then its claims against a relator typically will allege that the relator participated in the fraud, or caused the defendant, some damage by the act of being a relator, that is, by disclosing the defendant's fraud. The first kind of action seeks contribution or indemnity, rights that are not provided by the FCA because they would deter relators, allow wrongdoers to shift their costs, and would disrupt the intended framework of incentives and punishments established by the FCA. The second kind of action has the same effect of providing contribution or indemnity, with the perverse twist that the relator is not even accused of contributing to the defendant's fraud. If such suits were allowed, they would punish innocent relators, which would be a significant deterrent to whistle blowing and would imperil the government's ability to detect, punish, and deter fraud. The FCA contains several provisions *29 seeking to protect relators from retaliation, and it would run counter to this policy if the Court were to allow retaliatory suits against truthful relators.
United States ex rel. Newsham v. Lockheed Missiles & Space Co., Inc., is directly on point with the case before this Court, and is consistent with the line of cases explained above.
The claim in Newsham is the same as the claim here: that the relator should have informed the defendant of his suspicions of fraudulent activity. In essence, it is a claim that the relator should have become a relator sooner, or that he should have informed the defendant before informing the government. Allowing such a claim would place affirmative duties on a relator that the FCA does not envision. It also would create the perverse result of making a truthful relator pay to offset the liability of a wrongdoing FCA defendant. This would be the equivalent of contribution or indemnification, and is not allowed. Where an element of an FCA defendant's claim is that the defendant is liable' under the FCA, then the FCA bars that claim. This is doubly true where, as here, the jury does indeed render a verdict finding the FCA defendant liable in fact. For these reasons, the fiduciary duty counterclaim is barred and judgment on the pleadings in favor of relator is appropriate.[2]
2. Fiduciary Duty Counterclaim: Sufficiency of Allegations
Even if it were permissible under the FCA, HII's fiduciary duty counterclaim would still fail because HII has not identified a cognizable duty owed to it by Richard Miller. HII fails to specify which state's law should apply here, but under the laws of either of the likely candidates, Alabama and North Carolina, as well as *30 under general laws of agency, there is no fiduciary duty of the sort alleged here.[3]
We can put aside for one moment a few issues that HII never addresses, such as why Miller owed a duty to the joint venture during the time he worked not for Jones, the joint venturer, but for its parent, or why duties owed to the joint venture would run to HII as an investor in a joint venturer, and not just to the joint venturer. To summarize the allegations, HII alleges that when the Harbert companies and Jones entered into joint ventures, to bid or perform on the contracts at issue in this case, Miller became an agent or subagent of the joint venture and HII, such that he owed fiduciary duties to the joint venture and HII, which had invested in the Harbert companies that formed the joint ventures. He allegedly violated these duties when he learned of information suggesting that the bid rigging conspiracy in this case was afoot, yet did not report this information to HII. Instead he chose it is alleged to continue to collect information and allow the conspiracy to move forward until his qui tam case was at its strongest, at which point he became a relator and took his information to the government. This conduct violated fiduciary duties to HII, such as the duties of loyalty and the duty to keep his principal informed.
To support this surprising allegation, HII points to the commonplace notion that when Jones and the Harbert companies entered into their joint ventures, they stood in a relation similar to partnership, with each at the same time standing in a position similar to partners and agents of each other. HII then alleges that Miller, an agent of Jones, became an agent or subagent of HII.
A claim for breach of fiduciary duty requires that: (1) defendant had a fiduciary duty to plaintiff; (2) which was breached; and (3) injury resulted. See Restatement (Second) Torts § 874 ("One standing in a fiduciary relation with another is subject to liability to the other for harm resulting from a breach of duty imposed by the relation."). "For a fiduciary duty to exist there must first be a fiduciary relationship, which is a relationship in which `there has been a special confidence reposed in one who in equity and good conscience is bound to act in good faith and with due regard to the interests of the one reposing confidence.'" Estate of Smith v. Underwood,
Joint venturers do indeed take on some fiduciary duties to each other, but always cabined in breadth by the scope of the joint undertaking. As has been well stated:
A joint venture is an association of persons with intent, by way of express or implied contract, to engage in and carry out a single business venture for joint profit, for which purpose they combine their efforts, property, money, skill, and knowledge, without creating a partnership or a corporation, pursuant to an agreement that there shall be a community of interest among them as to the purpose of the undertaking, and that each participant shall stand in the relation of principal as well as agent as to each of the other coadventurers, with an equal right of control of the means employed to carry out the common purpose of the venture.
*31 Environmental WasteControl, Inc. v. Browning-Ferris Indus., Inc.,
"Each member of a joint adventure is both an agent for his coadventurer and a principal for himself." Pike v. Wachovia Bank & Trust Co.,
It is clear then that the Harbert and Jones companies had duties to each other in relation to the subject matter of each joint venture, lasting for the duration of each venture. HII then asserts that because Jones was a coventurer with the Harbert companies and as such owed them the duties of an agent, Jones' employee, Miller, also became an agent of the joint venture, or possibly a subagent, and thus owed duties directly to the joint venture and to HII, including the duty to keep HII informed.
"A principal agent relationship exists when (1) the agent has authority to act for the principal and (2) the principal has control over the agent." Estate of Smith,
In turn, "[a] subagent is a person appointed by an agent to perform functions that the agent has consented to perform on behalf of the agent's principal and for whose conduct the appointing agent is responsible to the principal," but an "agent may appoint a subagent only if the agent has actual or apparent authority to do so." Restatement (Third) of Agency § 3.15(1),(2). Perhaps more elegant is the *32 expression that a subagent is "a person appointed by an agent empowered to do so, to perform functions undertaken by the agent for the principal, but for whose conduct the agent agrees with the principal to be primarily responsible." Restatement (Second) of Agency § 5(1). "If the agent hires the subagent to carry out the principal's, request, the subagent is the agent of the agent only. If the principal directs, either expressly or impliedly, the agent to hire the subagent, the subagent becomes the agent of the principal." Estate of Smith at 816. The subagent must be aware of who its ultimate principal is in order to have a fiduciary duty to that principal. Select Creations, Inc. v. Paliafito America, Inc.,
These basic precepts of agency law establish that agency relationships do not emerge by accident, as well they should not. In the case of a joint venture, the venturers assume fiduciary relations with each other by choice and as part of their agreement. In doing so they do not, absent an agreement or some other indication of intent, necessarily place all of their employees and other agents under the dominion of their coventurer. If entering a joint venture had that effect, each joint venture would in essence be a temporary merger, something contrary to principles of corporate law. HII does not set forth any authority in support of its proposition that Miller automatically became HII's agent by virtue of the parties entering a joint venture.
Nor does HII put forward any allegations that the parties affirmatively designated Miller as an agent of HII or intended him to act as such, or that he ever knew HIT was his principal or treated it as such. There is no allegation that the principal, be it the joint venture or HII itself, authorized Jones to engage Miller as a subagent. Nor is it alleged, that Jones did place Miller at the disposal of the joint venture or HII. HII does not assert that Miller knew of or assented to this arrangement. There is no allegation that. Miller, knew he was subject to the authority of HII, that he attempted to act on behalf of HII, or that he considered himself bound to act in HII's interest. Furthermore, under HII's theory, HII would be liable for the acts of its subagent, Miller. See Booker v. United American Ins. Co.,
Nor is there any allegation that HII or the joint venture had control or exercised control over Miller, a requisite to finding that he was their agent or subagent. HII cites no evidence that it or the joint venture had the kind of "overmastering influence" over Miller typical of a principal over its agent, or that Miller "purport[ed] to act or advise with the other's interest in mind," rather than the interest of his Jones employers. University Federal Credit Union v. Grayson,
There is thus no allegation of any intent by any of the parties that Miller was to stand in the position of HII's agent or subagent. He remained only the agent of Jones, and owed his fiduciary duties only to it. While the joint ventures at issue were memorialized in agreements, HII does not argue that there is any contractual basis for its novel theory of fiduciary duty. HII is only left with its argument that Miller automatically became HII's *33 agent or subagent by virtue of the fact that his employer entered into a joint venture with the Harbert companies. As stated, there is no support for this theory of automatic agency. Having failed to identify a cognizable fiduciary duty owed to it by Miller, HII fails to state a claim for relief, a further reason why judgment on the pleadings is appropriate.[4]
B. Counterclaims for Contribution and Indemnity
HII also brought two counterclaims seeking contribution and indemnity for each of the government's equitable claims. Because the Court has already determined that the government may not proceed on its equitable claims, the counterclaims are moot, and judgment on the pleadings is appropriate as to them.
III. Conclusion
For the foregoing reasons, the government is not entitled to pursue its claims for equitable relief on theories of unjust enrichment and payment under mistake of fact, and the judgment that the Court will enter will not include those claims. Relator's Motion [861] for Judgment on the Pleadings as to HII's counterclaims is GRANTED; counterclaims are hereby DISMISSED; and judgment is ENTERED against HII and in favor of relator Richard Miller on HII's counterclaims.
SO ORDERED.
NOTES
Notes
[1] As HII has noted, its claims might properly be deemed cross-claims or third-party claims, since Miller has sued on behalf of the government, the real party in interest. The cases discussed infra involve all three kinds of claims, and in this case the classification is not outcome determinative.
[2] HII attempts to gin up a permissible cause of action by, claiming that Miller is being sued not for his conduct as a relator, but his conduct before he knew about the FCA and became a realtor. But as the D.C. Circuit has indicated, albeit in a slightly different context, the preparation of an FCA suit by a relator can include acts taken well in advance of the filing of a suit, reaching even to conduct that occurs before the relator knows about the FCA. "Were that not the case, only lawyers or those versed in the law would be protected by the statute, as only they would know from the outset that what they were investigating could lead to a False Claims Act prosecution." United States ex rel. Yesudian v. Howard University,
[3] The Jones companies are North Carolina corporations; HII is an Alabama company. No one has explained what law governs their joint venture.
[4] HII's claim also would be foreclosed by the jury verdict. HII's claim is predicated on its alleged lack of knowledge of any of the events giving rise to the FCA case. This allegation is inconsistent with the jury's verdict, which found HII liable for knowingly participating in the bid rigging conspiracy. Any failure to inform HII of the misconduct it had knowingly committed could not have caused it injury.