FRIEDLAND, Circuit Judge:
Steven Mateski appeals the dismissal of his False Claims Act suit against Raytheon Co., in which he alleged fraud in the performance of a Government contract. Mateski argues that the district court erred in holding that his Complaint was based upon prior public disclosures and was thus precluded by the public disclosure bar of the False Claims Act. We agree. Mateski's Complaint alleges fraud that is different in kind and degree from the previously disclosed information about Raytheon's problems in performing on the contract at issue. We therefore reverse and remand for further proceedings.
Between 1994 and 2002, the National Oceanic and Atmospheric Administration, Department of Defense, and NASA contracted with various companies to design and build the National Polar-Orbiting Operational Environmental Satellite System ("NPOESS"), a system for collecting meteorological, oceanographic, environmental, and climatic data. Raytheon entered a contract to design and build a Visible Infrared Imaging Radiometer Suite ("VIIRS") sensor, which would be part of NPOESS. Eventually, the Government agencies awarded a satellite integration contract to a prime contractor, Northrop Grumman, and incorporated previously awarded NPOESS contracts, including Raytheon's VIIRS contract, as subcontracts to the prime contract.
The NPOESS project incurred many delays and cost overruns. Beginning at least as early as 2003, VIIRS began to attract public attention as a source of these problems. For example, a 2004 Government Accountability Office ("GAO") report stated, "At present, the program office considers the three critical sensors—VIIRS, CMIS, and CrIS-to be key program risks because of technical challenges that each is facing." U.S. Gov't Accountability Off., GAO-04-1054, Polar-Orbiting Envtl. Satellites: Information on Program Cost and Schedule Changes 18 (Sept. 2004).
Steven Mateski, an engineer who worked at Raytheon from 1997 to 2006, was assigned to work on VIIRS beginning in 2005. Mateski filed a complaint in June 2006 in federal district court alleging that Raytheon had violated the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-3733, by failing to comply with numerous contractual requirements in the development of VIIRS, fraudulently covering up areas of noncompliance, and improperly billing the Government for erroneous and incomplete work.
Six years after Mateski filed his initial complaint, the United States declined to exercise its right under the FCA to intervene in Mateski's suit. Mateski then filed a fourth amended complaint ("Complaint").
Raytheon moved to dismiss for lack of subject matter jurisdiction. It argued that the suit was barred by § 3730(e)(4)(A) of the FCA, also known as the "public disclosure bar," which at the time of filing provided: "No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions." 31 U.S.C. § 3730(e)(4)(A) (1986); United States ex rel. Hartpence v. Kinetic Concepts, Inc., 792 F.3d 1121, 1127 (9th Cir.2015) (en banc).
We review de novo a district court's dismissal for lack of subject matter jurisdiction and its interpretation of the False Claims Act. United States ex rel. Hartpence v. Kinetic Concepts, 792 F.3d 1121, 1126 (9th Cir.2015) (en banc). We review for clear error a district court's findings of fact that underlie its decisions on subject matter jurisdiction. Id. at
The FCA prohibits "knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment or approval; [or] knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false record or statement material to a false or fraudulent claim" to the federal government. 31 U.S.C. § 3729(a)(1)(A), (B). The FCA allows private individuals, referred to as "relators," to bring suit on the Government's behalf against entities that have violated the Act's prohibitions. 31 U.S.C. § 3730(b)(1); see also United States ex rel. Hartpence v. Kinetic Concepts, 792 F.3d 1121, 1123 (9th Cir.2015) (en banc). Such suits are commonly called qui tam suits. Vt. Agency of Nat. Res. v. United States ex rel. Stevens, 529 U.S. 765, 768, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000) ("Originally enacted in 1863, the False Claims Act . . . is the most frequently used of a handful of extant laws creating a form of civil action known as qui tam."); see Kinetic Concepts, 792 F.3d at 1123.
The FCA's public disclosure bar deprives federal courts of subject matter jurisdiction when a relator alleges fraud that has already been publicly disclosed, unless the relator qualifies as an "original source."
31 U.S.C. § 3730(e)(4)(A) (1986) (emphases added).
"The public disclosure bar is triggered if three things are true: (1) the disclosure at issue occurred through one of the channels specified in the statute; (2) the disclosure was `public'; and (3) the relator's action is `based upon' the allegations or transactions publicly disclosed." Malhotra v. Steinberg, 770 F.3d 853, 858 (9th Cir.2014) (quoting 31 U.S.C. § 3730(e)(4)(A) (1986)). It is undisputed that the first two elements of this test are satisfied in this case. The statements Raytheon relies upon in invoking the bar occurred through the channels specified in the statute—news media, congressional hearings, and GAO reports—all of which were public. See United States ex rel. Found. Aiding the Elderly v. Horizon W., Inc., 265 F.3d 1011, 1014 (9th Cir.), amended on denial of reh'g, 275 F.3d 1189 (9th Cir.2001) (explaining that "[p]ublic disclosure can occur in one of only three categories of public fora: (1) in a `criminal, civil, or administrative hearing;' (2) in a `congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation;' or (3) in the `news media.'") (quoting A-1 Ambulance Serv., Inc. v. California, 202 F.3d 1238, 1243 (9th Cir.2000)).
The dispute in this case is thus about whether Mateski's action is "`based upon' the allegations or transactions publicly disclosed." Malhotra, 770 F.3d at 858 (quoting 31 U.S.C. § 3730(e)(4)(A) (1986)). This depends on: (A) whether the publicly available information about Raytheon's work on VIIRS contained an "allegation or transaction" of fraud; and, if so, (B) whether Mateski's Complaint was "based upon" said "allegation or transaction." See United States ex rel. Zizic v. Q2Administrators, LLC, 728 F.3d 228, 235 (3d Cir.2013). We address these issues in turn.
The False Claims Act's public disclosure bar uses the terms "allegations" and
For purposes of the public disclosure bar, we have held that "[t]he substance of the disclosure . . . need not contain an explicit `allegation' of fraud, so long as the material elements of the allegedly fraudulent `transaction' are disclosed in the public domain." Found. Aiding, 265 F.3d at 1014; see also A-1 Ambulance Serv., 202 F.3d at 1243.
Found. Aiding, 265 F.3d at 1015 (alteration in original) (quoting Springfield Terminal, 14 F.3d at 654). We have further explained that, "in a fraud case, X and Y inevitably stand for but two elements: `a misrepresented state of facts and a true state of facts.'" Id. (quoting Springfield Terminal, 14 F.3d at 654). "[I]n order to invoke the jurisdictional bar, a defendant must show `that the transaction . . . [is] one in which a set of misrepresented facts has been submitted to the government.'" Id. at 1016-17 (first alteration in original) (quoting United States ex rel. Dunleavy v. Cty. of Del., 123 F.3d 734, 741 (3d Cir. 1997), abrogated on other grounds by Graham Cty., 559 U.S. 280, 130 S.Ct. 1396 (2010)).
Applying the foregoing principles here, we find no allegation of fraud because the publicly disclosed information does not contain "an explicit accusation of wrongdoing." Zizic, 728 F.3d at 236.
Whether the public reports described a "transaction" within the meaning of the public disclosure bar is less clear. Many of the public documents Raytheon supplied to the district court described management
U.S. Gov't Accountability Off., GAO-06-249T, Polar-Orbiting Operational Envtl. Satellites: Tech. Problems, Cost Increases, & Schedule Delays Trigger Need for Difficult Trade-off Decisions 18 (Nov. 2005) (emphasis added).
While we are therefore satisfied that these reports describe a "true" state of facts, whether we can glean a "misrepresented" state of facts is a closer question. Reading between the lines of the publicly disclosed information, we possibly could infer that Raytheon falsely represented to the Government that all was well with VIIRS. Potentially supporting this inference is the fact that, even as the problems with VIIRS continued, the public statements suggest that Raytheon continued to be paid for its work. For example, an Office of the Inspector General report triggered by cost overruns noted that "VIIRS itself was 12 percent behind schedule and approximately 30 percent over budget. Nevertheless, the contractor received 92 percent of available award fees."
Under our case law, for a relator's allegations to be "based upon" a prior public disclosure, "the publicly disclosed facts need not be identical with, but only substantially similar to, the relator's allegations." United States ex rel. Meyer v. Horizon Health Corp., 565 F.3d 1195, 1199 (9th Cir.2009), overruled on other grounds by Kinetic Concepts, 792 F.3d at 1128 n. 6; see also Malhotra, 770 F.3d at 858 ("[T]he phrase `based upon' in § 3730(e)(4)(A) means `substantially similar to,' not `derived from.'") (quoting Meyer, 565 F.3d at 1199).
Although "substantially similar" is a phrase that appears frequently in our FCA decisions, we have never had occasion to articulate an approach to evaluating whether two sets of allegations are similar enough to qualify as "substantially similar" under the public disclosure bar. Our prior cases fall at the far ends of the similarity spectrum—on one end are cases finding substantial similarity because the allegations in the qui tam complaint were virtually identical to prior public disclosures, and on the other end are cases finding no similarity because the allegations in the qui tam complaint were completely different from prior disclosures. Mateski's case
United States v. Alcan Electrical & Engineering, Inc., 197 F.3d 1014 (9th Cir. 1999), is an example of a case on the virtually-identical end of the spectrum. In Alcan, we explained that an FCA complaint was substantially similar to an earlier publicly filed complaint because there was no difference in the substance of the fraud alleged in the two. The only difference was that the earlier complaint described the defendant in a fairly identifiable way but without actually using the defendant's name, whereas the later complaint added the defendant's name specifically. Id. at 1018-19.
On the other end of the spectrum, we have found no substantial similarity when the prior public statements disclosed nothing about the fraud alleged in the later qui tam complaint. In Foundation Aiding, for example, we concluded that an earlier complaint alleged "a very different problem—asbestos contamination—than the one alleged" in the relator's complaint about receiving Medicaid and Medicare payments for care not actually provided. 265 F.3d at 1013, 1016. Thus, "the allegations contained [in the earlier complaint] completely failed to disclose anything remotely similar to the fraud alleged" in the complaint at issue. Id. at 1016.
In our prior cases, we sometimes have asked whether the Government was on notice to investigate the fraud before the relator filed his complaint—which is another way of thinking about substantial similarity. But our cases discussing notice to the Government also fall at the same far ends of the similarity spectrum, so they likewise do not clarify the level of similarity required. In Alcan, for example, we noted that the Tenth Circuit in United States ex rel. Fine v. Sandia Corp., 70 F.3d 568 (10th Cir.1995), had found that the "the prior public disclosures contained enough information to enable the government to pursue an investigation against [the defendant]." 197 F.3d at 1019. We explained that "the instant case is similar to Sandia, in that the government, as regulator and owner, presumably would have ready access to documents identifying [the wrongdoers]." Id. We then concluded that "[t]his ready access makes it highly likely that the government could easily identify the [wrongdoers] at issue." Id. In contrast, in Foundation Aiding, we observed that "it is impossible to say that the evidence and information in the possession of the United States at the time the False Claims Act suit was brought was sufficient to enable it adequately to investigate the case and to make a decision whether to prosecute." 265 F.3d at 1016 (alteration omitted) (quoting United States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1377 (D.C.Cir.1981)).
Because the allegations in Alcan were virtually identical to prior public statements, and the allegations in Foundation Aiding were completely different from prior public statements, these conclusions were inevitable. These cases' alternative articulation of the "substantially similar" inquiry—asking whether the Government was on notice—therefore leaves the same gap identified above.
Raytheon has pointed to nothing in this circuit's case law to help guide us in filling that gap. Raytheon relies upon Wang v. FMC Corp., 975 F.2d 1412 (9th Cir.1992), overruled on other grounds by Kinetic
Id. (emphasis added) (citation omitted) (quoting United States ex rel. Dick v. Long Island Lighting Co., 912 F.2d 13, 14 (2d Cir.1990)).
Mateski's case falls between the poles created by our prior precedent, because whether his Complaint is substantially similar to prior public reports depends on the level of generality at which the comparison is made. This case therefore requires us to address for the first time whether we should approach the substantial similarity question at a high or low level of generality, and accordingly whether a complaint that is similar only at a high level of generality triggers the public disclosure bar.
The Seventh Circuit appears to be the only circuit to have focused on this level-of-generality question, developing its response over the course of three key cases. In United States ex rel. Baltazar v. Warden, 635 F.3d 866 (7th Cir.2011), the relator, a chiropractor, had filed suit alleging that her former employer had submitted fraudulent bills to the Medicare and Medicaid programs by adding services that had not been performed and by "upcoding." Id. at 866-67.
A year later, in United States ex rel. Goldberg v. Rush University Medical Center, 680 F.3d 933 (7th Cir.2012), the Seventh Circuit again reversed a district court's dismissal pursuant to the public disclosure bar, finding no substantial similarity because the earlier public disclosure failed to identify the precise type of hospital-billing deceit alleged in the later qui tam complaint. There, a GAO report and several public audits had indicated that teaching hospitals were often receiving double compensation for procedures performed by residents. The Seventh Circuit explained that Medicare pays teaching hospitals for work by residents on a fee-for-service basis only when a teaching physician supervises the residents. Id. at 933-34. "Technically[, those] payments are for the services rendered by the teacher," and the cost of educating residents is reimbursed through government grants instead of through payments for specific services. Id. Nevertheless, many teaching hospitals, according to the GAO report, were billing on a fee-for-service basis for unsupervised services that the residents performed on their own, and then also receiving the teaching grants. Id. at 934.
The Goldberg relators' complaint alleged a somewhat different billing issue—that a particular university had allowed teaching physicians to supervise multiple operations simultaneously and then had sought Medicare reimbursement for all of the procedures by certifying that they had all been supervised. Id. at 935. The relators alleged fraud on the basis that regulations permit Medicare reimbursement only when the teaching physician is "present during all critical portions of the procedure and immediately available to furnish services during the entire service or procedure," and that the double booking of the teaching physicians at this university meant that they were not "present" and "available" as the regulations required. Id. (quoting 42 C.F.R. § 415.172(a)(1)).
The Seventh Circuit concluded in Goldberg that "[relators] allege a kind of deceit that the GAO report does not attribute to any teaching hospital," and that the public disclosure bar therefore did not apply. Id. at 936. Importantly, the court explained, "Unless we understand the `unsupervised services' conclusion of the GAO report . . . at the highest level of generality—as covering all ways that supervision could be missing or inadequate—the allegations of these relators are not `substantially similar.'" Id. Referencing Baltazar, the court concluded that "boosting the level of generality in order to wipe out qui tam suits that rest on genuinely new and material information is not sound." Id.
Most recently, in Leveski v. ITT Educational Services, Inc., 719 F.3d 818 (7th Cir.2013), the Seventh Circuit examined whether a qui tam complaint was substantially similar to a prior complaint that had been publicly filed. "To be sure," the court explained, "Leveski's case looks similar to the [earlier] Graves case at first blush. The relators in both cases are former employees of ITT—and even held the same job title. The relators in both cases also allege that ITT violated the incentive compensation provision of the [Higher Education Act]." Id. at 832. That, however, was where the similarities ended. Id. The court explained that "[t]he details of how ITT allegedly violated the [Act] are quite different in Leveski's case than they were in Graves. Unlike the Graves relators, who alleged a more rudimentary scheme by ITT to violate the [Act's] incentive compensation provision, Leveski alleges a
Id. at 831 (alteration in original) (emphasis added) (quoting Goldberg, 680 F.3d at 936).
We find the reasoning of these cases persuasive, and we believe that the Seventh Circuit's approach effectuates the purpose of the public disclosure bar by "strik[ing] a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits." Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S. 401, 413, 131 S.Ct. 1885, 179 L.Ed.2d 825 (2011) (quoting Graham Cty., 559 U.S. at 295, 130 S.Ct. 1396). Allowing a public document describing "problems"—or even some generalized fraud in a massive project or across a swath of an industry—to bar all FCA suits identifying specific instances of fraud in that project or industry would deprive the Government of information that could lead to recovery of misspent Government funds and prevention of further fraud. We believe that adopting the Seventh Circuit's approach therefore brings us closer to "the golden mean between adequate incentives for whistle-blowing insiders with genuinely valuable information and discouragement of opportunistic plaintiffs who have no significant information to contribute of their own." Graham Cty., 559 U.S. at 294, 130 S.Ct. 1396 (quoting Springfield Terminal, 14 F.3d at 649).
Raytheon argues that a subset of qui tam cases, which employ the phrase "quick trigger" to describe the substantial similarity inquiry, counsel against our adoption of the Seventh Circuit's approach. Raytheon's argument fails.
Specifically, Raytheon points to our footnote in Hagood v. Sonoma County Water Agency, 81 F.3d 1465 (9th Cir.1996), stating that "[t]he original source test is often treated as the focus of the jurisdictional inquiry, with courts treating the `based upon public disclosure' step as a `quick trigger to get to the more exacting original source inquiry.'" Id. at 1476 n. 18 (quoting Cooper v. Blue Cross & Blue Shield of Fla., Inc., 19 F.3d 562, 568 n. 10 (11th Cir.1994)). Raytheon suggests that this means the public disclosure bar should turn on the "original source" inquiry, and that "based upon" should be only a superficial inquiry at a high level of generality. Our decision in Hagood did not, however, rely upon (or even analyze) this "quick trigger" notion because the footnote followed our conclusion that the prior public "filings may be enough to constitute public disclosure of the" fraud alleged in the qui tam complaint at issue. Id. at 1475. Rather than analyze substantial similarity, we skipped directly to finding that Hagood clearly qualified as an original source. As such, Hagood could avoid the public disclosure bar even if the allegations were substantially similar. The "quick trigger" language Raytheon emphasizes was therefore not an operative concept in Hagood at all, let alone one that requires viewing complaints at only a high level of generality.
Heeding the Seventh Circuit's warning against reading qui tam complaints at only the "highest level of generality," Leveski v. ITT Educ. Servs., Inc., 719 F.3d 818, 831 (7th Cir.2013), we now reverse the district court's dismissal of this case because Mateski's Complaint alleges fraud that is different in kind and in degree from the previously disclosed information about VIIRS. See Hagood v. Sonoma Cty. Water Agency, 81 F.3d 1465, 1475 (9th Cir.1996) (examining whether, "fairly characterized," the allegations in a relator's complaint "repeat[] what the public already knows") (quoting Wang v. FMC Corp., 975 F.2d 1412, 1417 (9th Cir. 1992), overruled on other grounds by United States ex rel. Hartpence v. Kinetic Concepts, Inc., 792 F.3d 1121 (9th Cir.2015) (en banc)). Although prior public reports had described general problems with Raytheon's work on VIIRS, none provided specific examples or the level of detail offered by Mateski.
A few examples from Mateski's lengthy Complaint suffice to demonstrate that his allegations are vastly more precise than the prior public reports about the problems with VIIRS. For instance, Mateski alleges numerous particular false waivers of VIIRS specifications and requirements. He also describes false and inappropriate signoffs and certifications in violation of the Program Quality Requirements, including "obvious forged signoffs" by Raytheon VIIRS operators. Mateski further details Raytheon's alleged substitution of "reduced Special Test Requirements . . . in lieu of specified testing," which he claims "compromise[d] the NPOESS/VIIRS Unit/System integrity and mission assurance."
With respect to materials used in the VIIRS project, Mateski alleges the "use of Prohibited Materials (pure Tin), use of Prohibited Metallic materials known to cause corrosion . . . when used together, use of Debris shedding locking fasteners (locking Heli-Coils), [and] use of Prohibited Materials and processes selected (Electro-deposited Nickel plating)." Mateski draws particular attention to problems
Mateski also alleges numerous problems related to electrostatic discharge ("ESD"), asserting, for example, that Raytheon failed to maintain ESD protection of VIIRS flight hardware; and that certain cables were constructed using "hot plastics," which are "ESD unapproved materials . . . capable of building and storing excessive electrical charges."
In contrast to these specific allegations, the prior public reports presented by Raytheon merely allege general problems involving mismanagement, technical difficulties, and noncompliance with contract and policy directives. Indeed, Raytheon's own description of how these disclosures characterized the "problems" in general terms—"numerous, major, profound, serious, severe, significant, systemic, worsening, costing billions of dollars, and resulting in decreased functionality"—supports reading the prior disclosures as revealing only very generalized problems with VIIRS.
Even if, as Raytheon argues, the prior public reports provided "enough information to . . . pursue an investigation" into some fraud, and even though the Government did in fact undertake some investigation of VIIRS, the prior reports could not have alerted the Government to the specific areas of fraud alleged by Mateski. The practical consequence of adopting the Seventh Circuit's approach to defining substantial similarity is to allow relators who provide the Government with genuinely new and material information of fraud to move forward with their qui tam suits. Mateski is such a relator.
Finally, Raytheon suggests that even if Mateski's Complaint contains some new allegations, the public disclosure bar applies because the Complaint is at least "partly based upon" the prior public reports about VIIRS. We disagree.
It is true that numerous cases from other circuits have indicated that, if a qui tam action is even "partly based upon" publicly disclosed allegations or transactions, it is "based upon'" those allegations or transactions for purposes of the public disclosure bar. See, e.g., United States ex rel. Heath v. Wis. Bell, Inc., 760 F.3d 688, 691 (7th Cir.2014); Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 920-21 (7th Cir.2009); United States ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 514 (6th Cir.2009).
Even were we to adopt this "partly based upon" concept, it would not help Raytheon. To the extent these cases utilize this "partly based upon" concept to reach their holdings at all,
Likewise, in Glaser, the Seventh Circuit held that it was "true that Glaser's complaint add[ed] a few allegations" not previously public, but that was not enough to avoid the public disclosure bar "because the allegations in Glaser's complaint (or most of them) were substantially similar to publicly disclosed allegations." 570 F.3d at 920-21 (emphasis added).
Because, as we have explained above, none of Mateski's allegations are "substantially similar" to the prior public reports when viewed at the appropriate level of generality, the "partly based upon" cases are of no assistance to Raytheon.
Mateski's allegations differ in both degree and kind from the very general previously disclosed information about problems with VIIRS. As such, if his allegations prove to be true, Mateski will undoubtedly have been one of those "whistle-blowing insiders with genuinely valuable information," rather than an "opportunistic plaintiff[] who ha[s] no significant information to contribute." Graham Cty. Soil & Water Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280, 294, 130 S.Ct. 1396, 176 L.Ed.2d 225 (2010) (quoting United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 649 (D.C.Cir.1994)).
For the foregoing reasons, we
