Filed: Feb. 29, 2000
Latest Update: Mar. 02, 2020
Summary: Opinions of the United 2000 Decisions States Court of Appeals for the Third Circuit 2-29-2000 USA Ex Rel Merena v. Smithkline Beecham Precedential or Non-Precedential: Docket 98-1497 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2000 Recommended Citation "USA Ex Rel Merena v. Smithkline Beecham" (2000). 2000 Decisions. Paper 39. http://digitalcommons.law.villanova.edu/thirdcircuit_2000/39 This decision is brought to you for free and open access by the
Summary: Opinions of the United 2000 Decisions States Court of Appeals for the Third Circuit 2-29-2000 USA Ex Rel Merena v. Smithkline Beecham Precedential or Non-Precedential: Docket 98-1497 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2000 Recommended Citation "USA Ex Rel Merena v. Smithkline Beecham" (2000). 2000 Decisions. Paper 39. http://digitalcommons.law.villanova.edu/thirdcircuit_2000/39 This decision is brought to you for free and open access by the O..
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Opinions of the United
2000 Decisions States Court of Appeals
for the Third Circuit
2-29-2000
USA Ex Rel Merena v. Smithkline Beecham
Precedential or Non-Precedential:
Docket 98-1497
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2000
Recommended Citation
"USA Ex Rel Merena v. Smithkline Beecham" (2000). 2000 Decisions. Paper 39.
http://digitalcommons.law.villanova.edu/thirdcircuit_2000/39
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Filed February 29, 2000
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 98-1497
UNITED STATES OF AMERICA EX REL.
ROBERT J. MERENA
v.
SMITHKLINE BEECHAM CORPORATION
United States of America,
Appellant
No. 98-1498
UNITED STATES OF AMERICA EX REL.
KEVIN J. SPEAR; THE BERKELEY COMMUNITY LAW
CENTER; JACK DOWDEN
v.
SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.
United States of America,
Appellant
No. 98-1499
UNITED STATES OF AMERICA EX REL.
GLENN GROSSENBACHER; CHARLES W. ROBINSON, JR.
v.
SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.
United States of America,
Appellant
ON APPEAL FROM THE
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
(Dist. Ct. Nos. 93--cv--5974 and 95-cv-6551)
District Judge: The Honorable Donald W. VanArtsdalen
Argued: March 5, 1999
Before: ALITO, McKEE, AND GARWOOD,* Circuit Judges
(Opinion Filed: February 29, 2000)
Douglas N. Letter
Freddi Lipstein (argued)
United States Department of Justice
Civil Division, Appellate Staff
601 D. Street, N.W.
Washington, D.C. 20530-0001
Attorneys for Appellant
United States of America
Marc S. Raspanti (argued)
Miller, Alfano & Raspanti
1818 Market Street
Suite 3402
Philadelphia, PA 19103
Attorney for Appellee
Robert J. Merena
_________________________________________________________________
* The Honorable Will L. Garwood, Senior Circuit Judge for the United
States Court of Appeals for the Fifth Circuit, sitting by designation.
2
Thomas H. Lee, II
Dechert, Price & Rhoads
1717 Arch Street
4000 Bell Atlantic Tower
Philadelphia, PA 19103
Attorney for Appellee
Smithkline Beecham
Normand F. Pizza
Nyda S. Brook
Christopher J. Shenfield
Brook, Pizza, & Van Loon
400 Poydras Street
Suite 2500
New Orleans, LA 70130
Attorneys for Appellee
William, St. John & LaCorte
John E. Clark
Goode, Casseb & Jones
700 North St. Mary's Street
Suite 1700
San Antonio TX 78205
Attorney for Appellees
Charles W. Robinson, Jr., and
Glenn Grossenbacher
Peter W. Chatfield
Phillips & Cohen
2000 Massachusetts Avenue, N.W.
Washington, DC 20036
Attorney for Appellees
Kevin J. Spear, Berkeley
Community Law Center, and
Jack Dowden
Carol S. Dew
Dew & Smith
100 Court Street
P.O. Box 30
Monroe, GA 30655-0030
Attorney for Appellee
Jeffrey Clausen
3
Lisa R. Hovelson
Taxpayers Against Fraud
Suite 501, 1220 Nineteenth Street,
N.W.
Washington D.C. 20036
Attorney for Amicus Curiae
Taxpayers Against Fraud, The
False Claims Act Legal Center
Daniel Popeo
Paul D. Kamenar
Washington Legal Foundation
2009 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Attorneys for Amicus Curiae
Washington Legal Foundation
OPINION OF THE COURT
ALITO, Circuit Judge:
In this appeal, the United States challenges the District
Court's decision to award a group of qui tam relators
approximately $52 million of the government's settlement
with defendant SmithKline Beecham Clinical Laboratories
of a variety of claims under the False Claims Act, 31 U.S.C.
S 3729 et seq. For the reasons explained below, we reverse
and remand for further proceedings.
I.
A. In 1992, the United States began to suspect tha t
SmithKline Beecham Clinical Laboratories ("SKB") and
several other medical laboratories had adopted a scheme
that allowed them to bill the federal government for
unauthorized and unnecessary laboratory tests.
Specifically, the government suspected that the laboratories
had "bundled" a standard grouping of blood tests with
some additional tests and had then marketed this grouping
to doctors by leading them to believe that the additional
tests would not increase costs to Medicare and other
government-sponsored health programs.
4
After the tests were ordered, the laboratories "unbundled"
the additional tests from the standard grouping for
purposes of billing. In many instances, treating physicians
had made no determination that the additional tests were
medically necessary for the diagnosis or treatment of
patients; instead, the physicians had ordered the tests
solely because they were sold as a package with other tests
that they had deemed necessary. As a result, the
laboratories submitted bills--and received payment-- for
tests that were medically unnecessary.
This scheme, which later became known as the
"automated chemistry" scheme, attracted national attention
in December 1992 when one of the contractors that had
engaged in the practice, National Health Laboratories,
settled a lawsuit brought under the False Claims Act for
$111 million. See Joint App. at 1432-1441. Public interest
grew as the news media reported that the government had
issued comprehensive subpoenas to SKB and other
laboratories. See Joint App. at 1442-1450, 1451-1457,
1470-1473.
B. In November 1993, relator Robert Merena, an SKB
employee, filed a qui tam action against SKB in the United
States District Court for the Eastern District of
Pennsylvania. His complaint contained eight separate
claims under the False Claims Act. Merena's complaint
alleged that SKB had defrauded the government by, inter
alia, billing for tests that were not performed, double
billing, paying illegal kickbacks to health care professionals,
and adding tests to "automated chemistry" profiles and
then separately billing for those tests. App. at 75-103.
One month later, relator Glenn Grossenbacher, an
attorney, filed a second qui tam action against SKB in the
United States District Court for the Western District of Texas.1
Relators Kevin Spear, Jack Dowden, and the Berkeley
Community Law Center (collectively, "the Spear relators")
followed in February of 1995 with a suit in the Northern
District of California. The courts in Texas and California
_________________________________________________________________
1. In August 1995, Dr. Charles Robinson, a former SKB medical director
in San Antonio, joined the Grossenbacher complaint.
5
transferred these actions to the Eastern District of
Pennsylvania for consolidation with the Merena case.
After Merena's action was filed, the government
commenced an investigation into a series of new claims
that were not part of its original investigation. At the same
time, the government continued to pursue the original
"automated chemistry" investigation that it had begun after
the 1992 settlement with National Health Laboratories.
C. In August 1995, the government began formal
settlement negotiations with SKB. The government
presented SKB with a written settlement framework that
allocated a specific dollar amount for each alleged false
claim. Joint App. at 1476-1491.
By early 1996, SKB and the government had reached a
tentative agreement to settle, for $295 million, certain
federal and state claims for losses occurring through
December 31, 1994. This agreement was intended to settle
claims related to the government's original "automated
chemistry" investigation, along with additional claims in the
qui tam actions filed by relators Merena, Grossenbacher,
and Spear. At a meeting on March 22, 1996, counsel for
the United States explained to the relators the components
of the proposed settlement. See Joint App. at 1537, 1538-
1549. During the summer of 1996, the United States
negotiated an additional payment from SKB of $30 million
to resolve additional claims that arose during 1995 and
1996. Joint App. at 859, 1223.
The government formally intervened in the Merena,
Grossenbacher, and Spear actions pursuant to 31 U.S.C.
S 3730(b)(2). Soon thereafter, the District Court formally
approved a settlement agreement between the United States
and SKB for $325 million plus interest. See Joint App. at
201-221. Although the False Claims Act provides a specific
mechanism for relators to challenge the adequacy of a
settlement agreement into which the government enters, 31
U.S.C. S 3730(c)(2)(B), Merena, Grossenbacher, and the
Spear relators did not challenge the overall statement. See
Joint App. at 213.
After approving the settlement agreement, the District
Court dismissed the three qui tam actions with prejudice.
6
However, the Court expressly retained jurisdiction over,
among other things, the "determination of the relators' qui
tam shares." Dist. Ct. Op. At 7. See Joint App. at 198, 274-
277.
The District Court subsequently disposed of complaints
that three other relators filed after the Merena,
Grossenbacher, and Spear complaints. The Court analyzed
these complaints on a claim-by-claim basis in order to
determine whether each claim was barred under the"first-
to-file" rule imposed by 31 U.S.C. S 3730(b)(5). The Court
was able to identify only one claim that had not been raised
in one of the previously filed complaints. Accordingly, the
Court allowed that claim to survive but barred all the
others. The later-filing relators appealed, but we affirmed
the District Court's decision. See United States ex rel.
LaCorte v. SmithKline Beecham Clinical Lab., 149 F.3d 227,
325-36 (3d Cir. 1998).
The government failed to reach an agreement with
relators Merena and Grossenbacher on the amount that
they would receive from the settlement agreement. The
government maintained that Merena was entitled to
approximately $10 million of the $65 million attributable to
the non-"automated chemistry" claims and has paid
Merena this amount. The government and the Spear
relators have a proposed agreement that, if approved, will
award the Spear relators 15% of the $13 million that the
government attributed to a claim called the "CBC Indices"
claim.
D. The core of the current dispute between the Uni ted
States and relators Merena, Grossenbacher, and Robinson
(hereinafter "the relators") concerns the relators' right to a
share of the settlement proceeds attributable to the
"automated chemistry" claims. The relators argue that they
are entitled under 31 U.S.C. S 3170(d) to a percentage of
the total proceeds that the government obtained in the
settlement. The government, on the other hand, maintains
that the relators may not receive any portion of the
proceeds attributable to the "automated chemistry" claims
because the relators' "automated chemistry" claims were
jurisdictionally barred under the public-disclosure provision
of the qui tam statute, 31 U.S.C. S 3730(e)(4) ("section
7
(e)(4)"), which provides that "[n]o court shall have
jurisdiction" over any False Claims Act action that is "based
upon" certain specified public disclosures unless the action
is brought by the Attorney General or an "original source"
of the information. The government contends that the
District Court lacked subject matter jurisdiction over the
relators' "automated chemistry" claims and, accordingly,
could not grant them any share of the settlement allocable
to those claims.
The District Court held an evidentiary hearing regarding
this dispute. The government presented evidence
concerning the portion of the total settlement that was
attributable to each claim.2 The government also presented
evidence showing that the "automated chemistry" claims
had been under investigation, and were widely reported in
the news media, long before any of the qui tam complaints
were filed. Joint App. at 2159-2160, 2204.
In an unpublished opinion, the District Court accepted
the relators' position. The Court denied the government's
motion to dismiss the relators' "automated chemistry"
claims under 31 U.S.C. S 3730(e)(4), noting that the qui tam
complaints had already been dismissed with prejudice and
"[did] not have to be re-dismissed." Dist. Ct. Op. At 36.
Agreeing with the relators that the question of subject
matter jurisdiction was "mooted" when the government
formally intervened in the action, the Court declined to
decide whether the relators' "automated chemistry" claims
would have been subject to dismissal prior to the
government's intervention. Id. at 36-37.
The Court also rejected the government's argument that
it was necessary to analyze the relators' complaints on a
claim-by-claim basis in order to calculate their shares.
Id.
at 37-43. The Court observed:
The qui tam statute involved makes no mention of
treating a qui tam complaint as having distinct and
divisible claims for the purpose of determining the qui
tam Relator's share of the proceeds. The statute
_________________________________________________________________
2. The government also presented evidence that the relators had actively
participated in the allocation process. See Joint App. at 1476-1491.
8
provides that where the Government intervenes and
proceeds with the action, as it did in these cases, the
qui tam Relator shall "receive at least 15 percent but
no more than 25 percent of the proceeds of the action
or settlement of the claim." (Underlining added). The
statute speaks of the action and claim as a single unit
or whole entity.
Dist. Ct. Op. at 38. In addition, the Court noted that the
government had "never sought to have any of the relators'
qui tam allegations dismissed prior to the entry of the order
settling and dismissing each of the actions with prejudice,"
that the government had never sought leave to file an
amended complaint, and that the Settlement Agreement
and related filings did not break down the settlement on a
claim-by-claim basis. Id. at 38-39. Furthermore, the Court
stated that "[t]here [was] absolutely no evidence on the
record . . . to establish any allocation." Id . at 41. See also
id. at 42 ("Even if dividing the proceeds among separate
claims would be appropriate, there is no evidence upon
which a fact-finder could rationally make such a
determination on the record before me.") The Court
concluded that the relators were entitled under 31 U.S.C.
S 3170(d) to between 15% and 25% of approximately $306
million.3 After considering the contributions made by the
relators, the Court decided that they should jointly receive4
an award of 17% of the proceeds -- or more than $52
million. Since the government had already paid Merena
about $10 million, the Court entered an order awarding the
relators approximately $42 million. The United States
appealed.
_________________________________________________________________
3. This sum was calculated as follows: the settlement proceeds plus
interest (about $334 million) minus both the total paid to state Medicaid
Fraud units (about $14.5 million) and the agreed allocation to the Spear
relators (about $13 million).
4. The Court found it unnecessary to decide whether either the Merena
or Grossenbacher complaint was barred under thefirst-to-file rule of
S 3730(b)(5) because these relators had "agreed among themselves as to
the division of any proceeds, regardless to whom the award or awards
were made." Dist. Ct. Op. at 69.
9
II.
This appeal requires us to decide two chief legal issues.
The first concerns the application of the relevant provisions
of the qui tam statute to a multi-count complaint. The
second concerns the interpretation of section 3170(e)(4) and
its relationship to the provision governing awards to
relators in cases in which the United States elects to
proceed with the action, 31 U.S.C. S 3170(d). We will
discuss each of these issues and then apply our
conclusions to the particular situation presented in this
case.
A. As we have previously commented, the draftsmans hip
of the qui tam statute has its quirks, see United States ex
rel. Mistick v. Housing Authority of the City of Pittsburgh,
186 F.3d 376, 387 (3d Cir. 1999), and one of those quirks
is that the statute is based on the model of a single-claim
complaint. See
id. The District Court in this case stated: "It
would seem almost inevitable to me that at least in most
qui tam actions there would be allegations of multiple false
claims alleged in a complaint," Dist. Ct. Op. At 38, and we
are inclined to agree, but the qui tam statute is phrased as
if every qui tam complaint contained only one claim. The
following provisions illustrate this pattern.
The statute authorizes a qui tam plaintiff to bring a "civil
action for a violation of section 3729," 31 U.S.C. S 3730
(b)(1)(emphasis added), but surely such a plaintiff may
bring an action containing multiple claims, each of which
alleges a separate violation of section 3729. When a qui tam
action is filed, the government may "proceed with the
action," SS 3730(b)(2) and (4)(emphasis added) or "decline to
take over the action," S 3730(b)(4)(B)(emphasis added), but
the government often decides to take over only certain
claims in a multi-claim action, and we are aware of no
decision holding that this is improper. The statute
authorizes the government to "dismiss the action" and
"settle the action," 31 U.S.C. S 3730(c)(2)(A) and (B), but
again, we are aware of no decision holding that the
government may not settle or dismiss only some of the
claims in a multi-claim complaint, and we can think of no
reason why the government should not be permitted to do
so.
10
Under the "first-to-file" rule of section 3730(b)(5), when a
relator "brings an action," "no other person may . . . bring
a related action based on the facts underlying the pending
action." But as the District Court's prior rulings in this case
illustrate, when it is asserted that a later-filed complaint
contains claims that are based on the facts underlying
certain claims in a pending multi-count complaint, the
court must conduct a claim-by-claim analysis in order to
determine if section 3730(b)(5) applies.
Section 3730(e), provides that no court shall have
jurisdiction over "an action" that falls into one of four
categories: (1) "an action" brought by a former or present
member of the armed forces against a member of the armed
forces arising out the plaintiff 's military service, (2) "an
action" against a member of Congress or the judiciary or a
senior executive branch official if "the action" is based on
evidence or information known to the Government, (3)"an
action" based upon allegations or transactions that are the
subject of a civil suit or certain administrative proceedings
to which the government is a party, and (4) "an action"
based on certain publicly disclosed information (unless the
action is brought by the Attorney General or an original
source). What happens under these provisions if a relator
files a multi-claim suit and some, but not all, of the claims
fall into one of these categories? The plaintiff 's decision to
join all of his or her claims in a single lawsuit should not
rescue claims that would have been doomed by section
(e)(4) if they had been asserted in a separate action. And
likewise, this joinder should not result in the dismissal of
claims that would have otherwise survived.
Thus, in applying section (e)(4), it seems clear that each
claim in a multi-claim complaint must be treated as if it
stood alone. It follows, therefore, that in determining
whether the relators in this case are entitled to a share of
any proceeds that are attributable to the "automated
chemistry" claims, we must consider whether they would
have been entitled to such a share had their complaints
asserted those claims alone. We now turn to that question.
B. The government contends that the relators are n ot
entitled to any share of the proceeds attributable to the
"automated chemistry" claims because those claims are
11
based upon publicly disclosed information and fall within
the jurisdictional bar of S 3170(e)(4). The government
reasons as follows: the District Court lacked subject matter
jurisdiction over the relators' automated chemistry claims;5
therefore, the Court could not award them any recovery.
Perhaps because the government couches its argument in
terms of subject matter jurisdiction, the District Court and
the relators respond in similar terms. Both argue that any
jurisdictional problem that might have existed with respect
to the "automated chemistry" claims when the relators'
complaints were originally filed was cured when the
government elected to proceed with those claims. They note
-- and the government does not disagree -- that the
District Court had subject matter jurisdiction over the
"automated chemistry" claims, as well as the other claims,
once the government intervened. And the relators also rely
on an old series of cases in our circuit,6 which they
interpret to mean that even if a relator's claim is originally
subject to a jurisdictional bar, intervention by the
government cures the jurisdictional defect. The government
replies by attempting to draw a distinction between
jurisdiction over the automated chemistry claims as
prosecuted by the United States on its own behalf after
intervention (which the government agrees the District
Court had) and jurisdiction over those same claims as they
concerned the relators after intervention (which the
government strenuously contends the District Court
lacked). According to the government, the District Court's
lack of the second type of jurisdiction mandated the
dismissal of the relators as parties with respect to the
automated chemistry claims.
_________________________________________________________________
5. Although Section 3730(e)(4) is framed in jurisdictional terms, the
Seventh Circuit has suggested that it does not really concern subject
matter jurisdiction. See United States ex rel. Fallon v. Accudyne Corp.,
97
F.3d 937, 941 (7th Cir. 1996). For the reasons explained in the text, we
find it unnecessary to resolve this question.
6. In chronological order they are: United States ex rel. Bayarsky v.
Brooks,
58 F. Supp. 714 (D.N.J. 1945); United States ex rel. Bayarsky v.
Brooks,
154 F.2d 344 (3d Cir. 1946); United States ex rel. Bayarsky v.
Brooks,
110 F. Supp. 175 (D.N.J. 1953); United States ex rel. Bayarsky
v. Brooks,
210 F.2d 257 (3d Cir. 1954).
12
We do not agree with the parties that the relators' right
to a share of the automated chemistry proceeds turns on a
question of subject matter jurisdiction.7 Suppose that the
government is right that the District Court should have
dismissed the relators as parties with respect to the
automated chemistry claims. It would not necessarily follow
that the relators could not be awarded a share of the
automated chemistry proceeds. Congress may enact a
statute providing for the payment of a reward or bounty to
a non-party who assists the government's enforcement
efforts. See, e.g., 15 U.S.C. S 78u-1. Similarly, suppose that
the relators are right that the government's intervention
cured any prior jurisdictional defect and that the District
Court properly refused to dismiss the relators as parties
with respect to the automated chemistry claims. It would
not necessarily follow that the relators are entitled to a
share of the proceeds. Clearly, Congress need not provide
for such relators to obtain a portion of the proceeds just
because they remain parties.
The relevant question is not one of jurisdiction but
simply whether the qui tam statute authorizes an award
when a relator asserts a claim that is subject to dismissal
under S 3170(e)(4) but the government intervenes before the
claim is dismissed. In order to analyze this question it is
necessary to examine both section 3730(e)(4) and section
3730(d).
Section 3730(e)(4) provides as follows:
(A) No court shall have jurisdiction over an actio n
under this section based upon the public disclosure of
allegations or transactions in a criminal, civil, or
administrative hearing, in a congressional,
administrative, or Government Accounting Office
report, hearing, audit, or investigation, or from the
news media, unless the action is brought by the
Attorney General or the person bringing the action is
an original source of the information.
_________________________________________________________________
7. Although Section 3730(e)(4) is framed in jurisdictional terms, the
Seventh Circuit has suggested that it does not really concern subject
matter.
13
(B) For purposes of this paragraph, "original s ource"
means an individual who has direct and independent
knowledge of the information on which the allegations
are based and has voluntarily provided the information
to the Government before filing an action under this
section which is based on the information.
Thus, if a relator who is not an "original source" asserts a
claim based upon one of the types of public disclosure
specified in this provision8 and the government does not
intervene, the claim must be dismissed, and the relator
obviously receives no award. This provision does not
expressly address the question whether such a relator is
entitled to an award if the government intervenes before the
relator's claim is dismissed -- although it certainly counsels
in favor of skepticism about a relator's ability to get an
award under those circumstances.
Other sections of the qui tam statute deal directly with
awards to relators. Under section 3730(d)(2), if the
government does not intervene, a relator is entitled to 25-
30% of the proceeds. But if the government intervenes (and
thus takes on the primary burden of prosecuting the
action), the share to which the relator is entitled is reduced
as specified in section 3730(d)(1). This provision states in
pertinent part:
If the Government proceeds with an action brought by
a person under subsection (b), such person shall,
subject to the second sentence of this paragraph,
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. Where the action is one which the court
finds to be based primarily on disclosures of specific
information (other than information provided by the
person bringing the action) relating to allegations or
_________________________________________________________________
8. In United States ex rel. Mistick v. Housing Authority of the City of
Pittsburgh, 186 F.3d at 385-89, we held that a claim is "based upon" a
public disclosure if it is based upon information contained in such a
disclosure, whether or not the relator actually relied upon that
disclosure.
14
transactions in a criminal, civil, or administrative
hearing, in a congressional, administrative, or
Government Accounting Office report, hearing, audit,
or investigation, or from the news media, the court may
award such sums as it considers appropriate, but in no
case more than 10 percent of the proceeds, taking into
account the significance of the information and the role
of the person bringing the action in advancing the case
to litigation. Any payment to a person under thefirst or
second sentence of this paragraph shall be made from
the proceeds.
The parties in this appeal differ sharply regarding the
types of cases that fall within the various recovery ranges.
The government, as previously noted, takes the position
that a relator who asserts a claim that is subject to
dismissal under section 3730(e)(4) is not entitled to any
award even if the government intervenes. Thus, the
government's view is that section 3730(d)(1) has no
application in such a case. If the government's view is
accepted, we believe that the permissible ranges of recovery
for various types of cases is captured by the following table:
15
TABLE A
Relator's Share Types of Cases
15-25% 1. relator brings an action tha t is
not "based upon" publicly disclosed
information
2. "original source" brings an action
that is "based upon" but not
"primarily based" on publicly
disclosed information
3. "original source" brings an action
that is "primarily based" on publicly
disclosed information, but the
"original source" provided the
information
ó 10% "original source" brin gs an action
that is "primarily based" on
publicly disclosed information, and
"original source" did not provide
that information
0% relator brings an action that is
subject to dismissal under
S 3730(e)(4)
The relators read sections 3730(e)(4) and 3730(d) quite
differently. As already mentioned, they contend that section
3730(e)(4) does not preclude an award where a relator
asserts a claim that is subject to dismissal under that
section but the government intervenes before the claim is
dismissed. The award in such a case consequently would
be governed by Section 3730(d). If the relators' position is
accepted, we believe that the permissible recovery ranges
for the various types of cases would be as follows:
16
TABLE B
Relator's Share Types of Cases
15-25% 1. relator brings an action that is
not "based upon" publicly disclosed
information
2. relator brings an action that is
"based upon" but not "primarily
based" upon publicly disclosed
information
3. relator brings an action that is
"primarily based" upon publicly
disclosed information but relator
provided the information
ò 10% relator brings an action that is
"primarily based" upon publicly
disclosed information, and the
relator did not provide the
information
We find the government's position much more
persuasive. Under this view, sections 3730(e)(4) and
3730(d)(1) provide a descending scale of recovery ranges
that are proportional to the public service provided by the
relators. The highest range (15-25%) is reserved for the
relators who provide the greatest public service-- relators
whose claims are not "based upon" a public disclosure and
most relators who qualify as "original sources." The lesser
range (up to 10% of the proceeds) is provided for the
(presumably unusual) cases in which an "original source"
relator asserts a claim that is "primarily based" on
information that has been publicly disclosed and that the
relator did not provide.
In contrast with the government's position, the relators'
position produces results that we do not think that
Congress intended. First, this interpretation provides a
potentially huge windfall -- 15-25% of the total recovery --
for most relators whose claims would have been dismissed
under section 3730(e)(4) if the government had not
intervened. It is hard to see why Congress might have
wanted the fortuity of government intervention to make
17
such a difference -- or why Congress might have wanted to
provide such a large reward to such a relator, who provides
little if any public service. See Federal Recovery Service, Inc.
v. United States, 72 F.3d 447, 452 (5th Cir. 1995)
(describing a similar interpretation as "ignor[ing] the False
Claims Act's goal of preventing parasitic suits based on
information discovered by others" and as requiring awards
in "even those [suits] brought by individuals who discovered
the defendant's fraud by reading about it in the morning
paper").
Second, the relators' interpretation prescribes the same
range of awards -- 15-25% -- for two very dissimilar groups
of relators: first, those relators who provide a substantial
public service by bringing claims that are not based upon
publicly disclosed information and, second, relators who
furnish little if any public service because their claims are
"based upon" publicly disclosed information 9 and would
have been dismissed under section 3730(e)(4) if the
government had not intervened. It seems unlikely that
Congress wanted these two vastly different types of relators
to be treated the same.
Third, the relators' interpretation treats original-source
relators the same as other relators whose claims are based
on publicly disclosed information. Under the relators'
interpretation, if a relator's claim is "based upon" (but not
"primarily based" upon) publicly disclosed information, the
relator is entitled to 15-25% regardless of whether the
relator is an original source. Since Congress took pains in
section 3730(e)(4)(B) to provide special, favorable treatment
for original-source relators, it seems unlikely that Congress
wanted a relator's original-source status to be irrelevant in
determining the award that a relator receives in a case in
which the government intervenes.
The legislative history also supports the government's
view. As Table A illustrates, under the government's
interpretation, the 0% - 10% range applies only when an
"original source" brings a claim that is "primarily based" on
publicly disclosed information and the "original source" did
not provide that information. By contrast, as previously
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9. But not "primarily based" upon such information.
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noted, under the relators' view, this range is not restricted
to "original-source" relators. In discussing the provision of
S 3730(d) creating the 0% - 10% range, two of the primary
sponsors of the 1986 False Claims Act amendments
described the cases to which this range would apply, and
both stated clearly that this range would apply only to
"original sources." Senator Grassley stated:
When the qui tam plaintiff brings an action based on
public information, meaning he is an "original source"
within the definition under the act, but the action is
based primarily on public information not originally
provided by the qui tam plaintiff, he is limited to a
recovery of not more than 10 percent. In other words a
10-percent cap is placed on those "original sources" who
bring cases based on information already publicly
disclosed where only an insignificant amount of that
information stemmed from that original source.
132 Cong. Rec. 28580 (1986) (emphasis added).
Similarly, Representative Berman commented:
The only exception to [the] minimum 15% recovery is
in the case where the information has already been
disclosed and the person qualifies as an "original
source" but where the essential elements of the case
were provided to the government or news media by
someone other than the qui tam plaintiff.
132 Cong. Rec. 29322 (1986). These statements provide
strong support for our interpretation of SS 3730(d)(1) and
(e)(4).
For all these reasons, we conclude that a relator whose
claim is subject to dismissal under section 3730(e)(4) may
not receive any share of the proceeds attributable to that
claim.
III
Thus far, we have concluded that the relators' share of
the proceeds must be based on a claim-by-claim analysis
and that the relators are not entitled to any share of the
settlement attributable to claims that would have been
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subject to dismissal under section 3730(e)(4) prior to the
government's intervention. These holdings do not
necessarily dictate reversal, however, becaue the District
Court also held (a) that the government waived its right to
argue that the relators were not entitled to recover a share
of the proceeds attributable to the "automated chemistry"
claims and (b) that the government did not offer sufficient
evidence to establish the share of the proceeds attributable
to those claims. We now consider those issues.
A. The District Court held that, when the governme nt
agreed to settle the lawsuit, it waived its right to argue that
the relators were barred from recovering proceeds
attributable to the automated chemistry claims. Dist. Ct.
Op. at 36-37. We disagree.
The settlement agreement between the government and
SKB did not dispose of any issues pertaining to the relators'
share of the settlement proceeds. The agreement expressly
stated that the parties would "request" that the District
Court "specifically retain jurisdiction with respect to any
unresolved issues, including . . . relators' share of the
settlement proceeds." Joint App. at 214. The Court's order
dismissing the actions stated: "this Court retains
jurisdiction over . . . determination of . . . relators' share
issues." Joint App. at 198. Therefore, by its own terms, the
settlement agreement preserved the government's right to
contest the issue of the relators' share. Accordingly, we
hold that the District Court erred in concluding that the
government waived its right to argue that the relators were
barred from recovering proceeds attributable to the
automated chemistry claims.
B. The District Court also held that it had no fac tual
basis upon which to determine the percentage of the
settlement that was attributable to the automated
chemistry claims. See Dist. Ct. Op. at 41 ("[T]here is
absolutely no evidence on the record before me . . . to
establish any allocation among various claims."). The
District Court blamed the supposed dearth of evidence on
the government, suggesting that the government refused to
provide any meaningful response to the relators' discovery
requests concerning the factual basis for its allocation of
the settlement proceeds. Id. at 42-43.
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The District Court's conclusion is not supported by the
record. The record shows that the government produced
substantial evidence related to the allocation of the
settlement proceeds. During an evidentiary hearing before
the District Court, the government introduced a series of
documents--created during the government's negotiations
with SKB--that specified the amount of money the
government had demanded for each alleged violation of the
False Claims Act. See Joint App. at 1474, 1475-1491.
These documents showed that approximately $241 million
were attributable to the automated chemistry claims. The
relators, on the other hand, failed to present any evidence.
By declining to present evidence contradicting the
government's allocation of the settlement proceeds, the
relators effectively gave up their right to challenge the
factual basis of that allocation.
Having reviewed the record, we are satisfied that the
government submitted sufficient evidence to enable the
District Court to allocate the settlement proceeds on a
claim-by-claim basis. Accordingly, we conclude that the
District Court's finding--i.e., that there was"no evidence"
upon which to determine the percentage of the settlement
that was attributable to the automated chemistry claims--
was clearly erroneous.10
IV.
It is beyond dispute that, under our circuit's
interpretation of Section 3730(e)(4) in Mistick , 186 F.3d at
385-89, the relators' automated chemistry claims were
"based upon" a public disclosure specified in that provision.
See Joint App. at 1432-1441,1442-1450, 1451-1457, 1470-
1473; 1492-1498. As we explained above, relators who
bring such a claim cannot recover any proceeds
attributable to that claim unless they qualify as original
sources of information under section (e)(4)(B). The District
Court therefore erred in allowing the relators to recover
_________________________________________________________________
10. We make no determination with respect to the exact percentage of
the settlement that must be attributed to the automated chemistry
claims; we simply hold that the District Court had an adequate factual
basis for making such a finding.
21
proceeds attributable to the "automated chemistry" claims
without determining whether the relators were "original
sources."
On remand, the District Court must determine whether
the relators were "original sources" of information--as
defined by section (e)(4)(B)--with respect to the "automated
chemistry" claims. If the District Court determines that
they were original sources of information, it may award
them a share of the proceeds and will have to determine
whether they fall within the 15-25% range or the 0-15%
range as set out in Table A supra.11 However, if the District
Court determines that the relators were not original sources
of information with respect to those claims, it may not
award them any share of the proceeds attributable to them.
V.
For the foregoing reasons, we hold that the District Court
erred in awarding the relators 17% of the settlement
proceeds. Accordingly, we reverse and remand for further
proceedings consistent with this opinion.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
11. We express no view as to whether the Court may properly award any
recovery jointly to the pertinent relators, or whether it must specify
each
relator's award. Consideration of this issue would be premature until (a)
it is determined under the correct legal standard that a relators' award
is appropriate and (b) the issue is properly brought before us by a party
with standing.
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