Filed: Dec. 12, 2013
Latest Update: Mar. 02, 2020
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-2287 UNITED STATES ex rel. STEVEN MAY AND ANGELA RADCLIFFE, Plaintiff - Appellant, v. PURDUE PHARMA L.P., a limited partnership, and; PURDUE PHARMA, INCORPORATED, Defendants - Appellees. ---------------------------- UNITED STATES OF AMERICA, Amicus Curiae. Appeal from the United States District Court for the Southern District of West Virginia, at Beckley. Irene C. Berger, District Judge. (5:10-cv-01423) Argued: September 20,
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-2287 UNITED STATES ex rel. STEVEN MAY AND ANGELA RADCLIFFE, Plaintiff - Appellant, v. PURDUE PHARMA L.P., a limited partnership, and; PURDUE PHARMA, INCORPORATED, Defendants - Appellees. ---------------------------- UNITED STATES OF AMERICA, Amicus Curiae. Appeal from the United States District Court for the Southern District of West Virginia, at Beckley. Irene C. Berger, District Judge. (5:10-cv-01423) Argued: September 20, 2..
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-2287
UNITED STATES ex rel. STEVEN MAY AND ANGELA RADCLIFFE,
Plaintiff - Appellant,
v.
PURDUE PHARMA L.P., a limited partnership, and; PURDUE
PHARMA, INCORPORATED,
Defendants − Appellees.
−−−−−−−−−−−−−−−−−−−−−−−−−−−−
UNITED STATES OF AMERICA,
Amicus Curiae.
Appeal from the United States District Court for the Southern
District of West Virginia, at Beckley. Irene C. Berger,
District Judge. (5:10-cv-01423)
Argued: September 20, 2013 Decided: December 12, 2013
Before TRAXLER, Chief Judge, DIAZ, Circuit Judge, and Gina M.
GROH, United States District Judge for the Northern District of
West Virginia, sitting by designation.
Vacated and remanded by published opinion. Chief Judge Traxler
wrote the opinion, in which Judge Diaz and Judge Groh joined.
ARGUED: Mark Tucker Hurt, Abingdon, Virginia, for Appellant.
Howard Morris Shapiro, WILMERHALE LLP, Washington, D.C., for
Appellees. Henry C. Whitaker, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Amicus Curiae. ON BRIEF: Paul
W. Roop, II, ROOP LAW OFFICE, LC, Beckley, West Virginia, for
Appellant. Jennifer M. O'Connor, Christopher E. Babbitt, Daniel
Winik, WILMER CUTLER PICKERING HALE AND DORR LLP, Washington,
D.C., for Appellees. Beth S. Brinkmann, Acting Assistant
Attorney General, Michael S. Raab, Civil Division, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Amicus Curiae.
2
TRAXLER, Chief Judge:
Appellants Steven May and Angela Radcliffe brought this
action under the False Claims Act, 31 U.S.C. §§ 3729-33 (the
“FCA”), against Purdue Pharma L.P. and Purdue Pharma, Inc.
(together, “Purdue”). Giving preclusive effect to this court’s
decision in United States ex rel. Radcliffe v. Purdue Pharma
L.P., 600 F.3d 319 (4th Cir. 2010), the district court dismissed
the action on res judicata grounds. Because we agree with the
appellants that this action is not barred by res judicata, we
vacate the decision of the district court and remand for further
proceedings.
I.
Mark Radcliffe, the husband of appellant Angela Radcliffe,
was a district sales manager for Purdue. Radcliffe was laid off
as part of a reduction in force in June 2005, and he
subsequently executed a general release (the “Release”) of all
claims against Purdue in order to receive an enhanced severance
package. Radcliffe thereafter filed an FCA action against
Purdue (“Qui Tam I”) 1 in which he alleged that Purdue falsely
marketed its narcotic pain medication OxyContin to physicians as
being twice as potent as MS Contin (a cheaper, off-patent drug
1
“A private enforcement action under the FCA is called a
qui tam action, with the private party referred to as the
‘relator.’” United States ex rel. Eisenstein v. City of New
York, 556 U.S. 928, 932 (2009).
3
also manufactured by Purdue), thus making it appear that
OxyContin was cheaper per dose than MS Contin. The government
investigated Radcliffe’s allegations and declined to intervene
in his action.
The district court eventually dismissed Qui Tam I with
prejudice, concluding that Radcliffe’s amended complaint did not
satisfy the heightened pleading requirements of Rule 9. See
Fed. R. Civ. P. 9(b) (“In alleging fraud or mistake, a party
must state with particularity the circumstances constituting
fraud or mistake. . . .”). On appeal, we affirmed the with-
prejudice dismissal on alternate grounds, concluding that the
Release barred Radcliffe’s FCA claims. See Radcliffe, 600 F.3d
at 333.
After we issued our opinion in Radcliffe, Steven May and
Angela Radcliffe (the “Relators”) commenced this FCA action
against Purdue (“Qui Tam II”) setting forth allegations nearly
identical to those advanced by Mark Radcliffe in Qui Tam I. As
noted, Angela Radcliffe is Mark Radcliffe’s wife; Steven May was
formerly a sales representative for Purdue under Mark
Radcliffe’s supervision.
Purdue moved to dismiss the Relators’ complaint on res
judicata grounds, arguing that our decision in Radcliffe barred
the Relators from proceeding with Qui Tam II. See, e.g., Martin
v. Am. Bancorporation Retirement Plan, 407 F.3d 643, 650 (4th
4
Cir. 2005) (“Res judicata . . . precludes the assertion of a
claim after a judgment on the merits in a prior suit by the
parties or their privies based on the same cause of action.”).
Purdue also argued that the FCA’s public-disclosure bar, see 31
U.S.C. § 3730(e)(4), divested the district court of jurisdiction
over the action and that the complaint did not allege fraud with
the particularity required by Rule 9.
As to the res judicata question, Purdue contended that
Radcliffe was a judgment on the merits because it affirmed a
with-prejudice dismissal; that the claims asserted in Qui Tam I
and Qui Tam II were identical; and that the parties were
identical because Qui Tam I was “brought on behalf of the United
States as the real party in interest,” such that the government
“and any other relators seeking to allege identical claims are
bound by its judgment.” J.A. 83. The Relators argued that
Radcliffe was not a decision on the merits for res judicata
purposes, but they did not directly dispute Purdue’s contention
that the parties were identical.
Citing Adkins v. Allstate Insurance Co., 729 F.2d 974 (4th
Cir. 1984), the district court held that Radcliffe was
necessarily a decision on the merits because it affirmed the
grant of a summary-judgment motion. See
Adkins, 729 F.2d at 976
n.3 (“For purposes of res judicata, a summary judgment has
always been considered a final disposition on the merits.”).
5
And because the Relators did not challenge the other res-
judicata requirements, the district court held without further
analysis that “the instant case is barred by the doctrine of res
judicata.” J.A. 225. The district court therefore dismissed
the action without considering the other issues raised by
Purdue. This appeal followed.
II.
The Relators argue on appeal that the district court erred
by giving preclusive effect to Radcliffe and dismissing their
action on res judicata grounds. The preclusive effect of a
judgment issued by a federal court is a legal question governed
by federal common law and subject to de novo review. See Taylor
v. Sturgell, 553 U.S. 880, 891 (2008) (federal common law
determines preclusive effect of federal-court judgment);
Clodfelter v. Republic of Sudan,
720 F.3d 199, 210 (4th Cir.
2013) (district court’s application of res judicata reviewed de
novo).
Generally speaking, whether res judicata precludes a
subsequent action “turns on the existence of three factors: (1)
a final judgment on the merits in a prior suit; (2) an identity
of the cause of action in both the earlier and the later suit;
and (3) an identity of parties or their privies in the two
suits.” Clodfelter, 720 F.3d at 210 (4th Cir. 2013) (internal
quotation marks omitted).
6
A.
The Relators contend that Radcliffe was not a “judgment on
the merits” because the decision was premised on a determination
that Mark Radcliffe lacked standing to pursue the FCA claims.
Because Article III standing requirements are jurisdictional,
see, e.g., United States v. Day, 700 F.3d 713, 721 (4th Cir.
2012), cert. denied,
133 S. Ct. 2038 (2013), and jurisdictional
dismissals are not “judgment[s] on the merits for purposes of
res judicata,” Goldsmith v. Mayor of Balt.,
987 F.2d 1064, 1069
(4th Cir. 1993), 2 the Relators argue that Radcliffe is not
entitled to preclusive effect.
We disagree with the Relators’ reading of our decision in
Radcliffe. Standing principles require the plaintiff to have
suffered an “injury in fact.” Lujan v. Defenders of Wildlife,
504 U.S. 555, 560 (1992) (internal quotation marks omitted). In
the context of the FCA, however, it is the government, not the
private-citizen relator, that has been injured by the
defendant’s fraud. FCA relators nonetheless have standing to
bring an FCA action because the FCA “effect[s] a partial
assignment of the Government’s damages claim” and thus
statutorily vests private citizens with standing. Vt. Agency of
2
“However, a jurisdictional dismissal . . . still operates
to bar relitigation of issues actually decided by that former
judgment.” Goldsmith, 987 F.2d at 1069.
7
Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 773
(2000).
In Radcliffe, we discussed FCA standing principles in the
course of rejecting one of Radcliffe’s arguments against
enforcement of the Release. As we explained, “Radcliffe had a
statutory [FCA] claim, and the necessary legal standing as
partial assignee” once the government suffered an injury and
Radcliffe became aware of the fraud. Radcliffe, 600 F.3d at 329
(emphasis added). We did not conclude that Radcliffe lost
standing when he executed the Release, but instead simply held
that his execution of the Release effected a waiver of his right
to sue Purdue. See
id. at 329 (explaining that Mark Radcliffe
“had the right” to bring an FCA action before he signed the
Release, “a right he waived under the terms of the Release”).
B.
Although we reject the Relators’ assertion that Radcliffe
was a jurisdictional dismissal, we nonetheless agree with their
bottom-line position that the district court erred by giving
Radcliffe preclusive effect.
As the government notes in its amicus brief, the
traditional res-judicata inquiry is modified in cases where the
earlier action was dismissed in accordance with a release or
other settlement agreement. See Keith v. Aldridge, 900 F.2d
736, 740-41 (4th Cir. 1990). A judgment entered “based upon the
8
parties’ stipulation, unlike a judgment imposed at the end of an
adversarial proceeding, receives its legitimating force from the
fact that the parties consented to it.” Norfolk S. Corp. v.
Chevron, U.S.A., Inc., 371 F.3d 1285, 1288 (11th Cir. 2004).
Thus, where a dismissal is “based on a settlement agreement, . .
. the principles of res judicata apply (in a somewhat modified
form) to the matters specified in the settlement agreement,
rather than the original complaint.”
Id. That is, given the
contractual nature of consent decrees and settlement agreements,
the preclusive effect of a judgment based on such an agreement
can be no greater than the preclusive effect of the agreement
itself. 3 See
Keith, 900 F.3d at 740 (“When a consent judgment
entered upon settlement by the parties of an earlier suit is
invoked by a defendant as preclusive of a later action, the
preclusive effect of the earlier judgment is determined by the
intent of the parties.”); 18A Charles A. Wright, Arthur R.
Miller & Edward H. Cooper, Federal Practice & Procedure § 4427
(“Judgments that rest on stipulations, admissions in pleadings,
3
Whether our decision in Radcliffe bars the current action
is a legal issue that the Relators preserved by opposing the
dismissal below and on appeal. That the Relators do not raise
this particular argument does not preclude our consideration and
application of it. See Kamen v. Kemper Fin. Servs., Inc., 500
U.S. 90, 99 (1991) (“When an issue or claim is properly before
the court, the court is not limited to the particular legal
theories advanced by the parties, but rather retains the
independent power to identify and apply the proper construction
of governing law.”).
9
or consent to the very judgment itself should be given effect
according to the intention of the parties . . . .”); see also
Ohio Valley Envtl. Coal. v. Aracoma Coal Co., 556 F.3d 177, 211
(4th Cir. 2009) (“Settlement agreements operate on contract
principles, and thus the preclusive effect of a settlement
agreement should be measured by the intent of the parties.”
(internal quotation marks omitted)). 4
The Release executed by Mark Radcliffe in Qui Tam I was
personal to him and addressed only his rights and the claims
that he might assert against Purdue. Neither the Relators nor
the government were parties to or intended beneficiaries of the
Release. See Restatement (Second) of Contracts § 302; see also
United States ex rel. Ubl v. IIF Data Solutions, 650 F.3d 445,
451 (4th Cir. 2011) (explaining that the effect of an agreement
settling FCA claims is a question of federal common law as to
which the Restatement (Second) of Contracts provides guidance).
The Release itself, therefore, could not serve as a defense to
any claims that the Relators (or other non-signatories) might
assert against Purdue. Indeed, we made this very point in
4
While this case involves a release executed before the
commencement of any litigation, many of the cases addressing
this issue involve consent decrees or other settlements reached
after the commencement of litigation. See, e.g., Keith v.
Aldridge, 900 F.2d 736, 738 (4th Cir. 1990). As to the res-
judicata question, there is no meaningful difference between a
post-filing settlement agreement and the pre-filing release at
issue here.
10
Radcliffe when we noted that the Release “did not prohibit the
government or another relator from pursuing similar claims
against Purdue.” Radcliffe, 600 F.3d at 329 n.8. Our decision
in Radcliffe enforcing the Release did not (and could not)
broaden the scope of the Release. Accordingly, because the
Release does not bar non-signatories from proceeding against
Purdue, the judgment enforcing the Release cannot bar such
claims.
Purdue’s arguments to the contrary are not persuasive. Our
dismissal in Radcliffe may well have been a dismissal
“on the merits” under Rule 41. See Fed. R. Civ. P. 41 (“Unless
the dismissal order states otherwise, a dismissal under this
subdivision (b) and any dismissal not under this rule--except
one for lack of jurisdiction, improper venue, or failure to join
a party under Rule 19--operates as an adjudication on the
merits.”); Shoup v. Bell & Howell Co., 872 F.2d 1178, 1181 (4th
Cir. 1989) (“[F]or purposes of res judicata, a summary judgment
has always been considered a final disposition on the merits.”
(internal quotation marks omitted)). As the Supreme Court has
explained, however, “it is no longer true that a judgment ‘on
the merits’ [for purposes of Rule 41] is necessarily a judgment
entitled to claim-preclusive effect.” Semtek Int’l, Inc. v.
Lockheed Martin Corp.,
531 U.S. 497, 503 (2001) (emphasis
added). As discussed above, the preclusive effect of a judgment
11
enforcing a settlement agreement is determined by the intent of
the parties as reflected by the terms of that agreement, and the
Release did not bar anyone other than Mark Radcliffe from
bringing suit against Purdue. Regardless of the procedural
vehicle through which our decision enforcing the Release was
entered, our decision simply did not broaden the scope of the
Release. See Am. Cyanamid Co. v. Capuano, 381 F.3d 6, 17 (1st
Cir. 2004) (“[A] dismissal with prejudice contained in a consent
decree is not a ruling on the merits that applies to others
under the law of claim preclusion.” (internal quotation marks
and alterations omitted)). Accordingly, the district court
erred by dismissing Qui Tam II as barred by principles of res
judicata.
III.
We turn now to the contention urged by Purdue and the
government that the district court’s dismissal can be affirmed
because the action is prohibited by 31 U.S.C. § 3730(e)(4), the
FCA’s “public disclosure” bar. Addressing that argument
requires us to first determine which version of the statute
applies to this case.
A.
The complaint focuses on conduct occurring between 1996 and
2005. At that time, the public-disclosure bar provided:
12
No court shall have jurisdiction over an action 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.
31 U.S.C. § 3730(e)(4)(A) (2005) (emphasis added).
Section 3730(e)(4), however, was amended on March 23, 2010
-- after the occurrence of the conduct alleged in the complaint,
but before the commencement of this action. See Patient
Protection & Affordable Care Act, Pub. L. 111–148, §
10104(j)(2), 124 Stat. 119, 901-02. The statute as amended
provides that:
The court shall dismiss an action or claim under this
section, unless opposed by the Government, if
substantially the same allegations or transactions as
alleged in the action or claim were publicly
disclosed--
(i) in a Federal criminal, civil, or
administrative hearing in which the Government or its
agent is a party;
(ii) in a congressional, Government
Accountability Office, or other Federal report,
hearing, audit, or investigation; or
(iii) 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.
31 U.S.C. § 3730(e)(4)(A) (2010) (emphasis added). Purdue
argues that the amended version of the statute applies, while
13
the Relators argue that the prior version of the statute
applies.
“[T]he principle that the legal effect of conduct should
ordinarily be assessed under the law that existed when the
conduct took place has timeless and universal appeal.” Landgraf
v. USI Film Prods., 511 U.S. 244, 265 (1994) (internal quotation
marks omitted). Accordingly, a “presumption against retroactive
legislation is deeply rooted in our jurisprudence,”
id., and
that “time-honored presumption” must apply “unless Congress has
clearly manifested its intent to the contrary,” Hughes Aircraft
Co. v. United States ex rel. Schumer,
520 U.S. 939, 946 (1997).
The presumption against retroactivity, however, is limited to
statutes “that would have genuinely ‘retroactive’ effect.”
Landgraf, 511 U.S. at 277. A statute has retroactive effect if
it “takes away or impairs vested rights acquired under existing
laws, or creates a new obligation, imposes a new duty, or
attaches a new disability, in respect to transactions or
considerations already past.”
Id. at 269 (internal quotation
marks omitted).
Applying these principles, the Supreme Court has twice held
that the 2010 FCA amendments may not be applied to cases arising
before the effective date of the amendments. See Graham Cnty.
Soil & Water Conservation Dist. v. United States ex rel. Wilson,
559 U.S. 280, 283 n.1 (2010) (“The legislation makes no mention
14
of retroactivity, which would be necessary for its application
to pending cases given that it eliminates petitioners’ claimed
defense to a qui tam suit.”); see also Schindler Elevator Corp.
v. United States ex rel. Kirk, 131 S. Ct. 1885, 1889 n.1 (2011)
(citing Graham County and stating that the 2010 amendments “are
not applicable to pending cases”). The circuit courts
considering the issue have likewise applied the pre-2010 version
of the statute. See United States ex rel. Zizic v.
Q2Administrators, LLC,
728 F.3d 228, 232 n.3 (3d Cir. 2013);
United States ex rel. Goldberg v. Rush Univ. Med. Ctr.,
680 F.3d
933, 934 (7th Cir. 2012); United States ex rel. Jamison v.
McKesson Corp.,
649 F.3d 322, 326 n.6 (5th Cir. 2011); United
States ex rel. Poteet v. Bahler Med., Inc.,
619 F.3d 104, 107
n.2 (1st Cir. 2010); United States ex rel. Hixson v. Health
Mgmt. Sys., Inc.,
613 F.3d 1186, 1188 n.3 (8th Cir. 2010).
Purdue suggests the analysis should be different in this
case, however, because Graham County and Schindler, unlike this
case, involved complaints that were filed before the statute was
amended. We disagree. The retroactivity inquiry looks to when
the underlying conduct occurred, not when the complaint was
filed. See Landgraf, 511 U.S. at 265 (“[T]he legal effect of
conduct should ordinarily be assessed under the law that existed
when the conduct took place . . . .” (emphasis added)). While
changes in jurisdictional and procedural rules are often applied
15
to pending cases, that is not because the date of filing
controls, see Hughes Aircraft, 520 U.S. at 946 (refusing to
apply 1986 FCA amendments to action that was commenced after the
effective date of the amendments), but because application of
those new rules often does not have an impermissible retroactive
effect. See
Landgraf, 511 U.S. at 274 (“Application of a new
jurisdictional rule usually takes away no substantive right but
simply changes the tribunal that is to hear the case.” (internal
quotation marks omitted));
id. at 275 (“Because rules of
procedure regulate secondary rather than primary conduct, the
fact that a new procedural rule was instituted after the conduct
giving rise to the suit does not make application of the rule at
trial retroactive.”).
The Supreme Court determined in Graham County and Schindler
that application of the 2010 amendments would have retroactive
effect if applied in those cases, and we conclude that the
amendments likewise would have retroactive effect if applied in
this case. See Baldwin v. City of Greensboro, 714 F.3d 828, 836
(4th Cir. 2013) (retroactivity inquiry looks to “whether the new
statute would have retroactive effect as applied to the
particular case” (internal quotation marks omitted)); Gordon v.
Pete’s Auto Serv. of Denbigh, Inc.,
637 F.3d 454, 459 (4th Cir.
2011) (“Th[e retroactivity] inquiry is narrow, for it asks not
whether the statute may possibly have an impermissible
16
retroactive effect in any case, but specifically whether
applying the statute to the person objecting would have a
retroactive consequence in the disfavored sense.” (internal
quotation marks and citation omitted)).
Under the prior version of the statute, § 3730(e)(4)
operated as a jurisdictional limitation -- the public-disclosure
bar, if applicable, divested the district court of subject-
matter jurisdiction over the action. See 31 U.S.C. § 3730(e)(4)
(2005) (“No court shall have jurisdiction over an action under
this section based upon the public disclosure of allegations . .
. .” (emphasis added)); Rockwell Int’l Corp. v. United States,
549 U.S. 457, 468-69 (2007) (explaining that § 3730(e)(4) is a
“jurisdiction-removing provision”). It is apparent, however,
that the public-disclosure bar is no longer jurisdictional. The
amended statute does not mention jurisdiction but instead states
that in cases where the bar is applicable, the court “shall
dismiss” the action “unless opposed by the Government.” 31
U.S.C. § 3730(e)(4) (2010). The 2010 amendments thus deleted
the unambiguous jurisdiction-removing language previously
contained in § 3730(e)(4) and replaced it with a generic, not-
obviously-jurisdictional phrase (“shall dismiss”), while at the
same time retaining jurisdiction-removing language in §§
17
3730(e)(1) and (e)(2). 5 In our view, these changes make it clear
that the public-disclosure bar is no longer a jurisdiction-
removing provision. See, e.g., Brewster v. Gage, 280 U.S. 327,
337 (1930) (“The deliberate selection of language so differing
from that used in the earlier acts indicates that a change of
law was intended.”); Pirie v. Chi. Title & Trust Co.,
182 U.S.
438, 448 (1901) (“When the purpose of a prior law is continued,
usually its words are, and an omission of the words implies an
omission of the purpose.”); Chertkof v. United States,
676 F.2d
984, 987 (4th Cir. 1982) (“[T]he deletion of language, having so
distinct a meaning, almost compels the opposite result when
words of such plain meaning are excised.”). Indeed, it is
difficult to understand how the amended public-disclosure bar
could be jurisdictional when the government has the ability to
veto a dismissal under that section. See Gonzalez v. Thaler,
132 S. Ct. 641, 648 (2012) (“Subject-matter jurisdiction can
never be waived or forfeited.”); Brickwood Contractors, Inc. v.
Datanet Eng’g, Inc.,
369 F.3d 385, 390 (4th Cir. 2004) (en banc)
(“Subject-matter jurisdiction cannot be conferred by the
5
See 31 U.S.C. § 3730(e)(1) (2010) (providing that “[n]o
court shall have jurisdiction over” certain FCA actions brought
by present or former members of the armed forces); id. §
3730(e)(2)(A) (providing that “[n]o court shall have
jurisdiction over” certain FCA actions brought against members
of Congress, senior executive branch officials, or members of
the judiciary).
18
parties, nor can a defect in subject-matter jurisdiction be
waived by the parties.”). And even if the changes somehow did
not establish Congress’ intent to convert the public-disclosure
bar into a non-jurisdictional basis for dismissal, the omission
of the jurisdictional language would nonetheless require us to
treat the amended public-disclosure bar as such. See Sebelius
v. Auburn Reg’l Med. Ctr., 133 S. Ct. 817, 824 (2013) (Unless
“Congress has clearly stated that the [statutory limitation] is
jurisdictional . . . , courts should treat the restriction as
nonjurisdictional in character.” (internal quotation marks and
alteration omitted)).
Moreover, the 2010 amendments significantly changed the
scope of the public-disclosure bar. Under the prior version of
the statute, disclosures in federal and state trials and
hearings qualify as public disclosures, see, e.g., McElmurray v.
Consol. Gov’t of Augusta–Richmond Cnty., 501 F.3d 1244, 1252
(11th Cir. 2007), and disclosures in federal and state reports,
audits, or investigations likewise constitute public
disclosures, see Graham
Cnty., 559 U.S. at 301. After the
amendments, however, only disclosures in federal trials and
hearings and in federal reports and investigations qualify as
public disclosures. See 31 U.S.C. §§ 3730(e)(4)(A)(i) & (ii)
(2010). The 2010 amendments thus substantially narrowed the
class of disclosures that can trigger the public-disclosure bar.
19
By the same token, the amendments expand the number of private
plaintiffs entitled to bring qui tam actions by including
plaintiffs who learn of the underlying fraud through disclosures
in state proceedings or reports.
And as we will discuss in more detail in the next section,
the 2010 amendments also changed the required connection between
the plaintiff’s claims and the qualifying public disclosure.
Under the pre-amendment version of the statute, an action is
barred if the action is “based upon” a qualifying public
disclosure, see 31 U.S.C. § 3730(e)(4)(A) (2009), a standard we
have interpreted to mean that the plaintiff must have “actually
derived” his knowledge of the fraud from the public disclosure.
United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d
1339, 1348 (4th Cir. 1994). As amended, however, the public-
disclosure bar no longer requires actual knowledge of the public
disclosure, but instead applies “if substantially the same
allegations or transactions were publicly disclosed.” 31 U.S.C.
§ 3730(e)(4)(A) (2010). Because the Relators allege that they
did not derive their knowledge of Purdue’s fraud from any public
disclosure, their claims are viable under the pre-amendment
version of the FCA, but not under the amended version, which
focuses on the similarity of the allegations of fraud rather
than the derivation of the knowledge of fraud.
20
We believe that these significant revisions to the statute
“change[] the substance of the existing cause of action,” Hughes
Aircraft, 520 U.S. at 948, such that the amended statute would
have retroactive effect if applied in this case. The 2010
amendments deprive Purdue of the previously available
jurisdictional defense and replace it with a non-jurisdictional
defense that is triggered by a substantially narrower range of
public disclosures and is, even then, subject to veto by the
government. See
id. (1986 FCA amendment had retroactive effect
because it “eliminate[d] a defense to a qui tam suit . . . and
therefore change[d] the substance of the existing cause of
action for qui tam defendants” (internal quotation marks and
alteration omitted));
id. at 948-49 (1986 amendment “create[d] a
new cause of action” by “exten[ding] . . . an FCA cause of
action to private parties in circumstances where the action was
previously foreclosed” (internal quotation marks omitted)). The
2010 amendments similarly imperil the Relators’ right to assert
their claims against Purdue, a right they possessed and could
have acted upon up until the moment that the amendments took
effect. See
Landgraf, 511 U.S. at 269 (statute has retroactive
effect if it “takes away or impairs vested rights acquired under
existing laws” (internal quotation marks omitted)); cf. Brown v.
Angelone,
150 F.3d 370, 373 (4th Cir. 1998) (“When application
of a new limitation period would wholly eliminate claims for
21
substantive rights or remedial actions considered timely under
the old law, the application is impermissibly retroactive. The
legislature cannot extinguish an existing cause of action by
enacting a new limitation period without first providing a
reasonable time after the effective date of the new limitation
period in which to initiate the action.” (citations and internal
quotation marks omitted)). Accordingly, because the 2010
amendments have retroactive effect and the legislation is silent
as to retroactivity, the 2010 version of the public-disclosure
bar cannot be applied in this case, notwithstanding the fact
that the complaint was filed after the effective date of the
amendments. See Hughes Aircraft, 520 U.S. at 946 (declining to
apply 1986 FCA amendments to action alleging pre-amendment fraud
that was commenced after the effective date of the amendments).
B.
Having concluded that the pre-2010 version of § 3730(e)(4)
applies, we turn to the question of whether the public-
disclosure bar requires dismissal of this action.
As previously noted, the pre-amendment version of the
public-disclosure bar provides that:
No court shall have jurisdiction over an action 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
22
Attorney General or the person bringing the action is
an original source of the information.
31 U.S.C. § 3730(e)(4)(A) (2005) (emphasis added). Although
most circuits have interpreted the “based upon” language to bar
actions where the allegations of fraud were “supported by” or
“substantially similar” to fraud that had been publicly
disclosed, see, e.g., United States ex rel. Mistick PBT v.
Housing Auth., 186 F.3d 376, 386 (3d Cir. 1999) (collecting
cases), this circuit has interpreted the clause as barring only
those actions where the relator’s knowledge of the fraud alleged
was actually derived from the public disclosure itself. See
Siller, 21 F.3d at 1348 (“[A] relator’s action is ‘based upon’ a
public disclosure of allegations only where the relator has
actually derived from that disclosure the allegations upon which
his qui tam action is based.” (emphasis added)). The public-
disclosure bar applies and requires dismissal if the action is
“even partly” derived from prior public disclosures. See United
States ex rel. Vuyyuru v. Jadhav,
555 F.3d 337, 351 (4th Cir.
2009).
Whether a relator derived his knowledge of the fraud from a
public disclosure is a jurisdictional fact to be resolved by the
district court. See id. at 348, 350;
Siller, 21 F.3d at 1349.
Although the district court dismissed this action on res
judicata grounds without addressing the public-disclosure bar,
23
Purdue contends that the record nonetheless establishes that the
allegations in this action were at least partly derived from the
publicly disclosed allegations contained in the Qui Tam I
complaint. Purdue points out that the allegations of the
complaints in Qui Tam I and Qui Tam II are nearly identical, and
that many of the allegations in Qui Tam II are verbatim copies
of Qui Tam I allegations. In Purdue’s view, “[t]he verbatim
overlap of the complaints forecloses any argument that the
complaint in this action was not at least partly based on the .
. . [c]omplaint in Qui Tam I.” Br. of Resp’t at 31. We
disagree.
Under Siller, the question is not whether the allegations
set out in the relator’s complaint are similar to publicly
disclosed allegations of fraud; the question is whether the
relator’s knowledge of the fraud was actually derived from the
public disclosure – that is, whether the relator learned about
the fraud from the public disclosure. See Siller, 21 F.3d at
1347, 1348 (“[T]he only fair construction” of § 3730(e)(4) is
that “a qui tam action is only ‘based upon’ a public disclosure
where the relator has actually derived from that disclosure the
knowledge of the facts underlying his action.” (emphasis
added)); see also
id. at 1348 (explaining that an FCA action
could “include[] allegations that happen to be similar (even
identical) to those already publicly disclosed, but were not
24
actually derived from those public disclosures”). Indeed, the
standard urged by Purdue is the standard adopted by other
circuits but rejected by Siller. See id. (“We are aware . . .
that other circuits have not embraced this interpretation of the
phrase, assuming instead that an action is based upon a public
disclosure of allegations if its allegations are identical or
similar to those already publicly disclosed.”).
The Relators both submitted affidavits to the district
court asserting that their knowledge of Purdue’s fraud was not
derived from the Qui Tam I complaint or any other qualifying
public disclosure, but from conversations with Mark Radcliffe
and, in Steven May’s case, from his own experiences as a Purdue
sales representative. The similarity between the allegations in
each complaint could provide a basis for disbelieving the
Relators’ assertions, see Vuyyuru, 555 F.3d at 350-51, but that
is an issue for the district court as fact-finder, not this
court. Because the district court has not made the factual
findings necessary to determine whether the public-disclosure
bar precludes this action, we must remand this case to the
district court for discovery and other proceedings as necessary
to resolve the issues related to the applicability of the
public-disclosure bar. See United States ex rel. Carter v.
Halliburton Co.,
710 F.3d 171, 184 (4th Cir. 2013), petition for
cert. filed,
82 U.S.L.W. 3010 (June 24, 2013) (“Because the
25
district court should have the opportunity in the first instance
to address the facts relevant to public disclosure, we remand
this issue to the district court.”); Siller, 21 F.3d at 1349
(remanding for district court to determine whether allegations
were “actually derived” from prior suit). If the district court
determines that the Relators’ knowledge of the fraud alleged
here was actually derived, even in part, from a qualifying
public disclosure and that the Relators are not original sources
of the information, then the district court must dismiss this
action for lack of subject-matter jurisdiction. See
Vuyyuru,
555 F.3d at 355.
IV.
Purdue makes two additional arguments for sustaining the
district court’s dismissal of this action that do not require
extended discussion.
First, Purdue contends that dismissal was proper because
the Relators’ complaint fails to allege fraud with the
specificity required by Rule 9 of the Rules of Civil Procedure.
We disagree. Assuming without deciding that the complaint does
not allege the fraudulent conduct with the specificity required
by Rule 9, see U.S. ex rel. Nathan v. Takeda Pharm. N. Am.,
Inc., 707 F.3d 451, 456-57 (4th Cir. 2013), petition for cert.
26
filed, 81 U.S.L.W. 3650 (May 10, 2013), 6 the Relators have yet to
amend their complaint, and they requested an opportunity to
amend if the court believed the allegations deficient. Leave to
amend a complaint should generally be freely granted, and there
is at present no basis in the record for this court to conclude
that any efforts to amend would be futile or otherwise improper.
See, e.g., Mayfield v. NASCAR, Inc.,
674 F.3d 369, 379 (4th Cir.
2012) (“[A] request to amend should only be denied if one of
three facts is present: the amendment would be prejudicial to
the opposing party, there has been bad faith on the part of the
moving party, or amendment would be futile.” (internal quotation
marks omitted)). Because the Relators have not had the
opportunity to amend their complaint, we believe it would be
improper to rely on any Rule 9 deficiencies to affirm the
district court’s dismissal of the action with prejudice. The
district court on remand is free to consider Purdue’s Rule 9
argument in the first instance.
Second, Purdue argues that we can affirm the district
court’s order because dismissal is required by the FCA’s “first
to file” bar. See 31 U.S.C. 3730(b)(5). Section 3730(b)(5)
provides that “[w]hen a person brings an action under this
6
On October 7, 2013, the Supreme Court invited the
Solicitor General to express the views of the United States on
the pending petition.
27
subsection, no person other than the Government may intervene or
bring a related action based on the facts underlying the pending
action.” Although this action is clearly based on the facts
underlying Qui Tam I, we recently held that the first-to-file
bar applies only if the first-filed action was still pending
when the subsequent action was commenced. See Carter, 710 F.3d
at 182-83. By the time this action was commenced, Qui Tam I had
been dismissed by the district court, the dismissal had been
affirmed by this court in Radcliffe, and certiorari had been
denied by the Supreme Court. Qui Tam I, therefore, was no
longer pending at the time this action was commenced, thus
making the first-to-file bar inapplicable. See
Carter, 710 F.3d
at 183 (“[O]nce a case is no longer pending the first-to-file
bar does not stop a relator from filing a related case.”).
V.
Accordingly, for the foregoing reasons, we vacate the
district court’s order dismissing this action on res judicata
grounds and remand for further proceedings consistent with this
opinion.
VACATED AND REMANDED
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