MARTIN REIDINGER, District Judge.
The United States Supreme Court summarized the procedural history of this case as follows:
Graham County Soil and Water Conservation Dist. v. U.S. ex rel. Wilson, 559 U.S. 280, 130 S.Ct. 1396, 1400-01, 176 L.Ed.2d 225 (2010). In resolving that conflict, the Supreme Court held that the reference to "administrative" reports, audits, and investigations in § 3730(e)(4)(A) encompasses disclosures made in state and local sources as well as federal sources. Id. at 1398. Finding the Fourth Circuit's interpretation erroneous, the Supreme Court reversed and remanded to the Fourth Circuit "for further proceedings consistent with" its opinion. Id.
On remand, the Fourth Circuit acknowledged the Supreme Court's ruling "that the public-disclosure bar is not limited to federal reports and audits, but also applies to reports, audits, and the like conducted or issued by state and local governments." Wilson, 399 Fed.Appx. at 775.
Id. at 775-76.
The Fourth Circuit thus instructed this Court
Upon the most recent remand by the Court of Appeals, this Court conducted a status conference at which all parties appeared. At that conference, the parties advised the Court that there was no dispute as to the facts underlying the question of subject matter jurisdiction. [Doc. 338 at 1]. They further stipulated that in the event the Court determined there to be any such conflict in the evidence that this Court should make any necessary findings of facts based on the evidence in the record without any further hearing. [Id. at 2]. The Court therefore entered an amended pretrial order which established deadlines by which the parties were allowed to submit any additional evidence pertinent to the question of jurisdiction. [Id. at 2-4]. The parties having done so, [Docs. 342-1 through 342-9, 345-1 through 345-4, 347-1 through 347-5, 351-1 through 351-6], this matter is ripe for determination.
The only remaining claims are ones asserted pursuant to the False Claims Act based on the allegations set forth in Section A of the Third Amended Complaint filed July 31, 2006.
Wilson alleged a second category of wrongful claims by Defendants Orr, Richard Greene and William Timpson. Greene and Timpson were employees of the USDA who were responsible for inspecting work on EWP-216 repairs. Wilsom alleges that these three Defendants took the logs that were cut in relation to the EWP-216 clean up and sold them for their personal profit, even though those logs had become the property of the USDA as a result of the clean up efforts.
In a third category, Wilson alleges that Orr, Greene and Timpson, along with Defendant Billy Brown "conspired to make similar false claims under the EWP-216 program for Clay and Cherokee Counties and split the proceeds from the false claims." [Id. at 7 ¶ 31.j.]. Wilson did not specify to which Graham County claims the Cherokee and Clay County claims were similar. She asserts, however, that the Cherokee County Defendants,
Based on these allegations, Wilson claimed the Defendants violated the False Claims Act by knowingly presenting to the United States Government false or fraudulent claims, knowingly making false records in order to obtain payment of false claims, and conspiring to defraud the Government by such acts.
The Court of Appeals remanded for consideration of three issues: (1) whether the reports at issue were publicly disclosed; (2) whether Wilson's claims are based on those reports; and (3) whether Wilson was an original source.
The responsibility for administering the EWP programs on a nationwide basis falls on the National Resources Conservation Service
On June 5, 1995, Graham County entered into Project Agreement 69-4532-5-650 (the 650 Project) with NRCS.
Howard Tew, who was Crandall's engineer, also testified that the purpose of the "performance of work agreements" was to allow the local agency to do the work with their own forces. [Doc. 226-7 at 5]. Tew testified that when he learned that Orr was doing the actual work on the Graham County 650 Project, there was discussion as to whether this amounted to a conflict of interest. [Id. at 5-7]. He testified that there was no problem so long as Orr either performed the work as part of his regular job for no extra pay, or performed the work on his own time separate from his regular duties on a contract basis for extra pay. [Id.]. He came to the conclusion that allowing Orr to do the work was permissible under the terms of the agreement between NRCS and Graham County as well as under the terms of the "performance of work agreement" between Graham County
The Cherokee County Board of Commissioners entered into a performance of work agreement, Project Agreement 69-4532-5-640 (the 640 Project) with the NRCS in May 1995. [Doc. 221 at 2-6, 28]. This agreement also arose from the flooding which occurred in western North Carolina in February 1995. Because the 640 Project was a "performance of work agreement," Cherokee County properly entered into an agreement with the Cherokee County District pursuant to which the District would perform the work and bidding was not required. [Id. at 28]. On June 26, 1996, Tew, in his capacity as an NRCS employee, certified that final inspection of the project had occurred and all work had been properly completed. [Id. at 29-30]. On July 11, 1996, Tew, again acting as a NRCS employee, submitted to the contracting officer for Cherokee County the forms for final payment. [Id.].
Minutes of Graham County District Board meetings show that Greene (also an NRCS employee) reported to the Board (1) in July 1995 that Orr was interested in doing the 650 Project work, (2) in September 1995 that Orr and Brown would be doing the work and (3) in October 1995 that Brown had signed a contract.
Sometime prior to December 1995, Wilson told Dale Wiggins, a commissioner for Graham County, that there was a problem with the administration of the EWP-216 Project. [Doc. 342-5 at 7]. Wilson acknowledged that the minutes of the Graham County District do not reflect that she informed Wiggins of those problems at any point in 1995. [Id.]. When asked during her deposition what she had told the Supervisors, Wilson responded, "I'm not sure. To some degree I'm sure I told them about it. But I don't know that I specifically verbatim told them exactly that." [Doc. 342-7 at 3].
On December 7, 1995, Wilson wrote a letter to Richard Gallo (Gallo), Special Agent with the Office of Inspector General for the USDA. [Doc. 342-8 at 2]. In that letter, Wilson stated that she had been "contacted and ask[ed] to send documentation of my concerns to you." [Id.]. She then goes on to recount various allegations against Greene that are not the subject of the claims in this action.
In December 1995, Crandall removed both Greene and Timpson from their official duties in connection with the EWP program based on a recommendation from Tew. [Doc. 226-2 at 29].
Wilson testified in her deposition that sometime in 1995 or 1996, she spoke with an employee of Crisp Hughes & Co., LLP who was performing an audit for Graham County. [Doc. 342-2 at 5-6]. Wilson testified that the accountant did not tell her much of anything although Wilson did "share files" with her when she came in to do the audit. [Id. at 6]. Wilson requested a copy of the audit from Graham County. [Id.]. Wilson testified that when she reviewed the audit, it merely verified information which she already knew. [Id.].
In March 1996, an Agreed Upon Procedures Report
[Id. at 6-7].
Sometime after April 26, 1996, Sharon Crisp Holloway (Crisp), who was the Finance Officer for Graham County, received a copy of this audit along with a cover letter addressed to her in her official capacity. [Doc. 257-14]. In the letter, sent by a Crisp Hughes accountant, it was noted that a copy of the audit had also been sent to the Local Government Commission and the North Carolina Division of Soil and Water Conservation in the care of Donna Moffitt. [Id. at 3]. Additional copies of the audit were enclosed for distribution to Graham County, the Graham County District and the USDA. [Id.]. The audit itself was addressed to the Graham County Board of Commissioners. [Id. at 5]. Crisp has provided an affidavit in which she stated that "about this time," she had conversations with Wilson in which Wilson expressed concern about the legality of payments to Orr. [Id. at 1].
On November 14, 1996, Levourn Wiggins,
Seeding:
Driving Cap:
Filter Cloth:
[Doc. 226-11 at 34-35].
Wilson provided a statement to USDA Special Agent Golec on November 14, 1996. [Doc. 255-1]. That statement primarily consisted of allegations against Greene regarding the G & L Farms and filter fabric issues. In that statement, however, Wilson also made the following accusations:
[Id.].
In January 1997, Lavina West (West), who was at the time the bookkeeper for a lumber mill called Valwood Corporation (Valwood), responded to a federal subpoena from Roger Viadero, Inspector General for NRCS. [Doc. 262-1 at 15]. She provided records in response to the subpoena for all payments made by Valwood for the purchase of lumber from Greene and Orr during the time period at issue. [Id.]. At that time, she had not been contacted by Wilson and had not provided any information to Wilson. [Id.]. In February 2002, Wilson contacted West and requested the same information, which West then provided to her. [Id.].
On August 13, 1997, Agent Golec issued his Report of Investigation on behalf of the USDA (the USDA Report) encompassing the same time period as involved in this action. [Doc. 261-1 at 8-16]. The report contains a discussion of the agent's findings in connection with the removal and sale of logs in connection with Cherokee County's 640 Project. [Id.]. Agent Golec concluded that Greene improperly received payment from Valwood for the delivery of trees removed from the EWP sites. [Id. at 10]. Agent Golec included the names of his sources for this information in his report and Wilson was not included as a source. [Id. at 10-16].
Wilson claims that the four Standard Form 270s submitted for payment in connection with the Graham County 650 Project were false because (1) no bidding for the project occurred; (2) Orr was prohibited from performing the work because of a conflict of interest arising from his employment; (3) some of the work certified was not actually performed. The allegations as to the Cherokee County 640 Project and the submission of Standard Form
U.S. ex rel. Vuyyuru v. Jadhav, 555 F.3d 337, 347-48 (4th Cir.) (internal quotation marks and citations omitted), cert. denied, 558 U.S. 875, 130 S.Ct. 229, 175 L.Ed.2d 129 (2009).
The Court of Appeals specifically remanded this matter for the consideration of three questions pertinent to the jurisdictional bar: (1) whether the reports were publicly disclosed, (2) whether Wilson's claims were derived from those reports, and if so (3) whether Wilson qualifies as an original source of those claims. Wilson, 399 Fed.Appx. at 775. [Doc. 329 at 5].
With regard to whether the reports at issue were publicly disclosed, it is the law of this case "that the public-disclosure bar is not limited to federal reports and audits, but also applies to reports, audits, and the like conducted or issued by state and local governments." Id. at 775. [Doc. 329 at 3]. "[T]he public-disclosure bar [thus] strips courts of jurisdiction over FCA actions that are based upon the public disclosure of allegations or transactions in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation." Id. Therefore it is uncontested that the Audit Report, the DEHNR Report, and the USDA Report each qualifies as a source specifically identified in the statute, § 3730(e)(4)(A).
Next, the disclosure must have been public prior to the filing of the Complaint. Id. at 307, 130 S.Ct. 1396. Public disclosure requires that it be accessible to the general public, made to strangers to the alleged fraud or placed in the public domain. United States ex rel. Beauchamp v. Academi Training Center, Inc., 933 F.Supp.2d 825, 840-1 (E.D.Va.2013). Here, the Defendants argue that the Audit Report was made accessible to the general public and also placed in the public domain because it was provided to Graham County, the Local Government Commission, and the Division of the North Carolina Soil & Water Conservation. [Doc. 347 at 2-4].
The public disclosure requirement is meant to "preclude qui tam suits based on information that would have been equally available to strangers to the fraud transaction[s] had they chosen to look for it as it was to the relator." United States ex rel. Stinson v. Prudential Ins. Co., 944 F.2d 1149, 1155-56 (3d Cir.1991). "The likelihood that the information will be brought to the federal government's attention is heightened in cases like this where the audited program is connected significantly to federal regulations and funds." United States ex rel, Bly-Magee v. Premo, 470 F.3d 914, 918-19 (9th Cir.2006), cert. denied, 552 U.S. 1165, 128 S.Ct. 1119, 169 L.Ed.2d 948 (2008). Indeed, Graham County, as the recipient of federal funds pursuant to the EWP program, was required to file a financial audit with the federal government. See 31 U.S.C. § 7502(c). It was, moreover, required to transmit that audit to a federal clearinghouse and to make it available for public inspection. See 31 U.S.C. § 7502(h). Crisp Hughes, as the independent auditor, was also required to report to the federal government any non-compliance with federal rules and regulations discovered in the course of the audit. See 31 U.S.C. § 7502(g). Indeed, multiple copies of the audit report were sent for submission to the USDA. Further, it is undisputed that the audit report was provided to the Local Government Commission,
Indeed, Wilson admits that she both requested and received a copy of the Audit Report in 1996. This fact alone shows public disclosure. The Court therefore finds and concludes that the Audit Report was publicly disclosed.
Agent Golec of the USDA also provided a Report of Investigation (the USDA Report) on August 13, 1997. [Doc. 261-1]. The USDA Report was distributed to the NRCS, the Office of General Counsel for USDA, the North Carolina State Bureau of Investigation (SBI), and the United States Attorney for the Western District of North Carolina. [Id. at 8]. NRCS was the federal agency involved with the EWP projects. [Id. at 9]. The Report was disclosed to the NRCS Chief and Deputy Chief for Management and Strategic Planning. [Id. at 8]. As noted above, "[d]isclosure of information to a competent public official about an alleged false claim against the government [is] public disclosure ... when made to one who has managerial responsibility for the very claims being made." Bank of Farmington, 166 F.3d at 861. The Court therefore finds this report was also publicly disclosed.
Having answered the first question in the affirmative, the Court next considers whether Wilson's claims are based on or derived from the Audit Report and/or the USDA Report.
A comparison of the allegations in the Third Amended Complaint and the public documents is very telling. Wilson alleges that false claims were made by Orr and paid and facilitated by the Graham County Defendants related to the EWP-216 projects in that (1) Orr was not a proper recipient because he was and approved inspector for and employee of Graham County District and therefore had a conflict of interest; (2) that Wilson was instructed to pay Orr's invoices "whether or not Orr had done the work or not [sic]" [Doc. 184 at 6] and Orr had not, in fact, done some of the work for which he obtained payment;
The first claim is clearly covered by the Audit Report, which reads "Certain portions of the project were completed by an individual who was an approved project inspector. This appears to be a violation of the County's code of conduct which was submitted in certifications as prerequisite to establishing project agreements with the USDA." [Doc. 342-6 at 7 ¶ 2]. The second claim, asserting payments for work that was not completed is likewise specifically addressed in the Audit Report. [Id. at 6 ¶ 3]. The fifth claim, Wilson's very vague allegation of "claims ... for payments based on claims for which there was no bidding although bidding was required under the program," [Doc. 184 at 9 ¶ 31.n.], is also directly addressed in the Audit Report: "G.S. 143-131 required contracts for construction or repairs costing from $5,000 to $50,000 be awarded in accordance with an informal bidding process. The statute requires that a record of all such bids be kept. No documentation was available to indicate that informal bid requirements had been complied with." [Doc. 342-6 at 7 ¶ 3].
The question, of course, is whether Relator's claims are "based upon" the Audit Report. The similarity between the information in the Audit Report and Relator's allegations is strong evidence of Relator having derived her claims from the Audit Report. Vuyyuru, 555 F.3d at 351. Particularly telling of Relator's reliance on the Audit Report is the fact that where the Audit Report is vague, Wilson's allegations are also vague. Most convincing, however, is how the allegations in the Third Amended Complaint mirror the limitations of the Audit Report. The audit was conducted only for Graham County. Hence, when Relator makes allegations concerning the EWP program in Cherokee County her allegations completely lack any specificity
Wilson, moreover, admitted on numerous occasions that she obtained information from the auditor and ultimately obtained a copy of the Audit Report. [Doc. 342-5; Doc. 342-8]. The auditors, she admitted, were the ones who told her that Orr could not perform this work due to his position with the District (even though it appears in the record that this conclusion was quite possibly incorrect). [Id.]. Public records, such as minutes of Graham County District Board meetings, show that Greene reported to the Board in July 1995 that Orr was interested in doing the 650 Project work, in September 1995 that Orr and Brown would be doing the work and in October 1995 that Brown had signed a contract. [Doc. 261-1 at 38]. Wilson, however, makes no allegation regarding the Graham County 650 Project concerning Brown. This appears to be because the Audit Report fails to mention any involvement by Brown regarding Graham County. [Doc. 184 at 7]. Wilson's insistence that her Complaint is based solely on her personal observations and deductions "is insufficient to counter the weighty public record, which it is difficult to believe [Wilson] did not notice, especially because" of her position as secretary. Gear, 436 F.3d at 729.
Wilson offers no explanation for the similarities between her allegations in the Third Amended Complaint and the contents of the Audit Report. Such similarities serve as "significant proof" that the substantive allegations were actually derived from the Audit Report. See Vuyyuru, 555 F.3d at 351.
Wilson's fourth claim, regarding the sale of the logs, is not addressed in the Audit Report. This, however, forms a substantial portion of the USDA Report. In fact, this issue was also the subject of
Wilson's letter in December 1995 to Gallo did not contain any allegations concerning this conduct. [Doc. 342-8]. Wilson's statement provided to Agent Golec in November 1996 was as follows:
[Doc. 256-3 at 6].
In the statement to Golec, Wilson did not identify the Cherokee 640 Project and she made no reference to trees being sold to Valwood. [Doc. 256-3]. Indeed, in Agent Golec's report, he does not identify Wilson as a source of information concerning his conclusions about the sale of the trees to Valwood and the division of profits from those sales. [Doc. 261-1 at 8-16]. He does, however, report at length that beginning in May 1995, trees taken from the 640 Project were taken to Valwood and sold. [Id. at 13]. The checks for the trees were made out to Greene, Orr and Brown. [Id.]. Golec's sources for this information were individuals who worked for the Cherokee County District and/or for Cherokee County, or who served on the District Board. [Doc. 261-1 at 13-15]. One of those sources told Golec that he had learned of Greene's actions in connection with the sale of fallen timber in the summer of 1996, prior to Wilson's November 1996 statement to Golec. [Id.]. Likewise, Greene gave a statement to Golec in October 1996 in which he candidly admitted the sale of the timber to Valwood and the issuance of checks from Valwood to him. [Id.]. The bookkeeper for Valwood has provided an affidavit in which she stated that NRCS subpoenaed her records in early 1997 and she provided them. [Doc. 262-1]. Those records showed payments by Valwood to Greene, Orr and Brown during the time of the Cherokee County District 640 Project. [Id.]. That same bookkeeper has averred that Wilson did not contact her about any such records until 2002, well after the publication of Agent Golec's report and one year after Wilson filed this suit. [Id.].
Again, the similarities between Agent Golec's report and the allegations in the Complaint are "remarkable." See Vuyyuru, 555 F.3d at 350-51. For the same reasons as stated above, the Court concludes that Wilson has failed to carry her burden of proof to show that these allegations were not based on the USDA Report.
Having failed to carry the burden to show that the public disclosure bar should not apply, Wilson now bears the "separate and distinct burden of proving [herself] entitled to original source status," which requires her to prove that she was "an individual who has direct and independent knowledge of the information on which the allegations [in the Third Amended Complaint] are based and has voluntarily provided the information to the Government before filing an action ... which is based on the information." Vuyyuru, 555 F.3d at 348-49. Moreover, at the time relevant to this case, the information to which the statute "speaks refers to the information on which relator's allegations are based, not upon the information on which the publicly disclosed allegations that triggered [the] public disclosure jurisdictional bar are based." Id. (citing Rockwell Int'l Corp. v. United States, 549 U.S. 457, 471-72, 127 S.Ct. 1397, 167 L.Ed.2d 190 (2007)). In other words, Wilson has the burden of showing that she is the original source of the information giving rise to her allegations, not that she was the original source of the public reports.
Knowledge is direct if it is acquired through the relator's own efforts, without any intervening agency, and it is independent if the knowledge is not dependent on public disclosure. Grayson v. Advanced Mgmt. Tech. Inc., 221 F.3d 580, 583 (4th Cir.2000). A relator must have direct and independent knowledge sufficient to establish each of the elements of a False Claims Act cause of action. Vuyyuru, 555 F.3d at 353. A relator cannot satisfy this burden by submitting affidavits containing conclusory statements. United States ex rel. Davis v. Prince, 753 F.Supp.2d 569, 589 n. 28 (E.D.Va.2011).
The Court first considers whether Wilson has carried her burden to show that she was an original source of the information disclosed in the Audit Report of March 1996. "Although [Wilson] need not trace the flow of information from herself to the [auditor] to the ... audit report[,] [a ruling against her will] be proper [if she] fail[s] to provide the district court with specific facts showing that she had direct and independent knowledge of the audit findings on which she bases her FCA claims." Battle, 468 F.3d at 762-63.
In her affidavit, Wilson claims that she was appointed to be an inspector for the 650 Project but admits that she never inspected any of the work performed. [Doc. 345-1 at 2]. In what manner she therefore knew that the work had not been performed or had not been performed properly is not explained. The Audit Report, however, notes the lack of compliance with the work specified in the files contained in the NRCS office. [Doc. 257-14].
Wilson claims that when she received an invoice to pay Orr in June 1995, she refused to pay it, telling Greene that it was a conflict of interest for Orr to do the work because he was a District employee. [Id.]. In her letter to Gallo in December 1995, however, Wilson stated that the "auditors informed me that [Orr] as a salaried employee should [have] never received these funds." [Doc. 342-8 at 2] (emphasis added).
Wilson alleged that the work to be done under the 650 Project was required to be bid out but Greene never instructed the Graham County District that this was necessary. [Doc. 345-1 at 1-4]. The Audit Report contains the same conclusion. [Doc. 257-14]. Every federal employee involved in the Project, however, testified that bidding was not required under a work project agreement. [Doc. 274].
Wilson claimed that she alerted Wiggins to problems with the project in 1995. [Doc. 345-1]. The minutes of meetings of the District, however, do not reflect any such reports and Wilson has admitted this. Although she claimed that she was sure she told them "something," she could not recall what.
Wilson admitted that she provided files to the auditors, with whom she spoke, and that she subsequently requested and received a copy of the Audit Report. [Id.]. Her knowledge, Wilson claims, is from her position as a secretary, her conversations with Orr, Greene and Bates and in "reading and preparing the EWP documents and checks." [Id. at 3-4]. Wilson has failed, however, to show that she acquired her knowledge without the intervening agency of the Audit Report and that her knowledge was independent of that public disclosure. "While relators are not required to affirmatively prove the source of their information for FCA allegations, ... mere denial of knowledge of public disclosures does not satisfy the burden established by" the law. Jones, 469 Fed.Appx. at 255.
As for Wilson's claim based on the illegal sale of timber to Valwood, Agent Golec in his USDA Report disclosed numerous sources for his information. Wilson, however, was not one of them.
Wilson claimed in her November 1996 statement provided to Agent Golec that at an unspecified time in 1995, Orr told her that Greene had stolen trees which were to be used for cribbing but he did not know to whom Greene had sold them. [Doc. 256-3 at 6]. Wilson did not identify any project with which this was connected and did not specify in what manner a fraudulent claim was made to the federal government. She therefore failed to establish an element of a FCA claim. See Vuyyuru, 555 F.3d at 353; Davis, 753 F.Supp.2d at 583. Moreover, the fact that Orr allegedly told Wilson about this shows that she was
Wilson's responsive argument on this score is merely that there was no public disclosure of the fact that Greene illegally sold the timber, thus, information which she gleaned from her position as a secretary proves that she was the original source. Wilson's argument completely ignores the USDA Report; and, indeed she does not address it at all. Wilson's failure to address the disclosure of this information in the USDA Report serves as additional support for the Court's conclusion that Wilson has failed to carry her burden to show that she had direct and independent knowledge of these allegations. Even more telling, however, is that Greene was indicted for selling the logs. That indictment was handed down eight years before Wilson filed her third Amended Complaint. [Doc. 261-1 at 3, Court File 2:98CR083]. Greene took the matter to trial and was convicted by a jury. [2:98CR083 at Doc. 12, 19]. Wilson's argument that she simply "must" have been the original source of information that was publicly aired in a public court proceeding years earlier simply escapes understanding.
Having concluded that the jurisdictional bar deprives this Court of subject matter jurisdiction, the Court must dismiss this action.
