Posted by Jaime L.M. Jones and Bevin Seifert
The Fifth Circuit recently sent a summary judgment ruling back to the Southern District of Texas for the second time for the lower court’s failure to apply the Circuit’s construction of the public disclosure bar. United States ex rel. Little v. Shell Exploration, No. 14-20156 (5th Cir. Feb. 23, 2015). Remarkably, the court also ordered that the case be assigned to a new judge because the lower court’s five-page “broad” and “conclusory” opinion failed to follow instructions for remand and was devoid of appropriate citations to the record or relevant law.
The relators, two auditors within a division of the United States Department of the Interior, filed the case in 2006, alleging that Shell Exploration and subsidiaries (“Shell”) defrauded the government of $19 million by improperly deducting expenses relating to offshore drilling. The government declined to intervene. In April 2011, the district court granted summary judgment for Shell finding, in part, that the allegations were barred under the public disclosure doctrine, U.S.C. § 3730(e)(4).
In 2012, the Fifth Circuit reversed and remanded for redetermination, concluding that the district court applied an “overly broad definition” of public disclosure to determine that the previous disclosures barred relators’ allegations. Specifically, the lower court held that the allegations need not be “identical” to the public disclosures, but rather “parallel,” i.e. that the “public disclosure must have been sufficient for the government to find related frauds, even though the circumstances of the transactions may differ.” The Fifth Circuit instructed the district court, to instead apply more narrow standards to determine whether the allegations had been publicly disclosed. Citing its decision in United States ex rel. Jamison v. McKesson Corp., 649 F.3d 322 (5th Cir. 2011), the court instructed that on summary judgment, the opposing party must (1) identify “public documents that could plausibly contain allegations or transactions upon which the relator’s action is based,” and then (2) if such disclosures are identified, the relator must put forth “evidence sufficient to show that there is a genuine issue of material fact as to whether his action was based on those disclosures.” The court further explained that publicly disclosed allegations need only be as broad or as detailed as those in the relator’s complaint, noting that “[w]here specifics are alleged, it is crucial to consider whether the disclosures correspond in scope and breadth.” Also prior disclosures need not name the defendant as long as the defendant’s misconduct would be readily identifiable from them. But, at a minimum, the court required that “disclosures [must] furnish evidence of the fraudulent scheme alleged.” The Fifth Circuit specifically instructed the lower court to determine if the public disclosures revealed either that (1) Shell was deducting expenses prohibited by program regulations; or (2) this type of fraud was so pervasive in the industry that the company’s scheme, as alleged, would have been easily identified.
On remand, Shell renewed its motion for summary judgment and, a year later, the Southern District of Texas again granted in favor of Shell, dismissing relators’ claims with prejudice. The relators’ subsequent appeal requested to have the case assigned to a new judge. In its de novo review, the Fifth Circuit reiterated its McKesson finding that public disclosure is “necessarily intertwined with the merits and is, therefore, properly treated as a motion for summary judgment” and concluded that had the lower court properly followed its instructions, it would have found no public disclosure and denied the motion.
As to whether a new judge should be assigned, the court recognized a circuit split on the test for this “rarely invoked” and “extraordinary power,” noting that the Fifth Circuit had not yet adopted either test (citing its decision in In re DaimlerChrysler Corp., 294 F.3d 1307, 1333 (5th Cir. 1997)), but concluding that, under either standard, reassignment was appropriate in this case when the lower court disregarded the Fifth Circuit’s “clear mandate” and “failed to apply the legal standards we established in our opinion for public disclosure and to address the specific questions that set out in that opinion.” Moreover, the Fifth Circuit criticized the short length of the opinion in contrast to the extensive summary judgment record, with few references to the record or relevant law. Finally, the court noted that the district court’s conclusion was the same as its prior opinion and followed the same “overly broad reasoning” that the Fifth Circuit already rejected. In its order to reassign the case, the court found that starting with a new judge would not “create waste or duplication” given that the case had been stuck for eight years on the public disclosure issue and that remaining with the same judge would likely result in further appeals.
A copy of the opinion can be found here.