Last year, we wrote about a district court decision disqualifying an attorney from serving as relator in a False Claims Act (“FCA”) action that he initiated against his client’s adversary in pending litigation (see here and here). The attorney and would-be-relator, Donald Holmes, was retained by an insurance company, Munich Re, in connection with arbitration against Northrop Grumman, who had submitted claims for damage to its shipyards allegedly resulting from Hurricane Katrina. Holmes, on behalf of the insurance company, filed a complaint in federal court to obtain certain documents from the Navy allegedly relevant to the arbitration. He eventually obtained the documents subject to a protective order that forbade their disclosure outside of the arbitration. However, Holmes promptly filed an FCA complaint against Northrop, alleging Northrop improperly used government funds allocated to compensate for Hurricane Katrina damage to instead cover cost overruns that occurred before the storm, based on the documents obtained from the Navy —in clear violation of the protective order.
Posted by Douglas Axel and Wesley Montalvo
A long running case dealing with the ability of government employees to receive compensation for serving as whistleblowers appears to be heading back to the D.C. Circuit Court of Appeals.
In 1997, the Project on Government Oversight (“POGO”) brought a False Claims Act lawsuit against several oil companies, alleging that they had understated the value of oil extracted from Federal and Native American lands, and had thus underpaid the associated royalties. POGO had consulted with Richard A. Berman, a government economist, on issues related to the lawsuit, and asked him to join as a relator. Although Berman declined to join the lawsuit, POGO nevertheless gave him $383,600 of its $1.2 million share of the qui tam settlement as a “Public Service Award.”
The government filed a civil action against POGO and Berman in 2003, alleging that POGO’s payment to Berman was an illegal supplement to his government salary under 18 U.S.C. § 209, which forbids anyone other than the government from paying a government employee “as compensation for” the employee’s government work, and prohibits government employees from receiving such payments. The government prevailed in the district court twice, and twice the judgment was reversed in the Court of Appeals. In the first appeal, after summary judgment was granted for the government, the court held a genuine issue of fact existed as to whether POGO’s payment to Berman was made “as compensation for his services as an . . . employee of the executive branch.” United States v. Project on Gov’t Oversight, 454 F.3d 306, 313 (D.C. Cir. 2006). In the second appeal, after a jury verdict for the government, the court held that the jury instructions failed to require the government to show that the parties to the transaction intended that the payment be for official government work, which is also an element of a § 209 violation. United States v. Project on Gov’t Oversight, 616 F.3d 544, 557 (D.C. Cir. 2010).
On remand, Berman moved for summary judgment, arguing among other things that the POGO money was compensation for whistleblowing, which Berman argued cannot, as a matter of law, be part of an employee’s duties. The district court disagreed, holding that “‘whistleblowing’ in the broad sense that Berman uses it often is part of an employee’s job.” Because “Berman was assigned to analyze policy issues—potentially including fraudulent behavior by regulated entities—that were relevant to the mission of the Department of the Interior,” the court reasoned that his job duties “could have included whistleblowing, and a payment for whistleblowing could thus have been compensation for his government services.” United States v. Project on Gov’t Oversight, 839 F. Supp. 2d 330, 341 (D.D.C. 2012).
The government moved for summary judgment on a breach of fiduciary count, which the court granted, finding that Berman had accepted an interest in the qui tam litigation while performing government work that could have affected POGO lawsuits, without disclosing such interest to his government employer. Rejecting Berman’s defense that he could not have breached his duty to the United States because its interests were aligned with POGO, the court reaffirmed that the interests of qui tam relators are different from the government because they “are motivated primarily by the prospect of monetary rewards rather than the public good.” Id. at 353.
After the case proceeded to a mistrial last month, the government dropped its suit against POGO. Berman has indicated his intent to appeal the grant of summary judgment on the government’s breach of fiduciary duty claim, so it appears that the litigation is not quite finished.
Although not directly involving a government whistleblower seeking an award as qui tam relator, the POGO litigation provides an interesting parallel to those cases disqualifying as a relator, under the public disclosure bar, a government employee whose job responsibilities included the reporting of government fraud. E.g. United States ex rel. Fine v. Chevron, U.S.A., Inc., 72 F.3d 740 (9th Cir. 1995).