On July 5, 2019, the D.C. Circuit affirmed the dismissal of a qui tam lawsuit against several chemical manufacturers alleging that they violated the False Claims Act by failing to pay civil penalties owed under the Toxic Substances Control Act, 15 U.S.C. §§ 2601 (1976) (“TSCA”) for the manufacturers’ repeated failures to report “information regarding the dangers of isocyanate chemicals” to the EPA. The law firm Kasowitz Benson Torres LLP, which is the relator in the case, urged the D.C. Circuit “to become the first court to recognize FCA liability based on the defendants’ failure to meet a TSCA reporting requirement and on their failure to pay an unassessed TSCA penalty.” The D.C. Circuit declined that invitation.
With Judge Brett Kavanaugh seemingly headed toward confirmation to replace Justice Anthony Kennedy on the Supreme Court, readers of this blog may be interested in his prior cases addressing the False Claims Act. A judge on the United States Court of Appeals for the D.C. Circuit for over a decade, Judge Kavanaugh has been described as a conservative textualist and a “stalwart originalist,” more in line with the late Justice Antonin Scalia than swing vote Justice Kennedy, for whom Kavanaugh clerked alongside recently appointed Justice Neil Gorsuch in 1993-1994, and whom he would replace if confirmed. (more…)
In United States ex rel. McBride et al. v. Halliburton Co. et al., No. 15-7144, 2017 WL 655439 (D.C. Cir. Feb. 17, 2017), the D.C. Circuit affirmed a district court’s summary judgment in favor of several FCA defendants because the Relator failed to show their alleged misrepresentation was “material to the Government’s decision to pay,” as required by the Supreme Court’s decision in Escobar.
In a recent opinion by Judge Wilkins, the D.C. Circuit affirmed the dismissal of a qui tam action against Phillip Morris, United States ex rel Oliver v. Phillip Morris USA, Inc., No. 15-7049 (D.C. Cir. June 21, 2016), with two key holdings that will help FCA defendants in future cases. Specifically, the Court adopted an expansive reading of the FCA’s public disclosure bar and a stringent “original source” requirement.
The D.C. Circuit recently issued another opinion in a case that we have followed closely, In re Kellogg Brown & Root, Inc., No. 14-5319 (D.C. Cir. Aug. 11, 2015). For the second time, the D.C. Circuit granted a writ of mandamus to address the district court’s ruling that the defendant had waived privilege—and for the second time, the D.C. Circuit has vacated the district court’s orders to produce documents in connection with the results of an internal investigation into potential FCA claims because the orders “would erode the confidentiality of an internal investigation in a manner squarely contrary to the Supreme Court’s guidance in Upjohn and [the Court’s] prior decision in this case.” Slip Op. at 23.
Posted by Ellyce Cooper and Patrick Kennell
The ongoing saga regarding privilege and work product issues continues in United States ex rel. Barko v. Halliburton Co., No. 05-cv-1276 (D.D.C. 2005). (Our previous blog posts on the case can be found here, here, and here.) As we previously reported, in June of 2014, the D.C. Circuit ordered the lower court to reconsider its order that Halliburton turn over to the relator the results of an internal investigation. The D.C. Circuit held that “[s]o long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, the attorney-client privilege applies, even if there were also other purposes for the investigation.” In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014) (emphasis added). However, the court directed the District Court to examine the other reasons advanced by the relator as to why the documents at issue were “not covered by either the attorney-client privilege or the work product doctrine.” Id. at 764.
Posted by Nicole Ryan and Sarah Hemmendinger
In a December 2, 2014 opinion in United States ex rel. Doe v. Staples, Inc., No. 13-7071 (D.C. Cir. Dec. 2, 2014), the D.C. Circuit affirmed the dismissal of a relator’s FCA action under the public disclosure bar because the facts underlying the claim were already in the public domain through an online database and administrative reports.
This qui tam action arose out of the alleged importation of Chinese-made pencils to the United States. An anonymous relator, “a self-styled pencil-industry insider,” alleged that Staples, OfficeMax, Target, and Industries for the Blind made false statements to U.S. Customs in order to avoid paying antidumping duties imposed on Chinese-made pencils. The relator claimed that the defendants knowingly purchased Chinese-made pencils yet falsely declared to Customs that the pencils originated in countries other than China.
The government declined to intervene, and the defendants moved to dismiss for lack of subject matter jurisdiction and for failure to state a claim. The district court concluded that the relator’s FCA claim was based on publicly disclosed information and that he failed to show that he qualified as an original source of the information. Thus, it dismissed the case for lack of subject matter jurisdiction. The D.C. Circuit affirmed.
The court began by reviewing the principles it outlined in United States ex rel. Springfield Terminal Railway v. Quinn, 14 F.3d 645 (D.C. Cir. 1994). The court reiterated that where both elements of a fraudulent transaction – “the misrepresentation and the truth of the matter” – are already in the public domain, the public disclosure bar applies. This is the case even if a relator sets forth “additional evidence incriminating the defendant.” Here, both parties agreed that the Customs declarations were the alleged misrepresentations and that these statements were publicly disclosed in an online database. The appeal therefore turned on whether “the truth of the matter” – the question of whether the pencils “actually were made in China” – was also in the public domain. The D.C. Circuit agreed with the defendants on this point, finding that public reports by the International Trade Commission (“ITC”), which constituted administrative reports under the FCA, had already described many of the distinguishing physical characteristics of Chinese pencils (such as off-center leads and inferior finishing), which “form[ed] the basis of Relator’s charge that the pencils were made in China.”
The court rejected the relator’s argument that the public disclosure bar did not apply because his complaint identified distinctive features of Chinese-made pencils in addition to those listed by the ITC. The court explained that the information on the characteristics of Chinese-made pencils already in the public sphere was sufficient to “set government investigators on the trail of fraud.” Likewise, the court rejected the relator’s argument that his allegations concerning the pencils’ telltale characteristics were intended to show only the element of knowledge on the part of the defendants, not that the pencils were in fact made in China. The court held that if these publicly-known features of Chinese pencils were sufficient to put the defendants on notice of the pencils’ origins, they were also “sufficient to enable the government adequately to investigate the case and to make a decision whether to prosecute.” The court also emphasized that the ITC reports stated that U.S. pencil makers had identified three of the four defendants – Staples, Target, and OfficeMax – as “possible” importers of Chinese pencils, concluding that this information, combined with the defendants’ declarations that their pencils were made only in countries other than China, likewise could “have alerted law-enforcement authorities to the likelihood of wrongdoing.”
Therefore, the court held, the relator’s suit was “based upon” publicly disclosed “allegations or transactions” within the meaning of the FCA’s public disclosure bar. The court concluded that it did not matter whether the ITC had conducted a physical inspection of the defendants’ pencils: the relator’s allegations stemmed from a conclusion about the pencils’ origins “based on their physical characteristics,” which were already publicly described through the ITC reports.
Finally, the court held that the relator had waived the argument that he qualified as an original source of the information because he did not raise the argument below.
A copy of the court’s decision can be found here.
Posted by Ellyce Cooper and Patrick Kennell
Last Friday, the D.C. Circuit issued an opinion in In re Kellogg Brown & Root, Inc., No. 14-5055 (D.C. Cir. June 27, 2014), reversing the much discussed privilege ruling in U.S. ex rel. Barko v. Halliburton Co., 1:05-CV-1276 (D.D.C. Mar. 6, 2014), a case we previously wrote about here and here. In reversing the District Court’s opinion, the Court of Appeals held that “[s]o long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, the attorney-client privilege applies, even if there were also other purposes for the investigation.” (Slip Op. at 7-8) (emphasis added).
As readers may recall, in Barko, the D.C. District Court applied a test that would only extend attorney-client privilege to documents if “the communication would not have been made ‘but for’ the fact that legal advice was sought” and required the defendant to turn over documents from a related internal investigation. (Slip Op at 3) (quoting United States ex rel. Barko v. Halliburton Co., No. 05-cv-1276, 2014 WL 1016784, at *2 (D.D.C. Mar. 6, 2014)). In applying this “but for” test to deny attorney-client protection for various documents, the District Court focused on the fact that the investigation was undertaken to comply with federal regulations and corporate policy and was conducted at the behest of in-house counsel as opposed to outside counsel. The district court’s ruling threatened to eliminate work product protection for investigative materials where there was arguably a non-litigation (business) purpose for conducting the investigation.
The D.C. Circuit rejected the trial court’s “but for” test and provided a straightforward test for the applicability of the attorney-client privilege in internal investigations: “Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?” (Slip Op. at 10). If so, the court of appeals held, work product protection applies.
Importantly, the Court stated that this test applies “regardless of whether an internal investigation was conducted pursuant to a company compliance program required by statute or regulation, or was otherwise conducted pursuant to company policy.” (Id.). The Court reasoned: “the District Court’s novel approach would eradicate the attorney-client privilege for internal investigations conducted by businesses that are required by law to maintain compliance programs, which is now the case in a significant swath of American industry.” (Slip Op at 9).
Moreover, the Court reaffirmed that the attorney-client privilege applies in internal investigations to both consultations with in-house and outside counsel. (Slip Op. at 6). The Court explained “the District Court noted that in Upjohn the interviews were conducted by attorneys, whereas here many of the interviews in [the company]’s investigation were conducted by non-attorneys. But the investigation here was conducted at the direction of the attorneys in [the company]’s Law Department. And communications made by and to non-attorneys serving as agents of attorneys in internal investigations are routinely protected by the attorney-client privilege.” (Id.)
Finally, it should be noted that the Court reaffirmed the longstanding maxim that “the attorney-client privilege ‘only protects disclosure of communications; it does not protect disclosure of the underlying facts by those who communicated with the attorney.'” (Slip Op. at 17-18) (quoting Upjohn Co. v. United States, 449 U.S. 383, 395 (1981)).
The relator has indicated that he will seek en banc review of the case. Stay tuned to Original Source for any additional updates on the case.
Posted by Scott Stein and Catherine Kim
We previously reported on the federal district court’s decision in U.S. ex rel. Shea v. Verizon Business Network Services, Inc. (“Verizon II“), which held that the FCA’s first-to-file rule barred a relator from filing a qui tam action based on his filing of an earlier related qui tam (“Verizon I“), despite the fact that the first-filed suit was no longer “pending.” Shea contended on appeal that the district court erred in dismissing Verizon II with prejudice since Verizon I was no longer pending when Shea filed his operative second amended complaint.
On April 11, 2014, the District of Columbia Circuit Court of Appeals upheld the district court’s dismissal in a 2-1 decision, adopting the position that the first-to-file bar applies an earlier-filed related suit, even after the original action is no longer “pending.” In so holding, the court expressly disagreed with contrary holdings by the Fourth, Seventh, and Tenth Circuits. See In re Natural Gas Royalties Qui Tam Litigation, 566 F.3d 956 (10th Cir. 2009); U.S. ex rel. Chovanec v. Apria Healthcare Grp., Inc., 606 F.3d 361 (7th Cir. 2010); U.S. ex rel. May v. Purdue Pharma L.P., 737 F.3d 908 (4th Cir. 2013).
After concluding that Verizon I and Verizon II were “related” within the meaning of the FCA, and that the first-to-file bar applied even when the relator in the earlier and later-filed qui tams was the same, the court proceeded to analyze the proper interpretation of the term “pending.” The court rejected Shea’s reading that the first-to-file bar ceases to apply after the first action is settled, in favor of a less temporal interpretation. Specifically, the court held that “the bar commences ‘when a person brings an action . . . ‘ and thence forth bars any action ‘based on the facts underlying the pending action.'”
The court reasoned that if Congress had intended to make the first-to-file bar temporal, it would have done so expressly as it has done in other contexts, such as barring certain actions in the Court of Federal Claims. The court also concluded that its reading “better suits the policy considerations undergirding the statute[,]” namely preventing duplicative suits once the government is on notice of the alleged fraud.
Circuit Judge Srinivasan dissented on this point, asserting that both a plain reading and the broader statutory context favored Shea’s interpretation that the first-to-file bar ceases to apply once the initial action is no longer pending. According to Judge Srinivasan, the FCA provision with “chief responsibility” for “weed[ing] out copycat actions” is the public disclosure bar, not the first-to-file bar.
It remains to be seen which of the competing approaches taken by the circuit courts will prevail, but we will continue to monitor this important issue and provide updates on any new developments. In the meantime, the D.C. Circuit’s decision provides significant protections for defendants by prohibiting relators from bringing suit when the government has already been put on notice of the relevant facts supporting the relator’s claims.
A copy of the circuit court’s opinion can be found here.
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).