IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

 

No. 94-30545

 

FEDERAL RECOVERY SERVICES, INC.,

United States, ex rel., ET AL.,

Plaintiffs-Appellants,

and

MICHAEL H. PIPER, III and LOUIS R. KOERNER, JR.,

Movants-Appellants,

versus

UNITED STATES OF AMERICA,

Intervenor-Appellee,

and

CRESCENT CITY E.M.S., INC.,

dba Medic One, ET AL.,

Defendants-Appellees.

 

Appeal from the United States District Court

for the Eastern District of Louisiana

 

December 22, 1995

Before REYNALDO G. GARZA, KING, and HIGGINBOTHAM, Circuit Judges.

HIGGINBOTHAM, Circuit Judge:

This case came with a host of issues attending the question

whether Federal Recovery Services, Inc. or Michael Boatright, a

minority shareholder of FRS, was a proper party under the False

Claims Act, 31 U.S.C. § 3729 et seq. Following oral argument, FRS
2

settled with the United States for a substantial sum, and the

parties agreed to dismiss most of the claims arising in this

appeal. FRS's attorneys claim attorneys' fees and expenses under

the False Claims Act, 31 U.S.C. § 3730(d), in addition to the

substantial fees paid from the settlement proceeds. We are

persuaded that FRS lacked standing to prosecute a claim under the

False Claims Act and that the district court never had jurisdiction

over it. FRS's effort to "amend" and substitute a minority

shareholder after the government had intervened was not effective.

We affirm the order of the district court dismissing the claim.

I.

On October 8, 1990, Priority E.M.S. sued its competitor,

Crescent City E.M.S., Inc., in Louisiana state court, alleging that

Crescent City was engaging in unfair trade practices by filing

fraudulent claims for reimbursement for ambulance services rendered

to individuals not needing them.

On November 7, 1991, the president of Priority E.M.S., Michael

Boatright, and his attorneys, Michael Piper and Louis Koerner,

incorporated Federal Recovery Services, Inc. The attorneys control

a majority of the corporation's stock under a subscription

agreement, although shares were not formally issued. They also

served as directors and officers in the corporation.

On November 12, 1991, FRS filed a sealed complaint attempting

to state a claim in the name of the United States of America

against Crescent City E.M.S., Inc., Blue Cross & Blue Shield of
 

1 The United States elected to intervene in that portion

of the suit against Crescent City and the individual defendants

but declined to intervene against Blue Cross & Blue Shield of

Arkansas. Although the United States' intervention vested it

with control of the litigation against Crescent City, FRS

retained the authority to proceed against Blue Cross on its own. 

31 U.S.C. § 3730(b)(4)(B). 

3

Arkansas, and other individual defendants. The complaint alleged

that, beginning in January 1989, Crescent City submitted claims

seeking reimbursement for the transportation of dialysis patients

who were ineligible under Medicare and Medicaid regulations for

ambulance services. In particular, FRS alleged that Medic One

provided ambulance transportation for Urban Chastant and 13 other

individuals, even though their medical conditions did not require

such service.

On March 1, 1993, the United States filed a notice of its

partial election to intervene in the action pursuant to 31 U.S.C.

§ 3730(b)(4).1 The following day, the district court ordered the

complaint unsealed and served upon Crescent City, Blue Cross, and

the individual defendants. In addition, the district court's order

provided that "the United States shall have 30 days from the date

of this order in which to file an amended complaint." Despite this

order, on March 3, 1993, over two-and-one-half years after filing

the complaint, FRS filed its First Amended Complaint naming Michael

Boatright as an additional relator and alleging additional

instances of fraudulent conduct by Crescent City. This amended

complaint purported to invoke Rule 15(a) of the Federal Rules of

Civil Procedure.
4

On June 2, 1993, Crescent City moved to dismiss FRS for lack

of subject matter jurisdiction. Crescent City argued that FRS was

not entitled to bring this action because the facts underlying the

complaint had been previously disclosed in the prior Louisiana

state court litigation and that FRS was not the original source of

that information. In addition, Crescent City argued that Michael

Boatright was improperly joined as a party plaintiff.

Attempting to cure the jurisdictional defect identified by

Crescent City, on August 3, 1993, FRS and Boatright filed a motion

to substitute Boatright for FRS as the relator. On August 12,

1993, the district court granted Crescent City's motion to dismiss

FRS for lack of subject matter jurisdiction. The court, construing

FRS's first amended complaint filed on March 3, 1993 as a motion

for leave to amend its complaint, rejected FRS's attempt to add

Boatright as an additional relator. On August 30, 1993, the

district court confirmed its August 12th ruling and issued its

memorandum explaining the ruling.

With FRS and Boatright out of the picture, the United States

proceeded with the litigation against Crescent City and prepared

the case for trial. Before trial, the United States and Crescent

City reached a settlement in which Crescent City agreed to pay over

$1.8 million, and, on August 2, 1994, both joined in filing a

stipulation of dismissal pursuant to Rule 41(a)(1)(ii). That same

day, almost a year after they had been dismissed from the case, FRS

and Boatright filed a motion for reconsideration of the district

court's August 30, 1993 ruling. In addition, FRS filed a motion to
 

2 On April 23, 1993, Blue Cross had filed a motion to

dismiss FRS's claim for lack of subject matter jurisdiction. The

district court had granted this motion on August 13, 1993, and

the final judgment dismissed the claims against Blue Cross. FRS

and Boatright did not appeal from that portion of the judgment

dismissing the claims against Blue Cross.

5

strike the stipulation of dismissal. Prompted by FRS's actions,

the United States filed a motion to dismiss the suit pursuant to

Rule 41(a)(2) on September 9, 1994.

While the motion for reconsideration was pending, on August

30, 1994, FRS's attorneys, Louis Koerner and Michael Piper, both

filed motions for award of attorneys' fees summing to $190,000. On

September 21, 1994, the district court denied FRS's motion for

reconsideration, holding that "[n]o argument or authority cited in

support of FRS's Motion for Reconsideration . . . has given this

Court cause or pause to question its prior ruling." Moreover, the

court noted that FRS's and Boatright's attempt to reenter the

litigation at this stage in the litigation--on the eve of the

settlement of suit--were particularly unwelcome.

Turning to the motion for attorneys' fees, the district court

ruled that FRS's attorneys were not entitled to fees because FRS

was not a proper party to the litigation. In addition, the court

noted that there had been no finding that Crescent City violated

the False Claims Act. Accordingly, the district court entered its

judgment on September 23, 1994, dismissing the claims against

Crescent City and the individual defendants.2

FRS, Boatright, and FRS's attorneys timely appealed to this

court, contesting the propriety of the district court's orders
6

dismissing FRS, denying FRS leave to add Boatright as an additional

relator, and denying attorneys' fees for FRS's attorneys, Koerner

and Piper.

After oral argument, the United States negotiated a settlement

agreement with FRS, Boatright, and the two attorneys. Pursuant to

the settlement agreement, the United States agreed to pay Boatright

$186,250, 10% of the proceeds of its recovery from Crescent City.

The agreement contemplated that Boatright, Koerner, and Piper would

share in the proceeds of this settlement. In return, FRS,

Boatright, and the attorneys released their claims against the

United States. The agreement expressly provided, however, that it

did not affect the right of FRS and its attorneys to pursue this

appeal for the purposes of challenging the district court's denial

of an award of attorneys' fees and expenses against Crescent City.

II.

31 U.S.C. § 3730(d)(1) provides that qui tam relators shall

receive, in addition to any share of the proceeds of the litigation

or settlement of the underlying qui tam action, "an amount for

reasonable expenses which the court finds to have been necessarily

incurred, plus reasonable attorneys' fees and costs," such

expenses, fees, and costs to be awarded "against the defendant."

Only those parties that are properly a part of the qui tam action

are statutorily entitled to the award of attorneys' fees and

expenses. United States ex rel. Taxpayers Against Fraud v. General

Electric Co., 41 F.3d 1032, 1044 (6th Cir. 1994) (noting that
7

attorneys for qui tam relator who has no standing are not entitled

to attorneys' fees). Thus, Koerner's and Piper's statutory

entitlement to attorneys' fees depends in the first instance upon

their client's status as a party in the case. We hold that FRS was

not a proper party to this litigation and that therefore FRS's

attorneys, Koerner and Piper, are not entitled to attorneys' fees

and expenses.

A.

31 U.S.C. § 3730(e)(4)(A) limits the subject matter

jurisdiction of courts adjudicating qui tam actions under the False

Claims Act. It provides:

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, of 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.

Following the statutory framework, we ask 1) whether there has been

a "public disclosure" of allegations or transactions, 2) whether

the qui tam action is "based upon" such publicly disclosed

allegations, and 3) if so, whether the relator is the "original

source" of the information. Cooper v. Blue Cross & Blue Shield of

Florida, Inc., 19 F.3d 562, 565 n.4 (11th Cir. 1994).

The filings in the Louisiana state court suits brought by

Priority E.M.S. were "public disclosures" within the meaning of the

statute. "[A]ny information disclosed through civil litigation and

on file with the clerk's office should be considered a public
8

disclosure of allegations in a civil hearing for purposes of

section 3730(e)(4)(A)." United States ex rel. Siller v. Becton

Dickinson & Co., 21 F.3d 1339, 1350 (4th Cir.), cert. denied, 115

S.Ct. 316 (1994). This includes civil complaints. Id. at 1350-51.

In October 1990, more than a year prior to the filing of this

qui tam action, Priority E.M.S. filed two different complaints

against Crescent City in Louisiana state court, both alleging that

Crescent City submitted fraudulent claims for reimbursement for

ambulance services provided to individuals who were not medically

eligible for those services. See Priority E.M.S., Inc. v. Crescent

City E.M.S. d/b/a Medic One and Medic One Inc., No. 90-19542 (La.

Civ. Dist. Ct.), remedial writ denied, 607 So.2d 559 (La. 1992),

cert. denied, 646 So.2d 380 (La. 1994); Priority E.M.S., Inc. v.

Crescent City E.M.S., Inc. d/b/a Medic One, Inc. and Medic One, No.

64-668 (Jud. Dist. Ct.), remedial writ denied, 600 So.2d 660 (La.

1992). These complaints were a matter of public record and, as

such, constitute public disclosures.

FRS's qui tam action is "based on" these public disclosures.

Wang v. FMC Corp., 975 F.2d 1412, 1415 (9th Cir. 1992). FRS has

conceded as much, noting in its Motion to Partially Lift Seal filed

on August 10, 1992 that "[t]he claim of Priority E.M.S., Inc.

against Crescent City E.M.S. for unfair trade practices is based

upon the same factual matters as the claim against Crescent City

E.M.S., Inc. in this proceeding." FRS now contends that its qui

tam action is not based on the prior Louisiana state court

litigation because only one instance of fraud--that involving Urban
9

Chastant--is common to both the state and federal litigation. FRS

presses that its investigation unearthed additional instances of

fraudulent conduct by Crescent City that were not a part of the

earlier, state court litigation. We are not persuaded.

"[A]n FCA qui tam action even partly based upon publicly

disclosed allegations or transactions is nonetheless 'based upon'

such allegations or transaction." United States ex rel. Precision

Co. v. Koch Industries, Inc., 971 F.2d 548, 552 (10th Cir. 1992)

(Koch I), cert. denied, 113 S.Ct. 1364 (1993); see also Cooper, 19

F.3d at 567 (holding that 31 U.S.C. § 3730(e)(4) "preclude[s] suits

based in any part on publically disclosed information"). As the

Tenth Circuit acknowledged, Congress chose not to insert the adverb

"solely" before "based upon," yet to hold as FRS urges would

accomplish exactly that result and alter the statute's plain

meaning. Koch I, 971 F.2d at 552. Stated another way, FRS cannot

avoid the jurisdictional bar simply by adding other claims that are

substantively identical to those previously disclosed in the state

court litigation.

B.

Nor does FRS qualify as an "original source" immune to the

jurisdictional bar of 31 U.S.C. § 3730(e). The False Claims Act

defines an "original source" as "an individual who has direct and

independent knowledge of the information on which the allegations

are based and has voluntarily provided the information to the

Government before filing an action under this section which is

based on the information." 31 U.S.C. § 3730(e)(4)(B).
10

In Koch I, the Tenth Circuit rejected a virtually identical

claim. There, Precision Company filed a qui tam action against

Koch Industries, Inc., alleging that Koch had been understating the

amount of crude oil and natural gas it had produced from federal

lands. Precision had obtained the information regarding Koch's

conduct from Precision's majority shareholder, William Koch, and

its president, William Presley. Nevertheless, the Koch I court

held that Precision was not the original source of the information

that Koch and Presley had collected prior to Precision's

incorporation. 971 F.2d at 554 (noting that "Precision is the qui

tam plaintiff in the present action, not William Koch or William

Presley").

There is no suggestion that this litigation is based upon

information collected by FRS. To the contrary, like Precision, FRS

was not incorporated until well after Priority E.M.S. had

investigated Crescent City's conduct and filed the state court

suits against Crescent City. See id. (finding that Precision did

not come into existence as corporate entity until well after

related state court litigation had been commenced). Indeed, FRS

was incorporated only days before this qui tam action was filed.

FRS responds that, even if it is not the original source of

the information collected prior to its incorporation, it is the

original source of that information obtained after its

incorporation. FRS presses that it undertook a substantial amount

of investigative work, work that disclosed additional fraudulent
11

conduct by Crescent City and that significantly enhanced the value

of the litigation to the United States.

The Tenth Circuit in Koch I rejected an identical argument,

holding that Precision was not the original source of the

information that Koch and Presley obtained after Precision's

incorporation. The court concluded that "this information is best

characterized as a continuation of, or derived from Mr. Presley's

and Mr. Koch's individual investigations." 971 F.2d at 554.

Comparing the information obtained by Koch and Presley prior to

Precision's incorporation with that obtained after its

incorporation, the court noted that the latter information was

"weak, informal and strikingly redundant." Id.

FRS's status in this litigation differs from Precision's

status in Koch I in no meaningful way. FRS never demonstrates that

the work that it performed unearthed qualitatively different

information than what had already been discovered. Rather, as FRS

concedes, FRS participated in this litigation solely as the nominal

plaintiff-relator. Indeed, FRS was incorporated with the express

purpose of pursuing qui tam litigation based on the information

that others, either Priority E.M.S. or Boatright, had already

obtained. Any information collected after FRS's incorporation was

the product and outgrowth of the information that others had

obtained prior to FRS's incorporation. In short, FRS had no
 

3 Nor did FRS demonstrate that it "has voluntarily

provided the information to the Government before filing an

action." 31 U.S.C. § 3730(e)(4)(B). Although not impossible, it

is highly unlikely that FRS contacted the government during the

5-day time span between FRS's incorporation and the filing of

this suit.

12

"direct and independent" knowledge of the information upon which

this qui tam action is based.3

Finally, FRS attempts to end-run the "original source" inquiry

by arguing that the United States' intervention in the action cured

any jurisdictional defect. According to this reading of 31 U.S.C.

§ 3730(e)(4), that section bars qui tam actions based on publicly

disclosed information unless the plaintiff is the original source

or unless the United States intervenes.

The United States may properly intervene in a suit by a

putative source regardless of jurisdictional failures in the

underlying suit. United States v. Pittman, 151 F.2d 851 (5th Cir.

1945), cert. denied, 328 U.S. 843 (1946). Such intervention does

not, however, confer subject matter jurisdiction over the relator's

claims. Such a reading of the jurisdictional bar of 31 U.S.C.

§ 3730(e)(4) ignores the False Claims Act's goal of preventing

parasitic suits based on information discovered by others. Indeed,

under FRS's interpretation, the United States' intervention would

cure the jurisdictional defects in all suits, even those brought by

individuals who discovered the defendant's fraud by reading about

it in the morning paper. The legislative history and policy behind

the Act refute such a reading.
13

Nor does our interpretation of 31 U.S.C. § 3730(e)(4) render

ineffective that portion of 31 U.S.C. § 3130(d)(1) that provides

for the award to the relator of up to 10% of the proceeds of the

action where the action was "based primarily on disclosures of

specific information." The legislative history discloses that

Congress included that provision to provide for "the case where the

information has already been disclosed and the person qualifies as

an 'original source' but where the essential elements of the case

were provided to the government or news media by someone other than

the qui tam plaintiff." 132 Cong. Rec. H9389 (statement of Rep.

Berman); see also 132 Cong. Rec. S11244 (statement of Sen.

Grassley). We hold that 31 U.S.C. § 3730(e)(4) bars FRS from

pursuing this qui tam litigation.

III.

FRS also argues that, even if it cannot pursue this

litigation, Michael Boatright can. In this vein, FRS contends that

the district court erred in denying its attempt to amend its

complaint to name Boatright as an additional relator and in denying

FRS's attempt to substitute Boatright as the relator. We disagree.

31 U.S.C. 3730(e)(4) denies subject matter jurisdiction over

the qui tam complaint filed by FRS. Under precedent controlling

the panel, neither Rule 15 nor any other rule of civil procedure

permit FRS to cure this jurisdictional defect by including or

substituting Boatright. In Aetna Casualty & Surety Co. v. Hillman,

796 F.2d 770, 774 (5th Cir. 1986), we held that Rule 15 does not
14

permit a plaintiff from amending its complaint to substitute a new

plaintiff in order to cure the lack of subject matter jurisdiction.

See also Summit Office Park, Inc. v. United States Steel Corp., 639

F.2d 1278, 1282 (5th Cir. Unit A Mar. 1981) (holding that "where a

plaintiff never had standing to assert a claim against the

defendants, it does not have standing to amend the complaint and

control the litigation by substituting new plaintiffs"). We see no

difference between FRS's attempt to remedy the lack of subject

matter jurisdiction in this case from that rejected in Hillman.

We recognize that the Tenth Circuit in United States ex. rel.

Precision Co. v. Koch Industries, Inc., 31 F.3d 1015, 1019 (10th

Cir. 1994) (Koch II), held that a qui tam relator over whom the

district court does not have subject matter jurisdiction may amend

its complaint to include a proper relator. The Tenth Circuit

dismissed the analysis of Judge Ainsworth in Summit Office Park as

a "technical position" that was "subject to the equally technical

response that at the time the amended complaint was filed no

determination of standing had been made." Id.

We do not take such a sanguine view of the federal courts'

limited subject matter jurisdiction. That FRS sought to include

Boatright as a relator prior to the district court dismissing it

from this suit is of no moment. In Hillman, we rejected Aetna's

attempt to substitute USF&G as plaintiff, even though Aetna filed

its amended complaint prior to the district court's determination

that there was no subject matter jurisdiction over Aetna's claims.

In short, regardless of when the district court actually determines
15

it lacks subject matter jurisdiction over the original plaintiff,

"Rule 15 . . . do[es] not allow a party to amend to create

jurisdiction where none actually existed." Hillman, 796 F.2d at

776.

Koerner and Piper created FRS only days before filing this

suit. Its sole, corporate purpose was to prosecute this suit.

Koerner and Piper controlled the corporation. Michael Boatright,

the alleged original source of the information underlying this

suit, held less than half of its shares. Koerner and Piper contend

that they created FRS to protect Boatright's safety, but that

contention is belied both by the attorneys' control over FRS and by

the fact that the state court litigation had already disclosed

Boatright's identity. FRS's origins and capital structure suggest

that the attorneys created FRS to control the proceeds of this

litigation. The attorneys by-passed a suit by Boatright, their

client, in favor of an entity they controlled. It was only a year

later, when confronted by the reality that the district court had

no jurisdiction over the claims of FRS and after the government had

intervened under the statute, that Koerner and Piper attempted to

sue on behalf of their client. Neither the record before us nor

the oral argument of counsel offer any other credible explanation.

We are sensitive to the reality that Congress allows cupidity

of counsel and client to effectuate congressional goals. Most

private attorneys-general litigation does so as well. That said,

even here there are limits. Under the statutory scheme before us,

there is a right to reasonable attorneys' fees, but the statute did
16

not dispense with the tradition that a lawyer must represent his

client's interest, not his own. The attorneys' effort to control

Boatright by creating FRS overreached, and the resulting loss of

counsel fees is its price. This is not a gratuitous observation.

Rather, it is to explain that while the law of standing in this

circuit dictates the result in this case, it works no "technical"

or unfair result.

IV.

Neither FRS nor Boatright were proper parties to this qui tam

litigation. Their attorneys, Koerner and Piper, are not

statutorily entitled to attorneys' fees and expenses. We AFFIRM

the judgment of the district court.