* Circuit Judge of the Eighth Circuit, sitting by designation.

Revised May 23, 2000

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

 

No. 98-11483

 

UNITED STATES OF AMERICA,

Plaintiff-Appellant,

versus

UNITED STATES OF AMERICA,

ex relatione, PETER JENSEN THORNTON,

Relator-Appellee,

versus

SCIENCE APPLICATIONS INTERNATIONAL 

CORPORATION; BENDIX FIELD 

ENGINEERING CORPORATION, 

A Division of Allied Signal 

Aerospace Company; LLOYD ELECTRIC 

COMPANY, INC.,

Defendants.

 

Appeal from the United States District Court

for the Northern District of Texas

 

March 28, 2000

Before POLITZ, JOHN R. GIBSON,* and HIGGINBOTHAM, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

This appeal presents the issue of how to value a False Claims

Act settlement when the settlement includes both cash and released

claims against the government. The government appeals the district

court’s determination that the award of the qui tam relator, Peter
2

Thornton, should be calculated using both the cash value of the

settlement and the court’s estimate of the value of the defendants’

released contractual claims against the government. We conclude

that ordinarily the value of such released claims shall be added to

any cash paid to the government in settlement for purposes of

calculating the sum due the informant under the statute. The

amount of such released claims shall be included when the released

claims are part of the bargain of the settlement and are not so

intertwined with the subject of the False Claims Act cause of

action so as to present the equivalent of a compulsory

counterclaim. We VACATE the award and REMAND, however, so that the

district court may develop a record of how it determined that

value.

I

Peter Thornton filed a False Claims Act (“FCA”) suit against

several defendants relating to the installation of a government

security system. The government opted to participate in the suit

and settled with each of the defendants. The settlement included

$230,000 in cash from the three defendants combined, the release of

contractual claims the defendants had against the government, which

they claimed had a value of $1.6 million, and the transfer of the

system’s software code to the government.

Thornton challenged the adequacy of the settlement, triggering

the FCA’s statutory fairness hearing. At that hearing, Thornton

argued that the settlement did not take into account several
3

additional incidents of fraud. The district court, which at that

time had not seen the settlement agreement, conditionally approved

the settlement and rejected Thornton’s objections. The court noted

in passing that the parties had settled the defendants’ claims as

part of the settlement, but apparently this aspect was not a focus

of the hearing. The court set a second hearing to determine

Thornton’s share.

In his briefing for the second hearing, Thornton argued that

the total value of the settlement should take into account the

defendants’ administrative claims released by the government. He

argued that the face value of the released claims should be added

to the cash value of the settlement for a total of $1.83 million.

He also argued that the software code had value to the settlement.

The government contended that neither the released claims nor the

software code should be considered part of the value.

The district court held that the released claims should be

included but held that the software code was collateral to the

settlement: its transfer had been provided for in the original

contract, and its mention in the settlement agreement was simply

for the parties’ convenience. The parties dispute the procedure by

which the district court arrived at its valuation of the released

claims. Thornton reports that the district court examined

documents withheld by the government as privileged in camera,

including the contract documents, change orders, claims of the

defendants, and the government’s investigative report. The
1See United States ex rel. Hall v. Teledyne Wah Chang Albany,

104 F.3d 230, 233 (9th Cir. 1997).

2See 31 U.S.C.§ 3730(b)(1) (1999).

3See § 3730(b)(2).

4

government contends that the court simply split the face value of

the claims in half. The record before us sheds no light on what

procedure was used. The district court held that even if the value

of the defendants’ claims was half their face value, or $800,000,

Thornton was entitled to all of the cash proceeds of the settlement

if his share was 22.33 percent. 

The court entered final judgment, at which point the

settlements were accepted. The government appealed, claiming that

the value of the released claims should not have been included,

that the district court and Thornton were bound by their positions

at the first hearing, and that the valuation of the released claims

was clearly erroneous.

II

The qui tam provisions of the False Claims Act create

incentives for potential whistle blowers to assist the government

to discover fraud against the taxpayers.1 The FCA allows a private

citizen with special knowledge of fraud against the government to

commence suit in the name of the government.2 The government may

intervene in the action or allow the qui tam relator to proceed

with the suit alone.3 If the government intervenes, it may settle

the case over the relator’s objections as long as the settlement is
4See § 3730(c)(2)(B).

5See id.

6See § 3730(d)(1).

5

fair, adequate and reasonable.4 The relator may request a hearing

to review the fairness of the settlement.5

Upon settlement, the relator receives between 15 and 25

percent “of the proceeds of the action or settlement of the claim,”

depending on the value of his contribution to the recovery.6 We

first address whether the value of the defendants’ released claims

against the government should be included in the settlement for

purposes of calculating Thornton’s share. The parties agree that

the “proceeds” of an FCA settlement may include non-cash value,

such as the value of certain released claims. Certain principles,

however, confine when other settlements are relevant to the value

of the FCA settlement for purposes of determining the relator’s

share.

First, for the value of the released claims to be included,

there must be an indication that they were released in return for

the government’s release of the FCA claims. For example, in United

States ex rel. Burr v. Blue Cross & Blue Shield of Florida, Inc.,

the court stated that it would not consider the “sums received” by

the defendant in its settlement with the government and a third

party. Because the two settlements were paid separately, the
7882 F. Supp. 166, 169 (M.D. Fla. 1995).

8Such closely related claims correspond roughly to compulsory

counterclaims under the Federal Rules of Civil Procedure. See

FED.R.CIV.P. 13(a) (1999).

6

settlement of the defendants’ claims was not set off against the

value of the FCA settlement.7

Even if the different settlements are memorialized in a single

agreement, there may have been no exchange of releases. In

Thornton’s case, the district court found that the transfer of the

software code was not in return for the settlement of the FCA case

because the government’s contractual right to the code had not been

in dispute. The defendants’ claims against the government, in

contrast, were part of the bargain of the settlement. It is clear

from the settlement agreement and from the defendants’ statements

at the fairness hearing that the defendants’ claims were released

in exchange for the settlement of the FCA suit. 

Second, latent claims against the government may be so

intertwined with the government’s FCA claim that the FCA suit

triggers them as counterclaims.8 In such instances, the government

might well not have been exposed to liability had the FCA suit not

been brought. The resulting settlement in such cases represents

not so much a trading of valued claims but rather the sum total of

the value of the litigation to the government. To base the share

on the amount of released claims in this circumstance would leave
9We are not persuaded by the government’s argument that the

district court was barred from considering the issue at the

relator’s share hearing under the law of the case. The law of the

case speaks to reconsidering issues previously decided by the

court. Free v. Abbott Lab., Inc., 164 F.3d 270, 272 (5th Cir.

1999). It is not apparent that the district court decided the same

issue differently at the two hearings: at the first hearing, he

determined what amount was adequate to settle given the claims; at

the second hearing, he determined the value of the settlement for

purposes of calculating Thornton’s share. We are especially not

eager to preclude the second ruling when the government had not

provided the court with copies of the settlement agreement at the

first hearing.

7

the relator in a better position than the government, the entity on

whose behalf the suit was brought. 

In Thornton’s case, the released claims of the defendants do

not meet these circumstances. The defendants had already filed

their administrative claims by the time Thornton brought the FCA

suit. Thus, the value of the claims, stated by defendants as

having been part of the bargain of the settlement, is part of the

value of the settlement in determining Thornton’s share of the

total proceeds.

III

We turn to the procedural questions of how the valuation

should occur for purposes of determining the relator’s share. The

government contends that the valuation of the settlement must be

made at the fairness hearing before the settlement is finalized.9

Here, Thornton first raised the issue of the released claims when

the district court determined the relator’s share. 
10The value of some non-cash proceeds, such as the government’s

release of potential criminal liability or the defendant’s

agreement to provide additional services in the future, may not be

ascertainable. Where no reasonable valuation is possible, it

cannot be taken into account in calculating the relator’s share.

8

Under normal circumstances, the value of non-cash proceeds

should be determined before the district court approves the FCA

settlement. This sequence allows the government to withdraw from

a global settlement whose net cash value, after subtracting the

relator’s share, the government deems too minimal. To achieve this

end, a district court is free to advise the relator that the total

value of the settlement will be determined when the court

ascertains the fairness of the settlement, and that the relator

must raise any objections at the fairness hearing. Such an

approach also allows the court to evaluate the total value relative

to the strength of the FCA claims, rather than in a vacuum, and

allows the possibility of a single proceeding.

This approach does not prejudice the relator as long as he and

the court are on notice of the components of the settlement and the

government’s estimate of any non-cash proceeds. The government has

a duty to advise the relator of the value of the settlement at the

time it notifies him that it intends to settle the case, and this

representation should include the government’s estimate of the

value of non-cash proceeds. Especially in cases such as this one,

in which the face value of the defendants’ claims is significant,

the government will have a rough idea of the claims’ value.10 
11 See United States v. General Elec., 808 F. Supp. 580, 583-

84 (S.D. Ohio 1992); Marc S. Raspanti & David M. Laigaie, Current

9

Here, the relator received no estimate of the government’s

valuation of the released claims and was not advised that he must

object to that value at the fairness hearing. Thornton was thus

free to contest the value assigned by the government in his request

for a share of the proceeds. It is unclear from the record,

however, how the district court undertook to value the released

claims: the opinion gives no explanation as to how the amount was

reached, and the documents on which Thornton claims the court

relied are not before us. We thus must remand for fuller

development of the record. 

On remand, the government should provide the district court

with an estimate of the released claims and documentation

supporting that estimate. As the relator is unlikely to have much,

if any, information as to the value of such claims, he should be

allowed access to as much as possible of the documentation.

Ultimately, he bears the burden of disproving the government’s

estimate of value. 

We note that this inquiry should not balloon into extensive

collateral litigation. It comes as no surprise that while the

government and relator have litigated on the same side, their

interests diverge when it comes time to pay the relator’s share.

The government has not always been magnanimous to its relators at

the end of the day.11 They cannot easily part ways at this stage,
Practice & Procedure Under the Whistleblower Provisions of the

Federal False Claims Act, 71 TEMP. L. REV. 23, 47-53 (1998). 

10

however: the relator must rely to some extent on the government to

report in good faith the fruits of their joint efforts.

VACATED AND REMANDED.