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RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

ELECTRONIC CITATION: 2004 FED App. 0307P (6th Cir.)

File Name: 04a0307p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

_________________

J. HILTON BROOKS, III, M.D.,

Plaintiff-Appellant,

v.

UNITED STATES OF AMERICA,

Defendant-Appellee.

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No. 03-5610

Appeal from the United States District Court

for the Eastern District of Kentucky at London.

No. 01-00452—J. B. Johnson, Magistrate Judge.

Argued: August 5, 2004

Decided and Filed: September 10, 2004 

Before: KENNEDY, SUTTON, and COOK, Circuit

Judges.

_________________

COUNSEL

ARGUED: Philip E. Wilson, WILSON LAW OFFICE,

Lexington, Kentucky, for Appellant. Kenneth W. Rosenberg,

UNITED STATES DEPARTMENT OF JUSTICE,

Washington, D.C., for Appellee. ON BRIEF: Philip E.

Wilson, WILSON LAW OFFICE, Lexington, Kentucky, for

Appellant. Kenneth W. Rosenberg, Kenneth L. Greene,

2 Brooks v. United States No. 03-5610

UNITED STATES DEPARTMENT OF JUSTICE,

Washington, D.C., for Appellee.

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OPINION

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KENNEDY, Circuit Judge. The taxpayer, Dr. Hilton

Brooks, appeals the district court’s order granting summary

judgment to the United States, holding that no part of a qui

tam relator’s award granted under Section 3730(d) of the

False Claims Act is excludable from gross income under

Internal Revenue Code § 104(a)(2) because the award does

not constitute “damages received ... on account of personal

injuries” as § 104(a)(2) requires. We agree with the district

court, and AFFIRM.

BACKGROUND

The taxpayer, Dr. Hilton Brooks, was a physician on the

medical staff at Pineville Community Hospital, Pineville,

Kentucky, and was a member of the hospital’s quality

assurance committee. While carrying out his committee

duties, Dr. Brooks discovered what he determined to be

numerous billing improprieties by Pineville Community

Hospital and two physicians. Rather than correcting the

improprieties, the hospital rebuffed Dr. Brook’s efforts and

subjected him to a variety of retaliatory abuses. For instance,

he was pressured to cease investigating the fraudulent billing

practices and to relocate his practice elsewhere; he was

threatened with loss of clinical privileges; he was reviewed

“unfavorably” and advised that he would not be reappointed

to the medical staff; and he was criticized in the hospital

newsletter for having a “disruptive attitude.”

Pursuant to the qui tam provisions of the False Claims Act

(FCA), 31 U.S.C. § 3729 et seq., which allows individual

citizens to sue for fraud on behalf of the government and to
No. 03-5610 Brooks v. United States 3

receive part of the government’s recovery, Dr. Brooks filed an

FCA claim asserting that the hospital and two of its doctors

had submitted fraudulent Medicare and Medicaid bills to the

government for payment. Although the United States is

entitled to intervene in such a case, it initially declined to do

so here. Dr. Brooks litigated the action through discovery,

and trial was scheduled. At that point, the United States

opted to intervene.

Rather than proceed to trial, the defendants agreed to pay a

total of $2.5 million dollars to the United States to settle the

FCA action for fraudulent billing. In the settlement

agreement the defendants admitted that they had violated

numerous regulations governing various health careprograms

relating to payments for medical procedures. The district

court approved this settlement agreement and granted Dr.

Brooks a relator’s award of 25% of the net settlement amount

remaining after payment of attorney fees and reimbursable

costs. The net dollar amount of the qui tam award was

$210,067, which resulted in income tax of $78,607.

In addition, a separate settlement agreement was entered

into between Dr. Brooks, the hospital, and four doctors at the

hospital, to release them from any personal injury claims,

including claims for retaliation and defamation, that might

exist against them. The hospital paid Dr. Brooks the sum of

$300,000, which was expressly stated to be “damages

received on account of personal injuries within the meaning

of Section 104(a)(2).”

Dr. Brooks included the $210,067 relator’s award in his

gross income and timely paid $78,607 in income taxes on that

amount. He excluded from income the separate settlement of

$300,000 in compensatory damages for “personal injuries,”

with full disclosure to the IRS, and the IRS approved the

exclusion. He thereafter claimed a refund of the $78,607 tax

he paid on the relator’s award, asserting that at least part of

the award can be excludable from income under 26 U.S.C.

§ 104(a)(2) as damages received on account of personal

4 Brooks v. United States No. 03-5610

injuries. The IRS disallowed his claim for refund, and Dr.

Brooks filed suit in the district court seeking a refund of the

income tax he had paid on the qui tam relator award. After

the district court ruled in favor of the government, this appeal

followed.

 ANALYSIS

We review a grant of summary judgment de novo. Farhat

v. Jopke, 370 F.3d 580, 587 (6th Cir. 2004). Summary

judgment is appropriate when “the pleadings, depositions,

answers to interrogatories, and admissions on file, together

with the affidavits, if any, show that there is no genuine issue

as to any material fact and that the moving party is entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56(c). Both

parties agree that this case presents no issue of material fact

with respect to the issue of law presented.

The Internal Revenue Code broadly defines gross income

as “all income from whatever source derived.” 26 U.S.C.

§ 61(a). The Supreme Court has broadly construed and

repeatedly emphasized the sweeping scope of this section.

See Commissioner v. Schleier, 515 U.S. 323, 327 (1995); See

alsoCommissioner v. Glenshaw Glass Co., 348 U.S. 426, 429

(1955). The corollary to § 61(a)’s broad construction, the

Court has noted, is “that exclusions from income must be

narrowly construed.” Schleier, 515 U.S. at 328 (quoting

United States v. Burke, 504 U.S. 229, 248 (Souter, J.,

concurring in judgment)). The taxpayer’s qui tam relator’s

award, therefore, must constitute gross income unless the

taxpayer is able to show that it is “expressly excepted by

another provision in the Tax Code.” Id. 

The taxpayer relies upon § 104(a)(2) (1995) in arguing that

his award, or at least part of it, should be exempted from

gross income. Section 104(a)(2) provides that gross income

does not include “the amount of any damages received

(whether by suit or agreement and whether as lump sums or

as periodic payments) on account of personal injuries or
No. 03-5610 Brooks v. United States 5

1

Congress amended § 104(a)(2) in 1996 to read, gross income does

not include “the amount of any damages received ... on account of

personal physical injuries or physical sickness.” (emphasis added). This

amended version does not apply to the present case as the district court

granted the taxpayer his award in 1995, prior to the 1996 amendment.

sickness.”1 The implementing treasury regulation, 26 C.F.R.

§ 1.104-1(c) (1994), defines “damages received” as “an

amount received ... through prosecution of a legal suit or

action based upon tort or tort type rights, or through a

settlement agreement entered into in lieu of such

prosecution.” Thus, under the statute and regulation, for

income to be excluded under § 104(a)(2), the taxpayer must

1) “demonstrate that the underlying cause of action giving rise

to the recovery is based upon tort or tort type rights;” and

2) “show that the damages were received on account of

personal injuries or sickness.” Schleier, 515 U.S. at 337

(1995) (internal quotation marks omitted).

In attempting to establish that at least part of his relator’s

award may be excluded from gross income pursuant to

§ 104(a)(2), the taxpayer presents the following argument.

He first notes that a relator’s qui tam award is limited to a

percentage. Since the government intervened here, his

potential award ranged from fifteen to twenty-five percent of

the net amount received by the government. § 3730(d)(1).

He argues that the percentage to be used in determining the

amount of a relator’s qui tam award is influenced by whether

the relator suffered personal injuries or sickness. Since the

amount of a relator’s qui tam award is influenced by whether

he suffered personal injuries in prosecuting the FCA action,

he concludes, the award thus compensates him for the

personal injuries he received while prosecuting the action.

Rather than immediately address the taxpayer’s argument,

we first consider the requirements for exclusion under

§ 104(a)(2) as enunciated by the Schleier Court. The taxpayer

runs into immediate difficulty with the first prong, as he fails

to demonstrate that the underlying cause of action giving rise

6 Brooks v. United States No. 03-5610

to his recovery is based upon tort or tort type rights. The fact

that a qui tam plaintiff may suffer personal injuries while

prosecuting an FCA claim does not transform the FCA claim

into one based upon tort or tort type rights. The primary

purpose of the FCA claim is to ensure that the United States

gains restitution of money fraudulently obtained from it.

Thus, the underlying cause of action that gives rise to the

taxpayer’s relator’s award is based upon contract fraud, not a

tort. 

Not only is the underlying cause of action not based upon

tort or tort type rights, but it also does not compensate the

taxpayer for an injury inflicted upon him. Rather, the FCA

permits a qui tam plaintiff to bring a suit in the name of the

United States for contract fraud committed against it.

31 U.S.C. § 3730(b)(1). The Supreme Court’s decision in

Vermont Agency of Natural Resources v. United States ex rel.

Stevens, 529 U.S. 765 (2000), highlights the fact that the

injury that is redressed in a qui tam action under the FCA is

an injury to the government. The issue in Vermont Agency of

Natural Resources was whether a qui tam plaintiff had

standing to bring an FCA claim on behalf of the United States

against a State. Id. at 768. The Court noted that an interest

sufficient to confer standing to maintain the suit “must consist

of obtaining compensation for, or preventing, the violation of

a legally protected right.” Id. at 772. A qui tam plaintiff, the

Court noted, “has suffered no such invasion [of a legally

protected right].” Id. at 773. Although the Court found that

a qui tam plaintiff suffers no invasion of a legally protected

right, it nonetheless found that a qui tam plaintiff has standing

to assert a claim based on “the doctrine that the assignee of a

claim has standing to assert the injury in fact suffered by the

assignor. [Therefore, the False Claims Act] can reasonably be

regarded as effecting a partial assignment of the

Government’s damages claim” to the qui tam plaintiff. Id.

The structure of the act further supports the conclusion that

the qui tam relator’s award is not based upon tort or tort type

rights. As the district court observed, any tort that could be
No. 03-5610 Brooks v. United States 7

considered to have been committed against the taxpayer

would be one for retaliation by the defendants. This wrong is

separately compensated for under the FCA’s “whistleblower”

provision, 31 U.S.C. § 3730(h). Section 3730(h) provides

that an “employee who is discharged, demoted, ... harassed,

or in any other manner discriminated against ... by his or her

employer because of lawful acts done by the employee on

behalf of the employee or others in furtherance of a [FCA

claim] ... shall be entitled to all relief necessary to make the

employee whole.” Thus, this section, § 3730(h), not

§ 3730(d), provides compensation for injuries suffered by the

qui tam plaintiff. Although § 3730(h) only applies to

employees (ratherthan independent contractors, for instance),

this does not militate against our conclusion that Congress did

not intend § 3730(d) to compensate qui tam plaintiff’s for

personal injuries. The fact that Congress, in enacting

§ 3730(h), not only considered allowing personal injury

damages, but in fact actually provided a cause of action for

their recovery, supports our conclusion that Congress did not

intend § 3730(d) to compensate qui tam plaintiffs for personal

injuries. 

The taxpayer has also failed to establish that his award was

received on account of personal injuries or sickness. In

arguing that his relator’s award was received, at least in part,

on account of personal injuries or sickness, the taxpayer

principally relies upon United States v. NEC Corp., 11 F.3d

136 (11th Cir. 1994). In NEC, the plaintiff brought a qui tam

action against the United States to recover a portion of a

settlement procured by the government as a result of

information provided by the plaintiff. 11 F.3d at 137.

Subsequently, however, the plaintiff died. Id. The issue in

NEC was whether the plaintiff-relator’s qui tam action

survived his death. Id. To determine whether the cause of

action survived the qui tam plaintiff’s death, the court needed

to consider whether the action was remedial or penal with

respect to the qui tam plaintiff. Id. In considering this issue,

the court first asked whether the statute redressed individual

wrongs or more general wrongs to the public. Id. In

8 Brooks v. United States No. 03-5610

concluding that the statute does not redress solely general

wrongs to the public, but rather also redresses individual

wrongs suffered by a qui tam relator, the court opined that a

qui tam relator may endure emotional strain when he

discovers fraud as he is faced with the choice “of keeping

silent about the fraud, and suffering potential liability ..., or

reporting the fraud and suffering repercussions, [such] ... as

dismissal.” Id. at 138. Even if we were to agree with the

NEC court that a qui tam action is remedial with respect to the

qui tam plaintiff, that would nonetheless not compel the

conclusion that a qui tam relator’s award is received on

account of personal injuries within the meaning of § 104(a)(2)

of the Tax Code. 

The FCA provides that the percentage of the award that the

qui tam plaintiff will receive depends upon “the extent to

which the [qui tam plaintiff] substantially contributed to the

prosecution of the action.” § 3130(d)(1). Even if the

percentage that a qui tam plaintiff receives in prosecuting a

FCA claim were influenced by whether he received personal

injuries in prosecuting the action, that fact would still not

transform the qui tam plaintiff’s recovery into one “on

account of personal injuries.” It is the nature of the

underlying claim itself that determines whether the plaintiff

has received compensation on account of personal injuries

within the meaning of § 104(a)(2). Regardless of whether a

qui tam plaintiff received fifteen percent or twenty-five

percent of the proceeds recovered by the government, the fact

that he receives anything at all is on account of his decision

to bring the lawsuit on behalf of the government, and not on

account of any personal injuries inflicted upon him. 

Since we conclude 1) that the underlying cause of action

(the FCA claim) is based upon contract fraud inflicted upon

the government, not a tort inflicted upon the relator, and

2) that the relator received his award on account of initiating

the prosecution of the FCA claim on behalf of the

government, not on account of personal injuries inflicted

upon himself, we therefore AFFIRM the district court’s
No. 03-5610 Brooks v. United States 9

holding that a qui tam relator’s award is not excludable from

gross income under § 104(a)(2).