Rockwell International, Pondcrete, and an A La Carte Three-Step Test for Determining an "Original Source" in Qui Tam Lawsuits

In 1999, George Couto, a former Bayer marketing executive, attended a management meeting on ethics.1 As he compared Bayer's practices in the marketing department with the ethical principles discussed in the meeting, he grew increasingly uncomfortable with the prices the company charged Medicaid for some of its pharmaceutical products. Ignored by management, he decided to file a civil suit in federal district court on behalf of the United States. The lawsuit he initiated led to a $257 million dollar settlement for the taxpayers, a small portion of which he and his lawyers kept for blowing the whistle.2 Mr. Cuoto's situation is not isolated. The United States will spend a staggering $2.918 trillion in the 2008 fiscal year.3 Of that amount, the government will pay a significant portion to companies providing goods and services via government contracts. In the immense federal acquisitions bureaucracy, some of those companies will seek to defraud taxpayers, and the resulting government payments made to these companies will become needles in the budget haystack. Well-meaning whistieblowers are often the taxpayers' first line of defense - by alerting the Justice Department of alleged fraud, they help ferret out the needle. The False Claims Act ("FCA") authorizes these lawsuits,4 which are commonly referred to as qui tarn actions-qui tarn are the first two words of the Latin phrase describing the English law diat allowed a private party to file a lawsuit on behalf of the government.5 Not every qui tarn action results in a large recovery for taxpayers, but the combined efforts of whisdeblowers are the basis for the majority of recovered funds. During the fiscal year ending September 30, 2007, the United States recovered $2 billion from companies either accused of or found guilty of defrauding the government.6 Of this total, whisdeblowers initiated lawsuits diat led to $1.45 billion in settlements and judgments against these companies,7 a figure diat represents 72.5% of the total recoveries. Despite whisdeblower success in qui tarn actions, it may be more difficult than necessary to bring these cases to trial because the language of the FCA is, in many instances, ambiguous. This fact is unfortunate for the Justice Department because it makes litigation more difficult and expensive than it needs to be. It is also unfortunate for whisdeblowers and their attorneys who face the prospects of financing the law's clarification. Jurisdictions have interpreted the Act's language differently, causing various circuit court splits. The consequence of these splits has been inconsistent application of the law to similar fact situations and the related vice of forum shopping by whisdeblowers and their counsel.8 One such circuit court split which has particular forum shopping incentive is the meaning of the legislative phrase "direct and independent knowledge." In short, when a case of fraud on the federal government has been made public, the law bars jurisdiction of a qui tam claim unless the claimant had "direct and independent knowledge" of the alleged fraud.9 As such, qui tarn claimants have great incentive to file in a court where their claim may survive a motion to dismiss for lack of jurisdiction. In 2007, the Supreme Court decided Rockwell International Corp. v. United States, an FCA case that, while not resolving every circuit split, may provide some guidance to aid in determining whether a court may assert jurisdiction over a whistleblower's case. The thesis of this Comment is that RockwelPs reasoning created a three-step, a la carte test that enables the circuit courts to apply a predictable jurisdictional standard to whistieblowers' suits. When applying the proposed threestep test, circuit courts need only apply the applicable portions of the test, thus eliminating unnecessary changes to current case law beyond what has already been established by Rockwell. This Comment proceeds by introducing the legislative and historical context of qui tarn actions under the FCA in Part I. …