Source: https://openjurist.org/363/f3d/1039/kennard-v-comstock-resources-inc
Timestamp: 2020-01-20 17:58:48
Document Index: 341225181

Matched Legal Cases: ['§ 3730', '§ 3730', '§ 3730', '§ 3730', '§ 3730', '§ 3730', '§ 3730', '§ 3730', '§ 3729', '§ 3729', '§ 1712', '§ 211', '§ 210', '§ 1713', '§ 218', '§ 1711', '§ 3729', '§ 3729', '§ 3730', '§ 3729', '§ 3729', '§ 3729', '§ 3730']

363 F. 3d 1039 - Kennard v. Comstock Resources Inc
363 F.3d 1039
Don C. KENNARD and Harrold E. Wright, Plaintiffs-Appellants,
COMSTOCK RESOURCES, INC.; Comstock Oil & Gas, Inc.; Black Stone Oil Co.; WT Carter & Bro; and Willow Creek Resources, Inc., Defendants-Appellees.
United States of America and Burlington Resources Oil & Gas Company LP, Amici Curiae.
In the instant case, the alleged public disclosure is the Sydow Complaint. Civil hearings are specifically referenced in 31 U.S.C. § 3730(e)(4)(A). Section 3730(e)(4) lists "[(1)] a criminal, civil, or administrative hearing, [(2)] a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, [or (3)] the news media" as sources available for public disclosure. We have repeatedly held that prior civil actions are public disclosures under the FCA. Precision, 971 F.2d at 553-54; see also United States ex rel. King v. Hillcrest Health Ctr., Inc., 264 F.3d 1271, 1279 (10th Cir.2001); Hafter, 190 F.3d at 1161 n. 6. Additionally, "every court of appeal to have addressed the question has held that any information disclosed through civil litigation and on file with the clerk's office should be considered a public disclosure ... for purposes of section 3730(e)(4)(A)." Ramseyer, 90 F.3d at 1519 n. 3 (quoting United States v. Northrop Corp., 59 F.3d 953, 966 (9th Cir. 1995)) (internal quotations omitted). The filing of the Sydow Complaint commenced a civil action on behalf of the Tribe against Comstock. Thus, the first of the threshold inquiries, whether the alleged public disclosure contains allegations or transactions from one of the listed sources, is satisfied.
We must next address whether the alleged disclosure has been made public within the meaning of the FCA. Relators argue that because the disclosure in this case was only made to a single Government filing clerk who stamped the Sydow Complaint, no public disclosure occurred. This argument is unpersuasive. Section 3730(e)(4) operates as a "quick trigger." Precision, 971 F.2d at 552. Once a complaint is filed, a civil action has commenced and public disclosure has occurred. There is no requirement that a certain number of people read or receive the information. Relators rely on United States ex rel. Holmes v. Consumer Ins. Group, 318 F.3d 1199, 1204-05 (10th Cir.2003) (en banc), in which we held that the allegations "must have been made known to the public through some affirmative act of disclosure." However, disclosure to a single filing clerk was enough in the instant case because the filing of the civil action in itself was the affirmative act of disclosure. It is not necessary that the filing clerk or any member of the public read the complaint. Additionally, in Holmes we specifically held that a public disclosure can occur to a single person. 318 F.3d at 1206 n. 5.
Relators' argument that providing a complaint to the Government in advance of filing immunizes a relator from the operation of the FCA's public disclosure bar is similarly misdirected. Section 3730(e)(4) does not contain an exception for complying with the mandatory jurisdictional requirements of § 3730(b)(2).1 Additionally, disclosure to the Government through § 3730(b)(2) is not a public disclosure contemplated by § 3730(e)(4). As discussed above, § 3730(e)(4) specifically lists the following sources as avenues for public disclosure: [(1)] "a criminal, civil, or administrative hearing, [(2)] a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or [(3)] the news media." "[I]n order to be publicly disclosed, the allegations or transactions upon which a qui tam suit is based must have been made known to the public through some affirmative act of disclosure." Ramseyer, 90 F.3d at 1519 (emphasis added). This requirement clearly contemplates that the information be in the public domain in some capacity and the Government is not the equivalent of the public domain.
The first two inquiries being answered in the affirmative, we then ask whether Relators' complaint is based upon the public disclosure. "The test is whether `substantial identity' exists between the publicly disclosed allegations and the qui tam complaint." MK-Ferguson, 99 F.3d at 1546 (10th Cir.1996) (quoting Precision, 971 F.2d at 553-54). Relators have conceded that the complaints at issue are substantially similar. See Aplt. Br. at 17.2 We find no merit in Relators' argument that because the Sydow Complaint was allegedly based solely and exclusively on Relators' information and complaint that it is impossible for Relators' complaint to be based upon the Sydow Complaint. "`Based upon,' in 31 U.S.C. § 3730(e)(4)(A), means `supported by.'" MK-Ferguson, 99 F.3d at 1545 (quoting Precision, 971 F.2d at 552). Whether Relators' qui tam complaint was already drafted when the Sydow Complaint was filed is irrelevant. A relator need not have learned of the basis for the qui tam action from the public disclosure for its action to be considered based upon that public disclosure if the allegations are substantially similar. United States ex rel. Fine v. Advanced Sciences, Inc., 99 F.3d 1000, 1006 n. 4 (10th Cir.1996) (court rejected argument that because relator's discovery of alleged fraud occurred prior to public disclosure, complaint could not be based upon the later-occurring public disclosure); see also MK-Ferguson, 99 F.3d at 1546. Therefore, the first three steps of the 31 U.S.C. § 3730(e)(4) jurisdictional bar are satisfied and the Sydow Complaint operated as a public disclosure.3
Since we hold that the Sydow Complaint was a public disclosure, we must now address the fourth step — whether Relators were an original source. Section 3730(e)(4)(B) defines original source as "an individual that 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." See also United States ex rel. Stone v. Rockwell Int'l Corp., 282 F.3d 787, 802-03 (10th Cir.2002). "Direct and independent knowledge is knowledge marked by the absence of an intervening agency ... [and] unmediated by anything but the relator's own labor." Hafter, 190 F.3d at 1162 (internal quotations and citations omitted). The burden is on the relator to show that he is an original source. Stone, 282 F.3d at 800. To meet this burden, a relator must provide more than an "unsupported, conclusory allegation" to show that he is an original source. Id. (quoting Hafter, 190 F.3d at 1162).
Comstock's first assertion, that Relators did not possess information about the particular fraud, has no basis in Tenth Circuit precedent. Knowledge of the actual fraudulent conduct is not necessary. See Stone, 282 F.3d at 803. A relator "need only possess `direct and independent knowledge of the information on which the allegations are based.'" Id. (quoting 31 U.S.C. § 3730(e)(4)(B)) (emphasis in original). A "relator need not ... have in his possession knowledge of the actual fraudulent conduct itself; knowledge `underlying or supporting' the fraud allegation is sufficient." Id. (quoting Hafter, 190 F.3d at 1162). Thus, the fact that Relators did not have knowledge of the actual alleged fraudulent submissions to the Government cannot disqualify them as an original source.
On one end of the spectrum, there are several cases that define an action based solely on the labor of others. In United States ex rel. Findley v. FPC-Boron Employees' Club, the Court of Appeals for the Federal Circuit held that "[a] relator's ability to recognize the legal consequences of a publicly disclosed fraudulent transaction does not alter the fact that the material elements of the violation have already been publicly disclosed." 105 F.3d 675, 688 (D.C.Cir.1997). The court further stated that "[i]f a relator merely uses his or her unique expertise or training to conclude that the material elements already in the public domain constitute a false claim, then a qui tam action cannot proceed." Id.; see also MK-Ferguson, 99 F.3d at 1548 (concluding plaintiff did not qualify as original source because his complaint merely tracked an audit report; he neither observed nor discovered the purported fraud); United States ex rel. Fine v. Sandia Corp., 70 F.3d 568, 572 (10th Cir.1995) (public disclosure of material elements of fraud bars qui tam action even if disclosure itself does not allege wrongdoing because FCA does not require allegations to have statutory basis); United States ex rel. Aflatooni v. Kitsap Physicians Serv., 163 F.3d 516, 526 (9th Cir.1999) (relator who offered only speculation and conjecture that defendant committed alleged fraud did not qualify as original source). Thus, when a relator's qui tam action is based solely on material elements already in the public domain, that relator is not an original source.
Similarly, in United States ex rel. Kreindler & Kreindler v. United Technologies Corp., the Second Circuit held that an attorney who participated in the initial litigation on which his qui tam action was based was not an original source. 985 F.2d 1148, 1159 (2d Cir.1993). The court stated that "[t]he fact that [the relator] conducted some collateral research and investigations[,]... as would be customary in such litigation, does not establish direct and independent knowledge of the information on which the allegations are based." Id. (internal quotations omitted). The court further explained:
Nor does the fact that [the relator's] background knowledge enabled it to understand the significance of the information acquired ... make its knowledge independent of the publicly disclosed information. If that were enough to qualify the relator as an original source then a cryptographer who translated a ciphered document in a public court record would be an original source, an unlikely interpretation of the phrase.
The district court concluded that "Relators have merely compiled public information and because of their education and background were able to speculate that [Comstock] underpaid [] royalties." Aplt. App. at 498. We disagree. In its determination, the district court relied heavily on the fact that Relators were not members of the Tribe or insiders of Comstock, a concern we deem irrelevant to the current inquiry. The district court further relied on the fact that Relators used documents already in the public domain during their investigation. However, in the instant case, Relators' claim did not derive from a third party's research and investigation. Relators discovered the alleged fraud and Relators conducted the investigation. Our concern discussed in Hafter of the necessity to "weed out parasitic plaintiffs who offer only secondhand information, speculation, background information or collateral research" is not implicated in this case. 190 F.3d at 1162-63. There must be some consideration to the availability of the information and the amount of labor and deduction required to construct the claim. Relators sorted through relatively obscure public documents and, together with personal royalty records, used these documents to discover and support their claim of the alleged fraud. It is important to note that none of the public documents disclosed the alleged fraud. It was only through independent investigation, deduction, and effort that Relators discovered the alleged fraud. Relators "ha[d] direct and independent knowledge of the fraud allegedly committed [since they are] the [people] responsible for ferreting it out in the first place." Holmes, 318 F.3d at 1207. Relators were not just assemblers of information. This case would not exist but for Relators sniffing it out. Through discovery and deduction, Relators ferreted out the alleged fraud in this case and must, therefore, qualify as an original source.
We will briefly address Comstock's alternative argument that the FCA's qui tam provision does not authorize a relator to sue based upon losses allegedly suffered by an Indian Tribe. This argument is unsupported by the text of 31 U.S.C. § 3729(a)(7). "As in all cases involving statutory construction, our starting point must be the language employed by Congress,... and we assume that the legislative purpose is expressed by the ordinary meaning of the words used." Holmes, 318 F.3d at 1208. Section 3729(a)(7)4 provides that "a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money ... to the Government" is actionable. Thus, the text broadly encompasses the fraud on the Government that occurs when a person or entity makes a false statement to the Government in order to decrease an obligation to transmit money to the Government. The transmission of funds to the Government is enough; there is no requirement in the text that the Government have an ongoing interest in the funds or that the Government itself suffer a loss. Additionally, transmit is defined as "to cause to go or be conveyed to another person or place: SEND." Webster's Third New International Dictionary 2429 (1986). Neither the text of § 3729(a)(7) nor the definition of transmit encompasses a necessary beneficial interest in the funds or a requirement about how the funds are to be used or disbursed. Therefore, what the Government does with the royalties after they are deposited in the Treasury is of no consequence in the context of a qui tam suit.
Comstock's argument that the FCA does not authorize Relators to sue on behalf of the Tribe misstates the issue because a qui tam suit is on behalf of the Government, not the Tribe.5 A qui tam suit is to recover penalties for false statements to the Government. Section 3730(b)(1) provides that a private person may bring an action "for the person and for the United States Government ... in the name of the Government." The fraud is that which occurs when the person or entity makes a false statement to the Government. The fraud at issue is not that which occurs when the Indian Tribe receives less royalties than those which are due pursuant to the lease. While this suit relates to leases between Comstock and the Tribe, it is an action on behalf of Relators and the Government to redress an alleged fraud on the Government.
The mineral royalties at issue are paid to the Mineral Management Service of the United States Department of the Interior. Royalty payments due on Indian leases must be paid "in the time and manner as may be specified by the Secretary [of the Department of the Interior]." 30 U.S.C. § 1712(a). Royalties owed on Indian Tribe leases must be transmitted to "the MMS or such other party as may be designated." 25 C.F.R. § 211.40. Indian lessees like Comstock must report to the MMS the amount of royalties due when they submit their royalty payments. See 30 C.F.R. § 210.52; 30 U.S.C. § 1713(a). The royalties paid to the MMS on Indian leases are transferred from an MMS Treasury account to separate accounts in the Treasury and the royalties are then disbursed to the appropriate Indian Tribe or allottee. See 30 C.F.R. §§ 218.51, 219.103. The MMS is required to collect payments and to have "a comprehensive ... accounting and auditing system ... to accurately determine oil and gas royalties." 30 U.S.C. § 1711(a).
As discussed above, Section 3729(a)(7) imposes liability for making "a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money... to the Government." (emphasis added). Pursuant to § 3729(a)(7), Relators are required to allege that Comstock had "an existing, legal `obligation to pay or transmit money or property to the Government'" and that Comstock submitted false statements or records to conceal, avoid, or decrease that obligation. See United States v. Pemco Aeroplex, Inc., 195 F.3d 1234, 1236-37 (11th Cir.1999). Comstock cannot dispute that it had a legal obligation to transmit royalty payments to the Government. Relators have alleged that Comstock submitted false reports to avoid its obligation. We therefore hold that the plain language of § 3729(a)(7) squarely encompasses the fraud on the Government that occurs when a person or entity makes false statements to the United States to avoid transmitting to the Federal Treasury royalties they owe on Indian mineral leases.
Relators certainly have no quarrel with the findings of the court below that [t]he factual situation giving rise to the allegations is identical in each complaint[, and] the language detailing the alleged fraud in each complaint only varies slightly
There is no merit in Comstock's argument that disclosure of information to the Tribe was a former public disclosure. Disclosures of actions that, at the time, were not contained in any of the sources enumerated in 31 U.S.C. § 3730(e)(4)(A) are not public disclosures
Amicus Curiae Burlington Resources Oil & Gas Co.'s cites to cases involving § 3729(a)(1) are inapposite because the plain language of the statutes is distinctly different. Section 3729(a)(1) provides:
Any person who ... knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval ... is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person....
Section 3729(a)(1) requires the existence of a "claim." Relying mostly on the word claim, some courts interpreting § 3729(a)(1) have held that this provision requires a showing of actual or potential loss to the Government. See, e.g., Hutchins v. Wilentz Goldman & Spitzer, 253 F.3d 176, 184 (3d Cir.2001) (claims that do not result in economic loss to Government are not within scope of § 3729(a)(1)). Section 3729(a)(7), at issue in the instant case, does not encompass a similar restriction. Instead, it provides that:
Any person who ... knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government, is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person....
Additionally, Comstock's argument that 31 U.S.C. § 3730(e)(3) deprived the district court of jurisdiction over this suit on behalf of the Government is incorrect. Comstock can point to no earlier suit by the Government that would trigger the statutory bar. The Tribe is not the equivalent of the Government
Comstocks' motion for leave to file a supplemental brief in response to the brief for the United States which was received by the court on May 7, 2003, is GRANTED