Opinion ID: 3031341
Heading Depth: 5
Heading Rank: 8

Heading: Count Twelve: Alleged Violations of

Text: §§ 3729(a)(2) and Based on the Default Modification The Default Modification stipulated that Penn Ship was in default under the Oiler contract, provided for the transfer of the two original ships to another yard, terminated the Trust Indenture, made Penn Ship liable for certain reprocurement and other costs, and released Penn Ship from any other liability. The Navy received an increased security interest in the floating drydock, another mortgage on some of the land and buildings at 35 Again, although Atkinson argues that these counts survive as acts in furtherance of the conspiracy or Trust Indenture fraud alleged in counts one and six respectively, our prior holdings void these arguments. 51 the Chester Yard, and a preferred mortgage on a large floating derrick. According to Atkinson, these mortgages were designed to secure Penn Ship’s obligations to sell collateral to meet its reprocurement obligations. Under the terms of the deal, if Penn Ship was unable to sell within thirteen months, it would no longer be obligated to do so and the Navy’s interests in the land would disappear. Atkinson claims that, by agreeing to the terms of the Default Modification, Penn Ship falsely represented that it intended to fulfill its obligation to attempt to sell the land, buildings, and derrick. To support this claim, Atkinson points to the fact that shortly following the expiration of the thirteen month period, Penn Ship formed MCC, to which it sold the derrick. The essential elements of this count are X: Penn Ship asserts that it will use its best efforts to liquidate its interests in the covered property. Y: When it made that assertion, Penn Ship had no intention of selling the assets–which is evidenced by its sale of the assets to MCC, a corporate entity created by Penn Ship, after the thirteen month window expired. First, Atkinson claims that the allegations and transactions that form the basis of this claim were not publicly disclosed when he brought his first FCA claim. For the reasons set forth above, a qui tam relator is not saved from the public disclosure bar simply because the information was not publicly 52 disclosed at the time he brought a prior, but now dismissed, qui tam action. Atkinson, 255 F. Supp. 2d at 373; Laird, 336 F.3d at 352 n.2. Mistick’s “substantially similar to” test forecloses such a reading of § 3730(e)(4)(A). 186 F.3d at 385-88. Second, Atkinson claims that because the Trust Indenture fraud was not publicly disclosed, and the Navy’s agreement to the Default Modification was a consequence of that fraud, count twelve should not be dismissed. We have already stated that we will treat Atkinson’s Second Amended Complaint as operative for purposes of the claims not dismissed by the District Court after it ruled on defendants’ 12(b)(6) motions. Thus, any attempted reformulation of count twelve is unavailing as an unacceptable modification.36 FED. R. CIV. P. 15(a). Atkinson argues that the sale of the mortgaged assets to MCC following the thirteen month window indicates Penn Ship’s intent not to adhere to the terms of the Default Modification. As so understood, the X element was publicly disclosed in the 1994 DoD IG Report and during hearings before the Senate in 1995. The Y element (sale to MCC and then Donjon) was publicly disclosed in a Coast Guard abstract of title given to Schorsch at his request. This abstract constitutes an “administrative report” under § 3730(e)(4)(A) and, in any event, was an exhibit before the Senate during hearings regarding the propriety of the Oiler 36 In any event, having found no jurisdiction over any of Atkinson’s claims, it does not matter which version of count twelve we address. Because we agree with the District Court that any “reformulation” is an impermissible amendment, we will follow the District Court and analyze the count as formulated in the Second Amended Complaint. 53 contract. See Mistick, 186 F.3d at 383-84 (noting that federal government responses to citizen requests for documents constitute reports under the FCA’s jurisdictional provisions). Having determined that both the X and Y elements were publicly disclosed under § 3730(e)(4)(A), we now turn to whether Atkinson is an original source under § 3730(e)(4)(B). We hold that he is not. First, Atkinson’s former co-relator Schorsch learned of the terms of the Default Modification by way of the DoD IG Report. Assuming, arguendo, that Atkinson can utilize Schorsch’s knowledge for purposes of achieving original source status, DoD IG Reports are public disclosures under § 3730(e)(4)(A), and thus Schorsch is not an original source for purposes of § 3730(e)(4)(B). Stinson, 944 F.2d at 1160. Schorsch also learned of the sale of the derrick to MCC by way of a qualifying public disclosure under § 3730(e)(4)(A) because Schorsch asked the Coast Guard for an abstract of title that revealed the derrick’s ownership history. Because the Coast Guard’s response to Schorsch’s request constitutes a public disclosure, Mistick, 186 F.3d at 383-84, Schorsch is not an original source as he derived his knowledge from that document. Therefore, the District Court correctly dismissed this Count under Rule 12(b)(1) for a lack of subject matter jurisdiction under the FCA.37
37 This count cannot survive as an act in furtherance of a conspiracy or as part of the Trust Indenture fraud because there is no jurisdiction over those claims. 54 3729(a)(1) and (2) Based on Biweekly Progress Reports We arrive, after a long journey, to relator’s final count alleging violation of the FCA.38 The gist of this claim is that Penn Ship submitted false or fraudulent progress reports and invoices to the Navy that overstated Penn Ship’s costs. In our now familiar Springfield Terminal algebraic representation: X: Penn Ship submits biweekly invoices to the Navy and represents that it has made expenditures entitling it to reimbursement. Y: Penn Ship had not spent the money for which it sought compensation. We agree with the District Court that both the X and Y elements of this count were publicly disclosed in the 1994 DoD IG Report, which provides: The [DoD Inspector General’s] investigation 38 As with a number of previous counts, Atkinson attempted to reformulate this count as a part of the overall Trust Indenture fraud. Because Atkinson was not granted leave to amend this aspect of his Second Amended Complaint, we consider the version of this claim as written in that pleading. We reiterate, though, that our holding that there is no jurisdiction over any of Atkinson’s claims means that any attempt to link these claims to a prior count is necessarily ineffectual. 55 addressed allegations that Penn Ship progress payment submissions included incurred costs for employee payroll deductions, which Penn Ship did not remit to the appropriate organizations in a timely manner. Penn Ship withheld the deductions beyond the normal 45-day billing cycle before making payment. Penn Ship also withheld payments to vendors while the Navy continued to make progress payments based on incurred costs. Atkinson, 255 F. Supp. 2d at 402 (quoting DoD IG Report). Atkinson’s knowledge of the X and Y elements is not direct and independent within the meaning of § 3730(e)(4)(B) because he admits that his knowledge is based on the information in the DoD IG Report. Therefore, this claim is based upon public disclosures under § 3730(e)(4)(A) and Atkinson is not an original source. Accordingly, dismissal was appropriate under FED. R. CIV. P. 12(b)(1).