Opinion ID: 3011437
Heading Depth: 2
Heading Rank: 3

Heading: In August 1995, the government began formal

Text: settlement negotiations with SKB. The government presented SKB with a written settlement framework that allocated a specific dollar amount for each alleged false claim. Joint App. at 1476-1491. By early 1996, SKB and the government had reached a tentative agreement to settle, for $295 million, certain federal and state claims for losses occurring through December 31, 1994. This agreement was intended to settle claims related to the government's original automated chemistry investigation, along with additional claims in the qui tam actions filed by relators Merena, Grossenbacher, and Spear. At a meeting on March 22, 1996, counsel for the United States explained to the relators the components of the proposed settlement. See Joint App. at 1537, 15381549. During the summer of 1996, the United States negotiated an additional payment from SKB of $30 million to resolve additional claims that arose during 1995 and 1996. Joint App. at 859, 1223. The government formally intervened in the Merena, Grossenbacher, and Spear actions pursuant to 31 U.S.C. S 3730(b)(2). Soon thereafter, the District Court formally approved a settlement agreement between the United States and SKB for $325 million plus interest. See Joint App. at 201-221. Although the False Claims Act provides a specific mechanism for relators to challenge the adequacy of a settlement agreement into which the government enters, 31 U.S.C. S 3730(c)(2)(B), Merena, Grossenbacher, and the Spear relators did not challenge the overall statement. See Joint App. at 213. After approving the settlement agreement, the District Court dismissed the three qui tam actions with prejudice. 6 However, the Court expressly retained jurisdiction over, among other things, the determination of the relators' qui tam shares. Dist. Ct. Op. At 7. See Joint App. at 198, 274277. The District Court subsequently disposed of complaints that three other relators filed after the Merena, Grossenbacher, and Spear complaints. The Court analyzed these complaints on a claim-by-claim basis in order to determine whether each claim was barred under thefirstto-file rule imposed by 31 U.S.C. S 3730(b)(5). The Court was able to identify only one claim that had not been raised in one of the previously filed complaints. Accordingly, the Court allowed that claim to survive but barred all the others. The later-filing relators appealed, but we affirmed the District Court's decision. See United States ex rel. LaCorte v. SmithKline Beecham Clinical Lab., 149 F.3d 227, 325-36 (3d Cir. 1998). The government failed to reach an agreement with relators Merena and Grossenbacher on the amount that they would receive from the settlement agreement. The government maintained that Merena was entitled to approximately $10 million of the $65 million attributable to the non-automated chemistry claims and has paid Merena this amount. The government and the Spear relators have a proposed agreement that, if approved, will award the Spear relators 15% of the $13 million that the government attributed to a claim called the CBC Indices claim. D. The core of the current dispute between the Uni ted States and relators Merena, Grossenbacher, and Robinson (hereinafter the relators) concerns the relators' right to a share of the settlement proceeds attributable to the automated chemistry claims. The relators argue that they are entitled under 31 U.S.C. S 3170(d) to a percentage of the total proceeds that the government obtained in the settlement. The government, on the other hand, maintains that the relators may not receive any portion of the proceeds attributable to the automated chemistry claims because the relators' automated chemistry claims were jurisdictionally barred under the public-disclosure provision of the qui tam statute, 31 U.S.C. S 3730(e)(4) (section 7 (e)(4)), which provides that [n]o court shall have jurisdiction over any False Claims Act action that is based upon certain specified public disclosures unless the action is brought by the Attorney General or an original source of the information. The government contends that the District Court lacked subject matter jurisdiction over the relators' automated chemistry claims and, accordingly, could not grant them any share of the settlement allocable to those claims. The District Court held an evidentiary hearing regarding this dispute. The government presented evidence concerning the portion of the total settlement that was attributable to each claim.2 The government also presented evidence showing that the automated chemistry claims had been under investigation, and were widely reported in the news media, long before any of the qui tam complaints were filed. Joint App. at 2159-2160, 2204. In an unpublished opinion, the District Court accepted the relators' position. The Court denied the government's motion to dismiss the relators' automated chemistry claims under 31 U.S.C. S 3730(e)(4), noting that the qui tam complaints had already been dismissed with prejudice and [did] not have to be re-dismissed. Dist. Ct. Op. At 36. Agreeing with the relators that the question of subject matter jurisdiction was mooted when the government formally intervened in the action, the Court declined to decide whether the relators' automated chemistry claims would have been subject to dismissal prior to the government's intervention. Id. at 36-37. The Court also rejected the government's argument that it was necessary to analyze the relators' complaints on a claim-by-claim basis in order to calculate their shares. Id. at 37-43. The Court observed: The qui tam statute involved makes no mention of treating a qui tam complaint as having distinct and divisible claims for the purpose of determining the qui tam Relator's share of the proceeds. The statute _________________________________________________________________ 2. The government also presented evidence that the relators had actively participated in the allocation process. See Joint App. at 1476-1491. 8 provides that where the Government intervenes and proceeds with the action, as it did in these cases, the qui tam Relator shall receive at least 15 percent but no more than 25 percent of the proceeds of the action or settlement of the claim. (Underlining added). The statute speaks of the action and claim as a single unit or whole entity. Dist. Ct. Op. at 38. In addition, the Court noted that the government had never sought to have any of the relators' qui tam allegations dismissed prior to the entry of the order settling and dismissing each of the actions with prejudice, that the government had never sought leave to file an amended complaint, and that the Settlement Agreement and related filings did not break down the settlement on a claim-by-claim basis. Id. at 38-39. Furthermore, the Court stated that [t]here [was] absolutely no evidence on the record . . . to establish any allocation. Id . at 41. See also id. at 42 (Even if dividing the proceeds among separate claims would be appropriate, there is no evidence upon which a fact-finder could rationally make such a determination on the record before me.) The Court concluded that the relators were entitled under 31 U.S.C. S 3170(d) to between 15% and 25% of approximately $306 million.3 After considering the contributions made by the relators, the Court decided that they should jointly receive4 an award of 17% of the proceeds -- or more than $52 million. Since the government had already paid Merena about $10 million, the Court entered an order awarding the relators approximately $42 million. The United States appealed. _________________________________________________________________ 3. This sum was calculated as follows: the settlement proceeds plus interest (about $334 million) minus both the total paid to state Medicaid Fraud units (about $14.5 million) and the agreed allocation to the Spear relators (about $13 million). 4. The Court found it unnecessary to decide whether either the Merena or Grossenbacher complaint was barred under thefirst-to-file rule of S 3730(b)(5) because these relators had agreed among themselves as to the division of any proceeds, regardless to whom the award or awards were made. Dist. Ct. Op. at 69. 9