Opinion ID: 3031341
Heading Depth: 5
Heading Rank: 1

Heading: Count One: Alleged Conspiracy Between Penn

Text: Ship and Fidelity in Violation of 31 U.S.C. §3729(a)(3) The first count of Atkinson’s Third Amended Complaint alleges a conspiracy between Penn Ship and Fidelity to cause “false and fraudulent claims and reverse false claims [to be] allowed or paid in violation of 31 U.S.C. § 3729(a)(3).” According to Atkinson, Penn Ship’s alleged participation was its intentional failure to record the security instruments identified in the Trust Indenture. Fidelity’s alleged role in the conspiracy was threefold: (1) the attempt to convince the Navy to accept a version of the Trust Indenture that excluded a provision for delivery of all recording documents by Fidelity to the Navy, (2) the failure to secure recordation, and (3) the failure to sign forms necessary to perfect the Navy’s security interest.22 22 Atkinson now asserts that Fidelity’s alleged role in the conspiracy contained a fourth element – Fidelity’s failure to inform the Navy that the security interests were not perfected. Contrary to Atkinson’s assertions, the District Court was correct to consider only the three aspects of the claim described above because Atkinson’s own Memorandum in opposition to defendants’ motions to dismiss did not challenge the defendants on the ground that there was this fourth aspect to the claim. 31 Atkinson conceded that the elements of the fraud theory concerning Fidelity’s alleged role were publicly disclosed. However, he claims that Penn Ship’s failure to record was not. The District Court held, and we agree, that the non-recording claim was based on public disclosures. Both the Navy’s response to then co-relator Schorsch’s FOIA request and a Department of Defense Office of the Inspector General Audit Report of March 25, 1994, (DoD IG Report) constitute public disclosures within the meaning of § 3730(e)(4)(A) and reveal the non-recordation. Mistick, 186 F.3d at 383 (holding that a response to a FOIA request falls within the scope of § 3730(e)(4)(A)’s “administrative . . . report” provision). Atkinson argues that his first allegation of the nonrecording of the security interests was in his original qui tam action which predated the FOIA request and the DoD IG Report. Therefore, his subsequent qui tam action cannot be “based upon” the transactions revealed in those documents. Had Atkinson pursued his original FCA suit, he would have a strong argument that his claim is not “based upon” the transactions later revealed in response to the FOIA request and DoD IG Report. Atkinson’s previous assertion of a FCA claim does not, however, insulate his subsequent action from normal public disclosure analysis when the allegations in the later action are “substantially similar to” the information revealed in the FOIA request and the DoD IG Report. We cannot articulate it any better than the District Court: Wholly beside the point, under the straightforward Mistick analysis, is a relator’s own previous assertion of the relevant allegation or transaction in a prior action or his previous 32 discovery of such via non-public means. While these considerations might have precluded the application of the public disclosure bar in the predecessor action, and although they certainly impact the original source analysis, . . . they do not alter the fact that the information was disclosed via a statutorily-enumerated means prior to its assertion in this action by relator. Atkinson, 255 F. Supp. 2d at 373; United States ex rel. Laird v. Lockheed Martin Eng. & Sci. Serv. Co., 336 F.3d 346, 352 n.2 (5th Cir. 2003) (reaching same conclusion) (quoting United States ex rel. Jones v. Horizon Healthcare Corp., 160 F.3d 326, 330 (6th Cir. 1998)). Having determined that count one is based upon the publicly disclosed FOIA request and DoD IG Report, we must next decide whether Atkinson is an original source. The District Court held that Atkinson is an original source after concluding that Schorsch obtained direct and independent evidence of the non-recording by examining county records. Leaving aside the issue of whether Schorsch’s knowledge can be imputed to Atkinson under the FCA, we hold that Schorsch, and therefore Atkinson, is not an original source of the failure to record. As discussed above, an original source must have “direct and independent knowledge of the information on which the allegations are based . . ..” 31 U.S.C. § 3730(e)(4)(B). If a relator’s knowledge is based solely upon public disclosures within the meaning of § 3730(e)(4)(A), then the relator does not have direct and independent knowledge under § 3730(e)(4)(B). Stinson, 944 F.2d at 1160 (citing Houck ex rel. United States v. 33 Folding Admin. Comm., 881 F.2d 494, 505 (7th Cir. 1989)). We have yet to specifically address for purposes of the original source analysis, however, the impact of a relator’s reliance upon information in the public domain that is not a § 3730(e)(4)(A) public disclosure. In addressing this issue, we are mindful of the Springfield Terminal approach utilized to determine whether an FCA claim is “based upon” public disclosures. Once we determine that an X or Y element is based upon public disclosures under § 3730(e)(4)(A), we focus on whether the relator is an original source of the information underlying that element. If the relator’s knowledge of the element is based solely on a § 3730(e)(4)(A) public disclosure, the relator is not an original source. Stinson, 944 F.2d at 1160. Where, as here, the relator’s knowledge of the element is based, in whole or part, on information available in the public domain that is not a § 3730(e)(4)(A) public disclosure, it is the nature and extent of reliance upon that information that determines whether the relator is an original source. The Tenth Circuit Court of Appeals’ approach to resolving original source status is informative. In Kennard v. Comstock Resources, Inc., 363 F.3d 1039 (10th Cir. 2004), relators brought suit under the FCA against oil and gas well operators for alleged underpayment of royalties to Indian tribes. After concluding that there was a prior public disclosure, the court determined that relators were an original source. Id. The defense argued that relators were not an original source, in part because they relied upon public records in reaching their conclusion that the defendants defrauded the government. Id. 34 The court refused to adopt a bright-line rule always disqualifying relators as an original source when part of the basis of their information is consultation of public records. Id. at 1045. Instead, the court articulated a case-by-case approach: [T]he degree and character of such reliance is necessarily deserving of our attention. A mere compilation of documents already in the public domain will not allow a relator to qualify as an original source. However, a complete and thorough investigation of a fraud on the Government will likely necessarily involve some review of contracts, documents, or other information in the public domain. It is the character of the relator’s discovery and investigation that controls this inquiry. Id. (emphasis added). We conclude that the extent of reliance on information already in the public domain should be a consideration during the original source inquiry, even if that information is not a public disclosure within the meaning of § 3730(e)(4)(A). While it is true that reliance solely on “public disclosures” under § 3730(e)(4)(A) is always insufficient under § 3730(e)(4)(B) to confer original source status, reliance on public information that does not qualify as a public disclosure under § 3730(e)(4)(A) may also preclude original source status depending on the extent of that reliance and the nature of the information in the public domain. See Barth, 44 F.3d at 703-04 (holding that a relator did not have direct knowledge of an alleged fraud when the knowledge was obtained in part by review of publicly-filed payroll records) . Thus, in deciding whether a relator’s reliance on public records bars him from being an original source under 35 § 3730(e)(4)(B), courts should consider both “the availability of the information and the amount of labor and deduction required to construct the claim.” Kennard, 363 F.3d at 1046. The more obscure the records and the more significant the investigative input of the relator, the more likely it is that granting original source status will fulfill the FCA’s “twin goals of rejecting suits which the government is capable or pursuing itself, while promoting those which the government is not equipped to bring on its own.” Springfield Terminal, 14 F.3d at 651. We decline to adopt a rigid rule that consultation with public documents automatically disqualifies a relator from being an original source. Some reliance on public records or information is acceptable and, indeed, it is hard to imagine that a non-insider could ever obtain original source status without at least some consultation of publicly available information.23 United States ex rel. Grynberg v. Praxair, Inc., 389 F.3d 1038, 1053 (10th Cir. 2004). That said, courts must be mindful of suits based only on “secondhand information, speculation, background information or collateral research . . ..” United States ex rel. Hafter v. Spectrum Emergency Care, Inc., 190 F.3d 1156, 1162-63 (10th Cir. 1999). 23 Although the FCA was most concerned with encouraging whistle-blowing by insiders with first-hand knowledge, neither the text of the FCA nor its legislative history suggests that noninsiders should never be able to bring qui tam actions. The public disclosure and original source provisions provide sufficient protection against inappropriate suits by relators without sufficient direct and independent knowledge. 36 Applying these principles here, we hold that, under § 3730(e)(4)(B), Atkinson is not an original source of the nonrecording because his knowledge of the non-recording is not direct and independent within the meaning of that section. Any member of the public could have gone to a county recording office to see if Penn Ship or Fidelity had recorded the interests as required by the Trust Indenture. Unlike in Kennard, Atkinson’s research did not involve “obscure” public records, nor were the public records only a small part of the information ultimately uncovered by his investigation. Indeed, it was only from review of information in the public domain that Atkinson learned of the failure to record. Looking at the two prongs of the Kennard test, the availability of the information was high and the amount of deduction was minimal. It takes little sophistication to conduct a survey of public recordings to determine the absence of a filing; anyone interested in knowing whether Penn Ship recorded the instruments listed in the Trust Indenture could do so. Moreover, extrapolating from the absence of a recording to the fact that the instruments were not recorded does not require much interpretive rigor. Holding that reliance on state public records can preclude original source status under § 3730(e)(4)(B) does not run afoul of our decision in Dunleavy that non-federal administrative reports are not public disclosures for purposes of § 3730(e)(4)(A). Dunleavy holds that, even if there had there been no other source of public disclosure, it would be improper to raise the § 3730(e)(4)(A) jurisdictional bar based only upon the county public records. Once there is an independent basis for raising the public disclosure bar, however, the public nature of the information upon which a relator bases his claim, even if 37 not a “public disclosure” under § 3730(e)(4)(A), is relevant in determining whether that knowledge is direct and independent under § 3730(e)(4)(B). Dunleavy simply had nothing to say about the role of reliance upon information in the public domain for purposes of the original source analysis. Having concluded that Atkinson’s first count is based on publicly disclosed information both under § 3730(e)(4)(A) and from other public records and that Atkinson is not an original source of any of that information under § 3730(e)(4)(B), we hold that the District Court lacked subject matter jurisdiction over count one of his FCA claim. Thus, while the District Court was correct to the extent it rejected the bulk of count one on jurisdictional grounds, it was incorrect in failing to dismiss the entire count for that reason.