Opinion ID: 1380686
Heading Depth: 2
Heading Rank: 1

Heading: claims by qui tam defendants in the ninth circuit

Text: The bounty and whistle-blower provisions of the FCA work together to not only encourage relators to come forward but also to protect them when they do. Our case law has also fashioned a remedy designed to protect qui tam relators from retaliation by defendants. We first addressed counterclaims by qui tam defendants in Mortgages. Mortgages, Inc., a mortgage lending company, accepted allegedly fraudulent loan applications filled out by defendants who applied for low-income loans, transferred the property secured with the loans to co-defendants, and then defaulted on the loans. The Department of Housing and Urban Development lost millions of dollars, and Mortgages ultimately settled with the government for nearly half a million dollars. 934 F.2d at 210. Mortgages later brought a qui tam suit against the defendants, offering the government information it acquired about the defendants' false loan applications. The defendants, alleging that Mortgages defrauded and misled them as to the nature of the investment scheme, brought counterclaims for breach of the covenant of good faith and fair dealing, breach of fiduciary duty, fraud, negligence, negligent misrepresentation, and conspiracy. Id. at 210-11. Mortgages moved to dismiss the counterclaims, taking the position that qui tam defendants could not file counterclaims against qui tam plaintiffs. Mortgages referenced a Senate Report stating that a qui tam relator is afforded protection from retaliation for his actions. S.Rep. No. 99-345, at 13 (1986), as reprinted in 1986 U.S.C.C.A.N. 5266, 5278 (hereinafter Senate Report). The district court denied Mortgages' motion to dismiss the counterclaims, finding the Senate Report more likely referred to the whistle-blower protection codified at 31 U.S.C. § 3730(h) that same year. Upon considering a writ of mandamus filed by Mortgages, we instructed the district court to vacate its order that Mortgages respond to the counterclaims. Mortgages, 934 F.2d at 212, 214. Reasoning that [t]he FCA is in no way intended to ameliorate the liability of wrongdoers by providing defendants with a remedy against a qui tam plaintiff with `unclean hands,' id. at 213, we concluded that there was no right of indemnity or contribution among participants in a scheme to defraud the government in violation of the FCA. Id. at 212. In the same vein, we also concluded that there can be no right to assert state law counterclaims that would, in effect, provide contribution. Id. at 214. Three years later, we reconsidered the question of claims against a relator, holding that a qui tam defendant may bring independent claims against a relator. United States ex rel. Madden v. Gen. Dynamics Corp., 4 F.3d 827, 831 (9th Cir. 1993). In Madden, former and current employees of General Dynamics brought a qui tam action claiming the company defrauded the Navy. The government chose not to intervene, and General Dynamics brought multiple state law counterclaims, ranging from breach of the duty of loyalty and violations of the California Labor Code to misappropriation of trade secrets. Id. at 829. The district court dismissed General Dynamics' counterclaims for damages on the ground that the practical effect of those claims was to provide a defendant the opportunity to offset its liability by recovering from qui tam plaintiffs. Although these claims were substantively similar to those raised in Mortgages,  we reversed the district court and held that rather than seeking indemnification and/or contribution, General Dynamics sought independent damages. Id. at 830. Claims for independent damages are distinguishable from claims for indemnification or contribution, which, by definition,  only have the effect of offsetting liability. Id. at 831. In Madden, we further resolved that even dependent counterclaims should not be foreclosed until the qui tam defendant's liability is established, reasoning that denying a qui tam defendant recourse to damages offends procedural due process. Id. at 831. To avoid a potential conflict with Mortgages, we suggested adopting a two-stage resolution process for resolving liability in FCA actions before adjudicating a counterclaim: If a qui tam defendant is found liable, the counterclaims can then be dismissed on the ground that they will have the effect of providing for indemnification or contribution. On the other hand, if a qui tam defendant is found not liable, the counterclaims can be addressed on the merits. Id. (citing Burch ex rel. United States v. Piqua Eng'g, Inc., 145 F.R.D. 452, 457-58 (S.D.Ohio 1992)). [3] Both Mortgages and Madden figured prominently in the district court's dismissal of CTI's claims against Lash. The district court concluded that Madden is inapposite and that CTI should not be allow to wriggle out of Mortgages and into Madden.  We think that it is not Mortgages that limits Madden, but Madden that circumscribes Mortgages. Madden directly addresses two key questions that underlie our analysis in this case: First, are any of CTI's claims appropriately considered independent claims? Second, has there been a finding of liability that would preclude dependent claims that might in effect give CTI an indemnity? That the qui tam claims here were resolved by settlement rather than a finding of liability adds a wrinkle not considered in Madden. We examine these issues in light of Mortgages and Madden and conclude the district court's grant of Lash's motion for judgment on the pleadings, which we review de novo, [4] must be reversed.