Court Opinion

ID: 3173599
Source: CourtListenerOpinion
Date Created: 2016-01-29 20:00:42.707237+00
Date Added: 2024-06-11T11:56:15.750980
License: Public Domain

PUBLISHED

                   UNITED STATES COURT OF APPEALS
                       FOR THE FOURTH CIRCUIT

                               No. 14-2299

UNITED STATES ex rel. STEVEN MAY AND ANGELA RADCLIFFE,

                 Plaintiff - Appellant,

           and

STATE OF CALIFORNIA; STATE OF GEORGIA; STATE OF ILLINOIS;
STATE OF NEW YORK; STATE OF TENNESSEE,

                 Plaintiffs,

           v.

PURDUE PHARMA    L.P.,   a   limited   partnership,     and;   PURDUE
PHARMA, INC.,

                 Defendants - Appellees.

Appeal from the United States District Court for the Southern
District of West Virginia, at Beckley.      Irene C. Berger,
District Judge. (5:10−cv−01423)

Argued:   October 29, 2015                   Decided:   January 29, 2016

Before TRAXLER, Chief Judge, and AGEE and DIAZ, Circuit Judges.

Affirmed by published opinion. Judge Diaz wrote the opinion, in
which Chief Judge Traxler and Judge Agee joined.

ARGUED: Mark Tucker Hurt, THE LAW OFFICES OF MARK T. HURT,
Abingdon, Virginia, for Appellant.      Daniel Stephen Volchok,
WILMER CUTLER PICKERING HALE AND DORR LLP, Washington, D.C., for
Appellees.   ON BRIEF: Paul W. Roop, II, ROOP LAW OFFICE, LC,
Beckley, West Virginia, for Appellant.      Howard M. Shapiro,
Christopher E. Babbitt, Charles C. Speth, Ariel Hopkins, WILMER
CUTLER PICKERING HALE AND DORR LLP, Washington, D.C., for
Appellees.

                               2
DIAZ, Circuit Judge:

        Steven May and Angela Radcliffe (the “Relators”) appeal the

district court’s dismissal of their qui tam action under the

False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq.                     They contend

that the district court incorrectly concluded that (1) the pre-

2010 version of the FCA’s “public disclosure bar,” 31 U.S.C.

§ 3730(e)(4)        (2009),   divested        the     court   of   subject    matter

jurisdiction;       and,   alternatively,           (2) the   Relators   failed     to

plead fraud in accordance with Federal Rule of Civil Procedure

9(b).     We agree that the public disclosure bar left the district

court     without     jurisdiction    over          the   Relators’    FCA   claims;

therefore, we do not reach the court’s alternative ground for

dismissal.    Accordingly, we affirm.

                                          I.

        The FCA allegations at issue have enjoyed a long though not

particularly fruitful life, having reached this court now for

the third time.        Ten years ago, Mark Radcliffe—a former district

sales    manager     for   Purdue    Pharma     (“Purdue”)—filed         a   qui   tam

action under the FCA against Purdue.                      United States ex rel.

Radcliffe v. Purdue Pharma L.P., 600 F.3d 319, 321–22 (4th Cir.

2010).     He alleged a fraudulent scheme whereby Purdue marketed

the pain medication OxyContin as having a falsely inflated 2:1

equianalgesic        ratio—which     is    a    measure       of   a   painkiller’s

                                          3
potency—as     compared       to    one       of       Purdue’s    older    pain    drugs,       MS

Contin.      Id.      at    321.         By    overstating         the     ratio,       Radcliffe

claimed,     Purdue        deceived      physicians         into     prescribing—and           the

federal     government       into       paying         for—OxyContin       instead       of    less

costly MS Contin.            Id. at 321–22 & n.3.                  In 2010, we held that

Radcliffe’s qui tam action must be dismissed based on a release

he executed upon accepting a severance package from Purdue after

it restructured its workforce.                     Id. at 322 & n.2, 324.

      Less     than    two        months       after       the    Supreme     Court          denied

Radcliffe’s     petition          for     certiorari,            United    States       ex    rel.

Radcliffe v. Purdue Pharma, L.P., 562 U.S. 977 (2010), his wife

Angela decided to “take up . . . the baton” and file the qui tam

action against Purdue now before the court.                              J.A. 434.        Joining

her as a relator is Steven May, a former Purdue employee who

worked under Mr. Radcliffe.                        One of their attorneys is Mark

Hurt, who was Mr. Radcliffe’s counsel throughout his qui tam

action.

      The    allegations           in    the       Relators’       lawsuit        are     “nearly

identical to” those pursued by Mr. Radcliffe.                              United States ex

rel. May v. Purdue Pharma L.P., 737 F.3d 908, 911 (4th Cir.

2013), cert. denied, 135 S. Ct. 2376 (2015).                             While the district

court found that the Relators did not base their allegations on

a   personal    review       of    the    documents         filed    in     Mr.    Radcliffe’s

suit, the court concluded that their “contribution to the case

                                                   4
was essentially to provide plaintiffs’ names not associated with

the release that barred Mr. Radcliffe’s suit.”                           J.A. 1323–24.

The facts of the fraudulent scheme alleged in this action come

from    Mr.    Hurt,    who     “simply    used    his    own    knowledge     developed

during [Mr. Radcliffe’s suit] and the documents provided by Mr.

Radcliffe . . . to draft the pleadings here.”                        J.A. 1323.

       The     district    court       dismissed    the    Relators’        suit   on   res

judicata grounds, giving preclusive effect to Mr. Radcliffe’s

qui tam action.            United States ex rel. May v. Purdue Pharma

L.P.,    No.    10-cv-01423,        2012 WL 4056720,       at   *4–5   (S.D.W.     Va.

Sept. 14, 2012).              We vacated that judgment, holding that Mr.

Radcliffe’s release “was personal to him” and “could not serve

as a defense to any claims that the Relators (or other non-

signatories) might assert against Purdue.”                           May, 737 F.3d at

913–14, 920.        And while Purdue argued that we could affirm the

district court’s dismissal on the alternative theory that the

public       disclosure       bar   precluded       the     Relators’        action,    we

explained that ruling on that issue would be premature, as the

district       court    had      not    made      the    requisite      jurisdictional

findings of fact.         Id. at 919–20.

       On     remand,     the    district       court    dismissed       the   Relators’

amended complaint, holding that their allegations were based on

the claims from Mr. Radcliffe’s suit and therefore the public

disclosure        bar     stripped         the     court        of     subject     matter

                                             5
jurisdiction.     In the alternative, the court (1) held that the

Relators failed to plead fraud with particularity under Rule

9(b), and (2) denied the Relators leave to further amend their

complaint. 1

     This appeal followed.

                                    II.

                                    A.

     The   FCA   provides   a   cause       of   action   “against   anyone    who

‘knowingly presents’ to the government ‘a false or fraudulent

claim for payment or approval.’”             United States ex rel. Owens v.

First Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 724, 728

(4th Cir. 2010) (quoting § 3729(a)(1)).                “In adopting the FCA,

‘the objective of Congress was broadly to protect the funds and

property of the government.’”           Id. (quoting Rainwater v. United

States, 356 U.S. 590, 592 (1958)).

     To fulfill this objective, the FCA in certain circumstances

permits qui tam actions, which “provide cash bounties . . . to

private citizens who successfully bring suit against those who

defraud    the   federal    government.”            United   States    ex     rel.

     1 The Relators also alleged various state law claims. The
district court explained that “[t]o the extent dismissal of the
state law claims is not required by the Court’s previous
findings,   the   Court   declines  to   exercise  supplemental
jurisdiction over those claims.” J.A. 1336.

                                        6
Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 649 (D.C.

Cir. 1994).    One barrier to bringing a qui tam action under the

FCA, however, is its “public disclosure bar.”                   While Congress

amended the public disclosure bar in 2010, we held that in the

instant case, which involves allegations between 1996 and 2005,

the pre-2010 version of the bar governs.            May, 737 F.3d at 914–

18.    It provides:

       No court shall have jurisdiction over an action under
       this section based upon the public disclosure of
       allegations or transactions in a criminal, civil, or
       administrative   hearing . . . unless  the   action  is
       brought by the Attorney General or the person bringing
       the action is an original source of the information.

31 U.S.C. § 3730(e)(4)(A) (2009).

       We interpret the phrase “based upon” in the pre-2010 public

disclosure bar differently than our sister circuits.                     United

States ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 57 (1st

Cir.   2009)   (discussing   the   circuit      split   on     this   issue   and

observing that “[t]his leaves the Fourth Circuit alone among the

courts of appeals in favoring a narrow reading of the [public

disclosure bar’s] ‘based upon’ language”).              While other circuits

read   the   phrase   to   bar   FCA   claims    that    are    “substantially

similar to” or “supported by” publicly disclosed information,

see, e.g., id.; United States ex rel. Bledsoe v. Cmty. Health

Sys., Inc., 342 F.3d 634, 646 (6th Cir. 2003), we interpret it

to preclude actions “only where the relator has actually derived

                                       7
from [a public] disclosure the allegations upon which his qui

tam action is based,” United States ex rel. Siller v. Becton

Dickinson & Co., 21 F.3d 1339, 1348 (4th Cir. 1994).                        This test

is satisfied if a relator’s claim is “even partly” derived from

prior    public      disclosures.       United    States   ex     rel.   Vuyyuru       v.

Jadhav, 555 F.3d 337, 351 (4th Cir. 2009). 2

     A    relator      bears   the    burden     of   proving    that    the     public

disclosure bar does not preclude his FCA action.                         Id. at 347.

When a relator cannot clear the pre-2010 version of the public

disclosure      bar,     the   court     is    divested    of        subject     matter

jurisdiction.         § 3730(e)(4)(A); see also May, 737 F.3d at 916.

We review the district court’s legal conclusions de novo and its

jurisdictional findings of fact for clear error.                       United States

ex rel. Wilson v. Graham Cty. Soil & Water Conservation Dist.,

777 F.3d 691, 695 (4th Cir. 2015).

                                          B.

     The Relators argue that their allegations are not “actually

derived from” a public disclosure and therefore the district

court    had    subject     matter      jurisdiction.           In    support,       they

highlight      the     district      court’s   finding     that      they      did   not

personally review the filings in Mr. Radcliffe’s lawsuit prior

     2  The public disclosure bar contains an exception for
relators who are the “original source” of their allegations.
§ 3730(e)(4)(A).    Here, the Relators do not argue that the
original source exception applies.

                                          8
to instituting this action. 3                 They also point out that although

their attorneys’ knowledge is imputed to them, Appellant’s Br.

at 21; accord Appellee’s Br. at 13, Mr. Hurt and his co-counsel

“had       already       learned    of     all       of   the     allegations        in     [Mr.

Radcliffe’s]            complaint       previously        from       nonpublic       sources,”

Appellant’s Br. at 22; accord Appellee’s Br. at 5 (explaining

that       this    is   “necessarily       so”       because     the    Relators’      counsel

prepared the filings in Mr. Radcliffe’s case).

       Accordingly,         we   must     determine        whether      the    Relators      can

sidestep the public disclosure bar when their allegations—though

not directly stemming from the docket entries in Mr. Radcliffe’s

lawsuit—are          derived     from    facts       their     attorney       learned     while

representing Mr. Radcliffe and preparing the public filings in

his case.           We hold that the district court correctly dismissed

the Relators’ suit.

       The        Relators’    claim     of   error       rises      and    falls    with    our

decision      in     Siller.        Accordingly,          we   turn    to     that   case.    In

Siller, the relator worked for a company, Scientific Supply,

that had filed suit against Becton Dickinson alleging that it

had “canceled [Scientific Supply’s] distributorship because it

feared that [Scientific Supply] . . . would disclose that [it]

was    overcharging           the    government.” 21 F.3d     at   1340–41.

       3
       There is no dispute that the filings in Mr. Radcliffe’s
lawsuit are qualifying public disclosures under § 3730(e)(4)(A).

                                                 9
Scientific Supply and Becton Dickinson ultimately settled their

lawsuit.     Id. at 1341.           Over a year after the settlement, the

relator filed his qui tam action against Becton Dickinson.                                        Id.

He claimed that “he originally learned that [Becton Dickinson]

overcharged        the     government          through          his    employment             with

[Scientific Supply], not as a result of [Scientific Supply’s]

suit    against    [Becton       Dickinson].”             Id.     Indeed,     the       relator

alleged that he learned of the fraud before Scientific Supply

filed    suit     and    that     he     had       not    read    Scientific           Supply’s

complaint until after he filed his qui tam action.                           Id.

       After parsing the meaning of the term “based upon” in the

public disclosure bar, we held that the bar is triggered when

“the relator has actually derived from [a public] disclosure the

allegations upon which his qui tam action is based.”                                        Id. at

1348.       Applying       this    test,       we     observed        that    “[i]t          [was]

certainly       possible     that,       as     [the       relator]     contends,             [he]

actually learned of [Becton Dickinson’s] alleged fraud entirely

independently of the [Scientific Supply] suit, and derived his

allegations       from   that     independent            knowledge.”         Id.       at    1349.

Thus, we concluded that the district court improperly dismissed

the    relator’s    action       under    the      public       disclosure     bar          and   we

remanded for further fact finding “because the district court

made no finding on whether [the relator] actually derived his

allegations       from     the    [Scientific             Supply]     suit,        a    finding

                                              10
necessary    to    the    conclusion      that         [the    relator’s]      action    was

‘based upon’ that suit.”          Id.

      Here, unlike in Siller, it is clear that the Relators did

not   independently         discover         the       facts      underpinning         their

allegations.        Additionally,         we      know        beyond   doubt     that    the

Relators     did    not     learn       of     the       alleged       fraud     “entirely

independently of” a prior lawsuit, as may have been true for the

relator in Siller.          Instead, the Relators’ knowledge in this

case stems from their attorney’s involvement in Mr. Radcliffe’s

qui tam action.

      Moreover, Siller anticipated that in factual circumstances

similar to those involved here, application of our “actually

derived from” test would result in dismissal.                          In reaching our

understanding      of     the    “based      upon”       language       in     the    public

disclosure bar, we rejected a broader statutory construction set

out in United States ex rel. Doe v. John Doe Corp., 960 F.2d 318

(2d Cir. 1992).      See Siller, 21 F.3d at 1347–49.

      In Doe, the relator was an attorney who learned of the

facts alleged in his FCA action while representing a John Doe

Corp. employee—who was instrumental in carrying out a fraudulent

scheme for the corporation—during a grand jury proceeding.                               Doe,
960 F.2d   at    320,   324.      Prior         to    that     proceeding,         however,

government investigators had divulged the fraudulent scheme to

innocent John Doe Corp. employees.                     Id. at 319–20, 322–24.             The

                                             11
relator contended that his allegations were not “based upon”

those    public    disclosures.           Id.    at    324.     The     Second      Circuit

rejected        this     argument,        explaining          that      the     relator’s

allegations “[were] the same as those that had been publicly

disclosed” and, under the court’s interpretation of the FCA’s

“based     upon”       language,      the       “[p]ublic      disclosure           of   the

allegations divests district courts of jurisdiction over qui tam

suits,     regardless         of     where       the     relator        obtained         his

information.”      Id.

     Although      the    court      in   Siller      disagreed      with     the    Second

Circuit’s statutory construction of the term “based upon,” it

did not reject the Second Circuit’s ultimate resolution of the

case under the public disclosure bar.                  The court explained:

     [In Doe], the qui tam plaintiff was an attorney who
     only learned of the pertinent fraud allegations
     through his representation of a client whose employer
     was   being   investigated   for   suspected  fraudulent
     billing   practices in     its   transactions with   the
     Government.    However, under our reading of section
     3730(e)(4), which we believe is more faithful to the
     enacted language, the same result might well obtain.

Siller, 21 F.3d    at   1348    n.8    (emphasis        added).         Though     this

language is dicta, it guides our application of Siller to the

case before us.         Like the relator in Doe, Mrs. Radcliffe and Mr.

May did not learn of their allegations directly from the public

disclosures at issue—in this case, the docket entries from Mr.

Radcliffe’s case.         And, much like in Doe, the Relators’ claims

                                            12
here are based on what their attorney learned when representing

another client in a matter involving the same fraud allegations. 4

Finally, as in Doe, the allegations in the Relators’ complaint

were publicly disclosed before suit was filed.                          In Siller, we

suggested        that    facts    like     these         would   trigger   the    public

disclosure bar, requiring dismissal.                     We now so hold.

       The      result    we    reach    here       is   also    consistent    with    the

purpose of the public disclosure bar.                        Section 3730(e)(4) “is

designed to strike a balance between empowering the public to

expose fraud on the one hand, and ‘preventing parasitic actions’

on the other.”           Wilson, 777 F.3d at 695 (quoting Siller, 21 F.3d

at     1348).           Thus,    the     FCA        encourages     whistleblowing       by

financially        rewarding      those    who       successfully      bring     qui   tam

actions.        See § 3730(d); Graham Cty. Soil & Water Conservation

Dist. v. United States ex rel. Wilson, 559 U.S. 280, 294 (2010)

(discussing the public disclosure bar and how it is designed in

part       to    provide       “adequate       incentives        for   whistle-blowing

insiders with genuinely valuable information” (quoting Quinn, 14
F.3d at 649)).           “At the same time, however, Congress sought to

prevent ‘parasitic’ qui tam actions in which relators, rather

       4
       That the relator in Doe was himself the attorney in the
proceeding in which he learned of the facts supporting his fraud
allegations does not distinguish Doe in a meaningful way.     As
previously noted, the parties agree that Mr. Hurt’s knowledge is
imputed to Mr. May and Mrs. Radcliffe.

                                               13
than bringing to light independently-discovered information of

fraud,       simply    feed    off    previous     disclosures          of   government

fraud.”       Siller, 21 F.3d at 1347.

        Purdue      argues     that    the      Relators’     FCA       claim     is     a

quintessential parasitic action because they provide no useful

new information but instead effectively copy the substance of

Mr. Radcliffe’s earlier suit.              The Relators respond that the FCA

is meant to encourage actions like the instant one in which the

qui tam plaintiffs learned of fraud second-hand.                             To support

this contention, the Relators point to the legislative history

of the FCA’s 1986 amendments, 5 which they say shows that Congress

intended       to   increase    the   number      of   FCA   qui    tam      actions   to

supplement the government’s efforts to prosecute fraud.

     Purdue has the better of the statutory-purpose argument.

While       Congress   intended      the   1986   amendments       to    increase      the

number of qui tam actions under the FCA, Congress did not invite

        5
       Among other changes, the 1986 amendments to the FCA
eliminated the “government knowledge” jurisdictional bar and
replaced it with the public disclosure bar at issue here.
Compare 31 U.S.C. § 3730(b)(4) (1982), with False Claims
Amendments Act of 1986, Pub. L. No. 99-562, § 3, 100 Stat. 3153,
3154, 3157.    The government knowledge bar precluded “qui tam
actions that were ‘based on evidence or information the
government had when the action was brought.’” United States ex
rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Prudential
Ins. Co., 944 F.2d 1149, 1153 (3d Cir. 1991) (quoting 31 U.S.C.
§ 3730(b)(4) (1982)).     By eliminating that bar, the 1986
amendments, as the Relators argue, were in part intended to
increase the number of FCA qui tam actions. See id. at 1154.

                                           14
a free-for-all for aspiring relators salivating over the FCA’s

qui tam reward provision.              See § 3730(d).           Instead, Congress

intended    only    to    supplement          the    government’s       ability    to

prosecute FCA actions as long as—consistent with the twin aims

of the public disclosure bar—parasitic claims are barred and

whistleblowing is encouraged.            Though the FCA surely is meant to

incentivize people like Mr. Radcliffe to come forward, it is not

designed to encourage lawsuits by individuals like the Relators

who (1) know of no useful new information about the scheme they

allege, and (2) learned of the relevant facts through knowledge

their    attorney   acquired     when     previously         litigating    the    same

fraud claim.

     Accepting the view of the Relators also leads to absurd

results.     Imagine the following: an attorney prepares a draft

complaint alleging an FCA violation, makes some insubstantial

edits, and then files it.              Under the Relators’ reading of the

FCA, a person who copied the earlier draft would limbo under the

public    disclosure     bar,    while    someone       who    copied     the    filed

complaint would rightly be labeled a parasitic relator, barred

from pursuing an FCA action.           That cannot be the law.

     In sum, we decline the Relators’ invitation to read Siller

so as to render it internally inconsistent and at odds with the

public disclosure bar’s purpose.                Indeed, by foreshadowing the

court’s    conclusion    in     this    case,       Siller    itself    eschews    the

                                         15
interpretation the Relators urge.                 Here, the Relators’ claims

are based on facts their counsel learned in the course of making

the   prior       public   disclosure    of     Purdue’s    allegedly   fraudulent

scheme.      Accordingly, we hold, consistent with our reasoning in

Siller      and     the    public   disclosure      bar’s    purpose,   that      the

district court correctly dismissed the Relators’ suit.

                                         III.

      For     the    reasons    given,    we    affirm     the   judgment    of   the

district court.

                                                                            AFFIRMED

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