Opinion
No. 91-CV-763-B.
October 6, 1995
ORDER
This Order is entered pursuant to the parties' September 20, 1995 Partial Consent to Proceed Before United States Magistrate Judge with regard to docket item #62 — Defendants' Motion to Dismiss. This Order shall be governed by the following provisions: 28 U.S.C. § 636(c); Fed.R.Civ.P. 73; and Local Rules 72.1, 73.1 73.2. Any appeal from this Order shall be taken directly to the United States Court of Appeals for the Tenth Circuit.
Now before the Court is Defendants' Motion to Dismiss Plaintiffs' qui tam action brought under the False Claims Act, 31 U.S.C. §§ 3729- 3733 (1983 Supp. 1995) ("FCA"). Plaintiffs' Amended Complaint alleges that Defendants, through a management-directed mismeasurement scheme, under-reported to the United States the amount of crude oil and natural gas purchased over the years from Federal and Indian lands in several states.
The words "qui tam" (pronounced/kwày tæm/) are taken from the Latin expression "qui tam pro domino rege quam pro se ipso in hac parte sequitur," meaning "Who sues on behalf of the King as well as for himself." BLACK'S LAW DICTIONARY 1251 (6th ed. 1990). See also United States ex rel. Stinson, Lyons, Gerlin Bustamante v. Prudential Ins. Co., 944 F.2d 1149, 1152 n. 2 (3rd Cir. 1990) (citing Blackstone, Commentaries on the Law of England 160 (1768)). The qui tam provisions of the FCA permit a private plaintiff (i.e., a relator) to bring a claim on behalf of the United States Government against a person who "knowingly" defrauds the Government in the manner specified at 31 U.S.C. § 3729(a)(1)-(7) (Supp. 1995). The FCA provides civil penalties and damages, a percentage of which the qui tam plaintiff is permitted to retain as a reward for prosecuting the action on behalf of the Government. Id. at §§ 3729(a) and 3730(d).
Pursuant to Fed.R.Civ.P. 12(b)(1), Defendants move to dismiss Plaintiffs' Amended Complaint on the ground that this Court lacks subject matter jurisdiction. In the alternative, Defendants move, pursuant to Fed.R.Civ.P. 12(b)(6), to dismiss the following portions of Plaintiffs' Amended Complaint: (1) all claims relating to royalty payments made by Defendants prior to October 27, 1986 (i.e., the effective date of the most recent amendments to the FCA); and (2) all claims relating to Indian royalty payments. With respect to pre-1986 royalty payments, Defendants argue these are "reverse" false claims that were not actionable under § 3729(a) of the FCA prior to its amendment in 1986 and the amendments are not retroactive. With respect to the Indian royalty payments, Defendants argue that these claims are not actionable under § 3729(a) of the FCA because the United States has no ownership interest in Indian lands.
For the reasons discussed below, Defendants' 12(b)(1) motion is DENIED. Defendants' 12(b)(6) motion is GRANTED only as to those claims based on (1) Indian royalty payments made before October 27, 1986; and (2) Indian royalty payments made after October 26, 1986, which were not transmitted to the Government but paid directly to the Indians. Defendants' 12(b)(6) motion is DENIED as to all other claims.
I. PROCEDURAL HISTORY.
Precision Company is a corporation formed by William I. Koch and William A. Presley to investigate Defendants and bring a qui tam action against them. In 1989, Precision Company did just that by filing a qui tam lawsuit in this Court. United States ex rel. Precision Company v. Koch Industries, Inc., No. 89-C-437-C (N.D. Okla. 1989) (Precision I). Defendants filed a Motion to DismissPrecision I for lack of subject matter jurisdiction, arguing that Precision Company did not qualify as an "original source" under 31 U.S.C. § 3730(e)(4)(A). Judge H. Dale Cook granted the Motion to Dismiss, holding that Precision had not turned over all information to the Government. United States ex rel. Precision Co. v. Koch Industries, Inc., No. 89-C-437-C, 1990 WL 422422, at *3 (N.D. Okla. Nov. 27, 1990).
As will be discussed in more detail below, an "original source" is "an individual who has direct and independent knowledge of the information on which [publicly disclosed] allegations are based and has voluntarily provided the information to the Government before filing [a qui tam action]." 31 U.S.C. § 3730(e)(4)(B). Original source status is a jurisdictional requirement.
In an attempt to correct the jurisdictional defect found by Judge Cook, Precision Company, via Mr. Koch and Mr. Presley, disclosed additional information to the Government and filed the present lawsuit (Precision II). Plaintiffs then appealed Judge Cook's Order in Precision I to the Tenth Circuit Court of Appeals. Pending the outcome of the appeal in Precision I, Precision II was dormant in this Court.
The Tenth Circuit affirmed the dismissal of Precision I on grounds other than those relied on by Judge Cook. The Tenth Circuit held that subject matter jurisdiction was lacking because Precision Company did not have direct and independent knowledge of the information on which the allegations in the Precision I Complaint were based. United States ex rel. Precision Co. v. Koch Industries, Inc., 971 F.2d 548 (10th Cir. 1992), cert. denied, 113 S.Ct. 1364 (1993). At the conclusion of thePrecision I appeal, William Koch and William Presley petitioned the appellate court for leave to join that action. When the Tenth Circuit refused to permit them to join in Precision I, Mr. Koch and Mr. Presley, without requesting leave from this Court, filed an Amended Complaint in this lawsuit to add themselves as plaintiffs.
Defendants then filed, and Judge Thomas R. Brett granted, a Motion to Dismiss Plaintiffs' Amended Compliant. Judge Brett held that (1) 31 U.S.C. § 3730(b)(5) prevented Mr. Koch and Mr. Presley from joining the action, and (2) Precision had violated Fed.R.Civ.P. 21 by not seeking leave prior to filing its Amended Complaint. Plaintiffs appealed Judge Brett's Order and the Tenth Circuit reversed, holding that Mr. Koch and Mr. Presley could be added "as a matter of course" under Fed.R.Civ.P. 15(a). United States ex rel. Precision Co. v. Koch Industries, Inc., 31 F.3d 1015, 1018-19 (10th Cir. 1994). When the case was remanded to this Court, Precision Company was dismissed, leaving only William Koch and William Presley as plaintiffs. Defendants' current Motion to Dismiss relates solely to the qui tam claims brought by these two individual plaintiffs.
II. IS THIS ACTION BARRED BY RES JUDICATA?
Defendants argue that this action is barred by the Tenth Circuit's decision in Precision I. Precision I resulted in a judgment of dismissal for lack of subject matter jurisdiction.Precision I, 971 F.2d at 554. A dismissal for lack of subject matter jurisdiction is not a dismissal on the merits. Fed.R.Civ.P. 41(b). As such, the issue preclusion, rather than the claim preclusion, prong of the res judicata doctrine applies. Restatement (Second) Judgments §§ 20, 27 and 29. In other words, a jurisdictional dismissal only bars relitigation of the precise jurisdictional issue determined in the prior action, not the claim being raised in the prior action. State Farm Mut. Auto. Ins. Co. v. Dyer, 19 F.3d 514, 518 n. 8 (10th Cir. 1994) (citingWinslow v. Walters, 815 F.2d 1114, 1116 (7th Cir. 1987)).
Mr. Koch is the principal shareholder of Precision Company and Mr. Presley is a minority shareholder and officer. Without doubt Mr. Koch and Mr. Presley are in privity with Precision Company. Thus, the Court agrees with Defendants' assertion that Plaintiffs are bound by the Tenth Circuit's holding in Precision I. However, the Tenth Circuit's holding in Precision I was narrow.
The only "issues" addressed by Precision I was whether the allegations underlying the Complaint were publicly disclosed and whether Precision Company met the original source requirements of 31 U.S.C. § 3730(e)(4). The Tenth Circuit determined that the allegations had been publicly disclosed and that Precision Company was not an original source. Precision I, 971 F.2d at 554. The Tenth Circuit's opinion is completely silent regarding whether Mr. Koch and Mr. Presley satisfy the requirements of § 3730(e)(4). In fact, the court makes it clear in Precision II that it has not yet addressed the issue. Precision II, 31 F.3d at 1019. The Court finds, therefore, that litigation of Mr. Koch's and Mr. Presley's original source status is not barred by the issue preclusion prong of the res judicata doctrine. III. THE FCA's HISTORY.
Neither Magnus Electronics, Inc. v. La Republica Argentina, 830 F.2d 1396 (7th Cir. 1987) nor Montego Bay Imports, Ltd. v. United States, 25 Cl. Ct. 639 (1992) compel a contrary result. In each of these cases, the jurisdictional issue being raised in the second lawsuit was identical to the issue which had been raised and considered in the first lawsuit. See Magnus, 830 F.2d at 1400-1401 n. 7 (whether defendant's actions were sufficient to create jurisdiction under the Foreign Sovereign Immunities Act); and Montego Bay, 25 Cl. Ct. at 650 and 654-55 (whether the claim being asserted sounded in tort or contract).
The remaining issues to be resolved involve interpretation of various provisions of the FCA. As the D.C. Circuit has recently stated, when one considers the FCA, the past must serve as a prologue. United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 649 (D.C. Cir. 1994). Some familiarity with the "tortuous, wending history" of the FCA is "critical to an understanding" of the FCA as it exists today. Id. A. THE ORIGINAL ACT.
The original version of the FCA was known as the "Lincoln Law." It was adopted in 1863 during the Civil War at the behest of President Abraham Lincoln "to assist in ferreting out unscrupulous defense contractors who committed fraud against the Union army by delivering bullets loaded with sawdust." Joan R. Bullock, The Pebble in the Shoe: Making the Case for the Government Employee, 60 Tenn. L. Rev. 365, 368-69 (1993) (citing Cong. Globe, 37th Cong., 3rd Sess., 952, 955 (1863)). According to the FCA's original language, "any" person was permitted to bring an action on behalf of the Government. The penalty provisions of the original Act provided for double damages and a civil forfeiture of $2,000 for each false claim. If the action was successfully prosecuted, the relator was permitted to keep half of any recovery. United States ex rel. Marcus v. Hess, 317 U.S. 537, 539-40 (1943); United States ex rel. Stinson, Lyons, Gerlin Bustamante v. Provident Life Acc. Ins. Co., 721 F. Supp. 1247, 1249-50 (S.D. Fla. 1989).
See Act of March 2, 1863, c. 67, 12 Stat. 696, later reenacted as Rev. Stat. §§ 3490-3494 5438, and later codified at 18 U.S.C. §§ 80, 82-86 and 31 U.S.C. §§ 231-234.
With the New Deal and World War II era came a flood of Government procurement and contracting. Under these circumstances, the broad language of the original Act led to "parasitical" lawsuits. Quinn, 14 F.3d at 649. These lawsuits were parasitic in nature because they often relied exclusively on information contained in Government files and/or indictments. The Supreme Court approved this practice in Hess, holding that the language of the 1863 Act did not require the relator to bring any original information to the lawsuit. Hess, 317 U.S. at 546-47 (a case in which the relator had done nothing other than copy a Government criminal indictment as his own civil qui tam complaint). Reacting strongly to the Hess decision, Congress amended the FCA within eleven months to overturn the result inHess. B. THE 1943 AMENDMENTS.
In 1943 the Legislature attempted to stop "parasitic" lawsuits by giving the Government more control over qui tam actions and by creating exceptions to the FCA's general grant of subject matter jurisdiction to the federal courts. The 1943 Amendments were codified at 31 U.S.C. §§ 232-235 (1976). These Amendments required a qui tam plaintiff to provide the United States Attorney General with a copy of the complaint and a "disclosure in writing of substantially all evidence and information in his possession material to the effective prosecution of such suit."Id. at § 232(C). The United States had 60 days from service of this disclosure to determine whether to take over the action by entering an appearance in the lawsuit. Id. If the Government chose not to take over prosecution of the lawsuit, the qui tam Plaintiff was permitted to proceed, unless the lawsuit "was based upon evidence or information [already] in the possession of the United States, or any agency, officer or employee thereof, at the time such suit was brought." Id.
The 1943 Amendments also altered the amount of reward a qui tam plaintiff was entitled to. A qui tam plaintiff was not guaranteed any reward and any amount he was to recover was left to the sound discretion of the trial court with certain limits. If the Government chose to intervene, a qui tam plaintiff could recover up to 10% of the amount recovered by the United States. If the Government did not intervene, a qui tam plaintiff could recover up to 25% of the amount recovered for the United States.See 31 U.S.C. § 232(E)(1) (1976).
After the 1943 Amendments, courts began giving the FCA's jurisdictional provision a restrictive interpretation. As a result, use of the FCA's qui tam provisions substantially decreased. The most commonly cited example of this restrictive approach is United States ex rel. State of Wisconsin v. Dean, 729 F.2d 1100 (7th Cir. 1984). In Dean, the State of Wisconsin conducted an extensive investigation into Medicaid fraud occurring within the state. As a result of this investigation, the State learned that defendant had requested reimbursement for psychiatric services not performed. As part of its participation in the Medicare reimbursement program, the State was required to report all information regarding fraudulent Medicaid transactions to the federal government. After complying with this reporting requirement, the State filed a qui tam action under the FCA against defendant. Id. 1102-1104.
The defendant in Dean filed a motion to dismiss for lack of subject matter jurisdiction, which was overruled by the district court. Defendant appealed and the Seventh Circuit reversed, dismissing the State's qui tam action. Interpreting the language added by the 1943 Amendments, the court held that even though the State had been the one who had given the information about the fraud in question to the federal government, it could not bring a qui tam action under the FCA because the information on which the action was based was in the Government's possession at the time the action was filed. Dean, 729 F.2d at 1106-1107. The court reached this result by applying the literal language of the 1943 Amendments, and concluded that
[i]f the State of Wisconsin desires a special exemption to the [FCA] because of its requirement to report Medicaid fraud to the federal government, then it should ask Congress to provide the exemption.Id. (citing a similar comment by the United States Supreme Court in Hess). As with the decision in Hess, the decision inDean was the catalyst for legislative reform of the FCA. Less than two years later, the 1986 Amendments to the FCA were adopted.
C. The 1986 Amendments.
The 1986 Amendments are the latest attempt by Congress to strike a balance between the avoidance of parasitic actions likeHess and the encouragement of legitimate private enforcement actions like Dean. Quinn, 14 F.3d at 651. In attempting to accomplish this basic goal, the 1986 Amendments changed the FCA in the following general ways:
1. Damages — the civil forfeiture was raised from $2,000 to between $5,000 and $10,000 per violation, and damages are now trebled instead of doubled. 31 U.S.C. § 3729(a).
2. Proof Required — the FCA now makes it clear that allegations of false claims need only be proved by a preponderance of the evidence, and that proof of a specific intent to defraud is not required. Actual knowledge or reckless disregard of the truth or falsity is sufficient. 31 U.S.C. § 3729(b).
3. Qui Tam Plaintiff's Reward — if the Government intervenes, a qui tam plaintiff is now guaranteed 15% and may recover up to 25% of any amount recovered by the Government. If the Government does not intervene, a qui tam plaintiff is guaranteed 25% and may recover up to 30% of any amount recovered for the Government. A qui tam plaintiff also now has a right to recover reasonable attorney's fees. 31 U.S.C. § 3730(d).
4. Reverse False Claims — were explicitly recognized as actionable under the FCA. 31 U.S.C. § 3729(a)(7). See discussion, infra, at section V.
5. Filing Procedures — qui tam plaintiffs must now file their complaints in camera and under seal. As under the 1943 Amendments, qui tam plaintiffs are still required to serve a copy of the compliant and all evidence in their possession on the United States. As before, the Government then has 60 days in which to determine if it will intervene and conduct the action or decline to intervene and leave the action to be prosecuted by the qui tam plaintiff. 31 U.S.C. § 3730(b)(2).
6. Statute of Limitations — increased from six years after a violation occurs to the longer of six years after a violation or three years after the Government should have learned the facts underlying the claim, but in no event longer than ten years. 31 U.S.C. § 3731 (b).
7. Jurisdiction — the new language bars all claims based on allegations which have been publicly disclosed, unless the qui tam plaintiff can demonstrate that she is an original source of the information on which the allegations are based. See 31 U.S.C. § 3730(e)4). See discussion of "original source" requirement, infra, at section IV.See Michael L. Waldman, The 1986 Amendments to the False Claims Act: Retroactive or Prospective 18 Pub. Cont. L.J. 469, 471-474 (1989) [hereinafter Waldman, The 1986 Amendments] (providing a discussion of the differences between and among the 1863, 1943 and 1986 versions of the FCA). The 1986 Amendments obviously represent the latest in a series of legislative trials and errors regarding the FCA. Any attempt at interpreting them must be carried out with the FCA's "tortuous, wending history" in mind.Quinn, 14 F.3d at 651.
IV. DOES THE COURT HAVE SUBJECT MATTER JURISDICTION?
The current jurisdictional provision of the FCA provides as follows:
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, in a congressional, administrative, or [General] Accounting Office report, hearing, audit, or investigation, or from the news media, 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). This section clearly creates an exception to this Court's subject matter jurisdiction as to claims based on allegations which have been publicly disclosed. There is, however, an exception to this exception where the qui tam plaintiff can demonstrate that she is an "original source" of the information. Precision I, 971 F.2d at 553. An original source is defined by the FCA as
an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing [a qui tam action] which is based on the information.31 U.S.C. § 3730(e)(4)(B). The Tenth Circuit in Precision I has already determined that allegations regarding Defendants' alleged mismeasurement scheme have been publicly disclosed, and that Plaintiffs' Amended Complaint is based on these publicly disclosed allegations. Precision I, 971 F.2d at 553-54. Therefore, the only issue left to resolve is whether Plaintiffs qualify as "original sources" under § 3730(e)(4)(B).
Defendants argue that this Court is bound by the Tenth Circuit's holding in Precision I under the law of the case doctrine. Defendants fail to recognize, however, that Precision I has been dismissed and the present action is a completely different action than Precision I. Thus, the law of the case doctrine is not applicable. Arizona v. California, 460 U.S. 605, 618 (1983) (holding that "when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case.") (emphasis added). See also Rohrbaugh v. Celotex Corp., 53 F.3d 1181, 1183 (10th Cir. 1995). Instead, Plaintiffs are precluded from relitigating these issues by the issue preclusion prong of the res judicata doctrine. See discussion, supra, at section II.
The parties assume in their briefing that the 1986 jurisdictional standard (i.e., public disclosure and original source) should be applied to all of Plaintiffs' claims. The FCA's pre-1986 jurisdictional standard was, however, substantially different than the one enacted in 1986. Prior to 1986, federal courts lacked subject matter jurisdiction in all cases in which the Government already possessed the information underlying the qui tam plaintiff's claim. Because the determination of which jurisdictional provision should apply is a matter involving this Court's subject matter jurisdiction, the Court has conducted a sua sponte analysis to determine whether the 1986 jurisdictional standard applies to Plaintiffs' pre-1986 claims. Adopting the reasoning and analysis of the following decisions, the Court is satisfied that the 1986 jurisdictional standard applies to Plaintiffs' pre-1986 claims. See United States ex rel. Lindenthal v. General Dynamics Corp., Nos. 93-16690, 94-16005 and 93-16823, ___ F.3d ___, 1995 WL 453279 (9th Cir. Aug. 2, 1995); United States ex rel. Anderson v. Northern Telecom, Inc., 52 F.3d 810 (9th Cir. 1995); and United States ex rel. Newsham v. Lockheed Missiles and Space Co., Inc., No. C88-20009, 1995 WL 241444 (N.D. Cal. Apr. 20, 1995), clarified by 1995 WL 470219 (Aug. 2, 1995). The Court wishes to make it clear, however, that its determination relates solely to the retroactive application of the FCA's jurisdictional provisions and not to any of the other provisions of the FCA which were amended in 1986.
Federal courts are courts of limited subject matter jurisdiction. There is a presumption that jurisdiction does not exist "absent a showing of proof by the party asserting federal jurisdiction." Precision I, 971 F.2d at 551. The language of § 3730(e)(4) makes it clear that the "original source" requirement is an element of this Court's subject matter jurisdiction. Therefore, Plaintiffs have the burden of establishing that they are "original sources" of the information underlying the allegations in their Amended Complaint. The Court will consider the entire record submitted by each party and resolve any disputed jurisdictional facts as may be necessary. Holt v. United States, 46 F.3d 1000, 1002-1003 (10th Cir. 1995) (holding court has wide discretion in considering evidentiary materials to resolve a factual attack under Fed.R.Civ.P. 12(b)(1)).
Section 3730(e)(4)(B)'s original source requirement can be broken down into two elements: (1) Plaintiffs must have direct and independent knowledge of the information on which the allegations in their Amended Complaint are based, and (2) Plaintiffs must have voluntarily provided such information to the Government before filing this lawsuit. Precision I, 971 F.2d at 553. Some courts have added a third element — a qui tam plaintiff must also have directly or indirectly been a source to the entity that publicly disclosed the allegations in his complaint. See United States ex rel. Wang v. FMC Corp., 975 F.2d 1412, 1417-18 (9th Cir. 1992); United States ex rel. Dick v. Long Island Lighting Co., 912 F.2d 13, 16 (2nd Cir. 1990). Contra United States ex rel. Siller v. Beckton Dickinson Co., 21 F.3d 1339, 1351-55 (4th Cir.), cert. denied, 115 S.Ct. 316 (1994). Because the Tenth Circuit decidedPrecision I on other grounds, it declined to address the third element adopted by Wang and Dick. The Court will address each of these elements in reverse order. A. DIRECT OR INDIRECT SOURCE TO ENTITY DISCLOSING ALLEGATIONS.
Some courts find an ambiguity in the language of 31 U.S.C. § 3730(e)(4)(A) and § 3730(e)(4)(B). Interpreting the statute to resolve this perceived ambiguity, these courts require a qui tam plaintiff to demonstrate he was a direct or indirect source to the entity (i.e., government, media, etc.) that publicly disclosed the allegations underlying his complaint.Wang, 975 F.2d at 1417-18; Dick, 912 F.2d at 16. The court inWang described this requirement as follows:
These courts found that the meaning of the word "information" in § 3730(e)(4)(A) and § 3730(e)(4)(B) was ambiguous. According to the court in Dick, the ambiguity stems from the fact that "information" in § 3730(e)(4)(A) seems to refer to the information that has been publicly disclosed, while "information" in § 3730(e)(4)(B) seems to refer to the information on which the qui tam plaintiff's complaint is based. Dick, 912 F.2d at 17.
It is important to note that under the rule we adopt today, all those who `directly or indirectly' disclose an allegation might qualify as its original source. [citation omitted] Anyone who helped to report the allegation to either the government or the media would have `indirectly' helped to publicly disclose it.Wang, 975 F.2d at 1419. The record clearly establishes that Plaintiffs meet this requirement. Therefore, the Court need not determine whether or not the Wang and Dick requirement is clearly mandated by § 3730(e)(4).
In finding that there had been prior public disclosure of the allegations on which Plaintiffs' Amended Complaint is based, the Tenth Circuit pointed to the following disclosures: (1) the filing of three lawsuits by Mr. Koch in 1981, 1982 and 1985, (2) a public hearing of the United States Senate Select Committee on Indian Affairs, and (3) news releases. Precision I, 971 F.2d at 553-54. The record establishes that Mr. Koch filed the lawsuits referred to and that both Mr. Koch and Mr. Presley cooperated with the Select Committee on Indian Affairs. Thus, Mr. Koch and Mr. Presley were at least indirect sources to at least one of the entities that publicly disclosed the allegations underlying their Amended Complaint.
B. VOLUNTARY DISCLOSURE TO THE GOVERNMENT.
There are two governmental notification provisions under the FCA. One is a jurisdictional requirement because it is part of the definition of original source under 31 U.S.C. § 3730(e)(4)(B). The other is merely a procedural requirement under 31 U.S.C. § 3730(b)(2). Section 3730(e)(4)(B) requires disclosure of all information on which the allegations in a qui tam complaint are based to someone in the Government prior to filing the qui tam action. Section 3730(b)(2) requires service of all "material evidence and information" on a United States Attorney and the Attorney General after a qui tam action is filed. Defendants argue that Plaintiffs have not satisfied either of these notification requirements because notification under each provision was carried out by Precision Company, and not by Mr. Koch and Mr. Presley.
With regard to § 3730(e)(4)(B)'s "original source" notification requirement, the record establishes that Mr. Koch and Mr. Presley did give the Government all information in their possession before this lawsuit was filed. Mr. Koch and Mr. Presley met with staff members of the Senate Select Committee on Indian Affairs in the early summer of 1988. During these meetings, Mr. Koch and Mr. Presley brought Senate staff members up to date on the state of their investigation into Defendants' alleged oil and gas mismeasurement scheme. Furthermore, Judge Cook found inPrecision I that Mr. Koch and Mr. Presley had given the Government their information, but that the information gathered since Precision Company had been formed (i.e., information gathered from October 1988 to May 1989) had not been turned over to the Government. Precision I, 1990 WL 422422, at *3. On appeal, the Tenth Circuit described this additional information as "weak, informal and strikingly redundant." Precision I, 971 F.2d at 554. Thus, from the record it appears that Mr. Koch and Mr. Presley provided the Government with the information on which the allegations in their Amended Complaint are based prior to the filing of this lawsuit.
The Court's conclusion that Plaintiffs have meet § 3730(e)(4)(B)'s notification requirement is further supported by the fact that § 3730(e)(4)(B)'s underlying purpose has also been satisfied in this case. Senator Grassley, one of the authors of the 1986 Amendments, described the purpose of § 3730(e)(4)(B)'s disclosure requirement as follows:
In the definition of `original source,' the requirement that the individual `voluntarily' informed the Government . . . is meant to preclude the ability of an individual to sue under the qui tam section of the False Claims Act when his suit is based solely on public information and the individual was a source of the allegations only because the individual was subpoenaed to come forward. However, those persons who have been contacted or questioned by the Government . . . and cooperated by providing information which later led to a public disclosure would be considered to have `voluntarily' informed the Government . . . and therefore considered eligible qui tam relators.
132 Cong. Rec. 20536 (1986). There is absolutely no evidence that Mr. Koch or Mr. Presley were compelled to provide the Select Committee on Indian Affairs with any information. Once contacted by the Committee, Plaintiffs cooperated fully and this cooperation led to the public disclosure of the information provided to the Committee. The only question remaining is whether they had "direct" and "independent" knowledge of that information. See discussion, infra, at section IV(C).
Although the Supreme Court has cast some doubt on the wisdom of relying on statements occurring during debates in Congress, United States v. St. Paul, M. M. Ry. Co., 247 U.S. 310, 318 (1918), clearly the statements made by the sponsor or author of legislation are entitled to some weight. Id. See also S E Contractors, Inc. v. United States, 406 U.S. 1, 12-15 n. 9 (1972).
With respect to § 3730(b)(2)'s procedural notification requirement, Defendants argue that the post-filing disclosure in this case was performed by Precision Company, and not by William Koch or William Presley. Defendants argue that for Mr. Koch and Mr. Presley to satisfy § 3730(b)(2)'s requirement, each would have to file a separate complaint and make a separate disclosure of all "material evidence and information" to a United States Attorney. The Court does not agree.
In compliance with the Tenth Circuit's mandate in Precision II, Mr. Koch and Mr. Presley were added as parties to this lawsuit "as a matter of course," pursuant to Fed.R.Civ.P. 15(a). Precision II, 31 F.3d at 1018-19. No new claims were added as a result of the amendment, only two new named plaintiffs were added. Thus, any potential liability of Defendants was not increased as a result of the amendment. Under these circumstances, the amendment adding Mr. Koch and Mr. Presley relates back to the date the original Complaint was filed (i.e., as if Mr. Koch and Mr. Presley had filed the Compliant and issued service themselves). See, e.g., Fed.R.Civ.P. 15(c); American Fidelity Cas. Co. v. All American Bus Lines, Inc., 190 F.2d 234, 237 (10th Cir.), cert. denied, 342 U.S. 851 (1951); Staren v. American Nat. Bank Trust Co., 529 F.2d 1257, 1263-64 (7th Cir. 1976) (holding that amendment substituting corporate plaintiff for individual plaintiff who organized and controlled corporation related back); Fashion Novelty Corp. of N.J. v. Cocker Machine and Foundry Co., 331 F. Supp. 960, 963-65 (N.J. 1971) (holding that amendment adding alter ego of corporate plaintiff relates back); Clif J. Shapiro,Amendments that Add Plaintiffs Under Federal Rules of Civil Procedure 15(c) 50 Geo.Wash.L.Rev. 671, 679-680 (1982) (recognizing that "courts generally agree that amendments that substitute or add a plaintiff . . . relate back . . . if the new plaintiff asserts a claim no broader than the one the original plaintiff asserted. . . ."). Thus, there is no need for Mr. Koch and Mr. Presley to re-jump the procedural hurdles already cleared by Precision Company.
Although amendments changing plaintiffs are not specifically addressed by Fed.R.Civ.P. 15(c), the relation back principle in Fed.R.Civ.P. 15(c) "extends by analogy to amendments changing plaintiffs." Fed.R.Civ.P. 15(c) advisory committee's note (1966).
The Court's conclusion is supported by the fact that the purpose of this notification provision has been satisfied by the actions already taken by Precision Company. The Tenth Circuit has defined the purpose of § 3230(b)(2)'s post-filing disclosure as follows: (1) to provide the Government with enough information to determine whether it should intervene and take over prosecution of the action, and (2) to allow the Government to determine whether there is a basis to defeat the court's jurisdiction over the qui tam portion of the action (i.e., so it does not have to share any recovery with a qui tam plaintiff). United States ex rel. Woodard v. Country View Care Center, Inc., 797 F.2d 888, 892 (10th Cir. 1986). It is clear from the record that the purposes behind § 3730(b)(2) have been fulfilled in this case. There appears to be no dispute that the Government had an adequate opportunity and sufficient information to make the decisions referred to in Woodard.
Woodard was decided prior to the 1986 Amendments. Nevertheless, the notification provision at issue was not substantially changed by the 1986 Amendments. Thus, the Tenth Circuit's reasoning in Woodard is still applicable to § 3730(b)(2)'s post-filing notification provision.
Defendants cite United States ex rel. Erickson v. American Institute of Biological Sciences, 716 F. Supp. 908 (E.D.Va. 1989) as support for their argument that Mr. Koch and Mr. Presley are required to retake procedural steps already performed by Precision Company. Erickson is, however, distinguishable on its facts. In Erickson there was a complete failure by any qui tam plaintiff to comply with certain procedural requirements (i.e., they failed to file their complaint in camera and under seal for 60 days). Holding that this procedural error was irrevocable and could not be cured, the court felt it had no choice but to dismiss plaintiff's complaint. Id. at 911-12. Unlike Erickson, this case does not present a complete lack of disclosure to the Government. Defendants argue that the Government should be told again. In light of the following passage from Precision I, the Court declines the invitation to require unnecessary procedural gestures:
One of the [False Claims Act's] primary purposes is to encourage individuals knowing of government-related fraud to come forward with that information. . . . By minimizing the [procedural] obstacles faced by qui tam plaintiffs, we believe that this type of government `whistleblowing' will be further encouraged.Precision II, 31 F.3d at 1019 n. 7 (citing United States v. NEC Corp., 11 F.3d 136, 139 (11th Cir. 1993)).
C. DIRECT AND INDEPENDENT KNOWLEDGE.
To claim original source status, Plaintiffs must demonstrate that they have "direct and independent knowledge of the information on which the allegations [in their Amended Complaint] are based. . . ." 31 U.S.C. § 3730(e)(4)(B). Defendants argue that the only type of person that can satisfy this "direct and independent knowledge" standard are what they term "paradigmatic whistleblowers." According to Defendants, the only type of individual that could be an original source in this case would be a Koch insider with first hand knowledge that mismeasurement of oil and gas was occurring. The Court does not agree. Neither the cases cited by Defendants, nor the prior ruling of this Court, nor the purpose of the FCA support such an interpretation of the "original source" provision.
Defendants' allegations regarding Mr. Koch's motivations (i.e., revenge, family feud, bounty hunter, etc.) are irrelevant to the original source determination. Courts have recognized that qui tam plaintiffs with personal motives are often the best kind of qui tam plaintiffs.
[The FCA] was passed upon the theory based on experience as old as modern civilization, that one of the least expensive and most effective means of preventing fraud on the Treasury is to make the perpetrators of them liable to actions by private persons acting, if you please, under the strong stimulus of personal ill will or the hope of gain.Hess, 317 U.S. at 541, n. 5 (quoting U.S. v. Griswold, 24 F. 361, 366 (D. Ore. 1885)). 1. Direct Knowledge.
To determine the meaning of a statute, the Court must look not only at the "particular statutory language, but to the design of the statute as a whole and to its object and policy." Crandon v. United States, 494 U.S. 152, 158 (1990). The legislative history of the FCA reflects a concern over the lack of Government resources needed to ferret out and prosecute fraud. One gets the sense from reviewing this legislative history that fraud against the Government is "so rampant and difficult to identify that the Government could use all the help it could get from private citizens with knowledge of fraud." United States ex rel. LaValley v. First Nat. Bank of Boston, 707 F. Supp. 1351, 1355 (D. Mass. 1988). The 1986 Amendments reflect a specific intent by Congress to remedy this problem by increasing private involvement in the exposure and prosecution of fraud against the Government. A narrow construction of the original source requirement would frustrate this intent by significantly reducing the number of qui tam lawsuits. See United States ex rel. Stinson, Lyons, Gerlin Bustamante v. Pilot Life Ins. Co., No. C-90-29-G, 1991 WL 210855, at *10-11 (M.D.N.C. Aug. 6, 1991); and S.Rep. No. 99-345, 99th Cong., 2d Sess. 23-24, reprinted in 1986 U.S. Code Cong. Admin. News 5266.
The FCA's jurisdictional scheme was specifically designed to promote private citizen involvement in exposing fraud against the Government. It was also designed to prevent parasitic suits by opportunistic late-comers who add nothing to the exposure of the fraud. "This sense of balance is reflected in the historical development of the [FCA]." United States ex rel. Rabushka v. Crane Co., 40 F.3d 1509, 1511 (8th Cir. 1994), cert. denied, 115 S.Ct. 2579 (1995) (internal citations omitted) (citing Precision I, 971 F.2d at 552). See also Stinson, 944 F.2d at 1153-54; Quinn, 14 F.3d at 649-51; United States ex rel. Kreindler Kreindler v. United Technologies Corp., 985 F.2d 1148, 1157 (2nd Cir.),cert. denied, 113 S.Ct. 2962 (1993); S.Rep. No. 99-345, 99th Cong., 2d Sess. 23-24, reprinted in 1986 U.S. Code Cong. Admin. News 5266, 5288-89. Congress' intent would be fulfilled best by a construction of the original source provision that disqualifies relators "only under the narrow circumstances necessary to prevent truly parasitic suits." Robert L. Vogel, Eligibility Requirements for Relators under Qui Tam Provisions of the False Claims Act 21 Pub.Cont.L.J. 593, 595 (1992) [hereinafter Vogel, Eligibility Requirements]. This lawsuit is not parasitic in the sense that Hess was.
The 1986 Amendments represent a clear Congressional intent to reverse decisions like Dean and permit qui tam suits to be brought by a relator whose independent investigation uncovers fraud against the Government. The record clearly demonstrates that Plaintiffs, much like the State of Wisconsin in Dean, conducted an extensive investigation of allegedly fraudulent activities by Defendants. This is precisely the type of activity Congress hoped to foster and encourage with its 1986 Amendments to the FCA. See, e.g., United States ex rel. Hartigan v. Palumbo Bros., Inc., 797 F. Supp. 624, 630-31 (N.D. Ill. 1992). Thus, the Court finds that the purpose of the FCA is fulfilled when an individual who, through his own investigative efforts, unearths evidence of fraud against the Government and brings a qui tam action. "No one benefits when fraud [against the Government] is left unpursued." Pilot Life, 1991 WL 210855, at *11.
See Quinn, 14 F.3d at 657-58 (holding that plaintiff who started out with innocuous information and bridged the gap to fraudulent activity with his own independent investigation was an original source); Hartigan, 797 F. Supp. at 630-31 (holding that plaintiffs, who had conducted their own investigation into the practices of various entities involved in the construction industry in the Midwest, were original sources); United States ex rel. Givler v. Smith, 760 F. Supp. 72, 74 n. 5 (E.D. Penn. 1991) (holding in dicta that former state agency employee was an original source because she uncovered the fraud at issue as a result of investigations conducted on her own time);Provident, 721 F. Supp. at 1257-58 (holding that plaintiff who conducted investigation of insurance company's claim practices by talking with the company's insureds and governmental officials was an original source).
Several courts have defined "direct" in contrasting terms. One's knowledge is "direct" if it was gathered or produced as a result of one's own labor. One's knowledge is not "direct" if he simply stumbles across an interesting court file or wanders into a public hearing and discovers some interesting information.United States ex rel. Fine v. Chevron, U.S.A., Inc., 39 F.3d 957, 961-62 (9th Cir. 1994), reh'g en banc granted, 60 F.3d 525 (1995); Hartigan, 797 F. Supp. at 631 (citingStinson, 944 F.2d at 1161); Provident, 721 F. Supp. at 1258. This Court has already held that
the term `direct' does not mean, as defendants appear to argue, that the plaintiff must be able to provide `eyewitness' testimony supporting the allegations. Rather, the requirement is satisfied if the plaintiff gains the information directly through its own interest and efforts and not fortuitously.Precision I, 1990 WL 422422, at *3. Based on this definition, Plaintiffs' knowledge is direct. The record clearly reflects that Plaintiffs conducted their own extensive investigation of Defendants' oil and gas purchasing practices. The information relied on by Plaintiffs to support the allegations in their Amended Complaint was produced by their own efforts. They did not simply stumble across an interesting court file. It is, therefore, direct.
Magistrate Judge Jeffrey Wolfe, who also considered this issue, determined that Mr. Koch and Mr. Presley were original sources. Magistrate's Findings and Recommendations in Precision I, No. 89-C-437-C, Docket No. 64, September 14, 1990.
Defendants argue that Plaintiffs did "stumble" across the fact that they had a claim under the qui tam provisions of the FCA. One must distinguish, however, between a claim and the facts underlying that claim. In this case, it is clear that Plaintiffs did not stumble across the facts underlying their present claim. A quick review of the numerous statements, affidavits, interviews and tests conducted by Plaintiffs demonstrates that they went out in a concerted effort to get this information. The fact that at the time they were gathering the information they did not know it was going to be used to support a qui tam action is irrelevant.
In support of their argument that Plaintiffs' information is not "direct," Defendants point to the low evidentiary value of Plaintiffs' information (i.e., its hearsay nature, the character of Plaintiffs' witnesses, etc.). This is not, however, the stage of the litigation at which the credibility of Plaintiffs' evidence should be judged. Determinations regarding the value of Plaintiffs' evidence are better left to the trier of fact when the merits of this case are finally reached.
Defendants cite three cases in support of their argument that one who obtains information through an investigation, rather than through an eyewitness experience, cannot be an original source.See Stinson, 944 F.2d at 1149; Kreindler, 985 F.2d at 1148; and United States ex rel. Barth v. Ridgedale Elec., Inc., 44 F.3d 699 (8th Cir. 1995). In Stinson and Kreindler the bulk of the information at issue had been acquired by the qui tam plaintiffs during discovery in a prior case. Both courts held that information obtained during discovery was not obtained directly by one's own investigative effort. Each plaintiff tried to overcome this finding by arguing that they had conducted their own investigation after the discovery and had uncovered additional information. Despite this additional investigation, both courts held that the plaintiffs were not original sources because the indirect information obtained during discovery was the "core" information and the direct information discovered during their own investigation was collateral or background information that did nothing other than enable the plaintiffs to understand the context of the core information. Plaintiffs' complaints were based on the "core" information which had been obtained in an indirect manner and not on the collateral information which had been obtained in a direct manner. Therefore, plaintiffs were not original sources. Kreindler, 985 F.2d at 1157-1159; Stinson, 944 F.2d at 1160-1161.
Stinson and Kreindler are simply not representative of the facts in this case. The court in Stinson made it clear that the whistleblowing insider is not the only type of person that can qualify as a qui tam plaintiff. The court specifically recognized that a qui tam plaintiff may qualify as an original source where the "core" information underlying the plaintiff's complaint resulted from his own investigation. Stinson, 944 F.2d at 1161. The "core" information on which Plaintiffs' Amended Complaint is based was obtained through their own investigation. Plaintiffs' investigation did not simply uncover collateral or background information, which could be used to support other information that had been obtained in an indirect fashion. Thus, the Court finds that Plaintiffs had "direct" knowledge of the information underlying the allegations in their Amended Complaint. 2. Independent Knowledge.
Defendants also rely on Barth. The plaintiff in Barth alleged fraudulent activity in connection with payroll reports submitted to the Government by a contractor. Plaintiff uncovered this information by visiting job sites, watching individual employees of the contractor working, copying publicly-filed payroll records, and interviewing employees of the contractor.Barth, 44 F.3d at 703-704. Citing language from both Stinson and Kreindler, the court seemed to hold that only a whistleblowing insider could qualify as an original source. Id. The court seemed to ignore the fact that the Stinson andKreindler courts were reacting to the collateral nature of the information uncovered by the investigations in those cases. Neither Stinson nor Kreindler held that information obtained through an investigation, rather than an eyewitness experience, could not qualify as direct knowledge. Thus, to the extent thatBarth holds that only a whistleblowing insider can qualify as an original source, the Court is unpersuaded in light of the prior holding of this Court and the purpose to be served by the 1986 Amendments to the FCA.
To satisfy the "independent" prong of the original source provision, it must appear that Plaintiffs discovered the information on which the allegations in their Amended Complaint are based independent of the public disclosure which triggered the original source provision in the first place. Provident, 721 F. Supp. at 1258; United States ex rel. Houck v. Folding Carton Admin. Comm., 881 F.2d 494, 505 (7th Cir. 1988), cert. denied, 494 U.S. 1026 (1990); Fine, 39 F.3d at 961-62. A majority of the information underlying Plaintiffs' claims was discovered prior to the public disclosure by the Select Committee on Indian Affairs. Furthermore, it was William Koch himself who publicly disclosed allegations of mismeasurement when he filed the lawsuits referred to by the Tenth Circuit in Precision I. The extensive nature and scope of the investigation conducted by Plaintiffs clearly establishes that they would have discovered the information underlying their claims even if there had been no public disclosure of mismeasurement allegations regarding Koch. Thus, the Court finds that Plaintiffs are "original sources" of the information underlying the allegations in their Amended Complaint and that this Court has subject matter jurisdiction over the claims raised therein. V. HAVE PLAINTIFFS STATED A CLAIM UNDER THE FCA FOR PRE-1986 "REVERSE" FALSE CLAIMS?
Defendants argue that not all of Plaintiffs' information was independent because they needed "over/short" numbers from the Select Committee on Indian Affairs because without them Plaintiffs could not quantify their damages. The Court rejects this argument for the following reasons. First, the over/short numbers referred to by Defendants relate more to the quantification of the gas and oil allegedly stolen, not the fact that stealing was occurring. A party does not have to be able to quantify his damages before coming into court. Second, Defendants are wrong in assuming that actual damages must be proven before recovery may be had under the FCA. Once the submission of a false claim to the Government has been established, a plaintiff may recover from $5,000 to $10,000 as a civil penalty, regardless of any actual damages suffered by the Government. 31 U.S.C. § 3729(a).
The remainder of Defendants' attacks on Plaintiffs' claims are all mounted under Fed.R.Civ.P. 12(b)(6). While considering Defendants' 12(b)(6) motion, the Court will accept as true all well-pleaded factual allegations set forth in Plaintiffs' Amended Complaint. Any inferences to be drawn from those facts will be construed in the light most favorable to Plaintiffs. Plaintiffs' claims will be dismissed "only if it appears [Plaintiffs] can prove no set of facts in support of [their] claims that would entitle [them] to relief." United States ex rel. John H. McCray Sanitation Service v. Midwest Container Co., No. 93-6094, 1993 WL 385250, at *1 (10th Cir. Oct. 1, 1993); Roman v. Cessna Aircraft Co., 55 F.3d 542, 543 (10th Cir. 1995).
Ordinarily, an action under the FCA involves a situation where the defendant has made a false statement to the Government to get the Government to pay to the defendant more money than the defendant would be entitled to but for his false statement. In this case, Plaintiffs' Amended Complaint alleges that Defendants made false statements to the Government in an attempt to reduce the amount of money they owed to the Government. In the vernacular that has grown around the FCA, this type of claim has been dubbed a "reverse" false claim. Defendants argue that prior to the FCA's 1986 amendments, reverse false claims were not actionable under the FCA. In particular, Defendants point to the following language, which was added to the FCA in 1986:
Any person who knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government is liable to the United States Government. . . .31 U.S.C. § 3729(a)(7). Defendants argue that because this language was not present prior to 1986, reverse false claims were not actionable under the FCA prior to 1986. The Court does not agree.
Prior to the 1986 amendment adding the language in § 3729(a)(7), a significant split of authority existed on the issue of whether reverse false claims were actionable under the FCA. While some authority supports Defendants' position, the Court finds more persuasive the pre-1986 cases which hold that reverse false claims have always been actionable under the FCA. These cases were interpreting the following language in the pre-1986 FCA:
The following cases recognize reverse false claims under the pre-1986 FCA: Smith v. United States, 287 F.2d 299 (5th Cir. 1961); United States v. Douglas, 626 F. Supp. 621 (E.D. Va. 1985); United States v. Gardner, 73 F. Supp. 644 (N.D. Ala. 1947); United States ex rel. Rodriguez v. Weekly Publications, Inc., 68 F. Supp. 767 (S.D.N.Y. 1946). The following cases refuse to recognize reverse false claims under the pre-1986 FCA: United States v. American Heart Research Foundation, Inc., 996 F.2d 7 (1st Cir. 1993); United States v. Howell, 318 F.2d 162 (9th Cir. 1963); United States ex rel. Kessler v. Mercur Corp., 83 F.2d 178 (2nd Cir.), cert. denied, 299 U.S. 576 (1936); United States v. Lawson, 522 F. Supp. 746 (D.N.J. 1981); United States v. Marple Community Record, Inc., 335 F. Supp. 95 (E.D. Penn. 1971).
Any person who knowingly presents, or causes to be presented, to an officer or employee of the United States Government . . . a false or fraudulent claim for payment or approval is liable to the United States Government. . . .31 U.S.C. § 3729(a)(1).
The Court finds the reasoning and analysis of United States v. Douglas persuasive and adopts that court's analysis as its own.See Douglas, 626 F. Supp. at 625-629. The Douglas court begins its analysis by recognizing that "underlying the disagreement among the lower courts is the fact that the two major Supreme Court cases interpreting the `claim for payment or approval' language in the False Claims Act are not in perfect harmony." See United States v. Neifert-White Co., 390 U.S. 228 (1968); andUnited States v. McNinch, 356 U.S. 595 (1958). In McNinch, the court had to decide whether an allegedly false application for credit insurance was a "claim" for purposes of the FCA. The Supreme Court began its analysis by recognizing the following:
In determining the meaning of the words `claim against the Government' we are actually construing the provisions of a criminal statute. Such provisions must be carefully restricted, not only to their literal terms but to the evident purpose of Congress in using those terms, particularly where they are broad and susceptible to numerous definitions.McNinch, 356 U.S. at 598 (emphasis added). The following lengthy excerpt from Douglas picks up with an analysis ofMcNinch and Neifert-White:
The [Supreme] Court went on to examine the brief legislative history of the False Claims Act, concluding that the Act was `not designed to reach every kind of fraud practiced on the government.' [Id. at 599]. Rather, the `plundering' of the public treasury that Congress wanted to stop was individuals billing the government for non-existent or worthless goods. . . . Id. In this light, and considering that a `claim against the government normally connotes a demand for money or some transfer of public property,' id., the Court held that an application for credit insurance was outside the scope of the Act.
Given the [Supreme] Court's somewhat restrictive interpretation of the False Claims Act in McNinch, defendants' contention that the Act was not designed to reach their [alleged] conduct would have more force if McNinch had been the latest Supreme Court case interpreting the relevant portions of the Act. When the Supreme Court decided Neifert-White almost ten years later, however, its approach to the False Claims Act was markedly different.
The facts in Neifert-White were more in line with traditional definitions of false claims than was the case in McNinch. In Neifert-White, the defendant grain dealer deliberately overstated the value of storage bins sold to his customers in order to induce a government agency to make loans to these customers in amounts in excess of its regulations. The Court of Appeals for the Ninth Circuit had held that an application for a loan was not a `claim for payment or approval' within the meaning of the Act. The Supreme Court reversed.
The Supreme Court defined the issue before it as follows:
Does the False Claims Act reach `claims' for favorable action by the Government upon applications for loans or is it confined to `claims' for payments due and owing from the Government? It is respondent's position that the term `claims' in the Act must be read in its narrow sense to include only a demand based upon the Government's liability to the claimant. Respondent relies upon United States v. Cohn, 270 U.S. 339 (1926), and United States v. McNinch, 356 U.S. 595 (1958), to support this narrow reading.390 U.S. at 230.
The [Supreme] Court then went on to discuss the intended scope of the Act. Evaluating the legislative history that had previously been discussed in McNinch the Court concluded that `the Act was intended to reach all types of fraud, without qualification, that might result in financial loss to the Government' and added that `the Court has refused to accept a rigid, restrictive reading [of the statute].' Id. at 232. The Court's broad interpretation was undercut somewhat by its formal holding that `claims' include all `fraudulent attempts to cause the Government to pay out money,' id. at 233, but the overall tenor of the opinion is that the term should be interpreted so as to reach all types of fraud that result in immediate financial loss to the government.Douglas, 626 F. Supp. at 628-29; (parallel citations omitted).
Taking the facts in Plaintiffs' Amended Complaint as true, it is clear that the Government suffered an "immediate financial detriment" in this case. See McNinch, 356 U.S. at 599; andNeifert-White, 390 U.S. at 232. Upon Defendants' presentation of each false report, the Government parted with property (i.e., oil and gas) for which it was not reimbursed. In essence, the fraudulent transactions allegedly involved in this case were nothing more than fraudulent requests for Government property. Even under the most restrictive reading of the FCA, it would appear that a fraudulent request for property owned by the Government is actionable under the FCA. See, e.g., United States v. Cohn, 270 U.S. 339 (1926) (where a different result would clearly have been reached had the Government owned the property in question). See also, Douglas, 626 F. Supp. at 629.
The FCA is a remedial statute. "It is intended to protect the treasury against the hungry and unscrupulous host that encompass it on every side, and should be construed accordingly." Hess, 317 U.S. at 541 n. 5 (quoting Griswold, 24 F. at 366). The Court is hard pressed to find a significant difference between a fraudulent request for the payment of money from the Government and a fraudulent statement reducing one's obligation to pay money to the Government. The net effect on the United States Treasury is the same in either case. The funds lost as a result of "reverse" false claims "are as much in need of protection from fraudulent claims as any other federal money, and the [FCA] does not make the extent of their safeguard dependent upon the bookkeeping devices used for their distribution."Smith, 287 F.2d at 304 (quoting Hess, 317 U.S. at 544-45);Douglas, 626 F. Supp. at 628-29; Weekly Publications, 68 F. Supp. at 770. Thus, the Court finds that Plaintiffs may bring reverse false claims prior to 1986, subject only to the statute of limitations for FCA actions.
In light of the Court's resolution of this issue, it will not address whether the language added by the 1986 Amendments regarding reverse false claims (i.e., 31 U.S.C. § 3729(a)(7)) can be applied retroactively under the circumstances presented by this case.
The FCA's legislative history confirms that "reverse" false claims have always been actionable under the FCA.
A fraudulent attempt to pay the Government less than is owed in connection with any goods, services, concession, or other benefits provided by the Government is also a false claim under the act. See Smith v. Gardner, 73 F. Supp. 644 (N.D. Ala. 1947).
S.Rep. No. 99-345, 99th Cong., 2d Sess. 9, reprinted in 1986 U.S. Code Cong. Admin. News 5266. As the following excerpts demonstrate, Congress went out of its way to make clear that the language added at 31 U.S.C. § 3729(a)(7) was simply a clarification of existing law, and not the creation of an additional ground for relief under the FCA:
[T]he subcommittee added a clarification that an individual who makes a material misrepresentation to avoid paying money owed to the Government should be equally liable under the Act as if he had submitted a false claim. The Justice Department testified that recent court rulings had produced an ambiguity as to whether such `reverse false claims' were covered by the False Claims Act. . . .
S.Rep. No. 99-345, 99th Cong., 2d Sess. 19, reprinted in 1986 U.S. Code Cong. Admin. News 5266 (emphasis added).
The Supreme Court's opinion in [Neifert-White] indicated that the False Claims Act `was intended to reach all types of fraud, without qualification, that might result in financial loss to the Government.' The Committee strongly endorses this interpretation of the act and, to remove any ambiguity, has included [ 31 U.S.C. § 3729(a)(7)] to resolve the current split in the case law relating to such material misrepresentations.Id. at 18-19. "[W]hile the views of subsequent Congresses cannot override the unmistakable intent of the enacting one, such views are entitled to significant weight, particularly so when the precise intent of the enacting Congress is obscure."Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. 572, 596 (1980) (internal citations omitted).
VI. HAVE PLAINTIFFS STATED A CLAIM UNDER THE FCA FOR FRAUDULENT UNDERPAYMENT OF INDIAN ROYALTIES?
Plaintiffs' Amended Complaint alleges that Defendants made false statements to the Government in an attempt to reduce the amount of money they owed to various Indian tribes as royalties for oil and gas taken from Indian leases. Defendants argue that these facts do not amount to a violation of the FCA because the FCA only applies where the Government sustains a direct loss of funds or property. Defendants argue that because the Government has no ownership interest in Indian leases and because the money being paid as royalties belongs to the Indians and not the Government, there is no loss of federal funds or property to support an FCA action. In support of their position that a false claim must directly impact the United States Treasury, Defendants rely on United States v. Azzarelli Const. Co., 647 F.2d 757 (7th Cir. 1981); United States ex rel. Simmons v. Smith, 629 F. Supp. 124 (S.D. Ala. 1985); and United States v. Cohn, 270 U.S. 339 (1926).
The Court agrees that Defendants properly describe the law prior to the FCA's 1986 amendments. Prior to 1986, the Court finds no language in the FCA to support Plaintiffs' Indian claims. Section 3729 was amended in 1986 to include the following language:
Any person who knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to . . . transmit money . . . to the Government is liable to the United States Government. . . .31 U.S.C. § 3729(a)(7) (emphasis added). The Court finds the word "transmit" to be significant.
Pursuant to Landgraf v. USI Film Products, 114 S. Ct. 1483 (1994) and Rivers v. Roadway Express, Inc., 114 S. Ct. 1510 (1994), the Court finds that the "transmit" language, as it is interpreted by the Court in this case, cannot be applied retroactively.
"The starting point for interpreting a statute is the language of the statute itself. Absent a clearly expressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive." Precision I, 971 F.2d at 552 (quotingConsumer Products Safety Comm. v. GTE Sylvania, Inc., 447 U.S. 102 (1980)). The literal meaning of "transmit" is to send or convey from one person or place to another. BLACK'S LAW DICTIONARY 333 (6th ed. 1990); WEBSTER'S THIRD NEW INT'L DICTIONARY 499 (1993). The Court finds no legislative history giving the word "transmit" anything other than its natural meaning. In particular, the Court finds no legislative history that says Congress did not intend to impose a civil penalty for those who use false records or statements to reduce their obligation to transmit funds to the Government, even when those funds are only held in trust for another.
Plaintiffs' Amended Complaint sufficiently alleges that Defendants knowingly used false records and statements to decrease their obligation to "transmit" money to the Government on behalf of various Indian tribes. Defendants acknowledge that a portion of the royalty payments for Indian leases are transmitted to the Minerals Management Service ("MMS") and then deposited in the United States Treasury for the benefit of the entitled Indian tribe. See 25 U.S.C. § 155. MMS is the agency within the Department of the Interior responsible for royalty payments on Indian leases. See Phillips Petroleum v. Lagan, 963 F.2d 1380, 1382 (10th Cir. 1992). Thus, the Court finds that the Amended Complaint states a cause of action under § 3729(a)(7) with respect to all Indian royalty payments transmitted after the effective date of the FCA's 1986 amendments.
The Azzarelli, Smith and Cohn cases cited by Defendants are pre-1986 cases. Liability for using a false record or statement to decrease an obligation to "transmit" money to the Government did not exist under the FCA prior to 1986. Defendants also rely on the following language to support their position:
Any person who [commits an act listed in § 3729(a)(1) to (a)(7)] is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person. . . .31 U.S.C. § 3729(a) (emphasis added). Defendants argue that this language makes it clear that Congress did not intend for the FCA to apply where there is no direct injury to the United States Treasury. Again, the court finds nothing in the language or legislative history that says Congress did not intend to provide a civil penalty where false statements or records have been used in transmissions to the Government in cases where no actual damages have been sustained by the Government.
The language relied upon by Defendants does prohibit Plaintiffs from recovering damages suffered by the Indians and not by the Government. Plaintiffs' recovery on the Indian claims may well be limited to the described civil penalty plus fees and expenses.
This finding compels two corollaries. First, for royalty payments transmitted to the government subsequent to October 26, 1986, Plaintiff may recover civil penalties and any damage to the Government they are able to prove. Plaintiff cannot recover for damage sustained by the Indians. As to royalty payments transmitted directly to the Indians, the FCA is not a proper remedy and Defendants' Motion to Dismiss for failure to state a claim upon which relief can be granted is sustained. Second, for all Indian royalty payments made prior to October 27, 1986, whether transmitted directly to the Indians or to the Government, the FCA is not the proper remedy and Defendants' Motion to Dismiss for failure to state a claim upon which relief can be granted is sustained.
This holding in no way impairs the right of the Indian tribes to file suit on their own behalf to collect damages suffered as a result of Defendants' allegedly fraudulent conduct. The Government, as trustee, could also bring a similar action on behalf of the affected Indian tribes. See, e.g., United States v. Stanolind Crude Oil Purchasing Co., 113 F.2d 194 (10th Cir. 1940); and Poafpybitty v. Skelly Oil Co., 390 U.S. 365 (1968).
CONCLUSION
For the above reasons, Defendants' Motion to Dismiss, pursuant to Fed.R.Civ.P. 12(b)(1), due to the Court's lack of subject matter jurisdiction is denied. Defendants' Motion to Dismiss, pursuant to Fed.R.Civ.P. 12(b)(6), is denied as to all of Plaintiffs' claims, except the following: (1) all claims based on Indian royalty payments made before October 27, 1986; and (2) all claims based on Indian royalty payments made after October 26, 1986, which were not transmitted to the Government but paid directly to the Indians. Therefore, the Court hereby dismisses (1) all claims based on Indian royalty payments made before October 27, 1986; and (2) all claims based on Indian royalty payments made after October 26, 1986, which were not transmitted to the Government but paid directly to the Indians.CERTIFICATION OF INTERLOCUTORY APPEAL
Pursuant to 28 U.S.C. § 1292(b), the Court hereby certifies that this Order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from this Order may materially advance the ultimate termination of this litigation. The subject matter jurisdictional issues in this case are controlling questions of law in that a resolution of these issues against Plaintiffs would completely bar this action. Issues involving reverse false claims and Plaintiffs' Indian claims are also controlling in the sense that major portions of Plaintiffs' claims are affected by rulings on these issues. While the Court feels that its resolution of these matters is correct, it recognizes that based on the authority cited by the parties in their briefs, there is substantial ground for a difference of opinion. Due to the complex nature of the issues involved in this case, much discovery will have to be conducted and a lengthy trial undertaken. The Court finds that an interlocutory appeal at this stage may prevent the waste of protracted discovery and litigation.
IT IS SO ORDERED.