On July 16, 2015, the Ninth Circuit held that a relator convicted criminally for his role in a fraud against the government must be dismissed from a qui tam action related to the fraud, even if he played only a minor role in the underlying misconduct.

In U.S. ex rel. Schroeder v. CH2M Hill, relator Carl Schroeder, who worked for a U.S. Department of Energy (“DOE”) contractor, submitted false time cards to his employer and was paid over $50,000 in unearned overtime. Many of Schroeder’s colleagues had engaged in similar conduct. DOE’s Office of Inspector General (“OIG”) launched an investigation in 2008. In an OIG interview conducted in December 2008, Schroeder admitted to over-billing for his time.

Schroeder filed a qui tam lawsuit against his employer in June 2009, alleging overbilling concerning the DOE contract work. In September 2011, the government filed an information against Schroeder for his billing misconduct, and Schroeder pled guilty to one felony count of conspiracy to commit fraud. In August 2010, the government intervened in Schroeder’s qui tam suit and moved to dismiss him as a relator under 31 U.S.C. § 3730(d)(3), which provides, in relevant part, that “[i]f the person bringing the action is convicted of criminal conduct arising from his or her role in the violation of section 3729, that person shall be dismissed from the action and shall not receive any share of the proceeds of the action.” The district court granted the government’s motion and dismissed Schroeder.

On appeal, Schroeder argued that, despite what would appear to be the plain meaning of the statutory provision under which he was dismissed as a relator, the dismissal was improper because a literal reading of the provision would render the statutory scheme logically inconsistent and produce an absurd result. Schroeder relied primarily on a clause in section 3730(d)(3) preceding the one quoted above, which preceding clause states that a court may “reduce the share of the proceeds” awarded to a relator “if the court finds that the action was brought by a person who planned and initiated the violation of section 3729.” Schroeder argued that his role was minor, and if he did not qualify as a planner or initiator and could not have his share reduced under the first clause of section 3730(d)(3), how could he lose his share altogether based on a conviction under the second clause of the section?

The Ninth Circuit rejected this argument. While acknowledging that the two clauses in section 3730(d)(3) “may not perfectly harmonize” eligibility for award and culpability, the Ninth Circuit declined to act as a “superlegislature” and rewrite the statute. More important, the court noted that the relator’s dichotomy was false: “the statute also requires courts to dismiss planners and initiators convicted of fraud.”

The Ninth Circuit also dismissed two secondary rationales that may have supported Schroeder’s position. First, the court rejected Schroeder’s argument that applying section 3730(d) to minor fraud participants would undermine the FCA’s purpose of encouraging whistleblowers to uncover fraud, on the dual bases that there is no need to look beyond the plain meaning of the provision and because the purpose of the FCA, even if considered, confirms the plain meaning because it indicates Congress was seeking to strike a balance.

Second, the court, on its own initiative, considered whether section 3730(d)(3)’s second clause addressing convictions modified the first clause addressing planners and initiators. The court observed that such an interpretation was “narrowly permit[ted]” because both clauses appear in the same paragraph and the first uses an indefinite article (“a person”) while the second uses a definite article (“the person”). The Ninth Circuit nevertheless declined to adopt such an interpretation, because it found in the legislative history indications that the two clauses were intended to operate independently.

The Schroeder decision makes clear that one need not be a planner or initiator of fraud on the government to be barred from recovery of a relator’s share in a qui tam suit addressing that fraud; under the FCA, even a bit player in the fraudulent scheme will be precluded from any recovery if convicted for his or her role in the fraud, however minor.