One of most serious policy issues in qui tam enforcement under the False Claims Act (“FCA”) is the possibility that federal employees may use information obtained in the course of their government employment to enrich themselves by filing qui tam cases. Despite vigorous opposition by most government agencies and the Department of Justice, courts have been reluctant to limit this abuse of the information provided by contractors, grantees, and others who deal with the government. Qui tam actions by government employees have been challenged on the basis that the employees are obligated to disclose the fraud as part of their government job responsibilities and, while the courts have addressed the issue in a number of different ways, most courts sided with the government employee and allowed them to bring cases to enrich themselves with government information. See, e.g., United States ex rel. Holmes v. Consumer Ins. Group., 318 F.3d 1199 (10th Cir. 2003); United States ex rel. Williams v. NEC Corp., 931 F.2d 1493 (11th Cir. 1991); See also John T. Boese, Civil False Claims and Qui Tam Actions, at §4.01[B] (Wolters Kluwer Law & Business) (4th ed. 2011 & Supp. 2012-2). The Fifth Circuit has now allowed this bad public policy to continue.
In United States ex rel. Little v. Shell Exploration & Production Co., No. 11-20320, 2012 WL 3089777 (5th Cir. July 31, 2012), the Fifth Circuit addressed a question of first impression in that circuit—whether a federal employee is a “person” who may bring a qui tam action under the FCA. The court found that this statutory term should be interpreted broadly, and it ruled that a government employee is a “person” who may bring a qui tam suit under Section 3730(b)(1). The government and Shell failed to convince the court that Article III, statutory construction, conflict of interest, and other principles and arguments should categorically prohibit federal personnel from bringing qui tam suits based on information gathered from their government employment. The Fifth Circuit nevertheless left the door open for a possible dismissal of the suit on alternate grounds, namely that the FCA‟s public disclosure bar might apply to the suit by these two former Department of the Interior Minerals Management Service (“MMS”) employees who claimed that Shell was liable for underpayment of royalties owed to the United States under offshore leases. The court ruled that, because the employees‟ job was to disclose fraud to MMS, their disclosure of the unauthorized deduction allegations to the government was “nonvoluntary” and thus they could not be “original sources” of the allegations. That limitation is fine as far as it goes, but for the reasons explained below, it extends the bad public policy and may be of limited use in the future.
Article III and Statutory Interpretation
The United States (which did not intervene in the case below) raised several new arguments in favor of dismissing the two federal employee relators on appeal. One of these was that the two relators lacked Article III standing because federal employees‟ inability to retain relators‟ awards under federal conflict of interest rules meant that their qui tam suit could not create a case or controversy. The Fifth Circuit swiftly rejected this argument on the ground that the focus of redressability through litigation is on the plaintiff‟s injury, “not on what the plaintiff ultimately intends to do with the money he recovers.”
The court took greater pains to support its interpretation that the text of the FCA allows government employees to bring qui tam claims, an issue that is the subject of a circuit split. The key statutory provision, Section 3730(b)(1), provides:
(b) Actions by private persons. (1) A person may bring a civil action for a violation of section 3729 for the person and for the United States Government. The action shall be brought in the name of the Government. The action may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.
The Fifth Circuit found that in ordinary usage, the term “person” suggested that any person may bring suit, and that this meaning was consistent with the Supreme Court‟s interpretation of the same term in Cook County, Ill. v. United States ex rel. Chandler, 538 U.S. 119, 125 (2003). It also interpreted the reference to “private persons” in the title of subsection (b) as simply distinguishing suits by a person from suits by the Attorney General under subsection (a). Further, the court noted that in Marcus v. Hess, 317 U.S. 537, 546 (1943), the Supreme Court “embraced the notion that „even a district attorney, who would presumably gain all knowledge of a fraud from his official position, might sue as the informer.‟”
Conflict of Interest Concerns
In an amicus brief filed a number of years ago in support of the Ninth Circuit rehearing in United States ex rel. Fine v. Chevron, 72 F.3d 730, 745 (9th Cir. 1995), the Department of Justice persuasively set forth the undesirable incentives and very real conflict of interest concerns created by allowing government employees to bring qui tam suits based on information gathered in the course of their official duties:
To spend work time looking for personally remunerative cases . . . rather than doing their assigned work; to conceal information about fraud from superiors and government prosecutors so that they can capitalize on it for personal gain; to race the government to the courthouse to file ongoing audit and investigatory matters as qui tam actions before those cases have been sufficiently developed by the government to justify a lawsuit, thus prematurely tipping off the target, undermining the likely effectiveness of the case, and diverting unnecessarily up to 30% of the government‟s recovery to the government employee; and to use the substantial powers of the federal government conferred upon public investigators . . . to advance their personal financial interests . . . . Public confidence in the integrity and impartiality of government audits and investigations will necessarily decrease.
While the Fifth Circuit in Little accepted the government‟s point that allowing government employee relators could create clear problems under the government‟s conflict of interest provisions, the court gave it little credence and stated that such ethics obligations are “extraneous” to the FCA. In a concurring opinion, however, Judge Garza did address the conflict of interest concerns. The judge noted that these problems were serious—he pointed out that “federal employees who file qui tam actions like the one at issue in this case are now, on a plain reading of 18 U.S.C. § 208, potentially criminally liable,” and that this criminal liability “is rooted in a desire for impartial judgment on the part of federal employees.” Judge Garza concluded that this was “a matter of political concern.”
Unfortunately, the judge‟s call for political action at this time could do more harm than good in that it could result in the removal of existing limits on suits by government employees. Senator Grassley, who has shepherded a variety of whistleblower-enhancing amendments to the FCA through Congress—in 1986, when strong incentives for whistleblowers were added, and in the 2009 and 2010 amendments, when existing whistleblower incentives and protections were expanded—has never been prepared unequivocally to prohibit this abuse of government information by federal employees to enrich themselves.
The Public Disclosure Limitation
Importantly, the Fifth Circuit‟s decision in Little adopted an interpretation of the “voluntary provided” requirement in the original source provision of Section 3730(e)(4)‟s public disclosure bar that serves as some limitation on suits brought by government employee relators, but only if the fraud allegations were publicly disclosed. The appellate court specifically agreed with the district court and other courts that “the fact that a relator „was employed specifically to disclose fraud is sufficient to render his disclosures nonvoluntary.‟” As a result, if the allegations were publicly disclosed, the court ruled that the suit must be dismissed because the government employees in Little did not voluntarily provide their information to the government, and thus they were not original sources under Section 3730(e)(4)(B).
Dismissal on that basis is dependent upon a finding that the allegations were publicly disclosed, however, and the Fifth Circuit remanded the case to the district court for further action on that question. Even so, the appellate court‟s ruling on the original source requirement is the law of the case in Little, and it is an important step, although a limited and perhaps short-lived one, in the direction of preventing the inherent conflicts of interest raised by allowing government employees to bring qui tam suits against companies they regulate.
It is important to note that the 2010 amendments considerably narrow the public disclosure bar. In addition, they may make it easier for government employees to avoid dismissal under the revised original source provision, which narrows the voluntarily disclosed requirement. Under the 2010 revision, an original source has the option of either (i) voluntarily disclosing the fraud to the government before a public disclosure, or (ii) materially adding to the publicly disclosed allegations. In addition, the public disclosure basis for dismissal leaves government employees free to file suits in the worst possible scenario—when no public disclosure has occurred—and provides an incentive for them not to tell their superiors about the fraud until after they have brought a qui tam suit to avoid any type of public disclosure. See FraudMail Alert No. 02-02-20 (Feb. 20, 2002) (discussing suit by a government employee relator in which no public disclosure had occurred).