In a decision handed down March 27, the U.S. Supreme Court restored some clarity to interpretation of the whistleblower provisions of the federal civil False Claims Act (FCA). In a 6-2 decision (Justice Breyer did not participate), the court held that whistleblowers who try to pursue claims under the FCA where allegations of fraud on the federal government have already been disclosed to the public can only do so if they have personal knowledge of the fraud. While Rockwell International Corp. v. United States, No. 05-1272, Slip Op. (U.S. Mar. 27, 2007), may not mark a sea change in the litigation of whistleblower claims under the FCA, the court’s decision will clearly provide a vehicle for trial courts and defendants to curtail the use of the qui tam provisions of the FCA in certain circumstances. The decision reflects a practical application of a core principle underlying the FCA – that the statute grants whistleblowers a limited license to file suit on behalf of the United States to pursue only those claims as to which they have personal knowledge of an alleged fraud.
The Rockwell Decision
James Stone is an engineer formerly employed by Rockwell International at the now-closed Rocky Flats nuclear weapons plant near Denver, Colo. He filed his original whistleblower complaint against the company nearly 20 years ago, shortly after the regulatory violations underlying his FCA claims received in-depth coverage in the local news media. The case was tried to a jury in the District of Colorado by lawyers from the Justice Department, because the government had intervened in the case, and by a private law firm representing “relator” Stone. Based on the jury’s verdict, the District Court entered judgment for the United States on some claims and for Rockwell on others. Rockwell was ultimately ordered to pay nearly $4.2 million to the United States. Under the qui tam provisions, Stone would have been entitled to a share of 15 to 25 percent of that $4.2 million, plus his substantial attorneys’ fees, expenses, and costs.
But the Supreme Court held that the public disclosures of Stone’s allegations divested the District Court of jurisdiction to hear his claims. As a result, Stone is not entitled to any portion of the government’s recovery, or his fees, expenses, and costs. Writing for the court, Justice Antonin Scalia declared that Stone’s claims could not survive because he was not an “original source” of the information that resulted in the claims that were tried to the jury. The court held that the United States could still recover, however, because those claims had been converted by government intervention in the case to claims prosecuted by the attorney general.
The False Claims Act
The FCA imposes civil liability for treble damages and penalties for the knowing presentation of a false or fraudulent claim for payment to the U.S. government. 31 U.S.C. § 3729(a). The FCA authorizes suit to be brought by the attorney general, or by a private “relator” on behalf of the United States under the FCA’s qui tam provisions. Id. § 3730(a), (b)(1). Prospective relators have a powerful incentive to bring such claims – a successful relator is entitled to a bounty of up to 30 percent of the government’s recovery, plus attorneys’ fees, costs, and expenses. Id. § 3730(d).
To avoid qui tam suits by opportunists trying to capitalize on information already in the public domain, Congress amended the statute in 1986 to include a provision commonly known as the “public disclosure bar.” The bar precludes federal courts from exercising jurisdiction over suits based on publicly disclosed allegations or transactions “unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.” Id. § 3730(e)(4)(A). The FCA defines “original source” 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 an action under [the FCA] which is based on the information.” Id. § 3730(e)(4)(B). The issue in Rockwell was whether the relator, James Stone, satisfied the original source requirement.
The Rockwell decision marks the first time that the Supreme Court has addressed either the public disclosure bar or the “direct and independent knowledge” requirement of the original source exception.
Factual and Procedural Background
From 1980 to 1986, James Stone was employed as an engineer at the Rocky Flats nuclear weapons plant in Colorado, which was managed and operated by Rockwell under a contract with the Department of Energy (DOE). During that time, Rockwell examined the possibility of storing the toxic pond sludge that accumulated at the facility by mixing it with cement to create “pondcrete blocks.” Stone believed that this idea would not work because of problems he foresaw with the piping system that extracted the sludge. Stone predicted these problems would result in an inadequate mixture of pond sludge and concrete, which would lead to rapidly disintegrating pondcrete blocks and the release of environmental toxins. Notwithstanding Stone’s predictions, Rockwell successfully produced “concrete hard” pondcrete blocks while Stone was employed at Rocky Flats.
After Stone was laid off in 1986, a subsequent supervisor at the site altered the mixture of sludge and concrete, producing “insolid” pondcrete blocks. The DOE became aware of this in 1988. In the meantime, in 1987, Stone had gone to the FBI with some 2,300 pages of documents alleging that Rockwell had engaged in a variety of environmental crimes. Among those documents was Stone’s 1982 engineering report predicting that the pondcrete piping system would fail. The FBI raided Rocky Flats in June 1989, resulting in a wave of publicity containing allegations about Rockwell’s insolid pondcrete, award fees Rockwell purportedly wrongfully obtained from the government, and false statements Rockwell allegedly made in violation of the Resource Conservation and Recovery Act.
In July 1989, after the FBI raid and resulting publicity, Stone filed a qui tam suit against Rockwell under the FCA. He alleged Rockwell had presented false and fraudulent claims for payment to the government under its contract, because it failed to comply with certain environmental laws and regulations. As required under the FCA, Stone provided the government with a disclosure statement of “substantially all material evidence and information” supporting his allegations. That statement identified various environmental and safety issues, including Stone’s 1982 assessment of the pondcrete piping system and his prediction that it would fail. Seven years later, in 1996, the government intervened in the case, and the government and Stone filed a joint amended complaint. The complaint as amended did not contain any allegation about a defect in the piping system causing the faulty pondcrete blocks. And the Final Pretrial Order further clarified that the pondcrete claim was based not on a piping defect, but on an incorrect cement/sludge ratio, inadequate process controls, and inadequate inspection procedures.
When the case went to trial in 1999, none of the witnesses that Stone had identified as having relevant knowledge testified and none of the documents that Stone provided to the government with his disclosure statement were introduced. Stone and the government relied at trial solely on the theory that the pondcrete blocks failed because of an insufficient cement-to-sludge ratio – not because of defects in the piping system. The jury found for Stone and the government on the claims relating to the pondcrete allegations. Rockwell filed post-trial motions alleging that the pondcrete claims were based on publicly disclosed allegations and that Stone was not an original source. The case went back and forth between the District Court and the U.S. Court of Appeals for the Tenth Circuit on this issue. The Supreme Court ultimately granted certiorari to decide whether Stone was an original source.
The Supreme Court’s Legal Analysis
Justice Scalia, joined by Chief Justice Roberts and Justices Kennedy, Souter, Thomas, and Alito, found that Stone was not an “original source.” The majority opinion answers six key questions: First, the court addressed the threshold question whether the public disclosure bar and its originalsource exception were truly jurisdictional, i.e., whether the exception must be satisfied in a qui tam action based upon publicly disclosed information for a federal court to have jurisdiction over the relator’s claims. The question was important because Stone contended that Rockwell had conceded Stone’s original-source status. Such a concession could have ended the inquiry, unless the original-source question raised a jurisdictional issue, in which case courts are obliged to address the issue regardless of the parties’ positions on the same. The Rockwell majority answered that question in the affirmative, concluding that the FCA expressly divests federal courts of jurisdiction over a relator’s claims where those claims are based upon publicly disclosed information and the relator is not an “original source.” Because the bar is jurisdictional, it can be raised at any time in the proceeding, by the court or the defendant. Thus, in Rockwell the issue was appropriately raised after the jury’s verdict clarified which of relator’s claims were the basis for the government’s recovery.
Second, the Supreme Court analyzed the statute’s requirement that an original source have “direct and independent knowledge of the information on which the allegations are based.” 31 U.S.C. § 3730(e)(4)(B). Resolving a split among the courts of appeals, the court determined that the phrase “information on which the allegations are based” refers to the information on which the relator’s allegations in the complaint are based rather than, as some other courts had held, the information on which the public disclosures had been based. While of relatively minor significance in Rockwell, this finding is likely to have broader significance in other matters. For one thing, the parameters of the original source inquiry will no longer vary from circuit to circuit. Although the resolution of the circuit split supplies welcome clarity and consistency, the decision also necessarily will foreclose arguments made by defendants who might have benefited from the rejected rule in a particular case. What is more important, however, is that the decision demonstrates the court is returning to the core principle of the qui tam provision – of “the sense of the matter” as Justice Scalia wrote it – to find that original source status turns on personal knowledge of “the information underlying the relator’s claims.” Slip Op. at 13, 12.
Third, the court addressed the question of which of a relator’s allegations are relevant when the allegations change during the course of the case. Stone argued that only the allegations in his original complaint were relevant; Rockwell argued that Stone must satisfy the original source exception to the public disclosure bar at every stage of the litigation. The court sided with Rockwell, “In our view, the term ‘allegations’ is not limited to the allegations of the original complaint.” Slip Op. at 15. Instead, where, as in Rockwell, there is an amended complaint and then a final pretrial order superseding all prior pleadings, the allegations as amended in the final pretrial order are those that must be examined to determine original source status. This holding means that FCA defendants can challenge jurisdiction throughout the litigation as the claims in the case evolve, and it could bolster the grounds for seeking to dismiss a relator even if the United States intervenes and takes over the prosecution of the suit.
Fourth, the court examined Stone’s personal knowledge and found it wanting. Stone had been laid off before the pondcrete failed; as such, he did not know that it failed, he merely predicted it. Although the court left open the question of whether a prediction might sometimes qualify as direct and independent knowledge, it held that a prediction certainly does not qualify where the premise of the prediction is wrong – and Stone’s premise was plainly wrong. Stone had predicted that the piping system would not work; the insolidity problem was caused not by piping issues, but by a change to the cement-to-sludge ratio that occurred after Stone was no longer employed at Rocky Flats.
Fifth, in another finding consistent with the notion that the FCA grants relators a limited license to prosecute only claims as to which they have personal knowledge, the court rejected Stone’s attempt to engage in “claim smuggling” – a label Justice Scalia hung on the practice of seeking to rely on direct and independent knowledge of some of the claims submitted to the jury (on which the jury found against Stone) to establish jurisdiction “in gross” over other claims for which he did not have the requisite knowledge. Slip Op. at 18. This holding may provide a basis for arguing that a relator’s recovery should be limited to the percentage of the damages derived from allegations which have not been publicly disclosed, or as to which the relator can establish his or her “original source” status.
Finally, the court explained that the verdict against Rockwell stands regardless of Stone’s status as a relator or entitlement to recovery. Even though the District Court had no jurisdiction over an action brought by Stone alleging faulty pondcrete from the cement-to-sludge ratio, once the government intervened, the action became an action brought by the attorney general. “[A]n action originally brought by a private person, which the Attorney General has joined, becomes an action brought by the Attorney General once the private person has been determined to lack the jurisdictional prerequisites for suit.” Id. at 20.
Justice Stevens dissented, joined by Justice Ginsburg. The dissent parted ways with the majority on the second question discussed above: whether an original source needs to have direct and independent knowledge of the information on which the relator’s allegations or the publicly disclosed allegations are based. In Justice Stevens’ opinion, an original source must have direct and independent knowledge of the publicly disclosed allegations.
Import of the Decision
In an amicus brief prepared by Hogan & Hartson, three health care trade associations explained to the Supreme Court that most litigation involving the public disclosure bar arises in the vast majority of cases filed under the FCA in which the government declines to intervene.1 The amicus brief predicted that the court’s decision would clarify the rules that relators must follow before they receive a potentially lucrative license to litigate on behalf of the United States. The trade associations urged the court to maintain a clear and strict “original source” rule – a rule that recognizes and rewards legitimate relators while winnowing out opportunistic bounty hunters – and argued that any standard that would lower the bar to allow relators to bring qui tam actions based only on stale hunches and fresh news reports would only impose high litigation costs on health care providers at the expense of patients.
The amicus brief sought to inform the court’s interpretation of the statute by highlighting the common theme of various standards courts apply to assess the viability and scope of a relator’s qui tam complaint. Those rules make it clear courts view the statute as authorizing relators to pursue only those frauds as to which they have personal knowledge, and not to engage in expensive and expansive fishing expeditions in the name of the United States. The amicus brief concluded: A clear, consistent, and strict “original source” rule, applied in tandem with the Act’s other gatekeeping mechanisms, gives courts and defendants a powerful tool to identify and ward off illegitimate qui tam strike suits like those sometimes aimed at amici’s members. The relators who clear the False Claims Act’s intentionally demanding gauntlet will have had their bona fides established, while less principled relators will be winnowed out. The government, the courts, and defendants all would benefit from that rigorous inquiry. Only the bounty hunters would complain.
The “sense of the matter” revealed in the Rockwell decision is thoroughly consistent with this approach. In addition to permitting defendants to use the public disclosure bar to challenge jurisdiction throughout the litigation, the Rockwell decision establishes the bar as another mechanism to keep litigation in declined qui tam actions focused on only those claims as to which the relator came into court with the requisite personal knowledge of an alleged scheme to defraud the United States. Any time a relator seeks to amend his or her complaint, to take discovery beyond the claims stated in the complaint, to include a newly expansive statement of claims in the final pretrial order, or to seek to present claims on theories allegedly tried by consent, the jurisdictional limitations of the statute should be raised by defendants whenever those new claims are based on publicly disclosed transactions or allegations and the relator lacks direct and independent knowledge of the information on which his or her claims are based. The Rockwell decision is a victory for government contractors and entities such as federal programparticipating health care providers, who are often faced with protracted and expensive litigation as a result of such cases.