On March 27, 2007, the Supreme Court issued a ruling in Rockwell International Corp. v. United States ex rel. Stone, No. 05-1272, whereby the Court clarified the definition of “original source” under the civil False Claims Act (“FCA”). In brief, the Court clarified that a private citizen asserting a government fraud action on behalf of the government (called a relator), may only do so if the relator has direct and independent knowledge of the information underlying the allegations in the complaint or the amended complaint. This ruling is consistent with the intent of the FCA and closes the door on opportunistic qui tam relators who do not have direct and independent knowledge of the facts giving rise to the FCA action.
Rockwell International (“Rockwell”) operated the Rocky Flats plant under a management and operation contract with the Department of Energy (“DoE”). In the early 1980s, Rockwell proposed to dispose of toxic sludge from solar evaporation ponds by mixing the toxic sludge with cement and storing it as dried “pondcrete” blocks. While employed as an engineer at the Rockwell nuclear plant, James Stone prepared a 1982 report that concluded that the Rockwell proposal would not work because the suggested process would result in an unstable mixture that would later deteriorate and cause the unwanted release of toxic wastes to the environment. Notwithstanding Stone’s prediction, Rockwell successfully made the pondcrete blocks during the period of Stone’s employment at Rocky Flats.
In March 1986, Stone was laid off and only thereafter did Rockwell discover the leaks in the pondcrete blocks. By October 1986, Rockwell knew that a substantial number of pondcrete blocks were insolid. In June 1987, Stone approached the Federal Bureau of Investigation (“FBI”) with allegations of environmental crimes at Rocky Flats during the time of his employment. To substantiate his allegations, Stone provided the FBI with 2,300 pages of documents, which included his 1982 engineering report predicting that the Rockwell pondcrete proposal would not work.
In May 1988, DoE learned of the issue when several pondcrete blocks began to leak, which led to the discovery of thousands of other insolid blocks. According to the case, the media reported DoE’s discoveries and attributed the malfunction to Rockwell’s failure to mix the concrete and toxic sludge properly. In June 1989, based in part on Stone’s 1987 allegations, the FBI and the Environmental Protection Agency (“EPA”) conducted a highly publicized raid of the Rockwell Rocky Flats plant. The media reported the raid and the stated allegations that supported the executed search warrant of the Rocky Flats facility. Rockwell eventually pleaded guilty to 10 environmental violations.
In July 1989, Stone filed a qui tam suit, alleging that Rockwell falsely asserted that it was compliant with applicable environmental laws under its DoE government contract. Accordingly, such action was in direct violation of the FCA. In 1996, the government intervened, and, with Stone, filed an amended complaint. The amended complaint did not follow Stone’s 1982 prediction regarding the Rockwell piping system deficiency. Rather, the amended complaint alleged that the pondcrete failed because a new foreman, hired after Stone’s departure, used an insufficient cement-to-sludge ratio. In district court, Rockwell argued that Stone was not an original source of the FCA allegations. The district court disagreed and ruled in favor of Stone and the government and awarded treble damages in the amount of $4.172 million. Rockwell appealed but the Tenth Circuit upheld the district court’s decision. This case is an appeal to the Supreme Court of the Tenth Circuit’s decision.
Clarification of “Original Source”
The Rockwell case is the first time the Supreme Court analyzed the FCA to clarify the meaning of “original source.” According to the FCA, “no court shall have jurisdiction over an action under this section [of the FCA] based upon the public disclosure or allegations or transactions” in judicial, congressional, or administrative hearings, audits, or investigations, or in the news media, unless the suit is brought by the attorney general or an original source. See 31 U.S.C. § 3730(e)(4)(A). To reiterate, any private citizen may bring an FCA action, unless the information serving as the basis for the allegations is already in the public domain. However, the action may be brought despite being in the public domain if the private citizen is an original source of the information. In summary, an original source is an individual who has direct and independent knowledge of information on which a qui tam action is based and has voluntarily provided the information to the government before filing the action. See 31 U.S.C. § 3730(e)(4)(B).
In Rockwell, the relator was not an original source. The Court ruled that Stone was not an original source because he was not an individual who had direct and independent knowledge of the information on which the relator’s allegations were based, as amended. Stone urged the Court to focus on the original complaint, which more readily incorporated Stone’s 1982 prediction regarding the pondcrete. However, the Court noted that in determining jurisdiction to hear a qui tam action, the applicable statute mandates a review of the allegations asserted. See 31 U.S.C. § 3730(e)(4)(A). The Court opined that the term “allegations” referenced in the above statute includes, at a minimum, the allegations in the original complaint as amended. Accordingly, the Court focused on the allegations of the amended complaint.
As a matter of course, when the government intervenes in an FCA action, the government leads the conduct of the case. Here, the government amended Stone’s allegations and in doing so, essentially prohibited him from recovering under the FCA. Such is the case because the amended complaint alleged actions by Rockwell upon which Stone had no direct and independent knowledge. Specifically, the amended complaint alleged that the pondcrete failed because of insufficiencies in the mixing process, which occurred after Stone was no longer employed at Rock well. Accordingly, the Court found that Stone was not an original source for the purposes of the FCA.
Impact of Rockwell
The FCA is used as a tool to prevent government waste, fraud and abuse. Indeed, it still serves that particular purpose. In addition, the provisions of the FCA were established to prevent parasitic litigation from opportunistic relators. The Rockwell decision furthers that purpose. Accordingly, the decision establishes three points of emphasis:
- Requirement of First-Hand Knowledge. The Court has clarified that a relator must have direct and independent knowledge of the facts alleged in the complaint and any amendments thereto. In accordance with the Rockwell decision, relators cannot amend their complaints to incorporate information previously unknown to the relator, but which was discovered and provided to them by the government.
- Less Parasitic Actions. Given the standard created by Rockwell, government contractors now have a means to challenge relators who do not have first-hand knowledge of the alleged wrongdoing. Indeed, the Court established a standard whereby a tribunal must evaluate its jurisdiction over a qui tam action brought by an original source every time the complaint is amended. The Rockwell decision discourages employees from asserting qui tam actions based on a potential relator’s opinions, comments, or observations identifying some issue in a process or product produced under a government contract, but to which the employee has no direct or independent knowledge.
- Foster Cooperation Between Relator and Government. The Rockwell decision places additional pressure on relators to cooperate with the government investigation. In some qui tam actions, the relator will often pursue additional claims not asserted by the government. Moreover, as a named party to the action, the relator is in a position to frustrate settlement discussions between the defendant and the government. Following Rockwell, private citizens are encouraged to work closely with the government, creating a partnership whereby the allegations asserted in the case represent actions to which the relator has first-hand knowledge.
The Rockwell decision is a significant victory for government contractors. The case clarifies who qualifies as an original source in an FCA action. In its ruling, the Court’s reasoning and logic is consistent with the intent of the legislators in that qui tam actions should only be brought by those private citizens who possess direct and independent knowledge of the facts asserted in the case.