Graham County Soil v. United States (08-304)

Oral argument: Nov. 30, 2009

Appealed from: United States Court of Appeals for the Fourth Circuit (June 9, 2008)

FALSE CLAIMS ACT, QUI TAM, RELATOR, SUBJECT-MATTER JURISDICTION

Respondent, the United States ex rel. Karen Wilson ("Wilson"), brought a qui tam action against two North Carolinian counties, Graham and Cherokee (collectively the “Counties”), for allegedly filing fraudulent reimbursement claims with the federal government. The Counties argue that, under the False Claims Act, no court has jurisdiction over Wilson's suit, because the State of North Carolina had previously publicly disclosed the information on which Wilson relies in her suit. Wilson counters that the False Claims Act’s public disclosure bar refers only to federal reports, audits, and investigations. In this case, the Supreme Court will decide whether, under the False Claims Act, a publicly disclosed state audit and investigation may preclude jurisdiction over a qui tam action.

Question presented

Whether an audit and investigation performed by a State or its political subdivision constitutes an “administrative . . . report . . . audit, or investigation” within the meaning of the public disclosure jurisdictional bar of the False Claims Act, 31 U.S.C. § 3730(e)(4)(A).

top

Issue

Does the Federal Claims Act jurisdictional bar apply only to publicly disclosed federal reports, audits, and investigations, or does it apply to publicly disclosed state reports, audits, and investigations as well?

top

Facts

In February 1995, petitioners, Graham County and Cherokee County (collectively, the “Counties”), applied for federal assistance under the Emergency Watershed Protection Program (the "EWP Program"), a United States Department of Agriculture (“USDA”) federal disaster assistance program. See United States ex rel. Wilson v. Graham County Soil & Water Conservation Dist., 528 F.3d 292, 296 (4th Cir. 2008). The EWP Program is administered by the National Resources Conservation Service ("NRCS") and the United States Forest Service. See id.

The Counties entered into contracts with NRCS (the "EWP Contracts") under which they agreed to perform or hire a contractor to perform clean up and repair work from a recent storm and cover 25% of the cost thereof, and USDA agreed to cover the balance. See Wilson, 528 F.3d at 296. The EWP Program requires an NRCS employee to inspect all completed work and certify its compliance with the contract before the USDA will reimburse a county. See id. NRCS employees, Richard Greene and Bill Timpson, served as on-site government representatives for the EWP Contracts. See id. at 297. With Graham County’s approval, Greene selected Keith Orr, a Graham Conservation District employee, to perform Graham County’s cleanup work as an independent contractor. See id. Orr agreed to perform the work on his own time and be paid as any other contractor under the contract. See id. Cherokee County awarded its clean-up work to Billy Brown, a friend of Greene's. See id.

Respondent, Karen Wilson, a secretary for the Graham Conservation District, became suspicious of the arrangement between Greene, Timpson, Orr, and Brown and raised her concerns with several county and Conservation District officials. See Wilson, 528 F.3d at 296. Thereafter, Graham County officials began investigating the conduct and requested an audit report from an independent accounting firm (the "Audit Report"). See id. In 1996, a report prepared by the North Carolina Department of Environment, Health, and Natural Resources (the "DEHNA Report") noted the following two concerns: (1) Graham County's failure to seek bids for the work performed under the EWP Contract and (2) Graham County's use of Orr as an independent contractor — both of which the Audit Report also raised. See id. at 297–98.

In 2001, acting as a relator for the United States, Wilson brought a qui tam suit under the False Claims Act, 31 U.S.C. § 3730, alleging that a conspiracy existed between Green, Orr, Timpson, and Brown, and that some or all of the claims the counties submitted to the federal government for reimbursement were fraudulent within the meaning of the False Claims Act. See Wilson, 528 F.3d at 298.

The district court granted summary judgment for the defendants, finding that the court lacked subject-matter jurisdiction, because (1) the False Claims Act denies subject-matter jurisdiction to courts for private claims based on publicly disclosed information, and (2) the Audit and DEHNA Reports constituted public disclosures within the meaning of 31 U.S.C. § 3730(e)(4)(A). See Wilson, 528 F.3d at 298. Alternatively, the court concluded that each of Wilson's claims failed on the merits. See id.

The Fourth Circuit Court of Appeals vacated the lower court’s decision, finding that 31 U.S.C. § 3730(e)(4)(A) only applies to publicly disclosed federal reports, audits, and investigations (collectively, "materials"). See Wilson, 528 F.3d at 306. As Graham County commissioned the Audit Report and the State of North Carolina prepared the DEHNA Report, neither acts as a bar to jurisdiction, despite their public disclosure. See id. at 307. The court of appeals subsequently remanded the case to the district court. See id. at 310. The Supreme Court granted certiorari on the issue of whether the jurisdictional bar applies only to federal materials.

top

Discussion

This case will determine whether the False Claims Act, 31 U.S.C. § 3730, precludes only qui tam suits based on publicly disclosed federal reports, audits, and investigations (collectively, "materials"), or whether the Act precludes suits based on state or local government materials as well. This case will have an important impact on many aspects of qui tam lawsuits as well as the actions local and state governments take in preparing materials and defending against qui tam actions.

How Will This Case Affect the Filing of Qui Tam Actions in the Future?

Petitioners, Graham County, et al. (collectively, the “Counties”), contend that allowing a relator to bring a qui tam suit based on a publicly disclosed state report will greatly expand the universe of qui tam actions and encourage the filing of “parasitic” suits by plaintiffs with no direct connection to the alleged fraud. See Brief for Petitioners, Graham County Soil & Water Conservation District, et al. at 29. As the first plaintiff to file a qui tam suit precludes any other suits, amici contend that such "parasitic" plaintiffs could prevent a true whistleblower with personal knowledge of the alleged fraud from filing suit. See Brief of Amici Curiae Chamber of Commerce of the United States of America, et al. (“Chamber of Commerce”) in Support of Petitioners at 29. Additionally, the Counties argue that an industry will develop, in which plaintiffs' attorneys comb through state disclosures in the hope of finding an instance of fraud. See Brief for Petitioners at 31.

Respondent, the United States ex rel. Karen Wilson ("Wilson"), however, asserts that applying the False Claims Act’s jurisdictional bar to state materials would discourage potential plaintiffs from bringing qui tam actions in many instances of fraud about which the federal government would never know. See Brief for Respondent, United States ex rel. Karen Wilson at 35, n.12. Consequently, fewer plaintiffs will file qui tam suits and more fraud against the federal government will go undetected. See Brief of Amicus Curiae Taxpayers Against Fraud Education Fund in Support of Respondent at 40–41. Wilson argues that the purpose of the False Claims Act is not to find the best plaintiff, but to expose fraud against the federal government, and even plaintiffs without personal knowledge of the events may recover a significant amount of taxpayers' money. See Brief for Respondent at 41.

How Will This Case Affect Local and State Governments?

Amici for Graham County argue that allowing more qui tam lawsuits will force state and local governments to divert resources from other important programs in order to defend against these suits. See Brief of Amici Curiae National League of Cities, et al. in Support of Petitioners at 8. Additionally, if potential plaintiffs may use state materials as the basis for qui tam suits, state and local governments have incentives not to investigate allegations of fraud and not to disclose the outcome of such investigations, leading to less transparency in local government. See id. at 5. As state and local governments may be qui tam relators as well as defendants, allowing private plaintiffs to use publicly disclosed state materials as the basis of their suits would foreclose the state’s potential recovery based on information the state itself collected. See Brief of Amici Curiae States of Pennsylvania, et al. in Support of Petitioners at 10–11. Finally, amici contend that qui tam cases are often brought by relators mainly concerned with their portion of the recovery and without regard to the precedential value of the suit or the possibility that the defendant could be excluded from federal programs in the future as a result of the fraud allegations. See Brief of Chamber of Commerce at 25–27. As a result, many defendants choose to settle even unmeritorious claims to avoid these possibilities. See id.

In contrast, Wilson argues that applying the jurisdictional bar to state materials would give state and local governments an incentive to purposely invoke the bar by narrowly distributing a state-generated report and then filing it someplace the federal government would never learn of it. See Brief for Respondent at 37–38. Alternatively, state and local governments would have an incentive to “white-wash” internal investigations as a litigation avoidance strategy. See id. at 38. Essentially, a state or local government could immunize itself from qui tam suits through low-key disclosures about which the federal government would never realistically learn. See Brief of Amicus Curiae American Center for Law and Justice in Support of Respondent at 17–18; Brief of Amicus Curiae United States in Support of Respondent at 9–10. Amici contend that private qui tam suits based on publicly disclosed state materials would alert the federal government of many instances of fraud about which the government would not otherwise know and, consequently, lead to greater financial recoveries for the federal government. See id. at 31; Brief of Taxpayers Against Fraud Education Fund at 44.

This case will have important consequences for the future of qui tam litigation in the United States. It, too, will affect the strategies that state and local governments employ in investigating and reporting allegations of fraud and defending themselves in qui tam suits.

top

Analysis

Under the False Claims Act, 31 U.S.C. § 3730, a private citizen may file a lawsuit, known as a qui tam suit, against a person whom he or she suspects of defrauding the federal government. See Wex: Law about “False Claims Act". That private citizen, or relator, first files suit under seal in a federal district court so that only the relator and the government are aware of the suit. See id. The Department of Justice, in conjunction with the local district attorney, has sixty days to decide if the government would like to pursue the suit. See id. If the government pursues the suit and prevails, the relator receives 15–25 percent of the judgment awarded to the government. See id. If the government does not pursue the suit, the relator may pursue the suit and, if successful, receives up to 30 percent of the judgment. See id.

A relator may not bring a suit that is based on publicly available information, unless the relator is “an original source of the information." See 31 U.S.C. § 3730(e)(4)(A). Section 3730(e)(4)(A) of the False Claims Act precludes qui tam suits “based on the public disclosure of allegations or transactions . . . in a congressional, administrative, or Government Accounting Office report, hearing, audit or investigation” (collectively, “materials”). See id. Petitioners, Graham County, et al. (collectively, the “Counties”), contends that publication of a report, audit or investigation conducted by either a state or federal entity precludes a qui tam suit. See Brief for Petitioners, Graham County Soil & Water Conservation District, et al. at 14. Respondent, the United States ex rel. Karen Wilson (“Wilson”), argue that the False Claims Act precludes only qui tam suits based on materials published by the federal government. See Brief for Respondent, United States ex. rel. Karen Wilson at 14.

How Should Courts Interpret the Language of the False Claims Act?

The Counties argue that "administrative . . report . . . audit or investigation" unambiguously refers to both state and federal publications. See Brief for Petitioners at 14. Citing Conn. Nat'l Bank v. Germain, the Counties contend that "a legislature says in a statute what it means and means in a statute what it says." See id. at 17. According to the Counties, Congress repeatedly uses the word "administrative" to refer to state and federal administrative functions and, likewise, does so in other sections of the False Claims Act. See id. at 18-20. Similarly, the Counties argue that when Congress intends to refer only to federal administrative agencies, it "knows how to use language to achieve [that] result." See id. at 20-21.

Wilson counters that the word "administrative" has several different meanings and does not necessarily refer only to governmental entities. See Brief for Respondent at 14. Wilson contends that because of this ambiguity, the Court should derive the meaning from its context within the statute. See id. at 13-14. Wilson urges the Court to define "administrative" by applying the doctrine of noscitur a sociis, which states that "a word is given more precise content by the neighboring words with which it is associated." United States v. Williams, 128 S.Ct. 1830 (2008); see Brief for Respondent at 14. Wilson points out that in § 3730(e)(4)(A) the word "administrative" is sandwiched between two words that are "clearly federal in character" ("congressional" and "Government Accounting Office.") and thus, courts should interpret the word "administrative" as referring solely to federal administrative proceedings and materials. See id. at 14-16.

Wilson also argues that the overall purpose of the False Claims Act is to provide the federal government with the tools to investigate and prosecute fraud against the United States. See Brief for Respondent at 18. Wilson cites various sections of the False Claims Act which describe how the federal Attorney General's office and federal government must proceed during the investigation and prosecution of fraud. See id. at 19. Furthermore, Wilson notes that state and local governments lack the power to bring a suit under the False Claims Act independently. See id. In short, Wilson contends that because the overall purpose of the False Claims Act is to regulate and grant powers to the federal government, the language in question refers to federal, not state, proceedings. See id. at 18-20.

In response, the Counties contend that Wilson's reliance on noscitur a sociis is inappropriate in this case, because the word "administrative" has a single, unambiguous meaning. See Brief for Petitioners at 22. Furthermore, the Counties argue that the False Claims Act is not a carefully drafted statute and thus contextual analysis does little to determine the meaning of a single word. See id. at 23-24. Finally, the Counties contend that noscitur a sociis only applies if the terms listed in a statute have a related meaning and that only two of the seven terms described in § 3730(e)(4)(A) are federal in character. See id. at 25-26.

Which Interpretation Better Serves the Purpose of the False Claims Act?

The Counties argue that § 3730(e)(4)(A)’s purpose is to preclude qui tam lawsuits based on information that is already publicly available. See Brief for Petitioners at 29-30. The Counties contend that interpreting § 3730(e)(4)(A) in a manner which expands the number of publicly available documents that provide bases for such suits does not serve the purpose of the statute. See id. at 30. If the word "administrative" only refers to federal administration, the Counties argue that private citizens will file "parasitic suits" that do nothing to help the Government identify fraudulent activity and just "siphon off a portion of the government's recovery." See id. Furthermore, Graham County contends that allowing these "parasitic suits" will discourage "true whistleblowers" that would be able to bring a lawsuit based on their own independent observations, knowledge and investigation. See id. at 31.

Wilson responds by arguing that interpreting "administrative" to refer only to federal proceedings will prompt more private citizens to file qui tam suits alleging fraudulent activities. See Brief for Respondent at 34. Wilson maintains that the ultimate purpose of § 3730(e)(4)(A) is to encourage more qui tam suits. See id. Wilson argues that if Congress wanted to eliminate so-called "parasitic suits" it would have barred all qui tam suits based on any publicly disclosed information. See id. at 35. Furthermore, Wilson points out that even in "parasitic suits" the United States recovers 75 to 85 percent of the award. See id. at 37.

top

Conclusion

In Graham County Soil v. United States, the Supreme Court will determine whether a private citizen may bring a qui tam action under the False Claims Act based on a publicly available report, audit or investigation (collectively, “materials”) published by a state or local government. Petitioners, Graham County Soil, et al., contend that the plain language of the statute in question clearly precludes such suits. Conversely, respondents, United States ex. rel. Karen Wilson, argue that the False Claims Act only bars qui tam suits based on publicly disclosed materials published by a federal government agency.

top

Authors

Prepared by: Samuel Farina-Henry and Kelly Vaughan

Edited by: Lauren Jones

Additional Sources

·      Legal Information Institute: Graham County Soil v. United States (I)

·      Wex: Law about False Claims Act

top