Schindler Elevator Corp. v. United States, ex rel. Daniel Kirk (10-188)

Oral argument: March 1, 2011

Appealed from: United States Court of Appeals for the Second Circuit (Apr. 6, 2010)

FREEDOM OF INFORMATION ACT, FALSE CLAIMS ACT, QUI TAM

Daniel Kirk, a Vietnam War veteran, filed a qui tam suit against Schindler Elevator Corporation ("Schindler"), alleging that Schindler violated the False Claims Act ("FCA") through its failure to comply with The Vietnam Era Veterans Readjustments Assistance Act ("VEVRAA"). Section 3730(e)(4) of the FCA expressly states that federal courts do not have jurisdiction over claims based upon “public disclosure of . . . administrative . . . report[s] . . . or investigation[s].” Kirk's FCA claim utilized information requested from the Department of Labor under the Freedom of Information Act ("FOIA"). The United States District Court for the Southern District of New York dismissed the case, holding that information obtained through a FOIA request constitutes a “report” or “investigation” under the FCA, but the United States Court of Appeals for the Second Circuit reversed. In doing so, the Second Circuit rejected the Third Circuit’s method of focusing upon the dictionary definitions of “report” and “investigation” and instead adopted the Ninth Circuit’s method of considering the “nature of the [FOIA] document itself.” Schindler appealed, claiming that FOIA responses, by virtue of being produced by federal agencies, are "reports” or “investigations" and therefore fit the FCA public disclosure bar. The Supreme Court granted certiorari to resolve a circuit split on whether a federal agency's FOIA disclosure is a "report" or "investigation" under Section 3730(e)(4).

Question presented

Whether a federal agency's response to a Freedom of Information Act request is a "report ... or investigation" within the meaning of the False Claims Act public disclosure bar, 31 U.S.C. § 3730(e)(4).

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Issue

Under 31 U.S.C. § 3730(e)(4), do FOIA responses produced by a federal agency qualify as publicly disclosed reports, which are barred from use in claims of fraud against the government under the False Claims Act?

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Facts

In 2004, Respondent Daniel Kirk filed a complaint with the Department of Labor ("DOL") against his former employer, Petitioner Schindler Elevator Corporation (“Schindler”), alleging that Schindler had violated the Vietnam Era Veterans Readjustment Assistance Act ("VEVRAA”). U.S. ex rel. Kirk v. Schindler Elevator Corp., 601 F.3d 94, 99 (2d Cir. 2010). VEVRAA imposes specific regulations on employers who enter in contracts with the U.S. government. 38 U.S.C. § 4212. Among the specific requirements of VEVRAA are regulations that require employers to (1) “take affirmative action to employ and advance” Vietnam veterans; (2) to invite “veterans to identify themselves voluntarily to their employer;” and (3) to submit annual reports about the number of veterans working for the employer. See id. Further, under 31 U.S.C. § 1354, no federal agency may enter into contracts with any contractor that is not in compliance with VEVRAA regulations.

Kirk’s DOL complaint alleged that he was improperly demoted from his management position and constructively fired despite the fact that he was a Vietnam veteran. Kirk, 601 F.3d at 99. In examining Kirk’s complaint, the Office of Federal Contract Compliance Programs (“OFCCP”) found that there was insufficient evidence to support Kirk's VEVRAA violation complaint. Id. Kirk appealed this finding, and in 2009, the Department of Labor affirmed OFCCP’s finding that Schindler had not violated VEVRAA. Id.

Simultaneous to the DOL complaint, Kirk filed a qui tam action against Schindler under the False Claims Act ("FCA”) in the United States District Court for the Southern District of New York. See Kirk, 601 F.3d at 99. A qui tam suit is a suit brought on behalf of the government by a private citizen. See Wex, Qui Tam. The citizen, known as a relator, receives a portion of the award if the government prevails; a relator suing under the False Claims Act may receive up to 30% of the award. See id. In his suit, Kirk alleged that from 1998 until 2010, he was never given an opportunity to self-identify as a Vietnam veteran, and that he was never informed of VEVRAA's affirmative action provision for veterans. See Kirk, 601 F.3d at 100. Moreover, Kirk alleged that Schindler failed to file statutorily mandated VEVRAA reports from 1998 until 2004, and subsequently filed false reports from 2004 until 2006. Id. Kirk's allegations were, in part, supported by documents obtained from the DOL under the Freedom of Information Act ("FOIA"). See id. at 101. Through several FOIA requests submitted by his wife, Kirk obtained copies of Schindler's VEVRAA compliance reports, which he argued substantiated his claims. See id. at 101–02.

In response, Schindler moved for summary judgment, arguing that because Kirk’s claim was partially based upon information resulting from a FOIA request, Kirk’s claim was barred by 31 U.S.C. § 3730(e)(4)(A), which provides that courts do not have jurisdiction over False Claims Act suits relying upon “public disclosure of . . . administrative . . . report[s] . . . or investigation[s].” See 31 U.S.C. § 3730(e)(4)(A); Kirk, 601 F.3d at 102. The district court ruled in Schindler's favor, and Kirk subsequently appealed to the United States Court of Appeals for the Second Circuit, which reversed and held that the documents obtained through FOIA requests were not "reports” or “investigations.” Kirk, 601 F.3d at 117. In its decision, the Second Circuit rejected the Third Circuit’s method of focusing upon the dictionary definitions of “administrative report” and “investigation.” See id. at 104. The Second Circuit adopted instead the Ninth Circuit’s method of considering the context and legislative history of FCA and the “nature of the [FOIA] document itself.” See id. at 105.

The Supreme Court granted Schindler’s writ of certiorari to address a circuit split on whether the information obtained from a federal agency through a FOIA request qualifies as an ”administrative report or investigation” within the public disclosure bar of the FCA. See Schindler Elevator Corp. v. United States, ex rel. Daniel Kirk, 131 S. Ct. 63 (2010).

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Discussion

In this case the Supreme Court will address whether the information obtained through a Freedom of Information Act ("FOIA") request is considered an “administrative report or investigation” under Section 3730(e)(4)(A) of the False Claims Act ("FCA"), which provides that no court has jurisdiction over an FCA claim based upon publicly disclosed “administrative reports or investigations.” Petitioner Schindler Elevator Corporation ("Schindler") argues that the FOIA documents obtained by Respondent Daniel Kirk are “administrative reports or investigations,” and therefore Kirk’s FCA claim is barred by Section 3730(e)(4)(A). See Brief for Petitioner, Schindler Elevator Corp. at 17. Kirk argues that the term “administrative reports or investigations” should be construed narrowly and should not apply to FOIA documents. See Brief for Respondent, United States ex rel. Daniel Kirk at 20. The Court’s ruling will affect the ability of private citizens to utilize FOIA information in qui tam suits against private parties contracting with the U.S. government.

Schindler contends that if the Second Circuit’s decision is affirmed, there will be a virtual explosion of opportunistic suits seeking the treble damages available under the FCA, thereby increasing the cost of doing business. See Brief for Petitioner at 45–46. Schindler also argues that the Second Circuit decision will discourage contractors from doing business with the U.S. government, for fear of being subjected to these high-damage qui tam actions. Id.

The U.S. Chamber of Commerce (“Chamber”) argues that the gate-keeping function of the public disclosure bar of the FCA is jeopardized by the Second Circuit decision. See Brief of Amici Curiae Chamber of Commerce of the United States, et al., in Support of Petitioner at 8. According to the Chamber, the Second Circuit’s decision would allow any citizen to use FOIA requests to subject businesses to costly FCA suits. See id. at 10. The Chamber further argues that accepting the Second Circuit decision on FOIA responses serves as a "gift" to a distinct subset of lawyers that exclusively pursue qui tam claims, further heightening the financial cost to businesses. Id. Lastly, the Chamber argues that broad application of the public disclosure bar is essential in light of businesses’ growing exposure to liability under the "false certification" theory, which allows relators to bring actions against contractors for mere regulatory non-compliance instead of the more serious claim of false claims for payment. See id. at 19–20.

Kirk contends that narrower definitions of “reports” and “information” serve the twin purposes of the FCA: to reject suits the government is capable of bringing and to support the suits which the government is not prepared to file by itself. See Brief for Respondent at 35. Moreover, Kirk argues that FOIA responses are essential to empowering citizens to actively fight fraud against the government. See id. at 37. Lastly, Kirk contends that categorically applying the public disclosure bar to FOIA responses will undermine the purpose of FOIA, namely to bring transparency to government actions. Id. at 39–40.

The AARP argues that FCA claims help improve transparency in government contracting and contribute to improved consumer services. See Brief of Amicus Curiae AARP in Support of Respondent at 4. In particular, the AARP claims that FCA lawsuits are critical to recent health care legislation aimed at increasing the disclosure of health care data. Id. at 13. Thus, according to the AARP, any restriction of FCA suits will result in less accountability and diminish healthcare services by removing a tool for consumers to combat fraud. Id. Similarly, Public Citizen argues that adopting Schindler's construction of the FCA would undermine FOIA’s ability to root out graft and corruption. See Brief of Amicus Curiae Public Citizen in Support of Respondent at 15. Public Citizen contends that Schindler's reading would result in a scheme in which the public may uncover fraud, waste, and corruption, but be left with no remedy for that wrongdoing. Id. Public Citizen maintains that adopting a categorical rule defining FOIA documents as “administrative reports or investigations” undermines the complementary role that FOIA plays with the FCA in combating fraud and corruption. Id. at 13–14.

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Analysis

In this case, the Supreme Court will decide whether a response to a Freedom of Information Act (“FOIA”) request is an administrative “report” or “investigation” under the Federal Claims Act (“FCA”) and is therefore included in the public disclosure bar of the FCA. The public disclosure bar states that a suit cannot be brought under the FCA when the claim is “based upon the public disclosure of allegations or transactions in a[n]. . . administrative. . . report, hearing, audit, or investigation. . . unless. . . the person bringing the action is an original source of the information.” See 31 U.S.C. § 3730(e)(4)(A). Schindler Elevator Corporation (“Schindler”) is appealing the ruling of the Second Circuit Court of Appeals that FOIA responses are neither “reports” nor “investigations” under the FCA. See Brief for Petitioner, Schindler Elevator Corp. at 2. Respondent Daniel Kirk, suing on behalf of the United States, maintains that the Second Circuit correctly decided the issue. See Brief for Respondent, United States ex rel. Daniel Kirk at 18. Kirk’s suit was brought as a qui tam action, in which a private party is rewarded with a portion of the damages for assisting in the enforcement of a public policy, such as the prevention of fraud, on behalf of the government.

Federal Claims Act

 

Schindler, argues that the terms “administrative report or investigation” found in the public disclosure bar of the FCA are commonly used, unambiguous terms. See Brief for Petitioner at 18. Schindler proposes that the term “report” should be defined as “something that gives information” or “a notification.” See id. at 19. Schindler also proposes that the term “investigation” should be defined as the “making of a search.” See id. at 20. Schindler argues that when an agency searches for requested documents, analyzes them to confirm they are the correct documents, and discloses them pursuant to a FOIA request, the agency has “investigated” and “reported” its findings according to the plain meaning of those terms. See id. at 17. Schindler contends that if the court finds the terms to be unambiguous, it should end its inquiry and overturn the lower court ruling. See id. at 18. Schindler also asserts that Congress intended to bar the “parasitic claims” of individuals with little or no direct knowledge of the alleged fraud, and broader definitions of “investigation” and “report” are more likely to comport with Congress’s intentions. See id. at 23. Schindler points to the history of the 1943 and 1986 amendments to the FCA to show that Congress considered allowing individuals to bring the FCA suits to which they have no direct connection if the government did not bring them, but ultimately Congress did not include those provisions in the final bill, indicating that it did not want those suits brought. See id. at 43.

Kirk disputes Schindler’s claim that the terms “investigation” and “report” are unambiguous. See Brief for Respondent at 20. Kirk argues that when interpreting statutes, the Court should give each word independent meaning, avoid redundancies, and restrict broad meanings whenever necessary. See id. at 22–23. Kirk continues by contending that the definitions proposed by Schindler are excessively broad. See id. at 25. Kirk maintains that to define a “report” as “something that gives information” or “a notification” and an “investigation” as “a detailed examination” or the “making of a search” would overlap with the other words in the list—“hearing” and “audit” —which have similar definitions. See id. at 25. Kirk proposes that a “report” should be defined as “a formal account of an investigation,” and an “investigation” should be defined as “an official probe.” See id. at 27–30. Kirk further states that his definition of “investigation” is more appropriate because investigations are understood to have targets, which is an aspect of the word that is lost in Schindler’s proposed definition. See id. at 30. Finally, Kirk argues that the context of the statute, namely fighting fraud, limits the reasonable definition of “investigation” to “an official probe into fraudulent conduct.” See id. at 30–31.

 

Freedom of Information Act

Schindler also argues that under the broad definitions that it proposes, the Court should rule that a FOIA response is a “report” that is the result of an “investigation.” See Brief for Petitioner at 18. Schindler claims further that even under the stricter definition proposed by Kirk, a FOIA response is still a “report” resulting from an “investigation.” See id. at 30. Schindler contends that these requests require agencies to make complex inquiries and analyses. See id. Schindler argues that these documents often have to be reviewed for redaction, and various factors must be weighed to decide whether to even release the documents. See id. at 32.

Kirk argues that under the narrow reading of “investigation” and “report,” FOIA requests and responses do not come under the public disclosure bar. See Brief for Respondent at 46–47. Kirk contends that under FOIA, the words “report” and “response” both have independent meanings, and if the Court were to agree with Schindler that a “response” is a “report,” it would create an anomalous situation in which the document responding to a FOIA request would be considered a “response” under FOIA, but it would be considered a “report” under the FCA. See id. at 47. Though this anomaly is not likely to be fatal to Schindler’s claim, Kirk argues that such a result should be avoided when possible. See id. Kirk also argues that the term “investigation” is inappropriate to define the review of documents that agencies are compelled to undertake after receiving a FOIA request. See id. Kirk cites several lower court decisions holding that agencies are only required to locate documents specifically requested and are not required to become full-time investigators on the behalf of requesters. See id. at 49–50. Kirk argues that these decisions show that it is unreasonable to characterize FOIA responses as “investigations.” See id. at 50. Kirk also contends that even if the Court adopts the broad definitions proposed by Schindler, a ban on all suits based on documents disclosed under FOIA would be inappropriate. See id. at 40. Often under FOIA, agencies will release documents before requests are made by individuals, and because the agencies will not perform a search in these instances, the resulting documents would not fit under Schindler’s definition of “report” or “investigation.” See id. at 42.

Drafting History of the FCA

Schindler argues that the drafting history of the FCA shows Congress’s intent to prevent suits similar to the present suit from being heard. See Brief for Petitioner at 34. When the FCA was first amended in 1943, Congress barred all suits based on information already known by the government to prevent “parasitic” suits by individuals who were not adding any information to the suit. See id. at 35. The 1986 amendment to the FCA resulted in a compromise in which a qui tam suit could be brought based on information already known to the government as long as the plaintiff came across the information from an original source. See id. at 38. Schindler argues that to allow suits based on FOIA responses contradicts the purpose of the compromise made by Congress in the 1986 amendment by giving total strangers to the action the ability to sue on behalf of the government, once again opening the door for “parasitic” claims. See id.

Kirk argues that the narrower definitions of “report” and “investigation” fit more closely with the intentions of Congress in passing the FCA. See Brief for Respondent at 34. Kirk contends that it was Congress’s purpose to allow qui tam suits to force the government into action when evidence of fraud was already in its possession but buried in its myriad files. See id. at 36. Finally, Kirk posits that the public disclosure bar is an exception to the general rule that a relator may bring a FCA claim, and Kirk maintains that this exception should not be interpreted in such a way that it consumes the rule. See id. at 37–38.

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Conclusion

In this case, the Supreme Court will decide whether a response to a Freedom of Information Act request is a “report” or “investigation” under Section 3730(e)(4)(A) of the False Claims Act. A decision for Schindler will result in fewer claims made under the FCA because the production of a FOIA document will make the suit invalid unless the individual suing has an original source for the information. A decision for Kirk and the government will mean that the FCA will allow suits based solely on the information contained in FOIA responses, which could greatly expand the group of individuals who have standing to sue government contractors under the FCA.

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Authors

Prepared by: James McHale and Alexander Malahoff

Edited by: Joanna Chen

Additional Sources

? ContractsProf Blog, Jeremy Telman: When Does the False Claim Act’s Jurisdictional Bar Preclude Qui Tam Actions? (May 4, 2010)

? Fraudfighters: Supreme Court to Hear False Claims Act Case on Scope of Public Disclosure Bar (Oct. 12, 2010)

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Edited by