Norman Rille, United States of America, ex rel.; Neal Roberts, United States of America, ex rel., Plaintiffs - Appellees,
PricewaterhouseCoopers LLP; PWC Consulting LLC; International Business Machines, Inc.; IBM Global Services Company; Oracle Corporation; Boeing Company; Cisco Systems, Inc.; Exostar Corporation; Exostar LLC; Lockheed Martin Corporation, Defendants United States of America, Intervenor plaintiff - Appellant,
Submitted April 15, 2015.
Appeal from United States District Court for the Eastern District of Arkansas - Little Rock.
For Norman Rille, United States of America, ex rel., Neal Roberts, United States of America, ex rel., Plaintiffs - Appellees: Jacquetta Bardacos, Packard & Packard, Los Altos, CA; Michael Bierman, Luce & Forward, Los Angeles, CA; Timothy L. Brooks, W. H. Taylor, Taylor Law Partners, Fayetteville, AR; Stephen Carl Engstrom, Engstrom Law Firm, Little Rock, AR; Donald Manwell Falk, Mayer & Brown, Palo Alto, CA; Stanley Martin Gibson, Ryan S. Mauck, Jeffer & Mangels, Los Angeles, CA; Shirley E. Jones, Wilson & Engstrom, Little Rock, AR; Michael F. Kerr, Neil Michael Soltman, Evan Michael Wooten, Mayer & Brown, Los Angeles, CA; Jeffrey D. Wexler, Mckenna & Long, Los Angeles, CA.
For United States of America, Intervenor Plaintiff - Appellant: Joyce R. Branda, U.S. Department of Justice, Civil Division, Civil Fraud Staff, Washington, DC; Douglas Neal Letter, U.S. Department of Justice, Washington, DC; Michael Raab, Gerard Sinzdak, U.S. Department of Justice, Civil Division, Appellate Staff, Washington, DC; Shannon S. Smith, Assistant U.S. Attorney, U.S. Attorney's Office, Eastern District of Arkansas, Little Rock, AR.
Before RILEY, Chief Judge, WOLLMAN, MURPHY, BYE, SMITH, COLLOTON, BENTON, and SHEPHERD, Circuit Judges, En Banc. BYE, Circuit Judge, with whom SMITH, Circuit Judge, joins, dissenting.
COLLOTON, Circuit Judge.
As the Supreme Court has observed, " [t]he False Claims Act's qui tam provisions present many interpretive challenges." Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S.Ct. 1970, 1979, 191 L.Ed.2d 899 (2015). In this case, two private parties, called " relators," brought an action in the name of the United States against several government contractors, alleging that the contractors defrauded the government. The United States, after investigating the case, elected to proceed with the action against several defendants in place of the relators, and the government eventually reached a settlement with two of the contractors. There followed a dispute between the relators and the government over how much, if any, of the recovery should be allocated to the relators. The district court awarded the relators a percentage of the entire settlement.
This appeal raises a legal question under the Act: When the government proceeds with an action brought by a relator under the False Claims Act, and then settles both the claim brought by the relator and a different claim that does not overlap factually with the claim brought by the relator, is the relator entitled to a share of the proceeds of both claims? The better view according to the text and structure of the statute is that the relator may recover only from the proceeds of the settlement of the claim that he brought. Because the district court's order does not clearly apply this legal standard or make factual findings that are necessary to resolve the case under this standard, we vacate the order and remand for further proceedings.
In September 2004, Norman Rille and Neal Roberts, as relators, sued several government contractors on behalf of the United States, alleging violations of the False Claims Act, 31 U.S.C. § § 3729-3733. The contractors were either " systems integration consultants" who recommend hardware and software products to meet the government's information technology needs, or technology vendors who supply those products. The relators' original complaint alleged a kickback scheme, under which the vendors allegedly paid kickbacks to the consultants in exchange for the consultants recommending the products of the vendors to the government.
The relators added Cisco Systems, Inc., as a defendant contractor in September 2005. Shortly thereafter, the relators offered the government some 700,000 pages of documents; according to the relators, these documents contained evidence of kickbacks and defective pricing involving Cisco and other defendants. Earlier in 2005, the Inspector General in the General Services Administration selected 112 government contracts for review. Among those was a contract with Comstor, a distributor of Cisco products. Comstor's contract allowed it to sell Cisco's technology products and services to government agencies. After the audit, the Inspector General concluded that Comstor made inaccurate or incomplete disclosures to the government, and failed to comply with
price reduction obligations under the contract.
In October 2006, the relators amended their complaint to allege that the defendant contractors failed to provide " current, accurate, and complete disclosure of their best pricing . .., thereby causing defective GSA and other government pricing schedules." According to the new allegation, the defective pricing resulted in violations of the False Claims Act " as to both direct sales to the Government by a Defendant, and indirect sales through [a vendor], with or without a Kickback." In April 2007, the government elected to intervene in part of the action, but declined to intervene against Cisco at that time, as the government had not completed its review of the company.
In March 2008, the government moved to intervene against Cisco. The government explained that since April 2007, it had " received and considered additional information from the Relators," and that it had " also obtained and assessed considerable additional information and documents from Cisco, as well as a number of non-party witnesses that it had not had an opportunity to consider prior to April 2007." After the district court granted the motion in April 2008, the government proceeded with the action as filed by the relators against Cisco and other defendants.
After two years of negotiation, the government reached a settlement with Cisco and Comstor under which Cisco agreed to pay the government $44.16 million, and Comstor agreed to pay $3.84 million. According to the agreement, the government alleged that Cisco and Comstor engaged in the following " Covered Conduct" :
(1) made inaccurate and/or incomplete disclosures and/or false statements, and/or presented or caused to be presented false claims to the United States; (2) failed to disclose relevant discount, rebate, true-up, benefits, credits, value-added, and pricing information to the United States and, as a result, Contract pricing and orders issued pursuant to the Contract were inflated; (3) as a result of the defective disclosures of pricing information, submitted or caused to be submitted false or fraudulent claims for payment; and (4) failed to comply with price reduction obligations under the Contract and related letters of supply.
The agreement also provided for the dismissal of the relators' action against Cisco, but did not resolve the issue of the relators' entitlement to a share of the settlement proceeds.
Following the settlement, the relators moved to recover a share of the proceeds. The applicable statute allows a relator to receive " at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action." 31 U.S.C. § 3730(d)(1). The government objected to recovery on the ground that the relators' complaint did not plead the conduct that formed the basis of the claims that the government ultimately settled with Cisco and Comstor. The government maintained that the relators' claims based on an alleged kickback scheme lacked merit, and that the settlement covered a separate defective pricing scheme.
The district court rejected the government's argument and awarded the relators seventeen percent of the $44.16 million paid by Cisco and fifteen percent of the $3.84 million paid by Comstor. United States ex rel. Rille v. Cisco Sys., Inc., No. 4:04CV00988-BRW, 2011 WL 4352309, at *4 (E.D. Ark. Sept. 19, 2011). The government appeals the order.
The False Claims Act provides that a private person " may bring a civil action for a violation of section 3729 for the person and for the United States Government." 31 U.S.C. § 3730(b)(1). Section 3729 establishes liability for certain acts that constitute false claims against the government. When a private person brings an action under § 3730(b), the government has the option to " proceed with the action" or to " decline to take over the action." Id. § 3730(b)(4). If the government " proceeds with an action brought by a person under [§ 3730](b)," then the private person is entitled, with an exception not relevant here, to receive a percentage of " the proceeds of the action or settlement of the claim." Id. § 3730(d)(1).
The relators contend that if the government proceeds with an action brought by a relator, then the relator is automatically entitled to a percentage of any " proceeds" that the government receives as a result. In their view, it does not matter whether the claim settled by the government is factually related to the claim brought by the relators. As long as the settled claim is resolved in an action that was initiated by the relators, the relators say that they are entitled to recovery. Although the provisions of the False Claims Act do not always " operate together smoothly like a finely tuned machine," Kellogg, 135 S.Ct. at 1979, we conclude that the statute will not bear the construction advanced by the relators.
The relators are entitled to a share of " the proceeds of the action or settlement of the claim." 31 U.S.C. § 3730(d)(1). The Act contemplates that both a relator's " action" and relator's " claim" are filed in court: Section 3730(e)(4)(A) provides that " [t]he court shall dismiss an action or claim" brought by a relator under certain circumstances. The statute also distinguishes between two courses of action for a relator--" bringing the action" and " settling the claim." 31 U.S.C. § 3730(d)(2). When addressing the relator's right to recover proceeds, the statute's distinction between " the action" and " settlement of the claim" reads as though the first object (" proceeds of the action" ) captures proceeds of an action litigated to judgment and the second object (" proceeds of the . . . settlement of the claim" ) encompasses proceeds of a settlement. If proceeds of a settlement were covered by the first ...