D.W. NELSON, Circuit Judge:
In this case, we address an important and difficult question involving the qui tam provisions of the False Claims Act, 31 U.S.C. §§ 3729 et seq. We must determine whether the release of a qui tam claim, when entered into without the United States' knowledge or consent, and prior to the filing of an action based on that claim, is enforceable. We hold that it is not.
In November 1988, Michael Green ("Appellant"), a former employee of Northrop, filed a complaint in California Superior Court against Northrop and several unnamed defendants alleging a number of state-law causes of action stemming from his termination by Northrop in October 1988. According to Green, while working as a criminal investigator for Northrop's Advanced Systems Division, he uncovered evidence that Northrop had "double charged" the U.S. Air Force for equipment procured for the B-2 bomber program. Green maintained that he was discharged for having brought this information to the attention of certain Northrop officials and because he sought the advice of an attorney.
Northrop and Green eventually negotiated a settlement of this suit, and entered into a "Settlement Agreement and General Release" (the "Release") on April 16, 1990. The Release stated in general terms that the parties desired to settle "once and forever, all of the matters which have arisen between them including but not limited to disputes relating to or arising out of the Action and Green's employment with and separation from Northrop." Northrop agreed to pay Green $190,000 in return, inter alia, for his agreement to:
Subsequently, on January 11, 1991, Green filed a complaint under the qui tam provisions of the False Claims Act ("FCA" or "Act") against Northrop, a third party contractor known as Autek Systems Corporation, and several individual employees of both companies. The complaint alleged that the defendants conspired to submit false claims to the United States "for costs associated with the procurement of Automated Test Equipment (ATE) that Northrop was required to deliver under the B-2 contract." As in the original suit filed in the California courts, Green contended that the defendants engaged in, among other practices that violated the FCA, "double billing," and that "[w]hen [Green] began conducting an investigation with respect to the subjects of this lawsuit," he "informed Northrop's Security Department that he had found and documented corruption at the Executive Management Level in the B-2 Division," but that he was "ordered to close his investigation" and subsequently was terminated.
Following the filing of this action under seal, the United States, in accordance with the FCA, see 31 U.S.C.A. § 3730(b) (West Supp.1994), undertook an investigation of the allegations made in the complaint. In February 1992, after conducting an inquiry that lasted several months, the United States declined
The district court agreed with Appellees on both counts, and entered summary judgment in their favor on July 15, 1992.
Green timely appealed to this court, and he makes three arguments. First, Green maintains that, even if the district court determined correctly that he waived his rights to bring a qui tam action under the FCA by entering into the Release, the settlement of such a claim is void as a matter of public policy when entered into without the assent of the United States. Second, Green asserts that the district court erred in holding that the Release included either his right to bring a qui tam action or his statutory right to a portion of the recovery, attorneys' fees, or costs. Third, Green contends that the district court erred in determining that his standing to maintain a qui tam suit depended on his ability to recover the statutory award, and insists instead that injury-in-fact to the United States is all that a relator must demonstrate to establish Article III standing.
We assume for the purposes of analysis that, as Appellees insist, the Release encompassed both Green's right to bring a qui tam action as well as any recovery that might flow from that action. Nonetheless, we hold that this aspect of the Release is unenforceable because its enforcement would impair impermissibly a substantial public policy.
I. Is the Enforceability of the Release Governed by Statutory Interpretation or Federal Common Law?
As an initial matter, the parties dispute sharply the proper focus of this court's inquiry. Appellant contends that the enforceability of the release of a qui tam claim must be measured by the federal common law test articulated by the Supreme Court in Town of Newton v. Rumery, 480 U.S. 386, 107 S.Ct. 1187, 94 L.Ed.2d 405 (1987), and further elaborated upon by this court in Davies v. Grossmont Union High Sch. Dist., 930 F.2d 1390, 1396 (9th Cir.), cert. denied, 501 U.S. 1252, 111 S.Ct. 2892, 115 L.Ed.2d 1057 (1991). Under the Rumery/Davies test, "`a promise [will be found] unenforceable if the interest in its enforcement is outweighed in the circumstances by a public policy harmed by enforcement of the agreement.'" Davies, 930 F.2d at 1396 (quoting Rumery, 480 U.S. at 392, 107 S.Ct. at 1191-92 (relying upon Restatement (Second) of Contracts § 178(1) (1981))). By contrast, Appellees claim that "[t]he public policy question that Green raises is a question of statutory interpretation, not contract law." Appellees insist, therefore, that the Rumery/Davies test is inapplicable, and that the question of the release's enforceability "depends upon the intention of Congress as manifested in the particular statute."
We agree with Appellees that we first must resolve an issue of statutory interpretation. The Court in Rumery did not hold that its test was applicable to every federal enactment. Rather, the Court drew upon "traditional common law principles" because that body of law informs "the principles governing § 1983 actions." Rumery, 480 U.S. at 392, 107 S.Ct. at 1191 (citing Pulliam v. Allen, 466 U.S. 522, 539-40, 104 S.Ct. 1970, 1980, 80 L.Ed.2d 565 (1984)). If Congress has expressed its intent as to the enforceability of a release such as that entered into in this case, however, we must give effect to that intent. See Brooklyn Savs. Bank v. O'Neil, 324 U.S. 697, 706-07, 65 S.Ct. 895, 902, 89 L.Ed. 1296 (1945). Even if federal common law otherwise would operate, it is displaced when Congress has decided the matter. See, e.g., Central Bank v. First Interstate Bank of Denver, N.A., ___ U.S. ___, ___, 114 S.Ct. 1439, 1448, 128 L.Ed.2d 119 (1994) (holding that the conclusion that Congress did not intend to impose aiding and abetting liability under section 10(b) of the Securities and Exchange Act "resolve[d] the case" notwithstanding the acknowledged power of the federal courts, with respect to the section 10(b) actions, to fashion federal common law that "attempt[s] to infer `how ... Congress would have addressed the issue,'" (quoting Musick, Peeler & Garrett v. Employers Ins. of Wausau, ___ U.S. ___, ___, 113 S.Ct. 2085, 2090, 124 L.Ed.2d 194 (1993))).
Although we agree with Appellees that we first must attempt to ascertain Congress's intent with respect to the enforceability of the prefiling release of qui tam claims, we disagree with Appellees' additional contention that our analysis necessarily ends after construing the statute. There is a crucial difference between concluding that Congress intended a release to be enforceable and merely determining that, as a matter of statutory
However, merely because a "gap" is encountered does not mean that a vacuum necessarily is created. State law, if not preempted, presumptively supplies the missing rule. See O'Melveny & Myers v. FDIC, ___ U.S. ___, ___, 114 S.Ct. 2048, 2055, 129 L.Ed.2d 67 (1994). Moreover, although "once Congress addresses a subject ... the justification for lawmaking by the federal courts is greatly diminished," Northwest Airlines, Inc. v. Transport Workers Union of America, AFL-CIO, 451 U.S. 77, 95 n. 34, 101 S.Ct. 1571, 1582-83 n. 34, 67 L.Ed.2d 750 (1981), the possibility nonetheless remains that federal common law might operate to fill the gap, see, e.g., Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 98, 111 S.Ct. 1711, 1717, 114 L.Ed.2d 152 (1991).
II. Statutory Interpretation
Accordingly, we first must ascertain congressional intent with respect to the enforceability of a prefiling release of a qui tam claim entered into without the United States' knowledge or consent. This is a question of statutory interpretation that we address de novo. See, e.g., United States ex rel. Killingsworth v. Northrop, 25 F.3d 715, 721 (9th Cir.1994).
The FCA is silent as to the enforceability of a prefiling release of a qui tam claim. Congress did address, however, the ability of relators, defendants, and the United States to enter into settlements following the filing of a qui tam claim. Section 3730(b)(1) provides that a qui tam action "may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting." 31 U.S.C.A. § 3730(b)(1) (West Supp.1994) (emphasis added). We have ruled that, in the absence of a later decision by the government to intervene, see United States ex rel. McGough v. Covington Technologies Co., 967 F.2d 1391, 1397 (9th Cir.1992), this provision applies only during the initial sixty-day period, or however long that period is extended, during which the government may review the case and elect to proceed with the action, see Killingsworth, 25 F.3d at 722-23. In the absence of a decision by the government to intervene, the Act recognizes the relator's right to "settl[e] the claim," 31 U.S.C.A. § 3730(d)(2) (West Supp.1994); although we have construed the Act to permit the government to object "with good cause" to the settlement's terms, see Killingsworth, 25 F.3d at 724-25. Similarly, if the government elects to intervene, the relator possesses the same right to a hearing to permit the court to determine "that the proposed settlement is fair, adequate, and reasonable under all the circumstances." See 31 U.S.C.A. § 3730(c)(2)(B) (West Supp.1994).
Appellees maintain that Congress's decision to address the enforceability of post filing settlements of qui tam claims ends our analysis, and that we must presume from Congress's silence that it intended prefiling releases of such claims to be enforceable. In making this argument, Appellees rely on the canon of construction, invoked frequently in cases in which the issue is whether to imply a private right of action, that courts must "presum[e] that a remedy was deliberately omitted from a statute ... when Congress has enacted a comprehensive legislative scheme including an integrated system of procedures for enforcement." E.g., Northwest Airlines, 451 U.S. at 97, 101 S.Ct. at 1583; see also Karahalios v. National Fed'n of Federal Employees, 489 U.S. 527, 533, 109 S.Ct. 1282, 1287, 103 L.Ed.2d 539 (1989) ("It is an `elemental canon' of statutory interpretation that where a statute expressly provides a remedy, courts must be especially reluctant to provide additional remedies. Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 19, 100 S.Ct. 242, 247, 62 L.Ed.2d 146 (1979). In such cases, `[i]n the absence of strong indicia of contrary congressional intent, we are compelled to conclude that Congress provided precisely the remedies it considered appropriate.'" (quoting Middlesex County Sewerage Auth. v. National Sea Clammers Ass'n, 453 U.S. 1, 15, 101 S.Ct. 2615, 2624, 69 L.Ed.2d 435 (1981))).
By contrast, it is clear that, here, the FCA permits a qui tam suit to be brought by private parties and that such a remedy is a key part of the statute's "integrated system" for enforcement. Id. The question is only whether Congress intended that private parties be able to release this clearly available remedy without the consent of the government. In such a circumstance, the canon is of no help. The general presumption that Congress did not intend to create remedies by implication provides no guidance as to whether Congress intended to permit parties to release a particular remedy that it expressly created, and, if so, under what circumstances. In fact, it may be more consistent with the enforcement scheme set up by Congress to prevent parties from releasing the remedy without first obtaining the government's consent. Accordingly, we conclude that the presumption urged by Appellees is not warranted here.
We find it inappropriate to presume Congress's intent from its failure to resolve the question expressly. Given the lack of any textual answer to this question or any relevant legislative history, we have no basis for inferring that Congress intended the release at issue to be enforceable or unenforceable. Congress's silence on the matter of prefiling releases could reflect just as reasonably its failure to contemplate the issue, its desire to leave resolution of the issue to the courts, its approval of such prefiling releases, or its determination that government consent is required. Therefore, we are faced with a "gap" in the statutory scheme. Accordingly, we must apply federal common law.
III. Federal Common Law
It is well established that federal common law properly is invoked to determine the validity of a release of a statutorily-conferred federal right. See, e.g., Botefur v. City of Eagle Point, 7 F.3d 152, 155 (9th Cir.1993) ("`[T]he conditions affecting the validity of a release of significant federal rights are eminently a matter of federal law....'" (quoting Jones v. Taber, 648 F.2d 1201, 1203 (9th Cir.1981))); Mardan Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454, 1457 (9th Cir. 1986) ("[F]ederal law always governs the validity of releases of federal causes of action." (citing Dice v. Akron, Canton & Youngstown R.R. Co., 342 U.S. 359, 361, 72 S.Ct. 312, 314, 96 L.Ed. 398 (1952))).
Merely because federal common law governs the matter, however, does not mean that the rule must be uniform. Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 97-98, 111 S.Ct. 1711, 1717, 114 L.Ed.2d 152 (1991). Often, state law rules will provide "the governing federal law." Mardan, 804 F.2d at 1458.
Because the FCA does not direct us to formulate uniform common law rules, we apply the Kimbell Foods test. We conclude that formulation of a uniform federal common law rule is justified.
Upholding the release at issue in this case would frustrate the policies underlying the qui tam provisions of the FCA. See infra. Although state law might emphasize the same general principles we apply below in assessing the validity of the release, see Rumery, 480 U.S. at 392 n. 2, 107 S.Ct. at 1191 n. 2, there is a distinct possibility that state law would overemphasize, as we conclude that the district court did here, the interest favoring "ironclad and enforceable general releases." E.g., Winet v. Price, 4 Cal.App.4th 1159, 1173, 6 Cal.Rptr.2d 554 (1992). Therefore, although some states might reach permissible results, a substantial risk remains that "a `significant conflict'" would arise "between an identifiable `federal policy or interest and the [operation] of state law,'" Boyle v. United Technologies Corp., 487 U.S. 500, 507, 108 S.Ct. 2510, 2516, 101 L.Ed.2d 442 (1988), which is a "precondition for recognition of a federal rule of decision," O'Melveny, ___ U.S. at ___, 114 S.Ct. at 2055.
Uniformity, moreover, is necessary to prevent parties, through use of choice-of-law clauses, from selecting as governing law the law of a state that is most likely to uphold the release. Cf. Petro-Ventures, Inc. v. Takessian, 967 F.2d 1337, 1340 (9th Cir.1992) (holding that a settlement agreement purporting to waive a federal securities claim is governed by federal law even when it contains a choice of law claim because "`[f]ederal
Accordingly, we find it appropriate to fashion a uniform federal common law rule to determine the validity of releases such as the one at issue in this case. As with section 1983 actions, which are governed by "traditional common law principles," Town of Newton v. Rumery, 480 U.S. 386, 392, 107 S.Ct. 1187, 1191, 94 L.Ed.2d 405 (1987), we apply the Rumery/Davies test.
In Rumery, the Supreme Court held that "a promise is unenforceable if the interest in its enforcement is outweighed in the circumstances by a public policy harmed by enforcement of the agreement." Id. In Davies v. Grossmont Union High Sch. Dist., 930 F.2d 1390 (9th Cir.), cert. denied, 501 U.S. 1252, 111 S.Ct. 2892, 115 L.Ed.2d 1057 (1991), this court elaborated on the Rumery test.
Accordingly, in Davies, we first inquired whether the right waived "by its nature [was] one that implicate[d] the public interest," id. at 1398, and the extent to which the public interest would be harmed by enforcement of waiver, see id. at 1397-98. Next, we focused on "the factors that favor enforcement." Id. at 1398. We first acknowledged the "admittedly important" policy that "favor[s] enforcement of private agreements and the encouragement of settling litigation." Id. We noted, however, that this interest would be present "in every dispute over the enforceability of an agreement terminating litigation." Id. Consequently, we reasoned that:
Id. (emphasis added).
Davies thus requires us (1) to determine whether the agreement waives a right that impacts upon the public interest; (2) determine whether a substantial public interest would be impaired by enforcement of the agreement; and (3) to ascertain the reasons apart from the general interest in settling disputes that support enforcing the agreement.
We first conclude that enforcing the release at issue in this case would impair a substantial public interest. Specifically, we find that enforcing the Release would threaten to nullify the incentives Congress intended to create in amending the provisions of the False Claims Act in 1986.
The history and structure of the FCA and its qui tam provisions is well described elsewhere. See generally United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 649-55 (D.C.Cir.1994); United States ex rel. Kelly v. Boeing Co., 9 F.3d 743, 745-47 (9th Cir.1993), cert. denied, ___ U.S. ___, 114 S.Ct. 1125, 127 L.Ed.2d 433 (1994); United States ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1152-1154 (3d Cir.1991); John T. Boese, Civil False Claims and Qui Tam Actions (1993). It is commonly recognized that the central purpose of the qui tam provisions of the FCA is to "set up incentives to supplement government enforcement" of the Act, Quinn, 14 F.3d at 649, by "encourag[ing] insiders privy to a fraud on the government to blow the whistle on the crime," Wang v. FMC Corp., 975 F.2d 1412, 1419 (9th Cir.1992).
The vital importance of this incentive effect is demonstrated by the reasons set forth by Congress in 1986 in undertaking the first extensive revision of the Act since its enactment in 1863. Congress expressed its judgment that "sophisticated and widespread fraud" that threatens significantly both the federal treasury and our nation's national security only could successfully be combatted by "a coordinated effort of both the Government and the citizenry." S.Rep. No. 345, 99th Cong., 2d Sess. 2-3 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5267-68 [hereinafter Senate Report]. Emphasizing both difficulties in detecting fraud that stem largely from the unwillingness of insiders with relevant knowledge of fraud to come forward, see id. at 4, reprinted in 1986 U.S.C.C.A.N. at 5269, and "the lack of resources on the part of Federal enforcement agencies" that often leaves unaddressed "[a]llegations that perhaps could develop into very significant cases," id. at 7, reprinted in 1986 U.S.C.C.A.N. at 5272, Congress sought to "increase incentives, financial and otherwise, for private individuals to bring suits on behalf of the Government," id. at 2, reprinted in 1986 U.S.C.C.A.N. at 5267. Congress's overall intent, therefore, was "to encourage more private enforcement suits." Id. at 23, quoted in 1986 U.S.C.C.A.N. at 5288-89; see also Killingsworth, 25 F.3d at 721 ("The amended Act `increased incentives, financial and otherwise, for private individuals to bring suits on behalf of the Government.'" (quoting Senate Report, supra, at 2, reprinted in 1986 U.S.C.C.A.N. at 5267)).
The importance of the Act's incentive effect is evidenced clearly in the revised Act's structure. A relator who properly brings a claim will generally receive a share of the recovery as well as eligibility for attorneys' fees and costs. See 31 U.S.C.A. § 3730(d) (West Supp.1994). This is true even if the government decides to intervene and conducts the action itself, see id. § 3730(d)(1), or elects to pursue its claim in an administrative proceeding, see id. § 3730(c)(5). The right to recovery clearly exists primarily to give relators incentives to
The Act's jurisdictional provisions also demonstrate Congress's concern with maintaining adequate incentives for those who materially would advance the goals of revealing fraud and supplementing government enforcement efforts. Under the Act, if an action is "based upon the public disclosure of allegations or transactions in" certain specified proceedings, reports, or mediums, a qui tam action cannot be brought unless the relator "is an original source of the information" on which the allegations are based. 31 U.S.C.A. § 3730(e)(4)(A) (West Supp.1994). We held in Wang that "section 3730(e)(4)(A) requires a qui tam plaintiff to have played some part in his allegation's original public disclosure." Wang, 975 F.2d at 1418. Reviewing the history of the Act's jurisdictional provisions and the concerns that led Congress to amend the Act in 1986, we concluded that "Congress wanted in 1986 what it apparently thought it had in 1943: a law requiring that the relator be the original source of the government's information." Id. at 1419 (emphasis in original). We therefore held that engrafting a requirement that "a qui tam plaintiff ... have played some part in his allegation's original public disclosure," id. at 1418, was in accord with Congress's purpose "of encouraging private individuals who are aware of fraud being perpetuated against the Government to bring such information forward," id. at 1419 (internal quotations omitted), because it "`discourages persons with relevant information from remaining silent and encourages them to report such information at the earliest possible time,'" id. (quoting United States ex rel. Dick v. Long Island Lighting Co., 912 F.2d 13, 18 (2d Cir.1990)).
We recognize that creating incentives for those with knowledge of fraud to come forward was not Congress's sole objective. In carefully crafting provisions that specify the relator's recovery and in amending the jurisdictional provisions, it is clear that Congress attempted "to walk a fine line between encouraging whistle-blowing and discouraging opportunistic behavior." Quinn, 14 F.3d at 651. Moreover, once a claim is filed, it is clear that an important concern is ensuring that the United States' rights are not prejudiced by the relator's conducting of the action. That is why, in Killingsworth, we read into the Act the right of the government to object to a settlement between a relator and defendant when the settlement might be structured artificially to defeat the United States' right to recovery. See Killingsworth, 25 F.3d at 723-25. That is also why the government retains the right to intervene for good cause and to reduce substantially the relator's role. See 31 U.S.C.A. § 3730(c).
We think it plain that enforcing a prefiling release of a qui tam claim would dilute significantly the incentives that Congress attempted to augment in amending the Act. If the release will be enforced, a party will have no right or reason to file a qui tam claim. We further believe that impairing these incentives will impair significantly the operation of the FCA. Although not all qui tam claims will be settled prior to the filing of an action, it appears that, for the reasons discussed below, relators have significant incentives to enter into such agreements. And although, as Appellees maintain, enforcing the Release at issue in this case would not prohibit a relator from coming forward with information concerning Appellees' alleged misconduct, our analysis of the structure and purposes of the Act demonstrates that this consideration is not dispositive. If the qui tam provisions never had been enacted, presumably whistleblowers still could come forward. The Act reflects Congress's judgment that incentives to file suit were necessary for the government to learn of the fraud or to spur government authorities into action; permitting a prefiling release when the government has neither been informed of, nor consented to, the release would undermine this incentive, and therefore, frustrate one of the central objectives of the Act.
We recognize that the FCA aims at achieving deterrence as well as restitution. See Mortgages, Inc. v. United States Dist. Court, 934 F.2d 209, 213 (9th Cir.1991) (citing United States v. McLeod, 721 F.2d 282, 285 (9th Cir.1983)). As expressed by a court discussing the original version of the Act, qui tam actions are based on the theory "that one of the least expensive and most effective means of preventing frauds on the Treasury is to make the perpetrators of them liable to actions by private persons acting, if you please, under the strong stimulus of personal ill will or the hope of gain." United States v. Griswold, 24 F. 361, 366 (D.Or.1885) (quoted, inter alia, in Quinn, 14 F.3d at 649 (emphasis added)). It can be argued that monies paid in settlement to a relator outside of the framework of an action brought under the Act should have an equivalent deterrent effect to monies paid in settlement subsequent to the filing of the suit. We believe, however, that the Act's deterrent objectives would be diluted substantially by the enforcement of prefiling releases.
To see this, one need only assume that, but for the filing of a qui tam claim, the government would be significantly less likely to learn of the allegations of fraud. Because Congress itself has made this very assumption, see Senate Report, supra, at 4-7, reprinted in U.S.C.C.A.N. at 5269-72, we find it a reasonable starting point. When the qui tam relator files suit, the relator stands to receive only a percentage of the eventual proceeds from the action; at most, this will amount to 30 percent of the recovery. See 31 U.S.C.A. § 3730(d) (West Supp.1994). Accordingly, in settlement negotiations, both the government and the relator will have incentives to maximize the expected gross recovery.
The situation changes when a potential relator and defendant enter into a prefiling release of a qui tam claim when, as we assume here, that action makes its less likely that the government will learn of the fraud. Under these circumstances, the relator is likely to keep the entire amount of the settlement
To be sure, the concerns identified above are not as pressing on the facts of this case as they would be in many other contexts. The government now has learned of the allegations of fraud made by Green. Indeed, as recounted above, the government undertook an investigation that lasted several months. On the basis of these observations, Appellees maintain that, even if the purposes of the FCA might be undermined by enforcing a general release in other contexts, enforcing the Release at issue here would not have such an effect.
It is critical to observe, however, that the government only learned of the allegations of fraud and conducted its investigation because of the filing of the qui tam complaint. If the prevailing legal rule were that prefiling releases entered into without the government's consent or knowledge were enforceable, then it stands to reason that Green never would have filed his qui tam complaint in the first place. And, as discussed above, both the structure of the Act and the legislative history reveal that it is the filing of more private suits that Congress sought to encourage, both to increase enforcement and deterrence as well as to spur the government to undertake its own investigations.
We also find unpersuasive Appellees' argument that the objectives of the qui tam provisions would not be impaired by enforcing the Release because other Northrop employees can "prosecute claims under the act in accordance with its terms." First, we note that, on the facts of this case, it probably is not true that other employees could prosecute the claim. By filing his wrongful termination suit in state court, Green "publicly disclosed" the allegation of fraud within the meaning of section 3730(e)(4)(A) of the Act. See, e.g., United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1350 (4th Cir.) (noting that "every court of appeal to have addressed the question" has held that "any information disclosed though civil litigation and on file with the clerk's office should be considered a public disclosure of allegations in a civil hearing of the purposes of section 3730(e)(4)(a)"), cert. denied, ___ U.S. ___, 115 S.Ct. 316, 130 L.Ed.2d 278 (1994);
Of course, as discussed above, we must look more broadly than to the facts of this case. As a general matter, however, we think that hypothesizing the existence of other employees who possess relevant information and are willing to come forward is far too fragile a basis for enforcing the Release. There is, of course, no guarantee that such persons exist. Moreover, under Northrop's logic, it presumably would be permissible for Northrop to enter into similar release agreements with other employees as long as Northrop stops short of demanding a release from all of its employees as a matter of course. If we were to routinely uphold prefiling releases, however, it is unclear how the government or the courts could ensure that potential relators remain.
Appellees additionally maintain that, even if the release in this case removes the very incentives that the qui tam provisions of the FCA seek to foster, this result will not impair a substantial public interest. They argue that the public interest is not impaired because a Release entered into in the period prior to the filing of a claim, unlike a postfiling settlement, cannot foreclose the government from bringing suit. Even assuming that a postfiling settlement precludes a subsequent action by the government, we think this argument misses the point for exactly the same reason that Appellees' missed the point with their argument that a settlement would not prevent relators from coming forward with the relevant information. As we emphasized above, the very purpose of the Act's qui tam provisions is to create incentives for relators to supplement government enforcement. Although, once a suit is filed, the concern with ensuring that the government receives an appropriate share of the recovery is an important consideration, see Killingsworth, 25 F.3d at 723-25, such was not Congress's sole concern. The Act, as discussed above, is premised on the view that combatting government fraud requires incentives for those with relevant information of fraud to come forward. Preservation of the incentive effect in the prefiling period, therefore, clearly is a concern infused with the public interest. See Kelly, 9 F.3d at 760 ("[T]he public's interest in successfully enforcing the FCA and the relator's private interest are intertwined....").
Appellees next maintain that, even if the "public interest" is impacted by diluting incentives, this effect is not "substantial." They rely on Rumery, in which a plurality of the Court, noting that the plaintiff there "had no public duty to institute a § 1983 action merely to further the public's interest in revealing police misconduct," characterized the public interest at issue as "diffuse" and refused to "elevate" it "above Rumery's considered decision that he would benefit personally from the [release]." Rumery, 480 U.S. at 395, 107 S.Ct. at 1193.
Section 1983 and the qui tam provisions of the FCA, however, serve very different goals. Section 1983 exists both to vindicate the public interest in deterring deprivations of constitutional rights and to compensate those actually injured. See, e.g., Memphis Community Sch. Dist. v. Stachura, 477 U.S. 299, 307-09, 106 S.Ct. 2537, 2543-44, 91 L.Ed.2d 249 (1986); cf. Farrar v. Hobby, ___ U.S. ___, ___, 113 S.Ct. 566, 573, 121 L.Ed.2d 494 (1992) ("[T]he basic purpose of a § 1983 damage award should be to compensate persons for injuries caused by the deprivation of constitutional rights." (internal quotations omitted)). As the Rumery Court itself observed, although "§ 1983 actions [brought] to vindicate civil rights may further significant public interest," "Congress has confined the decision to bring such actions to
By contrast, the private right of recovery created by the qui tam provisions of the FCA exists not to compensate the qui tam relator, but the United States.
Having concluded that upholding the release in this case would impair a substantial public policy, we turn to an assessment of the interests that favor enforcement.
Appellees maintain that the most important public policy at issue in this case is "whether a defense contractor will ever be able to settle, fully and finally, the disputes that may arise with its employees." They rely upon Coleson v. Inspector General of the Dep't of Defense, 721 F.Supp. 763 (E.D.Va. 1989), in which the court upheld a settlement agreement that might have included qui tam claims
At oral argument, Appellees explained that refusing to enforce a general release that encompasses qui tam claims will significantly burden not only federal defense contractors, but also hospitals, universities, and other entities that receive federal funds and face a significant volume of employment-related litigation. Appellees reason that these entities, if they lack the ability to "buy complete peace" with employees, will be less likely to settle employment-related claims. Such a result, the argument runs, will impose significant costs on these entities, their employees, and the judicial system that, in sum, outweigh the public interest impaired by eviscerating the incentives to bring qui tam claims.
In fact, the imposition of these additional costs may actually further the purposes of the FCA. Presumably, the defendants who will be deterred most from settling non-FCA claims because of the possibility of a qui tam suit are those who face the greatest exposure under the Act. Cf. Evans, 475 U.S. at 735, 106 S.Ct. at 1541 (concluding that the impact of prohibiting negotiated fee waivers would be substantial in part because the fee award often "overshadow[s] the potential cost of relief on the merits"). These defendants, of course, are the very defendants who are most likely to have committed fraud in the first place, and a central objective of the qui tam provisions is precisely to augment the incentives for employees of such entities to come forward. See Senate Report, supra, at 4, reprinted in 1986 U.S.C.C.A.N. at 5269 ("Detecting fraud is usually very difficult without the cooperation of individuals who are either close observers or otherwise involved in the fraudulent activity."). Therefore, if refusal to enforce the Release in this case increases defendants' costs, this actually might have the salutary effect of further deterring defendants from engaging in fraud, which, in the long-run, might render the costs Appellees foresee insubstantial. We therefore cannot conclude that the costs Appellees envision are of a sufficient magnitude to offset the dilution in incentives to bring qui tam claims that would result from enforcing the Release.
For the foregoing reasons, we conclude that application of the Rumery/Davies test compels the conclusion that prefiling releases of qui tam claims, when entered into without the United States' knowledge or consent, cannot be enforced to bar a subsequent qui tam claim.
For the above reasons, we hold that the Release entered into in this case cannot be enforced to bar Appellant's qui tam claim. The district court's conclusions that Appellant lacked standing to pursue the action, and therefore, that the court lacked subject matter jurisdiction, accordingly are
The substance of the two tests, however, is quite similar; accordingly, we are not convinced that the district court did not pass upon the issue raised here. Cf. In re E.R. Fegert, Inc., 887 F.2d 955, 957 (9th Cir.1989) (holding that an issue must be raised in a manner "sufficient for the trial court to rule upon it"). However, even if the precise issue we face has been raised for the first time on appeal, the waiver rule is not one of jurisdiction, but discretion. See Singleton v. Wulff, 428 U.S. 106, 121, 96 S.Ct. 2868, 2877, 49 L.Ed.2d 826 (1976); Telco Leasing, Inc. v. Transwestern Title Co., 630 F.2d 691, 693 (9th Cir. 1980). We can exercise that discretion to consider a purely legal question when the record relevant to the matter is fully developed. See, e.g., United States v. Bigman, 906 F.2d 392, 395 (9th Cir.1990); see also Cristobal v. Siegel, 26 F.3d 1488, 1493 (9th Cir.1994) ("[W]e have discretion to consider matters of law never considered prior to appeal."). Because the enforceability of the Release at issue in this case is such a question, and the parties will not be prejudiced by its resolution, we exercise our discretion here. See Botefur v. City of Eagle Point, 7 F.3d 152, 155 (9th Cir.1993) (entertaining the argument that federal law controlled the validity of a release of a statutorily-conferred federal right when state law was relied upon in the district court).
In O'Melveny, the Supreme Court carefully qualified the dicta quoted above with the statement that state law only presumptively controls to fill gaps in detailed statutory schemes. We think the question of the release of a federal cause of action is a situation in which this "presumption" can be rebutted. Here, the potential that state law might impair federal rights is substantial. Indeed, the Dice Court itself reasoned that federal rights easily could be defeated if federal law did not ultimately control the question of the validity of a release. See Dice, 342 U.S. at 361, 72 S.Ct. at 314. Moreover, unlike other contexts in which formulating a federal common law rule would require courts to create enforcement mechanisms that Congress might not have intended, formulating a rule to assess the validity of a release merely involves protecting those rights that Congress did create. Accordingly, the concern that courts will undercut a balance struck by Congress, see, e.g., O'Melveny, ___ U.S. at ___, 114 S.Ct. at 2055; Northwest Airlines, 451 U.S. at 97, 101 S.Ct. at 1583-84, or engage in a task more appropriately left for the legislature, cf. Texas Industries, 451 U.S. at 646, 101 S.Ct. at 2070 ("The range of factors to be weighed in deciding whether a right of contribution should exist demonstrates the inappropriateness of judicial resolution of this complex issue."), is implicated to a significantly lesser degree. Consequently, we believe that Mardan and O'Melveny can be reconciled, and that the possibility of fashioning a federal common law rule to displace a state law rule, when the state law rule would conflict with specific policies of a comprehensive federal scheme, remains open.
We also acknowledge that, in Mortgages, Inc. v. United States Dist. Court, 934 F.2d 209 (9th Cir. 1991), we concluded broadly that "[t]he FCA allows no room for the creation of additional federal common law," id. at 213. However, this last remark clearly was limited to situations involving the canon applicable to implied rights of action which, as discussed in the text, does not apply here. Indeed, we recognized the possibility that other questions relating to the Act might justify the formulation of federal common law rules that would displace state law. Cf. id. (concluding that, because fashioning a rule permitting contribution in favor of a FCA defendant was not "necessary to protect uniquely federal interest[s]," it was inappropriate "to formulate federal common law on that basis" (emphasis added) (internal quotations omitted)). Because, under our decision in Mardan, federal common law ordinarily would displace state law, we do not believe that Mortgages precludes its application to determine the enforceability of a release of a qui tam claim entered into during the prefiling period.
Of course, if the government is entitled to a portion of the settlement proceeds, this only strengthens our central point. A relator will be less likely to come forward with information concerning fraud if doing so will tip off the government as to the existence of settlement proceeds to which it is entitled to a portion.