ELLIS, District Judge.
This qui tam action
(i) Is the question whether a person has the requisite "direct and independent knowledge" of false claims to serve as an FCA relator determined by reference solely to the person's § 3730(b)(2) written disclosure statement to the government? If not, what else may be referred to for the purpose of determining whether a person has this knowledge?
(ii) How much information must a person have and disclose to the government to earn relator status? Put another way, what standard describes the nature and quantum of knowledge concerning false claims that a person must have to qualify as an FCA relator?
(iii) And finally, does the "direct and independent knowledge" of the putative relator in this case meet the FCA standard?
Guy Detrick ("Detrick") is the putative relator in this case. During the times relevant here, Detrick and his wife owned and operated two companies involved in the shipping business. Northeast Container Corporation ("NCC") provided warehousing services for international freight forwarders,
In 1989, Panalpina contracted with the Turkish government to transport military equipment and hardware to Turkey from various locations in the United States. This contract was part of the Foreign Military
NCC's relationship with Panalpina began to deteriorate soon after Panalpina won the Turkey FMSP contract. Ultimately, in April 1990, Detrick felt compelled to abandon the NCC-Panalpina contract when Panalpina unilaterally reduced the rates it paid NCC. When this occurred, Sylvan Friedman ("Friedman") stepped into the void left by NCC's departure. With two of his companies, Multi-Modal Freight Systems, Inc. ("MMFS-MD") and Multi-Modal Freight Systems of Virginia ("MMFS-VA"), Friedman began to perform the warehousing services for Panalpina's Sterling facility.
Notwithstanding his abandonment of the NCC contract, Detrick continued working for Panalpina in a different capacity until sometime in 1992 because Fast Forward, Inc., his other company, had the DODIS security clearance required for handling Panalpina's "secret level" freight forwarding. In mid-1991, while performing these services, Detrick was approached by a former NCC employee who was then employed by Friedman. The employee presented Detrick with a shipping invoice that showed a discrepancy in transportation charges purportedly incurred by Panalpina and MMFS-MD in connection with the Turkey FMSP account. This invoice led Detrick to suspect the existence of a fraudulent scheme to overbill the account. Acting on this suspicion, he undertook an independent investigation of documents located in Panalpina's office. Detrick's sleuthing uncovered invoices, internal memoranda, and financial documents that confirmed his suspicions of fraudulent activity by Friedman and Panalpina with respect to the Turkey FMSP account. Pieced together, the documents laid bare the outlines of a fraudulent scheme involving Panalpina and Friedman. More particularly, the documents disclosed that Friedman and Panalpina routinely added false charges to legitimate freight bills from legitimate inland motor carriers and then submitted the doctored figures to the Turkish government for payment after reprinting them on invoices from one of a number of shell freight forwarding companies maintained by Friedman (the "Friedman dba's").
Detrick wasted no time in sharing his documented information with the government. Thus, on June 14, 1991, Detrick disclosed to the Internal Revenue Service ("IRS") all that he had discovered about Friedman and Panalpina's fraudulent rebilling scheme. He also disclosed this information to the Office of the Inspector General at the Department of State and to the United States Attorney for the Eastern District of Virginia. Also during the summer of 1991, Detrick met with an Assistant United States Attorney and agents of the Federal Bureau of Investigations ("FBI"), the Federal Maritime Commission, and the Department of Defense, and provided these persons and agencies with the information and copies of the documentary evidence he had gathered concerning Friedman's activities with Panalpina. These disclosures triggered a government investigation.
That same summer of 1991, while he was crating equipment as an independent contractor for Daniel F. Young, Inc. ("D.F. Young"), a competitor of Panalpina, Detrick
For the remainder of 1991, Detrick continued to cooperate with the government with respect to his knowledge of Friedman and Panalpina's fraudulent rebilling activity. Thus, Detrick testified on this subject before the grand jury for the Eastern District of Virginia in December 1991. Between the date of his grand jury testimony and August 1992, when the FBI raided Panalpina's offices, Detrick continued to render assistance in the ongoing criminal investigation. This assistance, together with his prior disclosures, apparently formed the factual basis for the affidavit on which the government relied to obtain the search warrant for Panalpina's business records.
As a result of the government's investigation, Sylvan Friedman was ultimately charged in a criminal information with various offenses, including money laundering and conspiracy to impair and impede the functioning of the IRS through fraudulent billing practices. In May 1994, Friedman pled guilty to this criminal information.
It was not until March 9, 1995, that Detrick filed this qui tam action under the FCA, 31 U.S.C. §§ 3729-33 (Supp.1995). The complaint named as defendants Sylvan Friedman, twenty Friedman companies or dba's, Panalpina, Inc., and John Does I through X. Pursuant to 31 U.S.C. § 3730(b)(2), Detrick also filed a disclosure statement and a copy of the complaint with the United States. The initial disclosure statement described the fraudulent activity as involving Friedman and "international freight forwarders which were transporting military hardware and equipment to various countries pursuant to the FMSP." Also expressed in the initial disclosure statement was Detrick's belief that "prior to the award of the Turkey FMSP contract to Panalpina, Friedman and MMFS-MD provided warehousing and other services to D.F. Young and/or Herman Ludwig (referred to as Doe I and/or Doe II in the qui tam complaint) in connection with the Turkey FMSP account." This reference was the only identification of the John Does to appear in either Detrick's complaint or his written disclosure to the government. Further, the written disclosure
On April 11, 1995, the United States filed a request under 31 U.S.C. § 3730(b)(3) for a one-year extension of time to decide whether to intervene in the FCA action, on the alternative bases that a criminal investigation was pending and that the complaint named Doe defendants. The government explained in its request that it had waived any civil claims against Friedman or his companies as part of the latter's 1994 guilty plea. The government also reported that because the activity engaged in by Panalpina did not involve payment of money from the U.S. Treasury, Panalpina was not a proper subject of the FCA action. From these representations, it was apparent that the John Does were the only defendants against whom Detrick's action retained vitality.
That same day, April 11, 1995, a federal grand jury in the Eastern District of Virginia indicted William Hines and John Gillespie for crimes involving false and fraudulent rebilling activity in connection with D.F. Young's role in the Turkey FMSP contract.
The Court entered two Orders on June 8, 1995, (i) denying the government's request for a twelve-month extension, but granting instead an extension only until August 7, 1995,
The FCA ferrets out fraud on the government by offering an incentive to persons with evidence of such fraud to come forward and disclose that evidence to the government. See 31 U.S.C. § 3729 et seq. The mechanism for coming forward and disclosing evidence of fraud is the qui tam action. This is an action filed by a relator, as the qui tam plaintiff is called, in the name of the United States against any defendants alleged to have defrauded the government. The incentive for filing such a suit is economic, namely, a share in any fraud damages ultimately recovered.
Upon filing a qui tam suit, one of the relator's first duties is to send a copy of the complaint and a written disclosure statement
These economic benefits are not easily gained; certain statutory requirements must be met before a plaintiff can gain relator status.
These principles are necessary but not alone sufficient to dispose of this matter. Detrick, to be sure, has some direct and independent knowledge relating to the activities of Hines, Gillespie, and D.F. Young.
The government contends that only the statutorily required written disclosure may be considered in determining whether a putative relator is an "original source." Detrick
To begin with, nowhere in the statute is there any indication that the "original source" assessment is limited to the written disclosure. Instead, the statute's two disclosure provisions convincingly point away from such a limitation. While the first provision requires a relator to provide the government with a written disclosure statement,
Sound practical reasons also support this conclusion. The typical relator will be a citizen, like Detrick, who is unsophisticated in the legal intricacies of fraud law, and who happens across evidence of fraud during the course of employment. Some relators may file qui tam actions pro se. These relators may not know what information or what level of detail must be included in a complaint or in the written disclosure statement to the government. Given its aim of encouraging ordinary citizens to come forward with knowledge of fraud, it is important that the FCA be liberally construed to allow for unsophisticated relators and for the fact that such relators typically engage in an iterative, co-operative process of disclosure between the government and the relator. Just such a process occurred here. Detrick met with various government agents numerous times over the course of several months to impart his knowledge of fraud to them. It would be patently unjust in circumstances like these to ignore the often substantial amount of significant information a complainant may have communicated to the government orally or in writing prior to the filing of the qui tam action by limiting the assessment of relator status to the information submitted in a single written statement. Certainly nothing in the statute requires this. To the contrary, the FCA's language and purpose point persuasively, if not explicitly, to a more sensible and fair principle: the assessment of relator status should take into account all of the information the putative relator has communicated to the government prior to the filing of the action. Only in so doing can there be an accurate and fair assessment of whether the putative relator has played the kind of instrumental role in ferreting out and remedying fraud contemplated by the FCA. Hence, the sum total of direct and independent knowledge Detrick imparted to the various government agents with whom he discussed the rebilling scheme should be considered in evaluating whether he is an "original source" of the allegations.
The next and more difficult question is the nature and quantum of knowledge of
The principal clue is in the FCA's structure. Significantly, the question of the nature and quantum of a relator's knowledge of the fraud arises explicitly only in the context of an "original source" inquiry. In other words, absent a jurisdictional question arising from the operation of § 3730(e)(4), the sufficiency of a putative relator's knowledge is judged by his complaint, which in turn is judged by the same standards that would govern any other complaint, namely, the pleading requirements of the Federal Rules of Civil Procedure. More specifically, a person filing a qui tam complaint, like any other civil complainant, must have an adequate basis under Rule 11, Fed.R.Civ.P. for his fraud allegations,
No reason in logic or principle suggests that different standards should come into play in the event a prior disclosure triggers the operation of the jurisdictional "original source" provisions of § 3730(e)(4). If, in the absence of any publicly disclosed information, a person can achieve relator status because the fraud allegations in his complaint pass muster under Rules 9 and 11, then so, too, should a person achieve relator status where, in the face of public disclosures, the person's direct and independent knowledge of the fraud meets the requirements of Rules 9 and 11. A person seeking relator status as an "original source" should not be required to meet standards, in terms of the nature and quantum of information about the fraud, that are different from those that must be met by the person seeking relator status in the absence of any public disclosure. Put another way, the nature and quantum of fraud evidence that a putative relator must possess should be the same whether or not the person's relator status is assessed under § 3730(e)(4). And the measure of that nature and quantum of information is found in the standards of Rules 9 and 11, Fed. R.Civ.P.
To recapitulate, the FCA contemplates two paradigm paths to relator status. The first is the path a putative relator travels alone, essentially carrying the litigation ball entirely by himself without any government aid or information. This path reflects that the FCA contemplates that a complainant seeking relator status may file a qui tam suit alleging fraud in circumstances where there has been no public disclosure of the fraud or information concerning the fraud and where the complainant has had no prior contact with the government concerning the fraud. In this event, provided the fraud allegations meet the standards of Rules 9 and 11, the qui tam action will proceed to the discovery stage, and possibly beyond.
The second paradigm path a complainant may follow on the road to relator status under the FCA arises where the complainant's fraud allegations are derived from, or based in part or in whole on, public disclosures. This situation triggers the FCA's "original source" provision, which requires, as a jurisdictional condition, that the complainant have knowledge of the fraud that is direct and independent of any public disclosures. See 31 U.S.C. § 3730(e)(4). As is true of the first paradigm path, the FCA does not explicitly define in these circumstances what quantum of fraud evidence would constitute adequate direct and independent knowledge of fraud. Yet, this does not mean that there is no guidance whatever to be derived from the FCA on this issue. Indeed, as explicated above, an examination of the first paradigm path to relator status leads to the conclusion that the quantum and
This conclusion finds support in the FCA's historical development, which reflects that Congress, over time, has rejected both the notion that relator status can be achieved by persons who have no real knowledge of the fraud apart from that already publicly disclosed, and the opposite notion that relator status is foreclosed unless the complainant has independent knowledge of everything in his fraud complaint.
Congress's purpose in enacting the FCA, as that purpose is illuminated by the statute's history, further supports the use of the Rule 9 and Rule 11 standards to measure whether a complainant's direct and independent knowledge of the fraud is enough to merit relator status. This purpose was to encourage individual citizens to act as "private attorneys general" in assisting the government in the discovery and prosecution of fraudulent activity.
If the minimum standard for obtaining relator status were set too low, courts would have to accept jurisdiction over qui tam suits brought by complainants who had provided only a soupcon of information to the government, as long as that soupcon somehow led the government down an investigative trail resulting in public disclosure of fraud. Yet, this appears to be the standard in the Ninth Circuit under the rule announced in United States ex rel. Barajas v. Northrop Corp., 5 F.3d 407 (9th Cir.1993), the principal authority on which Detrick relies. There, the relator survived a jurisdictional challenge to a complaint he filed against his former employer, a subcontractor producing flight data transmitters for Air Force nuclear cruise missiles. Northrop, 5 F.3d at 408. His qui tam complaint originally alleged improper inspection procedures and falsification of test results by the company, and he had shared his knowledge of that fraud with the government before the action was filed. He then attempted to amend his complaint to include allegations that Northrop had used inadequate damping fluid. But significantly, this amendment came after a criminal indictment published the damping fluid allegation as well as the allegations the relator had earlier communicated to the government and detailed in his qui tam complaint. Id. at 408-09. On these facts, the Ninth Circuit upheld the complainant's claim to relator status, holding that a relator is an "original source" with regard to an amendment based upon public information "if he played some part, whether direct or indirect, in the public disclosure of the allegations that are the subject of the proposed amendments." Id. at 411.
If, as concluded here, eligibility for FCA relator status is measured by the standards of Rules 9 and 11, it is plain that Detrick falls short. His direct and independent knowledge of the fraudulent activity involving D.F. Young, Hines, and Gillespie satisfies neither Rule 9 nor Rule 11. He did not know, as Rule 9(b) requires, the "who, what, when, where, and how" of the fraud. See, e.g., Borow v. nVIEW Corp., 829 F.Supp. 828, 831 (E.D.Va.1993) (citing DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir.), cert. denied 498 U.S. 941, 111 S.Ct. 347, 112 L.Ed.2d 312 (1990)).
Thus, Detrick was, in essence, a complainant who went to the government and said, "I think there's something fishy going on in connection with Government Contract A and Contractor B." This is not enough to file a fraud complaint, and it is not enough to earn qui tam relator status. And the fact that he provided the government with hard evidence of "something fishy" between Panalpina and Friedman with respect to the Turkey FMSP contract neither alters nor makes up for the fact that he admittedly could not, on his own, have brought a complaint against D.F. Young, Hines, and Gillespie alleging fraud on the government in connection with the Egypt FMSP contract. Allowing him to serve as a relator in the action against D.F. Young, Hines, and Gillespie would be tantamount to encouraging citizens to initiate parasitic lawsuits feeding entirely off government information, or to run to the government with only a suspicion of fraud in the hope that they might later be able to win relator status by riding piggyback on information subsequently developed by a government investigation. Although the qui tam provisions of § 3730 are designed to encourage citizens with actual knowledge of fraud to come forward, they are plainly not designed to result in government agencies pursuing fishing expeditions at the behest of suspicious citizens. Moreover, the FCA is not designed to have the government function as a sort of free private investigator to help persons achieve qui tam relator status and the resulting opportunity of financial gain.
The result in this case may seem somewhat harsh given the nature and amount of information Detrick provided to the government on Friedman and Panalpina's activities with respect to the Turkey contract, which assistance netted Detrick nothing. And there is no doubt that his suspicions of D.F. Young, et al., although initially only hunches, turned out to be well founded. But his cooperation
An appropriate Order will issue.
State ex rel. Rodes v. Warner, 197 Mo. 650, 94 S.W. 962, 965 (1906) (quoting Black's Law Dictionary); see also Williams v. Wells Fargo & Co., 177 F. 352 (8th Cir.1910) (describing qui tam actions as one to recover penalty, brought by informer pursuant to statute where one portion of recovery goes to informer and other portion to state); United States ex rel. Rodriquez v. Weekly Publications, 74 F.Supp. 763, 765 (S.D.N.Y. 1947); Erickson v. American Inst. of Bio. Sciences, 716 F.Supp. 908, 909 n. 1 (E.D.Va.1989).
31 U.S.C. § 3730(b)(1), (2) (emphasis supplied).
Rule 11, Fed.R.Civ.P. If, after a reasonable precomplaint inquiry, a person still bases the factual allegations of his complaint only on rumor or suspicion, he does not have an adequate Rule 11 basis to make those allegations. See, e.g., Bankers Trust Co. v. Old Republic Ins. Co., 959 F.2d 677, 683 (7th Cir.1992).
This amendment, it seems, went too far, in effect closing the qui tam door on putative relators from whom the government had learned about fraud just because these persons gave their knowledge to the government before filing suit under the FCA. Public perception of this new obstacle depressed the use of qui tam suits to enforce the FCA, see Quinn, 14 F.3d at 650, and the Seventh Circuit transformed the perception into judicial reality with its 1984 decision in United States ex rel. Wisconsin v. Dean, 729 F.2d 1100 (7th Cir.1984). Congress responded once again by nullifying this judicial interpretation of § 3730. In 1986, it enacted the current version of the qui tam statute, which includes the "original source" provision that expressly allows the private prosecution of suits formerly precluded by Dean and the language of the 1943 amendment. See 31 U.S.C. § 3730(e)(4)(A) (Supp. 1995). The legislative history of the 1986 amendments demonstrates Congress's clear intent to overrule Dean and to make it easier for private citizens to enforce the FCA. See, e.g., S.Rep. No. 345, 99th Cong., 2d Sess., reprinted in 1986 U.S.C.C.A.N. 5266.
It follows from this amendment that a putative relator need not have direct and independent knowledge of everything in the complaint to qualify as a relator. Indeed, to apply such a stringent interpretation of the public disclosure restriction would be to return in effect to the pre-1986 version of the statute, in which the "original source" exception did not appear. Courts recognize that giving this exception meaning requires accepting that a relator need not have direct and independent knowledge of all the information on which he wishes to rely in bringing a qui tam action. See, e.g., Quinn, 14 F.3d at 656-57; United States ex rel. Stinson, Lyons, Gerlin & Bustamante v. Prudential, 944 F.2d 1149, 1160 (3d Cir.1991).
Subsequent efforts by some members of Congress to alter or amend the jurisdictional bar of § 3730(e)(4) have focused on judicial interpretations of that provision having nothing to do with the nature and quantum of information possessed by the putative relator. See, e.g., H.R.Rep. No. 837, 102d Cong., 2d Sess. 12 (1992) (stating that "clarifications ... are necessary in light of a number of incorrect interpretations" of § 3730(e)(4)); see also supra note 24.