24 F.3d 320 (1st Cir. 1994), 93-1766, United States ex rel. S. Prawer and Co. v. Fleet Bank of Maine

Docket Nº:93-1766.
Citation:24 F.3d 320
Party Name:In re UNITED STATES of America, ex rel. S. PRAWER and COMPANY, et al., Plaintiffs, Appellants, v. FLEET BANK OF MAINE, et al., Defendants, Appellees.
Case Date:May 05, 1994
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

Page 320

24 F.3d 320 (1st Cir. 1994)

In re UNITED STATES of America, ex rel. S. PRAWER and

COMPANY, et al., Plaintiffs, Appellants,


FLEET BANK OF MAINE, et al., Defendants, Appellees.

No. 93-1766.

United States Court of Appeals, First Circuit

May 5, 1994

Heard Jan. 7, 1994.

Page 321

Jeffrey Bennett with whom Melinda J. Caterine and Herbert H. Bennett & Assoc., P.A., Portland, ME, were on brief, for appellants.

James E. Kaplan with whom Derek P. Langhauser, James E. Kaplan & Associates, P.A. and Julianne Cloutier, Portland, ME, were on brief, for appellee Amy Bierbaum.

Thomas N. O'Connor with whom Donald L. Cabell and Hale and Dorr, Boston, MA, were on brief, for appellees Verrill & Dana, P. Benjamin Zuckerman and Anne M. Dufour.

Joseph F. Shea with whom Paul R. Gupta and Nutter, McClennen & Fish, Boston, MA, were on brief, for appellee RECOLL Management Corp.

John J. Wall, III with whom Thomas F. Monaghan and Monaghan, Leahy, Hochadel & Libby, Portland, ME, were on brief, for appellee Fleet Bank of Me.

Page 322

Frank W. Hunger, Asst. Atty. Gen., Jay P. McCloskey, U.S. Atty., Bangor, ME, and Douglas N. Letter and Jonathan R. Siegel, Attys., Civ. Div., Dept. of Justice, Washington, DC, on brief, for U.S., amicus curiae.

Before BREYER, Chief Judge, TORRUELLA and STAHL, Circuit Judges.

STAHL, Circuit Judge.

This appeal arises out of the district court's sua sponte dismissal of a qui tam action brought by plaintiffs-appellants S. Prawer & Company, Gilbert Prawer, and Harvey Prawer (collectively "Prawer") as relators under the False Claims Act ("FCA"), 31 U.S.C. Sec. 3729 et seq. 1 Plaintiffs primarily 2 contend that the court erred in concluding that 31 U.S.C. Sec. 3730(e)(3), 3 a provision enacted as part of the 1986 amendments to the qui tam provisions of the FCA, bars their claim. The issue is one of first impression, as no other court has as yet been called upon to interpret the reach and meaning of this ambiguous provision. After careful consideration of the arguments presented, we reverse.



  1. Relevant Factual and Procedural History

    The relevant facts and allegations, recounted in the light most favorable to plaintiffs, are as follows. 4 In January 1991, the Maine National Bank ("MNB") was declared insolvent and the Federal Deposit Insurance Corporation ("FDIC") was appointed its receiver. The New Maine National Bank ("NMNB") was established as a bridge bank through which the FDIC would conduct certain MNB-related affairs.

    On or about July 12, 1991, the NMNB closed, and the FDIC sold virtually all of its assets to Fleet Bank of Maine ("Fleet"). The contract by which this transfer of assets was effectuated is known as the "Assistance Agreement." Inter alia, the Assistance Agreement provided that Fleet had the right to "put," or cause the FDIC to repurchase, any NMNB loans acquired by it pursuant to the Assistance Agreement (provided that said loans did not fall into any one of several exceptional categories described in the Assistance Agreement). Included among the transferred assets were five promissory notes, totalling approximately $1.1 million, given by Prawer to the NMNB. The notes represented the amount Prawer had drawn against a $2 million line of credit extended to it by NMNB.

    On July 15, 1991, Prawer entered into a new agreement with Fleet for an unsecured line of credit (known as the "Fleet Credit Facility") which permitted it to draw up to $2 million by executing and/or renewing consecutive, unsecured 90-day term notes on a

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    note-by-note basis. Prawer utilized this new line of credit from Fleet to satisfy fully its obligations under each of the five outstanding NMNB notes. By May 5, 1992, Prawer had drawn $1.6 million against its $2 million line of credit under the Fleet Credit Facility. These borrowings were evidenced by seven unsecured 90-day term notes.

    Meanwhile, on April 30, 1992, Prawer sold virtually all of its then-existing assets to C & S Wholesale Grocers, Inc. ("C & S"). Gilbert Prawer informed Fleet of the sale on May 1, 1992. On May 6, 1992, pursuant to the Assistance Agreement, Fleet put certain Prawer notes back to the FDIC. The parties hotly contest, however, whether any of the notes were "putable" under the terms of the Assistance Agreement. 5

    1. The Collection Case

    Subsequently, in November 1992, the FDIC commenced an action against Prawer, C & S, and a number of individual defendants to collect upon the notes put back to it pursuant to the Assistance Agreement. The complaint in that action not only sought enforcement of the notes, but also alleged that the April 30, 1992, sale of Prawer's assets to C & S constituted a fraudulent conveyance and violated Maine's Bulk Sale Act. More specifically, the FDIC contended that Prawer had become insolvent, and had peddled its assets for less than full value in order to satisfy its debts to certain creditors. Accordingly, the complaint sought damages beyond the amount allegedly outstanding on the notes.

    Prawer responded to this complaint with several affirmative defenses and counterclaims, as well as filing a third-party complaint against Fleet and Recoll Management Corporation ("Recoll"), a Fleet subsidiary which had, pursuant to an agreement with the FDIC, been seeking to collect upon the notes which were put back to the FDIC. A variety of charges were made in these defenses, counterclaims, and third-party claims; among these was an assertion that the notes were not putable to the FDIC pursuant to the Assistance Agreement. But see infra note 6.

    At oral argument, the parties represented that, since the filing of this case, the Collection case has settled.

    2. The Qui Tam Case

    On June 21, 1993, plaintiffs filed the instant qui tam action. In their complaint, plaintiffs contended that the named defendants--Fleet, Recoll, Verrill & Dana (the law firm that served as legal counsel to Fleet, Recoll, and the FDIC at all times relevant to this matter), P. Benjamin Zuckerman and Anne M. Dufour (the Verrill & Dana lawyers involved in this matter), and Amy Bierbaum (an FDIC staff attorney)--"created and used, or caused to be created and used, false records and statements designed to defraud the Government into paying Fleet approximately $1.6 million" for the Prawer notes pursuant to the put-back provisions of the Assistance Agreement.

    Nine days later, on June 30, 1993, the district court sua sponte dismissed plaintiffs' complaint. In so doing, the court relied upon Sec. 3730(e)(3), see supra note 3, finding that (1) the allegations made and transactions implicated in plaintiffs' complaint already were at issue (as defenses) in the Collection case; and (2) the "government," in the person of the FDIC, was a party to that action. See United States ex rel. S. Prawer & Co. v. Fleet Bank of Maine, 825 F.Supp. 339 (D.Me.1993).

    Plaintiffs moved the court to reconsider its sua sponte order of dismissal, arguing, inter alia, that (1) the "government," for purposes of Sec. 3730(e)(3), was not a party to the Collection case; and (2) the qui tam action was not "based upon allegations or transactions which are the subject of" the Collection case. In a comprehensive memorandum of decision, the court rejected both of these arguments (as well as all other arguments made in plaintiffs' motion). In so doing, however, the court receded slightly from its original holding on the question of whether there was

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    an identity between the allegations and transactions which were "the subject of" the Collection case and those that served as the basis for the qui tam action. Instead, the court found:

    To the extent that defenses based upon the allegations of the qui tam complaint are not pleaded in the related civil action, that is entirely the result of the conscious decision of counsel for the defendants there (and Plaintiffs here) to abjure their pleading. Clearly the factual predicate for the false claims alleged in the qui tam action form the basis for assertion of viable defenses to the claims made against the defendant S. Prawer & Company on the notes in the related civil action. An effective defense to those claims would require that those defenses be pleaded there if counsel, in good faith, believe the facts put forth here.... This Court believes that the proper construction of [Sec. 3730(e)(3) ] requires that it be read broadly enough to encompass not only allegations and transactions actually put in issue by the litigants in the related civil suit but any allegations or transactions that could legitimately be made a subject (e.g., [sic] be put in issue) of that suit in the regular course of its development.

    United States ex rel. S. Prawer & Co. v. Fleet Bank of Maine, Civ. No. 93-165-P-C, 1993 WL 668988, slip op. at 3-4 (D.Me. July 12, 1993) (footnote omitted). 6 Accordingly, the court denied plaintiffs' motion. Id. at 9.

  2. The Statutory Framework

    Because our resolution of the issue presented in this appeal necessarily is informed by Congress's intent in enacting the 1986 amendments to the FCA's qui tam provisions, a brief historical overview of the statute is in order. The FCA's qui tam 7 provisions, see generally 31 U.S.C. Sec. 3730(b)-(g), empower private persons, known as "relators," (1) to sue, on behalf of the government, persons who knowingly have presented the government with false or fraudulent claims (as the highlighted terms are defined by 31 U.S.C. Sec. 3729); and (2) to share in any proceeds ultimately recovered as a result of such suits, see generally 31 U.S.C. Sec. 3730(d). Since its enactment in 1863, 8 the FCA has contained several different qui tam provisions. The original provisions contained no significant jurisdictional limitations and did not preclude...

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