U.S. ex rel. Holmes v. Consumer Ins. Group, No. 01-1077.

Citation318 F.3d 1199
Decision Date10 February 2003
Docket NumberNo. 01-1077.
PartiesUNITED STATES of America, ex rel. Mary L. HOLMES, Plaintiff-Appellant, and United States of America, Movant-Appellee, v. CONSUMER INSURANCE GROUP; John R. Hightower, Defendants.
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

Craig D. Joyce, Walters & Joyce, P.C., Denver, CO, for the Plaintiff-Appellant.

Charles W. Scarborough, Appellate Staff Civil Division, Department of Justice, (Robert D. McCallum, Jr., Assistant Attorney General; John W. Suthers, United States Attorney; Douglas N. Letter, Appellate Staff Civil Division, Department of Justice with him on the brief) Washington, D.C., for the Movant-Appellee.

Before TACHA, Chief Judge, SEYMOUR, EBEL, KELLY, HENRY, BRISCOE, MURPHY, LUCERO, HARTZ, and O'BRIEN, Circuit Judges.

BRISCOE, Circuit Judge.

Relator Mary L. Holmes appeals the district court's dismissal, for lack of subject matter jurisdiction, of her claims under the False Claims Act (FCA), 31 U.S.C. §§ 3729-33. A divided panel of this court affirmed the district court's judgment. See United States ex rel. Holmes v. Consumer Ins. Group, 279 F.3d 1245 (10th Cir.2002). This court subsequently granted rehearing en banc. Upon rehearing, we vacate our prior opinion in this case, reverse the judgment of the district court, and remand for further proceedings.

I.

Since 1985, Holmes has served as the postmaster in Poncha Springs, Colorado. In October 1995, Cameron Benton and Henry Modrejewski, employees of defendant Consumer Insurance Group (CIG), inquired at the Poncha Springs post office about the cost of bulk mailing. After Holmes calculated the cost of CIG's intended mailing, Modrejewski told Holmes "that was not the rate they were being charged for the same type [of] mailing at the Howard, Colorado post office." App. at 101. More specifically, Holmes was informed that CIG was being charged "per pound," rather than "per piece," at the Howard post office. Id. at 10. The "per pound" rate, which is significantly lower than the "per piece" rate, applies if each individual piece of mail weighs in excess of 3.3062 ounces. Holmes called Jenny McKinnon, the Howard postmaster, who confirmed that CIG was receiving the "per pound" rate at the Howard post office. Assuming that McKinnon was correct, Holmes accepted CIG's bulk mailing at the "per pound" rate.

After further checking, Holmes concluded that her initial calculation was correct and that CIG's bulk mailing did not qualify for the "per pound" rate because each individual piece weighed only .3 ounces. Holmes informed Benton of her conclusion. Benton responded that CIG could not afford to use the "per piece" rate because it was "prohibitively expensive." Id. at 11. After speaking with Benton, Holmes contacted McKinnon at the Howard post office and informed her that CIG's bulk mailings did not, in fact, qualify for the "per pound" rate.

Nearly two years later, in August 1997, Holmes was training an acting postmaster, Al Ferguson, at the Howard post office concerning how to "close out the books and make sure everything balanced for the year." Id. at 85. During a lunch break, Holmes asked Ferguson the rate CIG was being charged for bulk mailings. According to Holmes, she was curious whether McKinnon had corrected the bulk mail rates for CIG because CIG was trucking all of its mail to the Howard post office. Ferguson told Holmes that CIG was still being charged the "per pound" rate. Upon returning to the Howard post office, Holmes and Ferguson "did some calculations and determined that the CIG mailings were ... being undercharged by about $200,000 per year." Id. at 86. Holmes also discovered that CIG had been falsely certifying that its bulk mailings weighed in excess of 3.3062 ounces per piece. Holmes reported her findings concerning CIG's bulk mailings to her manager, who oversaw both the Poncha Springs and Howard post offices.

In December 1997, after allegedly hearing nothing from postal inspectors, Holmes wrote to the Inspector General's Office in Washington, D.C., and reported the problem concerning CIG's bulk mailings. The Inspector General's Office responded by letter in March 1998, stating, in pertinent part, that Holmes' "information" had been "reviewed ... and referred ... to the appropriate Office of Inspector General Director for action deemed warranted," and that Holmes would "be contacted if additional details [we]re needed." Id. at 54. As Holmes was allegedly concerned that the Inspector General's Office would take no action, she also reported the problem to a postal systems coordinator.

In late March 1998, the Postal Inspection Service began an administrative investigation into Holmes' allegations regarding CIG's bulk mailings. On April 1, 1998, postal inspector James Hayson (the lead agent), accompanied by three other postal inspectors, a postal inspector general agent, and two revenue assurance analysts, spent a week at the Howard post office collecting and reviewing documents concerning CIG's mailings. "During the subsequent months," Hayson "located and interviewed at least ten individuals including current and former employees of [CIG] and current and former employees of the Postal Service." Id. In particular, Hayson interviewed Benton and Modrejewski, who no longer worked for CIG. Hayson also interviewed Jim Benbrook, a current employee of CIG who acknowledged transporting many of the mailings at issue to the Howard post office. Benbrook initially denied knowledge of the alleged fraud, but evidence subsequently obtained by the government "suggests that [he] was an active participant in the fraud." Govt. Br. at 10. During all of the interviews, Hayson "disclosed the Government's suspicions that CIG had knowingly underpaid postage based on false mailing statements ... and that John Hightower[, CIG's owner,] knew the mailing statements were false." App. at 35.

In July 1998, Hayson referred the case to the United States Attorney's Office for the District of Colorado, which began working on the case jointly with the Postal Inspection Service. In August 1998, the Postal Inspection Service served an administrative subpoena on CIG demanding production of documents and information related to the company's mailings, and CIG responded to the subpoena in November 1998. "From December 1998 through 1999, the U.S. Attorney's Office and the Postal Inspection Service continued jointly to build a case against CIG by analyzing the documents produced by CIG pursuant to the ... [s]ubpoena." Id. at 36.

On April 2, 1999, Holmes filed this qui tam action under seal. The government intervened and moved to dismiss Holmes as a party for lack of subject matter jurisdiction pursuant to 31 U.S.C. § 3730(e)(4). The government asserted that (1) it had publicly disclosed information concerning the fraud allegations against CIG in the course of its administrative investigation (i.e., by interviewing Benbrook, Benton, and Modrejewski and informing them about its suspicions); (2) Holmes' qui tam action was based upon those "publicly disclosed" allegations; and (3) Holmes did not qualify as an "original source" of the information contained in her complaint because she was obligated, as part of her job duties, to report fraud and procedural irregularities. The district court granted the government's motion to dismiss Holmes as a party and, at her request, entered judgment against her so that she could immediately appeal her dismissal from the case.

II.

Holmes contends that the district court erred in dismissing her from the case for lack of subject matter jurisdiction pursuant to 31 U.S.C. § 3730(e)(4). According to Holmes, § 3730(e)(4) does not bar her from proceeding as a relator because there had been no "public disclosure" of information at the time she filed the action, and, in any event, she qualifies as an "original source" of the information upon which her complaint was based.

Section 3730(e)(4) provides:

(A) No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.

(B) For purposes of this paragraph, "original source" means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information.

31 U.S.C. § 3730(e)(4)(A), (B). "Satisfaction of the provisions of 31 U.S.C. § 3730(e)(4) is a question of subject matter jurisdiction." United States ex rel. Fine v. Advanced Sciences, Inc., 99 F.3d 1000, 1003 (10th Cir.1996). Thus, issues involving the interpretation and application of § 3730(e)(4) are reviewed de novo. United States ex rel. Precision Co. v. Koch Indus., Inc., 971 F.2d 548, 551 (10th Cir. 1992). Because federal courts are courts of limited jurisdiction, "we presume no jurisdiction exists absent a showing of proof by the party asserting federal jurisdiction." Id. Therefore, Holmes, the party invoking federal jurisdiction, bears "the burden of alleging facts essential to show jurisdiction under the False Claims Act as well as supporting those allegations by competent proof." Fine, 99 F.3d at 1004.1

When, as here, a court's subject matter jurisdiction depends upon the same statute that creates the substantive claims, the jurisdictional inquiry is necessarily intertwined with the merits. Holt v. United States, 46 F.3d 1000, 1003 (10th Cir.1995). More specifically, the jurisdictional question of whether a "public disclosure" has occurred arises out of the same statute that creates the cause of action. United States ex rel. Ramseyer v....

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