U.S. ex rel. Ondis v. City of Woonsocket

Citation587 F.3d 49
Decision Date18 November 2009
Docket NumberNo. 08-2389.,08-2389.
PartiesUNITED STATES of America ex rel. Gordon F.B. ONDIS, Relator, Appellant, v. CITY OF WOONSOCKET Et Al., Defendants, Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)

Michael B. Galvin, with whom Justin P. O'Brien and Dwyer & Collora LLP were on brief, for appellees.

Before TORRUELLA, SELYA and HOWARD, Circuit Judges.

SELYA, Circuit Judge.

Invoking the False Claims Act (FCA), 31 U.S.C. §§ 3729-3733, a local real estate developer brought a qui tam action against the City of Woonsocket, Rhode Island (the City), and Mayor Susan Menard. The developer claimed, in substance, that the City had defrauded the federal government by making false statements to the Department of Housing and Urban Development (HUD) when applying for federal grants.

Relying upon the FCA's public disclosure bar, the district court dismissed the action. The developer now appeals, raising questions of law not yet settled in this circuit regarding the operation of the public disclosure bar. We resolve those questions and, when all is said and done, affirm the dismissal of the action.

I. BACKGROUND

The relator, Gordon F.B. Ondis, directly or indirectly owns several multi-family residential complexes in Woonsocket. A number of the dwelling units in these complexes are classified as subsidized housing. Sometime in 2004, Mayor Menard visited one of the relator's properties and, according to the relator, threatened to do away with all section 8 housing.1 The relator took umbrage and began to look into the City's housing policies. His avowed objective was to ascertain whether the City was reaping a harvest of HUD grants under false pretenses (specifically, by offering assurances that the City would promote subsidized housing programs when, in reality, it was trying to stifle those programs).

In the course of this probe, the relator directed his employees to search public records, interview local developers and others with knowledge of the City's housing policies, and obtain documents submitted by the City to HUD.

The investigation revealed that, from 2000 to 2005, the City received roughly $15,000,000 in HUD grants for public works projects, social service programs, and affordable housing. The investigators obtained the City's grant applications through a Freedom of Information Act (FOIA) request. See 5 U.S.C. § 552. The applications trumpeted a five-year plan, which referred to preserving section 8 rent subsidies as a means of meeting the City's pressing need for affordable housing.

The relator also discovered (or so he alleges) that, during the same period, the City actually had followed a policy that tended to restrict the spread of subsidized housing. Almost all the specific instances that he identifies to support this thesis were previously disclosed in daily newspapers of general circulation in Woonsocket, namely, the Woonsocket Call and the Providence Journal. The only additional data point unarguably came from the public domain—the records of a state—court suit brought by the City against two housing partnerships.

On February 16, 2005, the relator brought a qui tam action against the City and Mayor Menard in the United States District Court for the District of Massachusetts. After the federal government declined to intervene, see 31 U.S.C. § 3730(b)(4), the court transferred the case to the District of Rhode Island. United States ex rel. Ondis v. City of Woonsocket (Ondis I), 480 F.Supp.2d 434, 438 (D.Mass.2007).

The transferee court, in response to the defendants' motion to dismiss for want of subject matter jurisdiction, Fed.R.Civ.P. 12(b)(1), conducted an evidentiary hearing. Based on the proof presented, the court dismissed the action. United States ex rel. Ondis v. City of Woonsocket (Ondis II), 582 F.Supp.2d 212, 214 (D.R.I.2008). This timely appeal ensued.

II. THE STATUTORY SCHEME

The FCA allows private persons, called relators, to bring qui tam actions on behalf of the United States against persons or entities who knowingly submit false claims to the federal government. 31 U.S.C. § 3730(b)(1). The United States has a right to intervene and assume primary responsibility for prosecuting the action. Id. § 3730(c)(1). If the United States declines to intervene, the relator may pursue the action on its behalf. Id. § 3730(b)(4). Either way, the relator is eligible to collect a portion of any damages awarded. Id. § 3730(d).

The FCA is hedged about with conditions. Among other things, it erects a jurisdictional bar, familiarly known as the public disclosure bar, which may block a putative qui tam action. Id. § 3730(e)(4). That bar is designed to foreclose qui tam actions in which a relator, instead of plowing new ground, attempts to free-ride by merely repastinating previously disclosed badges of fraud. United States ex rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 26-27 (1st Cir.2009). To draw an analogy from the world of entomology, the bar seeks to prevent "parasitic" suits. United States ex rel. McKenzie v. BellSouth Telecomms., Inc., 123 F.3d 935, 943 (6th Cir.1997).

In this way, Congress aspired to etch "a fine line between encouraging whistle-blowing and discouraging opportunistic behavior." United States ex rel. S. Prawer & Co. v. Fleet Bank, 24 F.3d 320, 327 (1st Cir.1994). For this purpose, Congress took pains to delineate the dimensions of the public disclosure bar:

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.

31 U.S.C. § 3730(e)(4)(A).

Based on this prescription, we have formulated a multi-part inquiry for use in determining whether a relator has carried his burden of negating the ubiquity of the bar in a given case. In its initial stages, this formulation asks:

(1) whether there has been public disclosure of the allegations or transactions in the relator's complaint; (2) if so, whether the public disclosure occurred in the manner specified in the statute; [and] (3) if so, whether the relator's suit is "based upon" those publicly disclosed allegations or transactions....

United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 728 (1st Cir.2007). We conduct that multi-part inquiry here. If the answer to any one of these three questions is in the negative, then the public disclosure bar drops out of the case. If, however, the answers to all three questions are in the affirmative, the relator still may dismantle the public disclosure bar by showing that he qualifies as an "original source" under 31 U.S.C. § 3730(e)(4)(B). See Rost, 507 F.3d at 728. We deal with this possibility separately. See infra Part III(D).

III. DISCUSSION

A district court's order of dismissal for want of subject matter jurisdiction ordinarily engenders de novo review. Duxbury, 579 F.3d at 19-20; Valentin v. Hosp. Bella Vista, 254 F.3d 358, 365 (1st Cir. 2001). When the district court does not rule on the pleadings alone but, rather, takes evidence in connection with a motion to dismiss for want of subject matter jurisdiction, the court's factual findings are reviewed for clear error. See Valentin, 254 F.3d at 365; cf. Foster-Miller, Inc. v. Babcock & Wilcox Can., 46 F.3d 138, 147-48 (1st Cir.1995) (describing varying standards of review in analogous context).

Federal courts, as courts of limited jurisdiction, must be "scrupulous in applying the tenets that define the limits of their subject matter jurisdiction." Gabriel v. Preble, 396 F.3d 10, 16 (1st Cir.2005). The proponent of federal jurisdiction bears the burden of proving its existence by a preponderance of the evidence. See Campbell v. Gen. Dynamics Gov't Sys. Corp., 407 F.3d 546, 551 (1st Cir.2005); see also 31 U.S.C. § 3731(d).

With these guideposts in place, we embark on a sequential appraisal of the three Rost factors described above. Then, we take up the "original source" exception and a disputed evidentiary ruling.

A. Disclosure.

We start with the question of whether, prior to commencement of this action, there was a public disclosure of the transactions chronicled in the relator's complaint.

For the purpose of the FCA, public disclosure occurs when the essential elements exposing the particular transaction as fraudulent find their way into the public domain. United States ex rel. Feingold v. AdminaStar Fed., Inc., 324 F.3d 492, 495 (7th Cir.2003); United States ex rel. Springfield Term. Ry. Co. v. Quinn, 14 F.3d 645, 654 (D.C.Cir.1994). "[T]he disclosure must reveal both the misrepresented state of facts and the true state of facts so that the inference of fraud may be drawn." United States ex rel. Mistick PBT v. Hous. Auth. of Pittsburgh, 186 F.3d 376, 385 (3d Cir.1999); accord Minn. Ass'n of Nurse Anesthetists v. Allina Health Sys. Corp., 276 F.3d 1032, 1044 (8th Cir.2002). The two states of facts may come from different sources, as long as the disclosures together lead to a plausible inference of fraud. See United States ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 512 (6th Cir.2009); see also United States ex rel. Reagan v. E. Tex. Med. Ctr. Reg'l Healthcare Sys., 384 F.3d 168, 175 (5th Cir.2004).

Against this backdrop, our initial task is to determine whether both the City's alleged misrepresentation (that it would promote subsidized housing) and what the relator alleges was the City's true plan (that it would strive to curtail or eliminate subsidized housing) were sufficiently in the public domain to ground an inference of fraud.

The relator wisely concedes that the events disclosing the City's...

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