Cause of Action v. Chi. Transit Auth., 15–1143.

• Decision Date: 29 February 2016
• Docket Number: No. 15–1143.,15–1143.
• Citation: 815 F.3d 267
• Parties: CAUSE OF ACTION, Plaintiff–Appellant, v. CHICAGO TRANSIT AUTHORITY, an Illinois municipal corporation, Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

815 F.3d 267

CAUSE OF ACTION, Plaintiff–Appellant,

v.CHICAGO TRANSIT AUTHORITY, an Illinois municipal corporation, Defendant–Appellee.

No. 15–1143.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 10, 2015.

Decided Feb. 29, 2016.

Daniel Z. Epstein, Attorney, David Fischer, Attorney, Cause of Action, Washington, DC, for Plaintiff–Appellant.

Rachel L. Kaplan, Attorney, Chicago Transit Authority Law Department, Chicago, IL, for Defendant–Appellee.

Before FLAUM, RIPPLE, and SYKES, Circuit Judges.

RIPPLE

, Circuit Judge.

Cause of Action, a nonprofit government watchdog organization, brought this action against the Chicago Transit Authority ("CTA") under the qui tam provision of the False Claims Act ("FCA" or "Act"), 31 U.S.C. § 3730

. Cause of Action alleged that, for several decades, the CTA had been misreporting fraudulently transit data to the Federal Transit Administration ("FTA") in order to secure inflated federal grant allocations. The district court dismissed the action, holding that it lacked subject matter jurisdiction over Cause of Action's FCA claims because its allegations of wrongdoing had been publicly disclosed at the time the action was filed. We agree that the allegations had been publicly disclosed and therefore affirm the judgment of the district court.

IBACKGROUND

A.Under the Urbanized Area Formula Program ("UAFP"), 49 U.S.C. § 5307

, the FTA administers grant funding to large urban transit programs for "operating costs of equipment and facilities for use in public transportation." Id. § 5307(a)(1)(D). The statute requires grant recipients to submit "financial, operating, and asset condition information" about their transit systems to the National Transit Database ("NTD"). Id. § 5335(a)-(c). The agency then apportions grants based, in part, on the number of Vehicle Revenue Miles ("VRM") reported to the NTD by the transit program. Id. § 5336(c)(1)(A)(i). According to the NTD, VRM accrue while a vehicle is "in revenue service," those miles for which a "vehicle is available to the general public and there is an expectation of carrying passengers." Nat'l Transit Database, 2006 Urbanized Area Reporting Manual, Glossary 384, 396 (2006), available at http://www.ntdprogram.gov/ntdprogram/pubs/ARM/2006/pdf/2006_Reporting_Manual_Glossary.pdf. So-called "deadhead miles"—miles accumulated while a vehicle is out of revenue service—specifically are excluded from the VRM calculation. Id. at 352, 396.

The CTA is a municipal corporation providing public transportation services in the greater Chicago area; it receives federal grant funding through the UAFP. In 2005, the Illinois House of Representatives adopted Resolution Numbers 479 and 650, which, among other matters, directed the Illinois Auditor General ("IL–AG") to conduct a performance audit of the CTA. During the course of this audit, Thomas Rubin, a subcontractor on the IL–AG audit team, helped prepare a twenty-five page report titled "Chicago Transit Authority Overreporting of Motor Bus Vehicle Revenue Miles," which examined in detail the CTA's VRM reporting practices ("Technical Report").¹ Mr. Rubin's Technical Report concluded that the CTA, from possibly as early as 1986, had been overstating its VRM when making its annual certifications to the NTD and, consequently, had received higher than justified UAFP grant disbursements. The Technical Report recommended that the CTA inform the FTA of the situation and become compliant by revising its reporting methodology.

In March 2007, the IL–AG released its final performance audit report ("Audit Report"). On page seventy-two of the Audit Report, the IL–AG explained that its review, which included the Technical Report, had "raised questions about the accuracy of [the] CTA's reporting of revenue vehicle hours and miles" and concluded, based on the "clear[ ] ... differences in reported hourly values for [the] CTA and the peer group," that the "CTA may [have been] incorrectly reporting some deadhead hours/miles as revenue hours/miles."²

In 2009, Mr. Rubin notified the Department of Transportation Office of Inspector General ("DOT–OIG") of the CTA's misreporting and provided it with a copy of his Technical Report. Mr. Rubin also provided copies of the Technical Report, the Audit Report, and a sworn affidavit to Cause of Action. On March 28, 2012, Cause of Action sent a letter to the Department of Justice requesting an investigation into the CTA's reporting practices.

Approximately one month later, on April 27, 2012, the FTA sent a letter to the CTA explaining that the FTA had conducted an "in-depth review" of the CTA's reporting of VRM data ("FTA Letter").³ The FTA Letter indicated that the CTA had cooperated in the review by providing detailed data on the patterns and blocks it used to schedule its buses. It then directed the CTA to revise its VRM data for reporting year 2011 and for future years but did not require the CTA to revise any VRM data for prior years.

B.

Cause of Action brought this qui tam action under the FCA in the United States District Court for the District of Maryland in May 2012. In its complaint, Cause of Action alleged two counts of fraudulent conduct by the CTA based on its inaccurate VRM reporting and sought damages, a declaratory judgment, and injunctive relief. Cause of Action attached to its complaint the Technical Report, the Audit Report, and Mr. Rubin's affidavit. The federal court in Maryland transferred the case to the Northern District of Illinois. The United States then declined to intervene, and the complaint was unsealed.

The CTA then moved for dismissal on the ground that Cause of Action had failed to establish subject matter jurisdiction under the FCA's public-disclosure bar, 31 U.S.C. § 3730(e)(4)

. That section withdraws jurisdiction over qui tam actions based on allegations that already have been disclosed publicly through certain enumerated sources unless the relator is an original source of the information. In opposing the motion to dismiss, Cause of Action contended that the public-disclosure bar had not been triggered and that, in any case, § 3730(e)(4) no longer constitutes a jurisdictional hurdle because a 2010 amendment had replaced the phrase "no court shall have jurisdiction" with the phrase "[t]he court shall dismiss."⁴ In reply, the CTA conceded that, in light of the 2010 amendments, the correct approach would be for the court to treat its motion as a Rule 12(b)(6) motion to dismiss for failure to state a claim.

The district court did not decide whether the 2010 version of § 3730(e)(4)

was jurisdictional or substantive. It held that, under either standard, dismissal was appropriate. Turning to the applicability of the public-disclosure bar, the court first noted that the sole issue in dispute was whether the allegations in the complaint had been publicly disclosed; Cause of Action had waived any argument under the statute that its allegations were not substantially similar to the disclosures or that it qualified as an original source. The court then concluded that Cause of Action's allegations had been publicly disclosed in the FTA Letter as well as in the Technical and Audit Reports, and that, consequently, its qui tam suit was precluded by the public-disclosure bar.⁵

IIDISCUSSION

The applicable standard of review is not in dispute. Although the district court did not specify whether it dismissed Cause of Action's complaint under Federal Rule of Civil Procedure 12(b)(1)

or 12(b)(6), in either case, "[w]e review de novo challenges made pursuant to the FCA's bars." United States ex rel. Absher v. Momence Meadows Nursing Ctr., Inc., 764 F.3d 699, 707 (7th Cir.2014).

A.

First enacted in 1863 to combat rampant fraud and price-gouging in Civil War defense contracts, the FCA enables the United States Government to recover losses sustained as the result of fraud committed against it. The Act imposes liability upon any person who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval" to the Government. 31 U.S.C. § 3729(a)(1)

. The statute makes civil penalties and treble damages available as remedies. See id. The FCA further contemplates that "[t]he Attorney General diligently shall investigate a violation under section 3729," and, if substantiated, "may bring a civil action ... against the person" directly in the name of the United States. Id. § 3730(a). From its inception, however, the FCA also has contained a so-called qui tam provision, which permits a private party, known as a "relator," to bring a civil action alleging fraud against the Government on its own behalf as well as on behalf of the United States. See id. § 3730(b)(1). If the claim is proven, the relator receives a percentage of the recovery. See id. § 3730(d).

In its initial form, the FCA "did not limit the sources from which a relator could acquire the information to bring a qui tam action." Graham Cty. Soil & Water Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280, 293–94, 130 S.Ct. 1396, 176 L.Ed.2d 225 (2010)

. Consequently, relators were not obligated to supply any new information before filing a complaint under the FCA. Yet, "[d]espite this invitation for abuse, the qui tam provisions were used sparingly during their first half-century." United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 649 (D.C.Cir.1994). With the proliferation of New Deal and World War II government contracts, however, came both an increase in fraud and a corresponding surge in qui tam litigation. Id. And due to the liberality of the provisions then in effect, individuals who had played no part in uncovering a fraud were free to bring "parasitic" lawsuits based on information that was entirely the product of the Government's own investigation. See United States ex rel. Marcus v. Hess, 317 U.S. 537, 545–46, 63 S.Ct. 379, 87 L.Ed. 443 (1943) (upholding relator's recovery in qui tam suit based solely on information contained in a criminal indictment to which...