Searcy v. Philips Electronics North America Corp.

• Decision Date: 30 June 1997
• Docket Number: No. 96-40515,96-40515
• Citation: 117 F.3d 154
• Parties: 41 Cont.Cas.Fed. (CCH) P 77,115 Jason R. SEARCY, Trustee for the Bankruptcy Estate of C & P Business World, Inc.; et al., Plaintiff, v. PHILIPS ELECTRONICS NORTH AMERICA CORPORATION; et al., Defendant. Lloyd T. BORTNER, on Behalf of the UNITED STATES of America, Plaintiff-Appellee, v. PHILIPS ELECTRONICS NORTH AMERICA CORPORATION; et al., Defendants. PHILIPS ELECTRONICS NORTH AMERICA CORPORATION; Philips Electronics NV, Defendants-Appellees, v. UNITED STATES of America, Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 154

117 F.3d 154

41 Cont.Cas.Fed. (CCH) P 77,115

Jason R. SEARCY, Trustee for the Bankruptcy Estate of C & P

Business World, Inc.; et al., Plaintiff, v. PHILIPS ELECTRONICS NORTH AMERICA CORPORATION; et al., Defendant.

Lloyd T. BORTNER, on Behalf of the UNITED STATES of America, Plaintiff-Appellee, v. PHILIPS ELECTRONICS NORTH AMERICA CORPORATION; et al., Defendants.

PHILIPS ELECTRONICS NORTH AMERICA CORPORATION; Philips

Electronics NV, Defendants-Appellees, v. UNITED STATES of America, Appellant.

No. 96-40515.

United States Court of Appeals Fifth Circuit.

June 30, 1997.

James Daniel Leftwich, Gregory Mark Baruch, Berry & Leftwich, Washington, DC, for Plaintiff-Appellee.

Eric Ross Cromartie, Mark Keith Sales, David John Schenck, Hughes & Luce, Dallas, TX, for Defendants-Appellees.

Edward Himmelfarb, Stephen Woolman Preston, Douglas N. Letter, U.S. Department of Justice, Civil Division, Appellate Staff, Washington, DC, for Appellant.

Appeal from the United States District Court for the Eastern District of Texas.

Before REYNALDO G. GARZA, HIGGINBOTHAM and JONES, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Today we must decide whether the False Claims Act gives the government the power to veto a settlement after it has declined to intervene in both the trial and appellate courts. We find the last sentence of 31 U.S.C. § 3730(b)(1) unambiguous in its declaration that courts may not grant a voluntary dismissal in a False Claims Act suit unless the U.S. Attorney General consents to the dismissal. Thus, we must vacate the settlement order and voluntary dismissal and remand to the district court.

I.

According to the complaint, Philips Electronics North America Corp. and Philips Electronics illegally concealed from the U.S. government a 1985 executive decision to withdraw from the U.S. market and to abandon their local U.S. dealers. The U.S. government relied on Philips's continuing presence in the U.S. market when it bought and leased automation equipment worth millions of dollars. Lloyd T. Bortner, Jr., learned of Philips's allegedly deceptive policy when he was serving as a manager for a Philips division called Philips Information Systems Co. He brought a suit on behalf of the government under the False Claims Act, which prohibits "knowingly present[ing], or caus[ing] to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1). The district court eventually consolidated Bortner's qui tam action with a private suit against Philips brought by five former Philips dealers.

As required by 31 U.S.C. § 3730(b)(2), Bortner served the Attorney General with the complaint and evidence under seal so that the government could decide whether to take over the action. In keeping with § 3730(b)(3), after 60 days the government moved for and received a 90-day extension of time in which to investigate Bortner's allegations. When it asked for a second 90-day extension, however, the court denied its request. On January 26, 1995, the government decided not to exercise its right to intervene. The court unsealed the documents so that Bortner could prosecute the action. The government reminded Bortner's counsel as a matter of course that it was not a party and that discovery of government documents would have to proceed by subpoena under Fed.R.Civ.P. 45.

During nearly a year of discovery, Bortner forwarded court documents to the government. Bortner and Philips made two unsuccessful, court-ordered efforts at mediation. After three days of trial, on February 1, 1996, they reached a settlement in which the court would enter a judgment of $1 million dollars against Philips. Pursuant to § 3730(d)(2), Bortner would get 30% of the award, in addition to $300,000 in attorneys' fees.

The government, however, objected to the settlement. Because it had investigated only the claims that Bortner actually brought, it protested a release from "all claims and counterclaims asserted in any pleading or other filing in this action, or which could have been asserted by the parties in this action, arising out of the transactions and occurrences that are the subject matter of this action." The government was unsuccessful in its efforts to convince Philips to accept a release only from claims actually stated in the final complaint. In an objection filed with the court and at a show-cause hearing, the government asserted that § 3730(b)(1) gives it the power to veto the settlement. It did not, however, request to intervene for good cause under § 3730(c)(3). The district court overruled the objection and approved the settlement. One week later, Philips paid the government $700,000. The government filed a notice of appeal, again without moving to intervene.

II.

Regardless of whether the government opts to control or intervene in a case, the False Claims Act requires that actions "be brought in the name of the Government." 31 U.S.C. § 3730(b)(1). Under the statutory structure, relators such as Bortner sue both "for the person and for the United States Government." Id. Thus, as Bortner seems to concede, the United States is a real party in interest even if it does not control the False Claims Act suit. See United States ex rel. Milam v. University of Texas M.D. Anderson Cancer Center, 961 F.2d 46, 48-49 (4th Cir.1992).

The government draws the further conclusion that it is automatically a party for purposes of appeal. At least one court interpreting the Act as amended in 1986 has taken this position where the question was whether the appellant should get the benefit of Fed. R.App. P. 4(a)(1)'s special 60-day period for filing a notice of appeal in a suit in which the United States is a party. See United States ex rel. Haycock v. Hughes Aircraft Co., 98 F.3d 1100, 1102 (9th Cir.1996) ("[T]he government's nominal party status combined with the majority financial interest in the outcome suffices to make it a party for purposes of the sixty day notice of appeal rule."), cert. denied, --- U.S. ----, 117 S.Ct. 1693, 137 L.Ed.2d 820 (1997). According to the Ninth Circuit, litigants who are unsuccessful in the district court should not be penalized for reading Rule 4(a)(1) in light of the statute's purpose of vindicating the interests of the United States. Cf. United States ex rel. Petrofsky v. Van Cott, Bagley, 588 F.2d 1327, 1329 (10th Cir.1978) (holding that, under the pre-1986 version of the Act, the government is not a party for the purposes of Rule 4(a)(1) because its interest ends once it decides not to prosecute the action itself), cert. denied, 444 U.S. 839, 100 S.Ct. 77, 62 L.Ed.2d 50 (1979).

But viewing the government as a party for the purposes of Rule 4(a)(1) does not compel us to treat it as a party for all appellate purposes. The Act forces the government to decide at the outset whether it wants to become an active litigant or to let the relator represent its interests. 31 U.S.C. § 3730(b)(2). It further allows the government to intervene at any time on a showing of good cause. 31 U.S.C. § 3730(c)(3). In short, its structure distinguishes between cases in which the United States is an active participant and cases in which the United States is a passive beneficiary of the relator's efforts. When the government chooses to remain passive, as it has here, we see no reason to treat it as a party with standing to challenge the district court's action as of right.

Bortner argues that non-parties simply cannot appeal, and thus that the government cannot prosecute an appeal without first intervening. Read out of context, a few cases seem to announce such a rule. See, e.g., Marino v. Ortiz, 484 U.S. 301, 108 S.Ct. 586, 587, 98 L.Ed.2d 629 (1988) (per curiam) ("[B]ecause petitioners were not parties to the underlying lawsuit, and because they failed to intervene for purposes of appeal, they may not appeal from the consent decree approving that lawsuit's settlement...."); Edwards v. City of Houston, 78 F.3d 983, 993 (5th Cir.1996) (en banc) ("It is well-settled that one who is not a party to a lawsuit, or has not properly become a party, has no right to appeal a judgment entered in that suit." (citing Marino)).

We have enforced the rule with respect to nonnamed members of class actions. Walker v. City of Mesquite, 858 F.2d 1071, 1074 (5th Cir.1988) ("[T]he better practice ... is for nonnamed class members to file a motion to intervene and then, upon the denial of that motion, appeal to this Court." (citing Marino)). But the structure of class actions differs from the structure of qui tam actions. As the Walker court noted, allowing nonnamed class members to appeal a final judgment could frustrate the Rule 23 mechanism by making class actions unwieldy and less productive. 858 F.2d at 1074. Class actions involve many unnamed class members, and giving each a right to appeal could result in a confusing and unmanageable appellate process. Furthermore, a nonnamed class member can protect his interest by mounting a collateral attack. Litigation conducted en masse presents different problems and calls for different rules than litigation conducted on behalf of a single entity such as the United States government.

Outside of the class-action context, the rule on non-party appeals is not as rigid as Bortner and Philips contend. Although we dismissed a would-be non-party appellant in EEOC v. Louisiana Office of Community Services, 47 F.3d 1438, 1442-43 (5th Cir.1995), we inquired whether "the non-parties actually participated in the proceedings below, the equities weigh in favor of hearing the appeal, and the non-parties have a personal stake in the outcome." See also United States v. Chagra, 701 F.2d 354, 358-60 (5th Cir.1983) (allowing non-party reporters to appeal an order closing a courtroom to the media in the wake of the assassination of a federal judge). Professors Wright and Miller devote a...