U.S. ex rel. Holmes v. Consumer Ins. Group

• Decision Date: 19 February 2002
• Docket Number: No. 01-1077.,01-1077.
• Citation: 279 F.3d 1245
• Parties: UNITED STATES of America ex rel Mary L. HOLMES, Plaintiff-Appellant, and United States of America, Movant-Appellee, v. CONSUMER INSURANCE GROUP; John Hightower, Defendants.
• Court: U.S. Court of Appeals — Tenth Circuit

279 F.3d 1245

UNITED STATES of America ex rel Mary L. HOLMES, Plaintiff-Appellant, and United States of America, Movant-Appellee, v. CONSUMER INSURANCE GROUP; John Hightower, Defendants.

No. 01-1077.

United States Court of Appeals, Tenth Circuit.

February 19, 2002.

Craig D. Joyce, Walters & Joyce, P.C., Denver, CO, appearing for Appellant.

Charles W. Scarborough, United States Attorney, Appellate Staff Civil Division, Department of Justice, (Stuart E. Schiffer, Acting Assistant Attorney General, United States Department of Justice, Office of Immigration Litigation, Washington, DC, Richard T. Spriggs, United States Attorney, Office of the United States Attorney, Denver, CO, and Douglas N. Letter, United States Attorney, Appellate Staff Civil Division, Department of Justice, Washington, DC, with him on the brief), appearing for Appellee.

Before TACHA, Chief Judge, GARTH^* and BRISCOE, Circuit Judges.

TACHA, Chief Circuit Judge.

Appellant Mary L. Holmes filed this action against Consumer Insurance Group under the qui tam provision of the False Claims Act, 31 U.S.C. § 3730. The United States moved to dismiss Holmes from the suit under Federal Rule of Civil Procedure 12(b)(1). The district court granted the motion and entered judgment against Holmes pursuant to Federal Rule of Civil Procedure 54(b). Holmes appealed. We exercise jurisdiction pursuant to 28 U.S.C. § 1291 and AFFIRM.

I. Background

Mary L. Holmes is postmaster at the United States Post Office in Poncha Springs, Colorado. In October of 1995, Holmes responded to an inquiry by employees of Consumer Insurance Group ("CIG") about a bulk mailing. The CIG employees informed Holmes that CIG was receiving the per pound bulk postal rate at the post office in Howard, Colorado. After confirming this information with the postmaster in Howard, Holmes granted CIG's request for the per pound rate. Upon further investigation, however, Holmes determined that CIG did not qualify for the rate, because the pieces in its mailings did not satisfy minimum weight requirements. Holmes therefore informed CIG that it could not take advantage of the per pound rate. She also informed the postmaster in Howard that CIG was not entitled to this rate.

Almost two years later, in August of 1997, Holmes was at the Howard post office to provide postmaster training. At that time, she asked the current postmaster whether CIG was receiving the per pound bulk rate, and she learned that it was. Holmes informed her superior and, later, the Office of the Inspector General and a postal systems coordinator (an auditor) that CIG was defrauding the Postal Service by providing false information in order to obtain a lower postal rate. The Postal Inspection Service initiated an investigation and later turned the case over to the U.S. Attorney. The government's investigation of CIG included interviews with one current and two former CIG employees. In those interviews, the government revealed its suspicions, although it later became clear that the interviewees were already aware of the fraud. In August 1998, the Postal Service commended Holmes's efforts with a letter of appreciation and a $500 award.

On April 2, 1999, Holmes filed suit against CIG under the False Claims Act ("FCA"). The FCA authorizes a person to bring a civil action, called a qui tam action, against those who defraud the government. 31 U.S.C. § 3730(b). A qui tam plaintiff, or relator, brings the action in the name of the government, and the government may elect to intervene. Id. § 3730(b)(1)-(2). The relator is entitled to a portion of the proceeds recovered in the action or settlement. Id. § 3730(d).

Following Holmes's initiation of this case against CIG, the government moved to dismiss her for lack of subject matter jurisdiction. The government asserted that its disclosure of the fraud allegations to three current and former CIG employees during its investigation constituted "public disclosure."¹ The government further argued that Holmes was not an "original source" and therefore could not avoid the public disclosure bar.² The district court granted the motion, but it did so without employing the public disclosure analysis. Instead, the district court concluded that the government's ongoing investigation of the fraud allegations precluded Holmes's suit. The district court therefore dismissed Holmes from the suit. Holmes appealed.

II. Discussion

Holmes argues that the district court improperly dismissed her from the suit, because an ongoing investigation does not bar a qui tam action, and because there had been no public disclosure of the allegations or transactions at issue. We hold that the district court erred in reasoning that the government's ongoing investigation of the fraud allegations precludes Holmes's suit, but that its dismissal of Holmes from the case was nevertheless correct.

In our prior cases dealing with qui tam actions by current or former federal employees, the public disclosure bar precluded the action. As a result, we have not previously defined the extent to which government employees may or may not qualify as qui tam plaintiffs when the public disclosure bar does not apply. United States ex rel. Fine v. MK-Ferguson Co., 99 F.3d 1538, 1541 n. 1 (10th Cir.1996); United States ex rel. Fine v. Advanced Sciences, Inc., 99 F.3d 1000, 1003 n. 1 (10th Cir.1996). We have held that "public disclosure occurs only when the allegations or fraudulent transactions are affirmatively provided to others not previously informed thereof." United States ex. rel. Ramseyer v. Century Healthcare Corp., 90 F.3d 1514, 1521 (10th Cir.1996). It is undisputed that the current and former employees whom the government interviewed in its investigation of CIG had prior knowledge of the fraud. The government's disclosure of information to them was therefore not "public" within the meaning of the FCA. As a result, we cannot rely on the public disclosure bar here and must squarely address the question of federal employees' eligibility to file qui tam suits under the FCA. Based on our examination of the statute and its purposes and federal employees' obligations to avoid conflicts of interest, we hold that Holmes was not a proper qui tam plaintiff. A person who, pursuant to duties as a government employee, is part of an ongoing government investigation of fraud allegations may not pursue a qui tam suit based on those allegations.

The First and Eleventh Circuits have split on this question, with the First Circuit finding no jurisdiction and the Eleventh Circuit reaching the opposite result. United States ex rel. Williams v. NEC Corp., 931 F.2d 1493, 1496 n. 7, 1502 (11th Cir.1991); United States ex rel. LeBlanc v. Raytheon Co., 913 F.2d 17, 20 (1st Cir. 1990). Our approach differs from that of each of these circuits, and we discuss the significant differences below.³

A. Standard of Review

The district court treated the motion to dismiss for lack of subject matter jurisdiction, Fed.R.Civ.P. 12(b)(1), as a motion to dismiss under Rule 12(b)(6). This is appropriate when the jurisdictional issue arises from the statute that creates the cause of action. Ramseyer, 90 F.3d at 1518. Because the court relied on affidavits and other evidence, however, the motion should have been treated as a motion for summary judgment pursuant to Federal Rule of Civil Procedure 56(c), and we therefore consider the motion on review as one for summary judgment. Id.

We review de novo an order of summary judgment, applying the same standard as the district court must apply under Rule 56(c). Wolf v. Prudential Ins. Co. of Am., 50 F.3d 793, 796 (10th Cir.1995). Accordingly, we consider whether, viewing the facts in the light most favorable to the nonmoving party, there is any issue of material fact that, if resolved in Holmes's favor, would allow her to prevail. Id.

We also review de novo an issue of subject matter jurisdiction. United States ex rel. Precision Co. v. Koch Indus., 971 F.2d 548, 551 (10th Cir.1992). Federal courts have limited jurisdiction, and we therefore presume that there is no jurisdiction unless the party invoking it makes an adequate showing that it exists. Id. at 551. The party seeking to invoke federal jurisdiction bears the burden of alleging and proving by a preponderance of the evidence the facts necessary to support jurisdiction. Id.

B. The Ongoing Investigation

The district court reasoned that the government's ongoing investigation demonstrated that the government was capable of pursuing the allegations without the assistance of the relator. The court therefore held that allowing a qui tam suit would not serve the purposes of the FCA and dismissed Holmes from the suit. Our examination of the FCA, its 1986 amendments, and Tenth Circuit case law leads us to conclude that an ongoing government investigation is not a per se bar to a qui tam suit.

Prior to 1986, the FCA required a court to dismiss an action that was based on information the government possessed when the action was brought, unless the government elected to proceed with the action. 31 U.S.C. § 3730(b)(4) (superceded). The Act further provided that, if the government elected to proceed with an action, the person initiating the action "may receive an amount the court decides is reasonable for disclosing evidence or information the Government did not have when the action was brought." Id. § 3730(c)(1) (superceded). A qui tam relator, in other words, could only recover a portion of the proceeds due to the government if the relator had provided new information.

In 1986, Congress amended the qui tam provisions. The current version of the statute does not require that the relator provide information that the government does not already possess. Instead, Congress has provided that there is no jurisdiction over a relator's suit that is "based upon the public disclosure of allegations or transactions ... in a congressional, administrative, or Government Accounting Office...