U.S. ex rel. Fine v. Advanced Sciences, Inc.

• Decision Date: 06 November 1996
• Docket Number: No. 95-2014,95-2014
• Citation: 99 F.3d 1000
• Parties: , 41 Cont.Cas.Fed. (CCH) P 77,034 UNITED STATES of America, ex rel., Harold R. FINE, Plaintiff-Appellant, v. ADVANCED SCIENCES, INC., a New Mexico corporation, Defendant-Appellee. United States of America, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1000

99 F.3d 1000

65 USLW 2368, 41 Cont.Cas.Fed. (CCH) P 77,034

UNITED STATES of America, ex rel., Harold R. FINE, Plaintiff-Appellant, v. ADVANCED SCIENCES, INC., a New Mexico corporation,

Defendant-Appellee.

United States of America, Amicus Curiae.

No. 95-2014.

United States Court of Appeals, Tenth Circuit.

Nov. 6, 1996.

Maureen A. Sanders, Albuquerque, NM (Duff H. Westbrook of Duff H. Westbrook, P.C., Albquerque, NM, with her on the brief), for Plaintiff-Appellant.

Pamela J. Mazza (Andrew P. Hallowell and Philip M. Dearborn with her on the brief), of Piliero, Mazza & Pargament, Washington, D.C., for Defendant-Appellee.

Michael F. Hertz (Barbara C. Biddle, Joan E. Hartman, and Dara A. Corrigan with him on the brief), Civil Division, U.S. Department of Justice, Washington, D.C., for Amicus Curiae.

Before HENRY, HOLLOWAY, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

This case involves a qui tam action brought under the False Claims Act, 31 U.S.C. §§ 3729-33, by Harold R. Fine. Fine, the relator, is a former employee of the Office of the Inspector General at the U.S. Department of Energy. He brought suit against Advanced Sciences, Incorporated ("Advanced Sciences"), a federal contractor performing work for several federal agencies. Fine alleges that Advanced Sciences engaged in a pattern of submitting claims for reimbursement of unallowable costs incurred under a variety of its federal contracts. He alleges that Advanced Sciences submitted false and fraudulent claims with respect to eighteen specific matters in its federal contracts. Under the qui tam provisions of the False Claims Act, Fine seeks recovery on behalf of the United States as well as a qui tam reward for himself. See id. § 3730(d).

The question presented here is whether a "public disclosure," as defined by the False Claims Act, has occurred, which would require Fine to qualify as an "original source" in order to bring suit. We hold that Fine's suit is jurisdictionally barred because it is based upon a public disclosure and he does not qualify as an original source.

I. BACKGROUND

Harold R. Fine is a former employee of the Office of the Inspector General, Western Region, in the U.S. Department of Energy. Fine was based at the Office of the Inspector General in Albuquerque, New Mexico. At the time of his resignation in 1991, he was an Assistant Regional Manager in charge of financial-related audits. Fine's responsibilities in this position included the supervision of field auditors in their performance of audits and preparation of audit reports.

In order to perform these audits, the Office of the Inspector General may use its own auditors or it may contract with independent accounting firms. These audits generally seek to determine whether costs submitted on federal projects are allowable or reimbursable under the Federal Acquisition Regulations. After concluding a field audit, the Office of the Inspector General writes an audit report, which management then reviews. The Office of the Inspector General then sends the audit report to the contracting officer at the federal project involved in the audit. This contracting officer eventually makes the final decision on whether to make payment on submitted costs.

Advanced Sciences is a contractor providing environmental engineering and other services. Since 1985, Advanced Sciences has had numerous contracts with the Department of Energy and other federal agencies. The allegations in this case concern developments at the U.S. Army White Sands Missile Range in New Mexico.

In early 1990, the Director of Contracting at White Sands, Richard Kaheny, was considering Advanced Sciences to perform environmental work at the site. Before awarding the contract, Kaheny requested a field audit of Advanced Sciences' accounting systems by the Department of Energy's Albuquerque office. On the day of the audit request, February 6, 1990, Fine called Kaheny and informed him that there were going to be problems with the audit because of ongoing investigations of Advanced Sciences by the Department of Energy.

From that time, Kaheny had almost daily contact with Fine concerning the audit request. In response to Kaheny's request, Fine prepared and sent to Kaheny a letter dated March 20, 1990. The letter concluded that because of the range of unallowable costs submitted by Advanced Sciences on its federal contracts during fiscal year 1988, neither its internal control structure nor its financial accounting system was adequate to identify and account for unallowable costs. Believing this to be the official Department of Energy and Office of the Inspector General position, Kaheny did not award the contract for the environmental work at White Sands to Advanced Sciences.

Fine based the conclusions contained in his March 20 letter on information he gleaned from reviewing the audit reports of Advanced Sciences prepared by field auditors of the Department of Energy. In particular, a recent Office of the Inspector General's audit of Advanced Sciences suggested to Fine that Advanced Sciences was submitting false claims. Fine alleges this audit of Advanced Sciences' claimed indirect expense rates for 1988 was under his direct supervision.

Subsequently, on April 9, 1990, Fine prepared a memorandum alleging that Advanced Sciences' submission of a series of costs that were later questioned in an audit as "unallowable" were in fact "false claims" because of the continuing nature of the practices. Fine sent this memorandum to the Investigations Division of the Office of the Inspector General and requested that an investigation of Advanced Sciences be conducted.

Fine's March 20 letter to White Sands contracting officer Kaheny was unauthorized and undertaken without the approval of his supervisor. As a result, the Office of the Inspector General retracted the letter and relations between Fine and management soured. Over the next year, Fine leveled various charges, not relevant here, against the Office of the Inspector General including allegations of age discrimination and retaliation. During the course of pursuing these charges, Fine met with Donald Sikora of the American Association of Retired Persons, Fine's designated representative for his age discrimination case. On one occasion, he gave Sikora both the March 20 letter and April 9 memorandum. In addition, under a cover letter dated September 29, 1990, Fine sent his March 20 letter to Burt Mazer, an employee of Birnbaum & Associates, an accounting firm. Fine sent this letter for the purpose of soliciting Mazer's opinion on the reasonableness of his sending the March 20 letter to Kaheny at White Sands.

In July 1991, Fine resigned from the Office of the Inspector General. Less than a month later, he filed his qui tam Complaint in this action in the United States District Court for the District of New Mexico. Fine states that the allegations in his Complaint were based upon information gathered in the Office of the Inspector General's audit of Advanced Sciences' 1988 indirect expense rates. He also maintains that he based his Complaint on information provided to him by an anonymous source after Fine left government service.

In his Complaint, Fine alleges that Advanced Sciences submitted false claims in violation of the False Claims Act, 31 U.S.C. §§ 3729-33. He alleges that Advanced Sciences submitted claims for reimbursement of unallowable costs with respect to eighteen different matters, under various of its federal contracts between 1985 and 1991. Fine filed the Complaint under seal and served a copy on the U.S. Department of Justice, as required by 31 U.S.C. § 3730(b)(2). Nine months later, the Department of Justice notified the district court that it declined to intervene in the case and Fine proceeded as the qui tam relator.

Advanced Sciences filed a motion to dismiss. It argued that the court lacked subject matter jurisdiction under 31 U.S.C. § 3730(e)(4) because Fine's Complaint was based upon publicly disclosed allegations and Fine was not an original source of those allegations.

The district court converted Advanced Sciences' motion to dismiss to a motion for summary judgment and granted summary judgment against Fine as to all claims. United States ex rel. Fine v. Advanced Sciences, Inc., 879 F.Supp. 1092, 1093, 1099 (D.N.M.1995). The court ultimately held Fine's suit was jurisdictionally barred because it was based upon publicly disclosed allegations and Fine did not qualify as an original source. Id. at 1096-98.

The district court determined Fine had made two public disclosures of the allegations upon which his Complaint was based: once when Fine gave both his March 20 letter and his April 9 memorandum to Sikora of the American Association of Retired Persons and again when he gave his March 20 letter to Mazer of Birnbaum & Associates. Id. It also held Fine did not qualify as an original source under 31 U.S.C. § 3730(e)(4)(B) because, as a government auditor who collected and analyzed information produced by others, he did not have direct and independent knowledge of the information in his Complaint. Id. at 1098. The district court concluded it lacked subject matter jurisdiction over Fine's qui tam action and dismissed the suit in its entirety. Id. at 1099.

This appeal followed; we have jurisdiction pursuant to 28 U.S.C. § 1291. On appeal, Fine presents the following issues: (1) whether his disclosures to Sikora or Mazer were "public disclosures" under the provisions of 31 U.S.C. § 3730(e)(4)(A); and, if so, (2) whether Fine qualifies as an original source of the allegations forming the basis of his Complaint under section 3730(e)(4)(B). ¹

II. ANALYSIS

Satisfaction of the provisions of 31 U.S.C. § 3730(e)(4) is a question of subject matter jurisdiction. The district court properly converted Advanced Sciences' motion to dismiss to a motion for summary judgment under Federal Rule of Civil Procedure 56. United States ex rel. Ramseyer v. Century...