U.S. ex rel. Lusby v. Rolls-Royce Corp.

• Decision Date: 30 June 2009
• Docket Number: No. 08-3593.,08-3593.
• Citation: 570 F.3d 849
• Parties: UNITED STATES of America on the relation of Curtis J. LUSBY, Plaintiff-Appellant, v. ROLLS-ROYCE CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

570 F.3d 849

UNITED STATES of America on the relation of Curtis J. LUSBY, Plaintiff-Appellant, v. ROLLS-ROYCE CORPORATION, Defendant-Appellee.

No. 08-3593.

United States Court of Appeals, Seventh Circuit.

Argued May 6, 2009.

Decided June 30, 2009.

Edward A. McConwell, Mission, KS, for Plaintiff-Appellant.

Peter A. Morse, Jr., Attorney, Richard P. Winegardner, Attorney, Barnes & Thornburg, Indianapolis, IN, for Defendant-Appellee.

Before EASTERBROOK, Chief Judge, and POSNER and WOOD, Circuit Judges.

EASTERBROOK, Chief Judge.

Curtis Lusby was an engineer for Rolls-Royce from 1992 through 2001. (He started at Allison Engine Co., which Rolls-Royce acquired in 1995.) Lusby worked on the T56 turboprop engine, which Rolls-Royce has sold to both military and civilian customers since 1954. He came to believe that Rolls-Royce was not making the parts properly and was falsely telling the United States that the engines conformed to the government's specifications. The Air Force rejected some T56 turbine blades in 1991 as substandard; Lusby concluded that Rolls-Royce had not fixed the problem. He raised this subject within the corporate hierarchy—which responded by firing him. (This is Lusby's version; Rolls-Royce sees matters otherwise.)

Lusby filed suit in 2002, contending that his discharge violated 31 U.S.C. § 3730(h), part of the False Claims Act, because Rolls-Royce had penalized him for preparing to bring or support litigation under that statute. The next year Lusby and Rolls-Royce filed a joint stipulation for dismissal. In May 2003, two months before dismissing the first suit, Lusby filed another—this one a qui tam action on behalf of the United States. As § 3730(b)(2) requires, that filing was under seal. After considering its options for 27 months, the United States declined to intervene in the qui tam action, which was unsealed and served on Rolls-Royce in December 2006, after a further 16 months had passed. (The record does not reveal a justification for that additional delay, but Rolls-Royce does not contend that it requires the complaint's dismissal.)

Unhappy that Lusby was still its adversary, Rolls-Royce moved to dismiss the qui tam action. The district court granted this motion on the ground that the complaint did not plead fraud with the particularity required by Fed.R.Civ.P. 9(b). U.S. ex rel Curtis J. Lusby v. Rolls-Royce Corp., 2007 WL 4557773, 2007 U.S. Dist. LEXIS 94144 (S.D.Ind. Dec. 20, 2007). Lusby's lawyer drafted a new complaint in an attempt to supply the information that the judge thought necessary. But the court declined to allow the complaint's amendment, ruling that the qui tam action is barred by the claim preclusion (res judicata) effect of Lusby's employment suit. U.S. ex rel Curtis J. Lusby v. Rolls-Royce Corp., 2008 WL 4247689, 2008 U.S. Dist. LEXIS 69300 (S.D.Ind. Sept. 10, 2008). The judge added that the revised complaint also flunked the test of particularity, so an amendment would have been futile.

The district court's ruling on preclusion has the support of Cole v. University of Illinois, 497 F.3d 770 (7th Cir.2007). Cole filed suit under Title VII of the Civil Rights Act of 1964 and state law, alleging that her race and whistleblowing jointly led to her discharge. After that suit was dismissed with prejudice, Cole tried again under the False Claims Act, presenting both a personal claim under § 3730(h) and a qui tam claim. We concluded that the first and second suits arose from the same "nucleus of operative fact" (the catchphrase for claim preclusion under federal law). Accord, Ragsdale v. Rubbermaid, Inc., 193 F.3d 1235 (11th Cir.1999). Rolls-Royce contends that the same result is appropriate here.

Things are not quite so simple, however. Lusby denies a crucial point that Cole conceded: that the two suits involve the same litigants. Claim preclusion under federal law has three ingredients: a final decision in the first suit; a dispute arising from the same transaction (identified by its "operative facts," see Herrmann v. Cencom Cable Associates, Inc., 999 F.2d 223 (7th Cir.1993)); and the same litigants (directly or through privity of interest). See Taylor v. Sturgell, ___ U.S. ___, 128 S.Ct. 2161, 171 L.Ed.2d 155 (2008); cf. Bobby v. Bies, ___ U.S. ___, 129 S.Ct. 2145, ___ L.Ed.2d ___ (2009) (defining the elements of issue preclusion in federal litigation). Cole does not discuss the "same party" requirement; given Cole's concession, there was no need to. Nor does Cole mention United States ex rel. Laird v. Lockheed Martin Engineering & Science Services Co., 336 F.3d 346, 357-60 (5th Cir.2003), which noted the difference in the real parties in interest when holding that a personal employment suit does not preclude qui tam litigation. Ragsdale is the same as Cole in this respect: neither our court nor the eleventh circuit discussed the effect of the United States' financial interest.

Now that the question has been squarely presented, we join the fifth circuit in concluding that the resolution of personal employment litigation does not preclude a qui tam action, in which the relator acts as a representative of the public. The special status of the United States counsels against reflexive transfer of rules of preclusion from private to public litigation. See United States v. Mendoza, 464 U.S. 154, 104 S.Ct. 568, 78 L.Ed.2d 379 (1984) (non-mutual issue preclusion does not apply to suits involving the United States). Cf. EEOC v. Waffle House, Inc., 534 U.S. 279, 122 S.Ct. 754, 151 L.Ed.2d 755 (2002) (an employee's private disposition, via arbitration, of a claim against an employer does not diminish the federal government's ability to pursue judicial relief independently); EEOC v. Sidley Austin LLP, 437 F.3d 695 (7th Cir.2006) (employee's failure to make a timely charge of discrimination does not prevent EEOC from suing to vindicate interest in law enforcement).

Two principal considerations influence our decision.

First, although the United States is not a "party" to a qui tam suit unless it intervenes, it is nonetheless a real party in interest—which is to say that its financial interests are at stake. See United States ex rel. Eisenstein v. New York City, ___ U.S. ___, 129 S.Ct. 2230, 2235-36, ___ L.Ed.2d ___ (2009). The United States is entitled to at least 70% of any recovery, even when it does not intervene. 31 U.S.C. § 3730(d)(2). It would be inappropriate to snuff out that federal interest just because a potential relator thoughtlessly omitted a qui tam claim from a personal suit.

Second, qui tam litigation is subject to requirements that make combining it with a personal damages suit awkward. As we have mentioned, a qui tam proceeding begins in camera and cannot be served on the defendant until the United States has decided whether to intervene. A personal suit, by contrast, must be served on the defendant within 120 days. See Fed. R.Civ.P. 4(m). If the United States does intervene, it may settle or dismiss the action notwithstanding the relator's objection, see § 3730(c)(2). Whether or not the United States intervenes, the relator can't dismiss the suit without permission of the United States and the court, see § 3730(b)(1).

These rules reflect a legislative view that the United States needs protection from bumbling relators. In an employment suit under Title VII or § 3730(h), by contrast, the aggrieved employee is in charge and may pursue, settle, or dismiss the litigation; the plaintiff's errors affect only himself. An ex-employee is free to represent himself in retaliatory-discharge litigation, 28 U.S.C. § 1654, but a relator in a qui tam action may proceed only through counsel. See United States ex rel. Lu v. Ou, 368 F.3d 773 (7th Cir.2004). Again this difference reflects the need to protect the interests of the United States. And the United States needs protection not only from pro se litigants but also from lawyers whose expertise lies in employment cases, and who without thinking omit qui tam claims from their clients' personal suits.

The procedural differences between personal and qui tam litigation are so great that it is often impractical to pursue both claims in one suit—and sometimes impossible, as when the United States takes more than 120 days to decide whether to intervene, or the plaintiff wants to proceed pro se. As the fifth circuit put it in Laird, 336 F.3d at 360, "we do not see convenience in trying the two [claims] together". If joined in a single complaint, they often should be severed under Fed.R.Civ.P. 20(b). And a conclusion that the personal and representative actions ought to be conducted separately means that a voluntary decision to file separate suits, as Lusby did, should be respected. Claim preclusion is, after all, a doctrine that has the effect of compelling joinder. A conclusion that joinder usually is not sensible implies a lack of preclusion with respect to claims omitted from the first suit.

The district court sought to protect the public's interest in a different way. After holding that Lusby is precluded from pursuing a qui tam action, the court entered an order stating that the dismissal, though with prejudice to Lusby, is without prejudice to the United States. In other words, the district court held, the United States may pursue a suit under the False Claims Act even if a qui tam suit has been filed and lost, and even if that loss blocks actions by other relators (who might have been able to sue as original sources of the information, see 31 U.S.C. § 3730(e)(4)(a)). The Supreme Court thought otherwise in Eisenstein. The Justices stated that "the United States is bound by the judgment in all FCA actions regardless of its participation in the case." 129 S.Ct. at 2232.

That the United States is bound is why it is a real party in interest. If Lusby had litigated a qui tam action to the gills and lost, neither another relator nor the United States could start afresh. The district court deemed this action...