U.S. ex rel. Anderson v. Northern Telecom, Inc.

Decision Date25 May 1995
Docket NumberNo. 93-35520,93-35520
Citation52 F.3d 810
Parties40 Cont.Cas.Fed. (CCH) P 76,771 UNITED STATES of America ex rel. Theodore R. ANDERSON, Plaintiff-Appellant, v. NORTHERN TELECOM, INC., Defendant-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Michael R. McCarthy (argued), David W. Ballew (on the briefs), Davies, Roberts & Reid, Michael A. Goldfarb and Matthew F. Davis (on the briefs), Rohan, Goldfarb & Shapiro, P.S., Seattle, WA, for plaintiff-appellant.

Gregory J. Kerwin (argued), and David G. Palmer (on the briefs), Gibson, Dunn & Crutcher, Denver, CO, for defendant-appellee.

Appeal from the United States District Court for the Western District of Washington.

Before: ALARCON, BEEZER and KLEINFELD, Circuit Judges.

KLEINFELD, Circuit Judge:

The district court dismissed most of the qui tam claims in this case for lack of subject matter jurisdiction, on the ground that the 1986 amendment to the False Claims Act did not apply retroactively. One claim was dismissed on summary judgment, because the plaintiff did not establish a prima facie case of fraud. We conclude that the retroactivity analysis was mistaken, because the relevant conduct took place after the effective date of the amendment. We agree, however, that no prima facie case of fraud was made out on the claim dismissed on summary judgment.

I. Facts

Northern Telecom sells digital telecommunications switching systems, called "switches," worth about $2 million each to the military. The gist of Mr. Anderson's claims is that Northern Telecom knew the switches were defective, but tried to palm them off on the government.

All the switches in this case were delivered, invoiced and paid for before 1986, except for one switch at Letterkenny Army Depot. The False Claims Act was amended in 1986 in a way that changed the consequences if the relator told the government about the fraudulent claim before bringing suit. Mr. Anderson left Northern Telecom's employ. In 1988, he told the FBI about Northern Telecom's allegedly fraudulent practices. The United States investigated, and then chose not to pursue the claim. In 1990, Mr. Anderson sued under the qui tam provisions of the False Claims Act. The government chose not to intervene.

The district court dismissed the claims based on the switches sold and paid for before 1986, on the ground that the 1986 amendments to the False Claims Act applied prospectively to false claims made after the date of the amendment. Because Northern Telecom had submitted its allegedly false claims before 1986, the district court applied the pre-1986 law. Under the old law, Mr. Anderson's report to the FBI would have precluded his subsequent qui tam lawsuit.

The Letterkenny Army Depot switch was paid for after 1986, so the district court applied the new law. The court granted summary judgment for Northern Telecom on this switch, because Mr. Anderson had no evidence of fraud.

II. Analysis

We have jurisdiction over the district court's final judgment under 28 U.S.C. Sec. 1291. We review the district court's grant of summary judgment and its statutory interpretation de novo. Dowling v. Davis, 19 F.3d 445, 447 (9th Cir.1994).

The False Claims Act enables a private individual to sue a firm which presents a fraudulent claim to the government. The action is brought in the name of the government, and is served on the government. The government can take over prosecution, which affects the size of the bounty the relator gets if the action succeeds. 31 U.S.C. Sec. 3730. Before 1986, if the government did not elect to proceed with the action itself, the court had to dismiss the action if it was based on evidence the government already had when the lawsuit was filed:

Unless the Government proceeds with the action, the court shall dismiss an action brought by the person on discovering the action is based on evidence or information the Government had when the action was brought.

31 U.S.C. Sec. 3730(b)(4) (1982).

If this old law applies, then Mr. Anderson's qui tam action as to Northern Telecom's alleged pre-1986 false claims was properly dismissed, because "the action is based on evidence or information the Government had when the action was brought." Although the only reason the government had the information in 1990, when the action was brought, is that Mr. Anderson informed the FBI in 1988, the pre-1986 statutory bar operated even though the relator himself was the source of the information. Pettis ex rel. United States v. Morrison-Knudsen Co., 577 F.2d 668, 669 (9th Cir.1978).

Congress changed the law in 1986. The old language barring recovery if the government had "information" before suit was filed was changed to an entirely new scheme, in which recovery was barred if the claim was based on "public disclosure," unless the relator was "an original source of the information." Here is the new statutory language at (e)(4), which entirely replaces the old subsection (b)(4) quoted above:

(4)(A) No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.

(B) For purposes of this paragraph, "original source" means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information.

31 U.S.C. Sec. 3730(e)(4) (1988) (emphasis added).

Under this new provision, "public disclosure" rather than "information the Government had" bars the claim. Wang v. FMC Corp., 975 F.2d 1412, 1416 (9th Cir.1992); United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416 (9th Cir.1991). The claim is saved, despite "public disclosure," if the relator "is an original source." That means that the relator (1) has "direct and independent knowledge of the information on which his allegation is based," and (2) "has voluntarily provided the information to the Government before filing" his qui tam action. Wang, 975 F.2d at 1417, citing 31 U.S.C. Sec. 3730(e)(4)(B). The relator does not have to prove that he is an "original source" unless there has been "public disclosure." Id., citing 31 U.S.C. Sec. 3730(e)(4)(A); Hagood, 929 F.2d at 1420.

The district court decided in the case at bar that the old law applied. The only analysis done was of whether "the action is based on evidence or information the Government had when the action was brought." No analysis was performed under the "public disclosure" and "original source" scheme of the new law, and the briefs do not discuss how the new law would apply to the evidence. Because we conclude that the new law should have been applied, we remand so that the district court can perform the analysis under it.

A. Retroactivity.

Statutes ordinarily do not operate retroactively, that is, to change the legal consequences of past conduct. An application is retroactive if "it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed." Landgraf v. USI Film Products, --- U.S. ----, ----, 114 S.Ct. 1483, 1505, 128 L.Ed.2d 229 (1994).

When a case implicates a federal statute enacted after the events in suit, the court's first task is to determine whether Congress has expressly prescribed the statute's reach. If Congress has done so, of course, there is no need to resort to judicial default rules. When, however, the statute contains no such express command, the court must determine whether the new statute would have retroactive effect, i.e., whether it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed. If the statute would operate retroactively, our traditional presumption teaches that it does not govern absent clear congressional intent favoring such a result.

Landgraf, --- U.S. at ----, 114 S.Ct. at 1505, emphasis added. See also Murphy v. FDIC, 38 F.3d 1490, 1501 (9th Cir.1994) (en banc).

In United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416 (9th Cir.1991), we applied the 1986 amendment to a case brought after 1986, where the disclosure to the government was made prior to 1986. We held that there was no "public disclosure" to serve as a bar to jurisdiction under 31 U.S.C. Sec. 3730(e)(4)(A), so it did not matter whether the relator was an "original source" under Sec. 3730(e)(4)(B). See also Wang, 975 F.2d at 1416. Although this appears to be a retroactive application of the 1986 amendment, we did not consider, discuss or decide the retroactivity issue in Hagood. The case came down before Landgraf, and the retroactivity issue was not raised by the parties.

The Sixth Circuit has held that the 1986 amendments to the False Claims Act do not apply retroactively. United States v. TRW, Inc., 4 F.3d 417, 423 (6th Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 1370, 128 L.Ed.2d 47 (1994); United States v. Murphy, 937 F.2d 1032 (6th Cir.1991). TRW (not Murphy ) addressed the amendment at issue in this case. In TRW, the relator disclosed the false claim before the 1986 amendment saved him from the jurisdictional bar, while in the present case, the relator did not make his disclosure until after the amendment expanded jurisdiction. In the case at bar we do not reach the question of whether the amendment applies retroactively. We assume without deciding that the amendment is prospective in its effect, as the Sixth Circuit held.

The issue is,...

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