U.S. ex rel. Maxwell v. Kerr-Mcgee Oil & Gas Corp.

• Decision Date: 10 September 2008
• Docket Number: No. 07-1193.,07-1193.
• Citation: 540 F.3d 1180
• Parties: UNITED STATES of America, ex rel. Bobby MAXWELL, Plaintiffs-Appellants, v. KERR-McGEE OIL & GAS CORPORATION, a Delaware corporation, Defendant-Appellee. United States of America, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

540 F.3d 1180

UNITED STATES of America, ex rel. Bobby MAXWELL, Plaintiffs-Appellants, v. KERR-McGEE OIL & GAS CORPORATION, a Delaware corporation, Defendant-Appellee United States of America, Amicus Curiae.

No. 07-1193.

United States Court of Appeals, Tenth Circuit.

September 10, 2008.

Sean Connelly,^* Reilly Pozner, LLP, Denver, CO (Michael S. Porter, The Law Firm of Michael S. Porter, Wheat Ridge, CO and Richard C. LaFond, Richard C. LaFond, P.C., Denver, CO, with him on the briefs), for Plaintiffs-Appellants.

Marie R. Yeates, Vinson & Elkins L.L.P., Houston, TX (Penelope E. Nicholson and Abigail W. Giraud, Vinson & Elkins L.L.P., Houston, TX and Scott S. Barker, Marcy G. Glenn, Gregory E. Goldberg, Danielle R. Voorhees, Holland &

Hart L.L.P., Denver, CO, with her on the brief), for Defendant-Appellee.

Charles W. Scarborough, Office of the United States Attorney, Washington, D.C. (Troy A. Eid, Peter D. Keisler, and Douglas N. Letter, with him on the brief), for Amicus Curiae.

Before McCONNELL, SEYMOUR and HOLMES, Circuit Judges.

McCONNELL, Circuit Judge.

Mr. Bobby Maxwell, a senior auditor for the United States Department of the Interior, brought this qui tam action against oil and gas producer Kerr-McGee Oil & Gas Corporation for defrauding the federal government by underpaying royalties for federal offshore oil leases. After the jury returned a $7.5 million verdict for Mr. Maxwell, the district court reversed its prior ruling on whether the court had subject matter jurisdiction to hear the case. The court determined that information underlying the suit had previously been disclosed to the public, thereby removing jurisdiction under the False Claims Act, 31 U.S.C. § 3730(e)(4). We now hold that the transfer of information between a federal employee and a state government auditor who is under a duty of confidentiality is not a public disclosure and therefore does not deprive the courts of jurisdiction.

I.

Mr. Maxwell was a senior government auditor for the Minerals Management Service ("MMS"), a division within the United States Department of the Interior. In 2002, the MMS began an investigation of royalty reporting by Kerr-McGee arising from crude oil produced from federal offshore leases and sold to Texon L.P. Mr. Maxwell was the senior auditor on the team assigned to the investigation, and in the course of that investigation "reached the conclusion that Kerr-McGee had substantially underpaid its federal oil royalties." Am. Comp. ¶ 56. Kerr-McGee had reported the sales value of oil for royalty purposes without including the fair market value of marketing services provided by Texon as partial consideration, resulting in a royalties underpayment of around $10 million.

On November 15, 2002, Mr. Maxwell sent an audit issue letter to Kerr-McGee containing a preliminary determination that Kerr-McGee had underpaid royalties owed to the federal government on its leases. Kerr-McGee submitted a written response to MMS disputing the findings contained in the letter. Mr. Maxwell then drafted an order for payment of additional royalties, which he submitted to his senior manager. MMS did not issue the order of payment.

On June 14, 2004, Mr. Maxwell filed a qui tam action against Kerr-McGee under the False Claims Act ("FCA"). 31 U.S.C. § 3729. He alleged that, based on the information uncovered during his audit, "Kerr-McGee knowingly made false and/or fraudulent statements on the monthly royalty reports submitted to the MMS and `understated and underpaid' its federal royalties." Maxwell v. Kerr-McGee Oil & Gas Corp., 486 F.Supp.2d 1217, 1221 (D.Colo.2007). The United States declined to intervene in the suit.

Before trial, Kerr-McGee filed a motion for summary judgment for lack of subject matter jurisdiction under the FCA. 31 U.S.C. § 3730(e)(4). The court denied the motion, concluding that (1) government auditors were not necessarily barred from acting as relators under the FCA, and (2) that Mr. Maxwell was a "direct and independent" source of the information on which his allegations were based and voluntarily provided the information to the government before filing the action. United States ex rel. Maxwell v. Kerr-McGee Chemical Worldwide, LLC, 2006 WL 1660538 (D.Colo. June 9, 2006). The case proceeded to trial and the jury awarded damages of $7,555,886.28. Before entering judgment, however, the court reconsidered and reversed its prior holding, this time determining that the court lacked jurisdiction to hear the case. Maxwell, 486 F.Supp.2d at 1222.

The court concluded that the information underlying the suit had been publicly disclosed in an e-mail exchange between David Darouse, an employee of the State of Louisiana, and Roman Geissel, an MMS agent, in early April 2003. An e-mail, sent by Mr. Darouse to Mr. Geissel dated April 1, 2003, requested a copy of the Kerr-McGee/Texon contract from August 1995 to December 2001. In that e-mail, Mr. Darouse stated: "We analyzed the prices being paid by Texon to Kerr and found them to be FAR below gravity adjusted market indices." App. 2989. The following day, Mr. Geissel replied: "We have done a lot of work at Kerr and found numerous problems which will result in a significant underpayment." App. 2989. The court found this exchange to be a public disclosure of the facts underlying Mr. Maxwell's suit and that Mr. Maxwell did not fall within the original source exception, resulting in a lack of jurisdiction under the FCA. We disagree and hold that the limited disclosure of information to a government official under a duty of confidentiality is not a "public disclosure."

II

The statutory language at issue in this case is primarily found in the 1986 amendments to the False Claims Act, which broadened the class of qui tam actions falling within the proper jurisdiction of the courts. The prior version of the Act removed jurisdiction over suits "whenever it shall be made to appear that such suit was based upon evidence or information in the possession of the United States, or any agency, officer or employee thereof, at the time such suit was brought." 31 U.S.C. § 232(C) (1946). This language effectively prevented any federal employee from filing a qui tam action and thereby eliminated any incentive provided by the FCA for government employees to seek out fraudulent activity and bring it to light.

In response, Congress adopted the 1986 amendments "to enhance the Government's ability to recover losses sustained as a result of fraud against the Government." S.Rep. No. 99-345, at 1 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5266. The "overall intent" was "to encourage more private enforcement suits." Id. at 23-24, reprinted in 1986 U.S.C.C.A.N. at 5288-89. One feature of these amendments was to provide a more permissive jurisdictional limitation: "No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a ... Government Accounting Office report, hearing, audit, or investigation...." 31 U.S.C. § 3730(e)(4). By focusing not on whether the underlying information was known to the United States, but rather whether the information was within the public domain, the amendment sought to further the dual goals of the FCA in "avoidance of parasitism and encouragement of legitimate citizen enforcement actions." United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 651 (D.C.Cir.1994).

Kerr-McGee contends that even under the more expansive scope of the FCA as amended, the court lacks jurisdiction to hear Mr. Maxwell's suit. First, it argues that a governmental employee who acquires the information in the course of his official duties cannot serve as a relator for a suit based on that information. Kerr-McGee acknowledges that this argument may be foreclosed by our en banc decision in United States ex rel. Holmes v. Consumer Ins. Group, 318 F.3d 1199 (10th Cir.2003), but seeks to preserve it for further review. Second, Kerr-McGee argues, and the district court agreed, that the exchange of e-mails between Mr. Darouse and Mr. Geissel constituted a public disclosure under the FCA's jurisdictional bar, thereby removing jurisdiction over any suit based on information contained therein. It is on this issue that we reverse the district court. Lastly, we reject Kerr-McGee's argument that a prior suit related to alleged fraudulent royalty underpayment by Kerr-McGee constituted a public disclosure upon which Mr. Maxwell's suit was based.

A. Government Employee as Relator

Section 3730(b)(1) provides, in pertinent part, that "[a] person may bring a civil action for a violation of section 3729 for the person and for the United States Government." 31 U.S.C. § 3730(b)(1). We held in our en banc decision in Holmes that "a government employee who obtains information about fraud in the scope of his or her employment, and who is required to report that fraud" is a "person" under § 3730(b)(1) and is not otherwise prevented from acting as a relator. 318 F.3d at 1204.

Kerr-McGee attempts to distinguish Holmes on the basis that the relator in that case discovered the fraud during her lunch break, in an investigation not within her official duties. Our analysis in Holmes, however, did not turn on whether or not the fraud was discovered in the employee's official capacity. The lack of limiting language on the broad term "person" as used in § 3730(b)(1) provides no basis for concluding that government employees, whether acting in their official capacity or not, are excluded from the scope of the statute. Prior to the 1986 amendments, federal employees were effectively barred from bringing qui tam suits because of the jurisdictional exemption for suits based on information already known to the United States. 31 U.S.C. § 232(C) (1946). But the 1986 amendments allow suits based on such information as long as it is not publicly disclosed, and therefore do not prevent federal employees from acting as relators. In...