U.S. ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Prudential Ins. Co.

• Citation: 944 F.2d 1149
• Decision Date: 10 October 1991
• Docket Number: No. 90-5445,90-5445
• Parties: , 60 USLW 2221, Medicare & Medicaid Guide P 39,597 UNITED STATES of America, ex rel. STINSON, LYONS, GERLIN & BUSTAMANTE, P.A., Appellant v. The PRUDENTIAL INSURANCE COMPANY.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 1149

944 F.2d 1149

117 A.L.R.Fed. 679, 60 USLW 2221,

Medicare & Medicaid Guide P 39,597

UNITED STATES of America, ex rel. STINSON, LYONS, GERLIN &amp BUSTAMANTE, P.A., Appellant v. The PRUDENTIAL INSURANCE COMPANY.

No. 90-5445.

United States Court of Appeals Third Circuit.

Argued Nov. 8, 1990.

Decided Sept. 18, 1991.

Rehearing and Rehearing In Banc Denied Oct. 10, 1991.

Luis C. Bustamante (argued), Tracy E. Tomlin, Stinson, Lyons, Gerlin & Bustamante, P.A., Miami, Fla., for appellant.

William G. Kopit (argued), of counsel, Robert J. Moses, Robert E. Turtz, Epstein Becker & Green, P.C., Washington, D.C., for appellee.

Before SLOVITER, Chief Judge ^*, SCIRICA and SEITZ, Circuit Judges.

OPINION OF THE COURT

SLOVITER, Chief Judge.

This appeal from the district court's dismissal of a complaint for lack of subject matter jurisdiction requires us to interpret the jurisdictional bar provisions of the False Claims Act, 31 U.S.C. §§ 3729-3733 (1988) (FCA). The law firm of Stinson Lyons, Gerlin & Bustamante, P.A. (Stinson) filed this action on behalf of the United States against Prudential Insurance Company alleging that Prudential defrauded the Government by avoiding its statutory responsibility to pay certain insurance claims as the primary insurer. The district court dismissed the complaint on the ground that it lacked subject matter jurisdiction because the action was based solely on information or allegations that had been publicly disclosed in previous litigation. We have jurisdiction over Stinson's timely appeal under 28 U.S.C. § 1291 (1988).

I. Facts and Procedural History

Stinson learned of Prudential's allegedly fraudulent activity during its representation of T. Armlon Leonard in 1983 in connection with injuries sustained by Leonard in an automobile accident. Leonard, who was 67 years old at the time of the accident, was covered by a group insurance plan provided by his employer and carried by Provident Life and Accident Insurance Company (Provident).

In the course of processing Leonard's claim against Provident, Stinson formed a suspicion that Provident's claim processing practice was in violation of federal law, specifically the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub.L. No. 97-248, § 116(b), 96 Stat. 324, 353 (1982), in which Congress shifted primary liability for benefit claims of people covered both by Medicare and employer group health plans (working seniors) from Medicare to the private group plan. Stinson believed that, notwithstanding TEFRA, Provident was avoiding its responsibility by allowing Medicare to continue to pay as the primary insurer the benefit claims of Armlon and other working seniors.

Provident filed suit against Leonard in the Circuit Court for Dade County, Florida, seeking a declaratory judgment establishing the legality of its claim procedure. Provident Life & Accident Ins. Co. v. Leonard, No. 85-10113 CA(15) (Fla. Dade County Cir.Ct.) (the "Leonard litigation"). Through discovery in the Leonard litigation, Stinson obtained two internal Provident memoranda, admittedly hearsay, which Stinson reads as suggesting that other insurance companies had similar claim processing practices.

The first document contained the results of a Provident telephone survey of the claim processing practices of other insurance companies with respect to working seniors. Next to the name "Arthur M. Wood, Vice President, Prudential Insurance Company" appears the handwritten notation, "Left message--Same as us." App. at 81. The notation is unsigned, and there is no indication who asked the question or who prepared the document. The second document, a Provident memorandum entitled "Policy Issue Medicare Reimbursement" which recommended that Provident change its claim processing procedure, repeated the same notation, "Prudential--Same as us," under the heading "Input," apparently on the basis of the earlier memorandum. App. 400. According to Stinson's affidavit, it filed these memoranda with the Florida court on October 6, 1986, eleven days after obtaining them from Provident.

In early 1988, a year and a half later, Stinson brought an action on behalf of the United States against Provident under the qui tam provisions of the False Claims Act (FCA). See United States ex rel. Stinson, et al. v. Provident Life & Accident Ins. Co., 721 F.Supp. 1247 (S.D.Fla.1989). Thereafter, Stinson filed identical actions against Prudential and the other insurance companies allegedly implicated by the Provident memoranda. See United States ex rel. Stinson et al. v. Provident Life & Accident Ins. Co., CIV 1-89-331 (E.D.Tenn.); United States ex rel. Stinson et al. v. Blue Cross Blue Shield of Ga., Inc., 755 F.Supp. 1040 (S.D.Ga.1990); United States ex rel. Stinson et al. v. Pilot Life Ins. Co., C-90-29-G (M.D.N.C.); United States ex rel. Stinson et al. v. Pan American Life Ins. Co., No. 90-411 (E.D.La.). In each case, Stinson argued that the insurance company defrauded the government by allowing Medicare to pay as primary insurer for claims of working seniors.

As required by the FCA, 31 U.S.C. § 3730(b)(2), Stinson disclosed the information on which the claim against Prudential was based to the United States. The Government declined to intervene, and Stinson proceeded with the action. Prudential moved for dismissal under Rule 12(b)(1) asserting that the law firm did not qualify as a proper qui tam plaintiff. ¹

The district court dismissed the complaint, finding that it did not have subject matter jurisdiction. United States ex rel. Stinson, et al. v. Prudential Ins. Co., 736 F.Supp. 614 (D.N.J.1990). The district court relied on the FCA's jurisdictional bar contained in 31 U.S.C. § 3730(e)(4)(A), which precludes suits based on, inter alia, the "public disclosure" of allegations or transactions in a civil "hearing," unless the qui tam plaintiff is an "original source" of the information.

The district court held that Stinson's qui tam action was based solely on the Provident memoranda which had been publicly disclosed for purposes of the jurisdictional bar of the FCA when they were obtained by Stinson through civil discovery. Stinson, 736 F.Supp. at 618-19, 622. The court held that Stinson was not an "original source" because its suit was based exclusively on the information contained in the Provident memoranda, and thus its knowledge of Prudential's allegedly fraudulent practice was neither direct nor independent of the public disclosure. Id. at 622-23. We have plenary review of the district court's dismissal of the complaint for lack of subject matter jurisdiction. See York Bank & Trust Co. v. Federal Sav. and Loan Ins. Corp., 851 F.2d 637, 638 (3d Cir.1988), cert. denied, 488 U.S. 1005, 109 S.Ct. 785, 102 L.Ed.2d 777 (1989).

II.

The False Claims Act and Its History

A. The Act

The FCA provides penalties for persons who knowingly submit fraudulent claims to the Government. Civil actions may be brought by the Government or, in certain circumstances, by a private plaintiff (qui tam plaintiff) ² on behalf of the Government. Before proceeding with the suit, the qui tam plaintiff must disclose the information on which the claim is based to the Government, and the Government has sixty days to intervene. 31 U.S.C. § 3730(b). If the Government does not intervene, the qui tam plaintiff may proceed with the action unless the information on which the claim is based triggers one of the jurisdictional bars contained in section 3730(e). Id. § 3730(e).

The issue in this appeal is whether Stinson's suit is barred by section 3730(e)(4) ³ which provides:

(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. § 3730(e)(4)(A)-(B) (emphasis added).

Stinson argues that the district court erred as a matter of law in holding that jurisdiction was barred. It contends that (1) its receipt of the Provident memoranda in civil discovery was not a public disclosure in a civil hearing for purposes of section 3730(e)(4); (2) the jurisdictional bar applies only to public disclosures made by the government; and (3) even if the memoranda were publicly disclosed, Stinson was an original source to information other than that contained in the Provident memoranda. Before turning to the language of the amended FCA, we consider the history of the Act to understand the need for and purpose of the 1986 amendment.

B. Earlier Versions

The False Claims Act was adopted in 1863 in response to rampant fraud by Civil War defense contractors. The original Act provided for criminal and civil penalties, including payment of double the amount of damages suffered by the government and a $2,000 forfeiture. The Act contained a broad qui tam provision allowing any person to prosecute a claim on behalf of the United States against any person who knowingly submitted a false claim to the Government. See S.Rep. No. 345, 99th Cong., 2d Sess. 8-10, reprinted in 1986 U.S.Code Cong. & Admin.News 5266, 5273-75. If successful, the qui tam plaintiff, or relator, was entitled to half of the damages and forfeitures recovered under the Act.

In the 1940's, a number of qui tam actions were brought by individuals with no independent knowledge of the fraud, some of whom learned of the fraud through the inspection of government criminal indictments. Id....