U.S. v. Johnson Controls, Inc.

• Decision Date: 09 August 2006
• Docket Number: No. 04-55536.,04-55536.
• Citation: 457 F.3d 1009
• Parties: UNITED STATES of America; State of California, ex rel. Roman Zaretsky; Robert Yardley, Plaintiffs-Appellants, v. JOHNSON CONTROLS, INC.; Michael Mathes; Richard Beddie, Defendants-Appellees, and Michael Putich, Defendant.
• Court: U.S. Court of Appeals — Ninth Circuit

457 F.3d 1009

UNITED STATES of America; State of California, ex rel. Roman Zaretsky; Robert Yardley, Plaintiffs-Appellants, v. JOHNSON CONTROLS, INC.; Michael Mathes; Richard Beddie, Defendants-Appellees, and Michael Putich, Defendant.

No. 04-55536.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 13, 2006.

Filed August 9, 2006.

Richard C. Goodman and Marc J. Schneider, Stradling Yocca Carlson & Rauth, Newport Beach, CA, for the plaintiffs-appellants.

Brian W. McGrath and David W. Simon, Foley & Lardner LLP, Milwaukee, WI, and Susanne C. Washington, Foley & Lardner LLP, San Diego, CA, for the defendants-appellees.

Appeal from the United States District Court for the Central District of California; David O. Carter, District Judge, Presiding. D.C. No. CV-03-00028-DOC.

Before CANBY, JR., NOONAN, and BERZON, Circuit Judges.

BERZON, Circuit Judge.

This case requires us to interpret, once again, the statutory provisions relating to the "public disclosure" bar and the "original source" exception to that bar in the Federal False Claims Act (FCA), 31 U.S.C. §§ 3729-3733, and the California False Claims Act (CFCA), CAL. GOV'T CODE §§ 12650-12656. We hold that the federal and state statutes do not require that an individual report relevant information to the government prior to the "public disclosure" at issue to qualify as an "original source."

I.

Johnson Controls, Inc. (Johnson Controls, or the Company) manufactures control systems that monitor and coordinate the air environment in large buildings and building complexes. The Company sells its control systems both directly to endusers and through a network of independent distributors called "Authorized Building Controls Specialists" (ABCSs). Yardley-Zaretsky, Inc. and the George Yardley Co. (collectively, the Yardley Companies) operate as an ABCS. According to Roman Zaretsky, President of Yardley-Zaretsky, Inc., Johnson Controls threatened the Yardley Companies with termination if they bid against Johnson Controls itself on certain government jobs, including jobs at the Long Beach Veterans Administration Hospital and the University of California, Riverside.

The Yardley Companies filed a civil complaint in California state court against Johnson Controls and several of its employees alleging, inter alia, that Johnson Controls was engaged in a bid-rigging scheme in violation of section 1 of the Sherman Act, 15 U.S.C. § 1. Johnson Controls removed the case to federal court. The Yardley Companies subsequently voluntarily dismissed the lawsuit and filed a demand for arbitration with the American Arbitration Association, asserting the same claims.¹

Shortly thereafter Zaretsky and Robert Yardley, Vice-President of Yardley-Zaretsky, Inc., sent letters to officials at the Long Beach Veterans Administration Hospital, the United States Attorney's Office, the University of California, Riverside, and the Office of the California Attorney General, alleging that Johnson Controls violated the FCA and the CFCA. The letters stated that Zaretsky and Yardley (Relators) would file a qui tam complaint,² a draft of which was included with the letters, two weeks later, unless state or federal officials contacted them in the meantime.

No governmental officials contacted Relators during the two-week period. Shortly after the two-week period expired, Relators filed under seal a qui tam complaint against Johnson Controls and several of its employees (collectively, JCI), alleging that JCI violated the FCA and the CFCA by engaging in bid-rigging on federal and state government jobs, including jobs at the Long Beach Veterans Administration Hospital and the University of California, Riverside.

After the federal and state governments declined to intervene, the district court filed an order unsealing the complaint.³ Before Relators obtained discovery from JCI or third parties, and well before the discovery cutoff dates set by the district court, JCI moved for summary judgment on two grounds: (1) that the district court lacked subject matter jurisdiction under 31 U.S.C. § 3730(e)(4) because the complaint was "based upon [a] public disclosure," but Relators were not an "original source"; and (2) that Relators' FCA and CFCA claims fail on the merits because they are "based on an alleged Rule of Reason antitrust violation, a subjective, fact-specific analysis that cannot support False Claims Act liability." Relators' opposition to the motion for summary judgment contended that Relators are an "original source" and that the motion should be denied with respect to the second ground because Relators had not been able to obtain discovery that might reveal pertinent facts.

The district court granted JCI's motion on the ground that there was no subject matter jurisdiction under 31 U.S.C. § 3730(e)(4). The court held that to qualify as an "original source" under the FCA, a prospective relator must provide the government with the pertinent information prior to the "public disclosure" at issue if, but only if, the "public disclosure" occurs through a private lawsuit brought by the prospective relator. The district court's order did not address JCI's alternate contention that Relators could not prove a substantive violation of the FCA or the Relators' assertion that decision on that issue should be delayed to allow for development of the record through discovery.

On appeal, Relators contend that the FCA and CFCA do not require them to inform the government prior to public disclosure to qualify as "original sources." JCI disagrees and also argues, in the alternative, that we should affirm on the ground that Relators have not stated a substantive FCA or CFCA violation.

II.

We review a district court's grant of summary judgment de novo. Warren v City of Carlsbad, 58 F.3d 439, 441 (9th Cir.1995). We must "determine whether the evidence, viewed in a light most favorable to the nonmoving party, presents any genuine issues of material fact and whether the district court correctly applied the law." Id.

A.

1.

Section 3730(e)(4) of Title 31 of the United States Code provides, in full:

(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) (footnote omitted).

The parties agree that the Yardley Companies' civil complaint in state court alleging, inter alia, antitrust violations was a "public disclosure" of pertinent allegations or transactions, see United States v. Alcan Elec. & Eng'g, Inc., 197 F.3d 1014, 1018-21 (9th Cir.1999), and that Relators' qui tam action is "based upon" that public disclosure because it contains the same factual allegations, see United States ex rel. Biddle v. Bd. of Trs. of the Leland Stanford, Jr. Univ., 161 F.3d 533, 536-40 (9th Cir. 1998). The district court thus had jurisdiction under § 3730(e)(4) only if Relators are an "original source" within the meaning of the statute.

As we noted in Wang v. FMC Corp., § 3730(e)(4)(B) dictates that to be an "original source" a plaintiff must fulfill several requirements: He must "show that he has `direct and independent knowledge of the information on which his allegation is based' . . . and . . . that he `has voluntarily provided the information to the Government before filing' his qui tam action." 975 F.2d 1412, 1417 (9th Cir.1992) (emphasis omitted) (quoting 31 U.S.C. § 3730(e)(4)(B)). These requirements flow directly from the text of the statute. Wang went on to hold that to be an "original source," a prospective relator must satisfy an additional requirement under § 3730(e)(4)(A) that is not in the statute in haec verba but that Wang held inherent in it: He must have "had a hand in the public disclosure of allegations that are a part of [his] suit." Id. at 1418. Thus, post-Wang, we have summarized the requirements as follows:

To qualify as an original source, a relator must show that he or she has direct and independent knowledge of the information on which the allegations are based, voluntarily provided the information to the government before filing his or her qui tam action, and had a hand in the public disclosure of allegations that are a part of . . . [the] suit.

United States ex rel. Lujan v. Hughes Aircraft Co., 162 F.3d 1027, 1033 (9th Cir. 1998) (internal quotation marks omitted).

JCI does not contend that Relators fail to satisfy any of the preceding criteria, so, for purposes of this opinion, we treat them as established.⁴ Instead, JCI's jurisdictional argument is that Relators fail to satisfy what they argue is an additional criterion under § 3730(e)(4): that prospective relators provide the requisite information directly to the government prior to the public disclosure at issue. It is undisputed that Relators provided the federal government with no information prior to the filing of the civil complaint in state court, the public disclosure in the present case. Rather, the first time Relators directly provided the federal government with information was when they sent letters to government officials indicating their intent to file a qui tam action, an event which occurred after they filed their civil complaint in state court.

The only dispute regarding the FCA claim is thus over a single question of law: Does the FCA require — all of the time or, as the district court...