United States ex rel. Conner v. Mahajan, 120517 FED7, 17-1162
|Court:||United States Courts of Appeals, Court of Appeals for the Seventh Circuit|
|Judge Panel:||Before Posner, Kanne, and Sykes, Circuit Judges|
|Opinion Judge:||PER CURIAM|
|Party Name:||United States of America ex rel. Kenneth J. Conner, Plaintiff-Appellant, v. Amrish K. Mahajan, et al., Defendants-Appellees.|
|Case Date:||December 05, 2017|
Argued July 6, 2017
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 11-CV-4458 - Sharon Johnson Coleman, Judge.
Before Posner, Kanne, and Sykes, Circuit Judges [*]
After losing his job at Mutual Bank, Kenneth Conner brought this qui tarn action claiming that the defendants, most of them directors or officers of the bank, had defrauded the government in violation of the False Claims Act, 31 U.S.C. §§ 3729-3733. The United States declined to take over the qui tarn action, which Conner eventually settled. But the Federal Deposit Insurance Corporation filed its own lawsuit against many of the same defendants. That case also settled, and Conner thinks he is entitled to a share of the settlement proceeds the FDIC received from the defendants. To that end Conner tried to intervene in the FDIC's case, and after being rebuffed he filed a motion in this action demanding part of the FDIC's recovery. The district court denied that request on the ground that, because Conner's attempt to intervene in the FDIC's case was rejected, he is barred by the doctrine of issue preclusion from litigating in this suit the question whether he has a cognizable interest in the settlement proceeds. Conner challenges that ruling in this appeal. We agree with the district court's bottom line but conclude that claim preclusion, rather than issue preclusion, explains this outcome.
The False Claims Act imposes civil liability on individuals who knowingly defraud the United States. Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989, 1995 (2016). The Act may be enforced either by the government or, under its qui tarn provision, by a private person acting as a "relator" on the government's behalf. 31 U.S.C. § 3730(b)(1); State Farm Fire & Cas. Co. v. United States ex rel. Rigsby, 137 S.Ct. 436, 440 (2016). When a private party brings a qui tarn suit, the complaint is sealed (and thus unknown to the defendant) but served on the government with a summary of all material evidence. 31 U.S.C. § 3730(b)(2); Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S.Ct. 1970, 1973 (2015).
Upon learning of a qui tarn action, the government has multiple options for action. One of those options is taking over the lawsuit, and, if the government does take control, the relator will receive 15% to 25% of any recovery. 31 U.S.C. § 3730(d)(1). The government also can decline to participate directly, and, if it chooses that option, the relator can continue prosecuting the case on the government's behalf. See 31 U.S.C. § 3730(b)(4)(B), (c)(3); Kellogg Brown & Root Sews., Inc., 135 S.Ct. at 1973; Stoner v. Santa Clara Cty. Office of Educ, 502 F.3d 1116, 1126-27 (9th Cir. 2007). A relator who successfully prosecutes a qui tarn action without government involvement will receive 25% to 30% of the recovery. 31 U.S.C. § 3730(d)(2). A third option available to the government is seeking recovery for fraud through an "alternate remedy, " including "any administrative proceeding to determine a civil money penalty." 31 U.S.C. § 3730(c)(5). When the government pursues an "alternate remedy, " the relator has the same rights in that proceeding as if the qui tarn action had continued, including the right to recover a percentage of any recovery. 31 U.S.C. § 3730(c)(5); United States v. Sprint Commc'ns, Inc., 855 F.3d 985, 990 (9th Cir. 2017); United States ex rel. Rille v. PricewaterhouseCoopers LLP, 803 F.3d 368, 373 (8th Cir. 2015).
Conner worked at Mutual Bank (or its predecessor) from 2000 to 2007 and had transferred to the bank's headquarters in Harvey, Illinois, in 2005. At headquarters he reviewed appraisals for commercial real estate loans. In that role he noticed that Adams Value Corporation (a property appraisal company) had completed more than half of Mutual's appraisals. Conner concluded that Adams regularly had inflated values by 20% to 30%. He identified about 75 appraisals he thought were inflated, all but one of which Mutual Bank had accepted. In October 2007 Conner refused to approve an Adams appraisal that he deemed incomplete and significantly overvalued. The bank fired him a week later. Eventually he brought this qui tarn action under the False Claims Act. In addition to naming as defendants the directors and several officers of Mutual Bank, Conner sued Adams Value Corporation and its president.
Mutual Bank failed less than two years after Conner was fired. In his lawsuit he alleged that the defendants had intentionally overvalued properties serving as collateral for commercial real estate loans. By doing so they understated loan-to-value ratios reported to the FDIC and thus benefitted from a lower risk category and commensurately lower FDIC insurance premiums. Conner added that most of the loans could not have been approved if the collateral was valued accurately. He estimated that the FDIC had lost approximately $656 million from Mutual Bank's demise, including $300 to $400 million resulting from "commercial real estate loans with deliberately faulty appraisals." But Conner's qui tarn action aimed only to recoup the deposit insurance premiums that should have been paid to the FDIC. In August 2012 the United States declined to take over the case (the reason is not disclosed in the record) but asked the district judge...
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