United States ex rel. Shea v. Cellco P'ship

• Decision Date: 25 July 2017
• Docket Number: C/w 15-7136,No. 15-7135,15-7135
• Citation: 863 F.3d 923
• Parties: UNITED STATES of America, EX REL. Stephen SHEA, and Stephen M. Shea, Appellant v. CELLCO PARTNERSHIP, doing business as Verizon Wireless, et al., Appellees
• Court: U.S. Court of Appeals — District of Columbia Circuit

863 F.3d 923

UNITED STATES of America, EX REL. Stephen SHEA, and Stephen M. Shea, Appellant

v.CELLCO PARTNERSHIP, doing business as Verizon Wireless, et al., Appellees

No. 15-7135

C/w 15-7136

United States Court of Appeals, District of Columbia Circuit.

Argued October 24, 2016

Decided July 25, 2017

Christopher B. Mead argued the cause for appellant/cross-appellee. With him on the briefs were Mark London and Stuart A. Berman, Greenbelt, MD.

Seth P. Waxman, Washington, DC, argued the cause for defendants-appellees/cross-appellants. With him on the briefs were Jonathan G. Cedarbaum and Daniel Winik, Washington, DC.

John P. Elwood, Craig D. Margolis, Jeremy C. Marwell, Kathryn Comerford Todd, and Steven P. Lehotsky, Washington, DC, were on the brief for amicus curiae The Chamber of Commerce of the United States of America in support of defendants-appellee/cross-appellants.

Before: Srinivasan and Millett, Circuit Judges, and RANDOLPH, Senior Circuit Judge.

Srinivasan, Circuit Judge:

The False Claims Act penalizes the knowing submission of a false or fraudulent claim for payment to the federal government. 31 U.S.C. § 3729(a)(1). Rather than rely solely on federal agencies to police fraudulent claims, Congress authorized private persons to bring what are known as qui tam actions. In a qui tam suit, a private party, called the relator, challenges fraudulent claims against the government on the government's behalf, ultimately sharing in any recovery.

In this qui tam case, the relator is appellant Stephen M. Shea. He alleges that Verizon Communications, Inc. violated the False Claims Act by overbilling the government in its telecommunications contracts. Shea filed two qui tam suits against the company. The first ended in a settlement under which Shea received a $20 million payout. While that suit was pending, Shea brought a second qui tam action against Verizon, alleging that the company's fraud extended to twenty additional federal contracts.

The district court held that Shea's second suit violated the False Claims Act's "first-to-file" bar, 31 U.S.C. § 3730(b)(5), which prohibits a relator from bringing any action related to a pending qui tam suit. The district court thus dismissed Shea's second action. But because Shea's first action had ended by that time, such that the first-to-file bar would no longer prohibit the filing of a new suit, the district court dismissed Shea's second action without prejudice to his refiling it.

Shea now appeals the dismissal of his action, contending that the district court should have allowed him to amend the complaint rather than require him to initiate a new suit. Verizon cross-appeals, arguing that the district court should have dismissed Shea's action with prejudice, such that he could not refile it. In support of its argument for a dismissal with prejudice, Verizon relies on the False Claims Act's "public disclosure" bar, id. § 3730(e)(4), and on the pleading requirements established by Federal Rules of Civil Procedure 8 and 9(b).

We reject both Shea's arguments in his appeal and Verizon's arguments in its cross-appeal. We therefore affirm the district court in all respects.

I.

A.

When bringing a qui tam action under the False Claims Act, a relator need not allege a personal injury. See Vt. Agency of Nat. Res. v. United States ex rel. Stevens , 529 U.S. 765, 772-73, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000). Instead, she can bring suit "to remedy an injury in fact suffered by the United States." Id. at 771, 774, 120 S.Ct. 1858. To encourage relators to bring suits on the government's behalf, Congress gave them a stake in the controversy: they can share up to 30 percent of any proceeds ultimately recovered. 31 U.S.C. § 3730(d). The government also can elect to intervene in, and assume control of, any qui tam action, in which event the relator's share of the recovery becomes capped at 25 percent. Id. § 3730(b)(2), (d)(1).

Over time, Congress learned that the bounty available to qui tam relators created "the danger of parasitic exploitation of the public coffers." United States ex rel. Springfield Terminal Ry. v. Quinn , 14 F.3d 645, 649 (D.C. Cir. 1994). To curtail abusive suits, Congress established "a number of restrictions" on qui tam actions. State Farm Fire and Cas. Co. v. United States ex rel. Rigsby , ––– U.S. ––––, 137 S.Ct. 436, 440, 196 L.Ed.2d 340 (2016) ; see United States ex rel. Heath v. AT&T, Inc. , 791 F.3d 112, 116 (D.C. Cir. 2015). This case involves two of those restrictions: (i) the first-to-file bar and (ii) the public disclosure bar.

The first-to-file bar operates on the recognition that, because relators can bring suit without having suffered a personal injury, countless plaintiffs in theory could file a qui tam action based on the same fraud and then share in the proceeds. And if multiple relators could split the recovery for the same conduct, they would have less "incentive to bring a qui tam action in the first place." United States ex rel. LaCorte v. SmithKline Beecham Clinical Labs., Inc. , 149 F.3d 227, 234 (3d Cir. 1998). The first-to-file bar addresses that problem. It provides that, "[w]hen a person brings an action under [the False Claims Act], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action." 31 U.S.C. § 3730(b)(5). The first-to-file bar thereby ensures only one relator will share in the government's recovery and encourages prompt filing from relators desiring to be first to the courthouse. LaCorte , 149 F.3d at 234.

The public disclosure bar similarly seeks "the golden mean" between, on one hand, encouraging relators with valuable information to bring suit, and, on the other hand, discouraging unduly "opportunistic plaintiffs." See Graham Cty. Soil & Water Conservation Dist. v. United States ex rel. Wilson , 559 U.S. 280, 294, 130 S.Ct. 1396, 176 L.Ed.2d 225 (2010) (quoting Springfield , 14 F.3d at 649 ). Originally, the False Claims Act allowed qui tam relators simply to copy information already in the public domain. Indeed, in one landmark case, the relator parroted the government's own filings but still shared in the government's reward. See United States ex rel. Marcus v. Hess , 317 U.S. 537, 545-48, 63 S.Ct. 379, 87 L.Ed. 443 (1943). In response, Congress established what became the public disclosure bar. The bar prohibits private parties from bringing suit based on a fraud already disclosed through identified public channels (unless the relator is "an original source of the information"). 31 U.S.C. § 3730(e)(4)(A).

B.

In 2007, Shea filed a qui tam action against Verizon alleging that the company had knowingly charged the General Services Administration (GSA) for non-billable taxes and surcharges. Shea first became suspicious of Verizon while working as a consultant for commercial telecommunications customers. He learned that Verizon regularly overbilled its commercial customers for taxes, fees, and surcharges. Shea suspected Verizon of employing the same scheme against the government. After investigating, he allegedly confirmed that Verizon had billed the GSA for taxes and surcharges prohibited by its contract. The United States intervened in Shea's action. In February 2011, the parties settled the action without any admission of liability by Verizon. Shea received nearly $20 million in the settlement.

Before the parties settled Shea's first action (Verizon I ), Shea apparently deduced that Verizon had used the same fraudulent billing scheme in twenty additional federal contracts. Rather than amend his complaint, however, Shea brought a second qui tam action against Verizon (Verizon II ). This time, the government chose not to intervene.

In 2012, the district court dismissed Shea's second qui tam suit with prejudice. The district court held that Verizon II was related to Verizon I , such that the False Claims Act's first-to-file bar blocked the later action. Although Verizon I had ended in a settlement the previous year, the court thought the first-filed suit permanently barred any related suit filed while the first action was pending.

Shea appealed, and a divided panel of this Court affirmed. The majority and dissent agreed that Verizon II was related to Verizon I and that the first-to-file bar thus supported a dismissal of Verizon II. The disagreement between the majority and dissent concerned whether the district court properly dismissed Verizon II with prejudice, such that Shea could not refile the action. The majority affirmed the district court's dismissal with prejudice because it interpreted the first-to-file bar to apply "even if the initial action is no longer pending." United States ex rel. Shea v. Cellco P'ship , 748 F.3d 338, 343 (D.C. Cir. 2014), vacated , ––– U.S. ––––, 135 S.Ct. 2376, 192 L.Ed.2d 162 (2015). The dissent, reasoning that the first-to-file bar ceases to operate once the first-filed suit ends, believed that the dismissal of Verizon II should have been without prejudice. Id. at 345-51 (Srinivasan, J., concurring in part and dissenting in part).

The Supreme Court granted Shea's petition for certiorari and vacated this Court's decision in light of a related case, Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter , ––– U.S. ––––, 135 S.Ct. 1970, 191 L.Ed.2d 899 (2015). In Carter , the Supreme Court held that "a qui tam suit under the [False Claims Act] ceases to be ‘pending’ once it is dismissed." Id. at 1979. As a result, once a first-filed suit reaches completion, the first-to-file bar no longer prohibits bringing a new action. Id. This Court remanded Shea's suit in Verizon II for further proceedings consistent with the Supreme Court's decision in Carter .

On remand, Verizon filed a renewed motion to dismiss. By that point, the six-year statute of limitations had arguably run on Shea's allegations of fraud. He thus resisted any dismissal of his action, even one without prejudice to his refiling it. Instead, Shea contended he could cure the...