US ex rel. Fine v. MK-Ferguson Co., Civ. No. 91-1122 JB.

• Decision Date: 29 August 1994
• Docket Number: Civ. No. 91-1122 JB.
• Citation: 861 F. Supp. 1544
• Parties: UNITED STATES ex rel. Harold R. FINE, Plaintiff, v. MK-FERGUSON COMPANY and Industrial Contractors Corporation, Defendants.
• Court: U.S. District Court — District of New Mexico

861 F. Supp. 1544

UNITED STATES ex rel. Harold R. FINE, Plaintiff, v. MK-FERGUSON COMPANY and Industrial Contractors Corporation, Defendants.

Civ. No. 91-1122 JB.

United States District Court, D. New Mexico.

August 29, 1994.

Duff H. Westbrook, Maureen Sanders, Albuquerque, NM, for plaintiff.

Paul Bardacke, Kerry Kiernan, Eaves, Bardacke & Baugh, Albuquerque, NM, for defendant Indus. Contractors Corp.

William P. Snyder, Kramer, Rayson, Leake, Rodgers & Morgan, Knoxville, TN, for defendant M-K Ferguson Co.

MEMORANDUM OPINION AND ORDER

BURCIAGA, Chief Judge.

THIS MATTER came on for a hearing before the Court on July 15, 1994, on Plaintiff's December 21, 1993 motion to strike the affidavit of Walter Perry and Defendants Industrial Contractors Corporation's and MK-Ferguson's August 12, 1993 motions to dismiss. The Court, having reviewed the submissions of the parties, the relevant law, and having heard the arguments of counsel, finds Plaintiff's motion is not well taken and is denied.¹ Defendant Industrial Contractors Corporation's motion is also not well taken and is denied. The Court finds Defendant MK-Ferguson's motion is well taken in part and is granted in part.

Harold Fine initiated this qui tam² action on behalf of the United States Government and himself pursuant to the private enforcement provision of the False Claims Act, 31 U.S.C. § 3730 (1988) ("FCA"). Defendant Industrial Contractors Corporation ("ICC") asserts that present and former employees of any Inspector General's office should be absolutely barred from bringing qui tam actions based on information which they received via their employment. Defendant MK-Ferguson ("MK-F") contends that the Court is statutorily barred from asserting jurisdiction over this action because it is based on publicly disclosed transactions and allegations of which the Relator³ was not an original source.

I. BACKGROUND

In 1978, Congress passed the Uranium Mill Tailings Radiation Control Act. 42 U.S.C. §§ 7901-7942 (1988). This Act authorized the establishment of the Uranium Mill Tailings Remediation Action ("UMTRA"), a program designed to safely remediate and contain residual mill tailings from uranium mining sites. UMTRA designated 24 sites for remediation. A site in Lakeview, Oregon was among them.

UMTRA directed the United States Department of Energy ("DOE") to enter into cooperative agreements with states containing UMTRA sites. Under these agreements, the DOE is responsible for 90 percent of the costs of remediation; the state is responsible for the remaining 10 percent. The state is authorized to question any of the costs incurred by the DOE.

The State of Oregon and the DOE entered into a UMTRA cooperative agreement. The DOE selected MK-F as the prime contractor responsible for the performance of all engineering and construction activities at the Lakeview UMTRA site. MK-F selected ICC to perform all construction work. The State of Oregon was not a party to either the prime contract between the DOE and MK-F or the subcontract between MK-F and ICC.

Some time after commencing work on the site, MK-F and ICC claimed additional costs, asserting that conditions at the site were not as anticipated. The DOE reimbursed the Defendants for these additional costs. The State of Oregon, however, questioned some of the additional costs claimed by the Defendants, ordered audits of Defendants' records, and sent a report of these contested costs to the DOE. The DOE's subsequent investigation concluded that most of the allegations made by Oregon had been resolved. Oregon, unsatisfied with the DOE investigation, requested that an audit of Defendants' records be performed by the DOE's Inspector General's ("DOE-IG's") Office. The DOE-IG subcontracted the performance of this audit to ADC, Ltd., an independent contracting firm. The Inspector General's Office issued its final report, based on ADC's audit, on April 30, 1991.

The Relator, now treasurer of Bernalillo County, was an employee of the United States Government for 31 years. He served 22 years with the General Accounting Office and nine with the DOE's Inspector General's Office, where he was an assistant manager of the Western Region Audit Office. Between July of 1987 and July of 1991, 84 to 97 percent of the audit reports issued by the Western Region Audit Office came from employees under his supervision. Fine retired in July of 1991, "motivated in part by (his) perception that (his) supervisors ... condoned fraud against the government by `watering down' reports" and by reporting false claims not as such, but as "unnecessary expenditures," "questioned costs," or "unsupported costs." (Fine Aff. ¶ 5).

While working for the DOE's Inspector General, the Relator was peripherally involved in the audits of the MK-F and ICC cost claims. After retiring, he filed this qui tam action under the FCA in November of 1991, alleging that Defendants made false claims against the federal government through their contract to remediate the Lakeview UMTRA site.

II. THE FALSE CLAIMS ACT

The False Claims Act is a tool for combatting fraud perpetrated against the United States Government. S.Rep. No. 345, 99th Cong., 2d Sess. 4 1986, reprinted in 1986 U.S.C.C.A.N. 5266, 5274 (hereinafter "S.Rep."). It was enacted during the Civil War at the behest of President Abraham Lincoln to control fraud in defense contracts. Erickson v. Am Inst. of Bio. Sciences, 716 F.Supp. 908, 915 (E.D.Va.1989). The original Act made use of the ancient concept of qui tam actions, allowing private citizens with knowledge of fraud to sue the perpetrators of the fraud on behalf of the government. Successful relators recovered 50 percent of the awarded damages under the 1863 Act, and the government received the other half. Such was the state of the FCA for the next 80 years.

During World War II, several qui tam actions were brought by relators who had no independent or personal knowledge of the fraud which they were alleging, but apparently based their actions on information obtained from criminal indictments brought by the government. Such actions were labeled "parasitic" or "copy-cat" suits. The Supreme Court addressed the legitimacy of such suits in United States ex rel. Marcus v. Hess, 317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443 (1943). The Court held that such actions were not barred by the statute and that qui tam actions may be filed by anyone, regardless of the source of the information forming the basis of the suit. Id. at 540-48, 63 S.Ct. at 382-86. The ruling in Hess led Congress to amend the qui tam provisions of the FCA. The 1943 amendments barred qui tam actions based on information which the Government possessed, regardless of whether the Government was actually utilizing the information to prosecute fraud. S.Rep. at 5277.

During the late 1970s and early 1980s, incidents of fraud in government contracts once again became prevalent. A 1981 General Accounting Office study reported that "most fraud goes undetected, and of the fraud that is detected, ... the Government prosecutes and recovers its money in only a small percentage of cases." S.Rep. at 5267 (quotation omitted). In 1978, Congress passed the Inspector General Act ("IGA") to combat fraud in government contracts and within government agencies and departments. The IGA created independent IG offices within government departments. These offices are charged with monitoring, investigating, and reporting fraud. See United States ex rel. Fine v. Univ. of Cal., 821 F.Supp. 1356, 1361 (N.D.Cal.1993).

Even after passage of the IGA, Congress felt that there existed "serious roadblocks to obtaining information as well as weaknesses in both investigative and litigative tools" for prosecuting fraud. S.Rep. at 5269. In an attempt to remedy this perceived problem, Congress amended the False Claims Act in 1986 by expanding the scope of qui tam actions. The 1986 amendments sought to strike a balance between, on the one hand, encouraging people to come forward with information regarding fraud, and on the other, preventing parasitic lawsuits. The amendments replaced the general jurisdictional bar on qui tam actions based on information in the possession of the government with a more specific and less restrictive set of jurisdictional bars. The amended FCA now prohibits courts from asserting jurisdiction over the subject matter of qui tam actions which are:

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.

31 U.S.C. § 3730(e)(4)(A) (emphasis added). 31 U.S.C. § 3730(e)(4)(B) defines the phrase "original source" as "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."

III. ANALYSIS

A. WHETHER INSPECTOR GENERAL EMPLOYEES ARE PER SE BARRED FROM BRINGING QUI TAM ACTIONS UNDER THE FCA

The FCA states that "a person may bring a civil action," 31 U.S.C. § 3730(b)(1), under its provisions. This section has been consistently interpreted to include government employees, so long as they were not specifically barred by other provisions of the Act. United States ex rel. Williams v. NEC Corp., 931 F.2d 1493, 1501 (11th Cir.1991); Erickson v. Am. Inst. of Bio. Sciences, 716 F.Supp. 908, 912-18 (E.D.Va.1989).

Limited caselaw exists on the more specific issue of whether IG employees should be prohibited from bringing qui tam actions. The District Court for the Southern District of Florida refused to prohibit a former IG employee from bringing a qui tam action based on information he had obtained as an IG...