United States Court of Appeals Fifth Circuit F I L E D REVISED AUGUST 18, 2003 June 24, 2003
Charles R. Fulbruge III IN THE UNITED STATES COURT OF APPEALS Clerk
FOR THE FIFTH CIRCUIT
_____________________
No. 02-40504 _____________________
UNITED STATES OF AMERICA, ex rel, PATRICIA LAIRD; ET AL
Plaintiffs
UNITED STATES OF AMERICA, ex rel, JAMES MAYFIELD
Plaintiff - Appellant
v.
LOCKHEED MARTIN ENGINEERING AND SCIENCE SERVICES CO
Defendant - Appellee
_________________________________________________________________
Appeal from the United States District Court for the Southern District of Texas
_________________________________________________________________
Before KING, Chief Judge, and REAVLEY and STEWART, Circuit Judges.
KING, Chief Judge:
James Mayfield brought a qui tam action under the False Claims
Act, 31 U.S.C. § 3729 (2000). On a motion for summary judgment,
the district court concluded that (1) Mayfield was barred by the
doctrine of res judicata from bringing the majority of his claims
against Lockheed, and (2) the court lacked subject matter
1 jurisdiction pursuant to the “public disclosure” provisions of the
False Claims Act to consider the rest of Mayfield’s claims against
Lockheed.
In determining that Mayfield did not qualify as an “original
source” of the information publicly disclosed in his prior state
court lawsuit, the district court aligned itself with a minority of
the circuits interpreting the original source exception. As a
matter of first impression for this court, we choose instead to
follow the majority interpretation. We thus vacate the judgment of
the district court and remand for findings under this test. We
further hold that Mayfield’s prior state court lawsuit did not bar
him from bringing the present claims under the False Claims Act.
I.
STATEMENT OF THE FACTS AND PROCEDURAL HISTORY
From November 1989 until his termination in March 1995, James
Mayfield was employed with Lockheed Martin Engineering & Sciences
Company (“Lockheed”). From January 1994 until this termination,
Mayfield worked with Lockheed as its project specialist and was
responsible for, among other things, overseeing the contents,
preparation, execution and delivery of National Aeronautics and
Space Administration (“NASA”) Form 533 reports.
Pursuant to the Engineering, Test and Analysis Contract (“ETA
Contract”) between Lockheed and NASA, Lockheed was required to file
one version of the NASA Form 533 report – the 533M report – with
2 NASA on a monthly basis and another version – the 533Q report –
with NASA on a quarterly basis. Essentially, the NASA Form 533
reports provided a basis for reporting and evaluating Lockheed’s
costs and expenses under the ETA Contract. The ETA Contract
explicitly provided that payment of fees to Lockheed under the
contract was contingent upon compliance with contractual provisions
controlling Lockheed’s reporting of accurate cost overruns and cost
at completion figures.
A. The State Court Action
On February 17, 1995, Mayfield filed a wrongful discharge suit
in state court, alleging that Lockheed wrongfully terminated his
employment in retaliation for internally inquiring into whether an
act he was required to perform was illegal.
As alleged in Mayfield’s first amended petition, in December
1994, Mayfield became aware (through his supervisor, Ben Carroll)
that Lockheed was knowingly failing to report excessive costs and
anticipated cost overruns under the ETA Contract as required by the
compliance provisions of the contract. After Carroll told Mayfield
that the budgets being used to complete the NASA Form 533 reports
for NASA understated the future costs of operations, Mayfield began
to inquire into the legality of this conduct. Mayfield involved
more of his supervisors and management level employees in the
matter, but, as alleged, soon became “the victim of blatant
retaliation.”
3 In August 1996, the state district court granted summary
judgment in favor of Lockheed. Final judgment against Mayfield was
subsequently affirmed by the state court of appeals. See Mayfield
v. Lockheed Eng’g & Scis. Co., 970 S.W.2d 185, 187-88 (Tex. App. –
Houston [14th Dist.] 1998, pet. denied) (“Mayfield I”).
B. The Federal Action
On April 24, 2000, Mayfield filed a second suit against
Lockheed in federal court pursuant to the qui tam provisions of the
False Claims Act, 31 U.S.C. §§ 3729-33 (“FCA”).1
Mayfield alleged in his first amended complaint that Lockheed
knowingly failed to report excessive costs and anticipated cost
overruns as required by the compliance provisions of the ETA
Contract and, indeed, knew that it could not perform in accordance
with the costs specified in the initial bid to NASA for the ETA
Contract but knowingly submitted a false bid for the contract
anyway.
On February 13, 2002, the district court granted Lockheed’s
motion for summary judgment. United States ex rel. Mayfield v.
Lockheed Martin Eng’g & Scis. Co., 186 F. Supp. 2d 711, 713 (S.D.
Tex. 2002) (“Mayfield II”). It held that the doctrine of res
1 In accordance with 31 U.S.C. § 3730(b)(2), Mayfield filed his complaint under seal and served a copy on the United States Department of Justice. On February 22, 2001, the Department of Justice notified the district court of its decision to decline to intervene in the case; Mayfield thereafter proceeded as the qui tam relator.
4 judicata precluded litigation of Mayfield’s FCA claims to the
extent they were based on the conduct complained of in his state
court action. Id. at 715. It further held that although Mayfield
was not barred by res judicata from relitigating any claims arising
out of conduct not complained of in his prior lawsuit, the court
lacked subject matter jurisdiction over these claims because
Mayfield was not the “original source” with respect to any
allegedly wrongful conduct occurring after the filing of his prior
lawsuit.
Mayfield timely filed a notice of appeal, requesting review of
both aspects of this final judgment.
II.
STANDARD OF REVIEW
By its terms, the “public disclosure” bar is jurisdictional.
Other circuit courts have specifically held that “[i]n a qui tam
suit brought under the FCA, the jurisdictional issue of ‘public
disclosure’ clearly arises out of the same statute that creates the
cause of action . . . Thus, a challenge under the FCA
jurisdictional bar is necessarily intertwined with the merits” and
should be resolved pursuant to either Federal Rule of Civil
Procedure 12(b)(6) or 56. See, e.g., United States ex rel.
Ramseyer v. Century Healthcare Corp., 90 F.3d 1514, 1518 (10th Cir.
1996). While our court has not addressed this specific
jurisdictional point, we have previously stated that “[t]he
5 questions of subject matter jurisdiction and the merits will
normally be considered intertwined where the statute provides both
the basis of federal court subject matter jurisdiction and the
cause of action.” Clark v. Tarrant Cty., 798 F.2d 736, 742 (5th
Cir. 1986); see also Eubanks v. McCotter, 802 F.2d 790, 792-93 (5th
Cir. 1986) (“When the basis of federal jurisdiction is intertwined
with the plaintiff’s federal cause of action, the court should
assume jurisdiction over the case and decide the case on the
merits.”). We see this case as presenting one such instance where
questions of subject matter jurisdiction and the merits are
intertwined because “the defendant’s challenge to the court’s
jurisdiction is also a challenge to the existence of a federal
cause of action.” Williamson v. Tucker, 645 F.2d 404, 415-16 (5th
Cir. 1981) (citing Bell v. Hood, 327 U.S. 678 (1946)). The proper
course of action for the district court was thus “to find that
jurisdiction exist[ed] and deal with the merits of the case.” Id.
at 415.
The district court basically followed this procedure here. It
styled Lockheed’s challenge to the court’s subject matter
jurisdiction as a summary judgment motion and, presumably, utilized
this standard. However, instead of first considering the “public
disclosure” bar question (which goes to the subject matter
jurisdiction of the court), it first considered Lockheed’s
affirmative defense of res judicata. We believe the jurisdictional
6 bar should have been considered by the district court before it
moved to the merits of Lockheed’s affirmative defense. United
States ex rel. Fed. Recovery Servs., Inc. v. Crescent City E.M.S.,
72 F.3d 447, 448 (5th Cir. 1995) (“We are persuaded that . . . the
district court never had jurisdiction over [the action.]”); United
States ex rel. Minn. Ass’n of Nurse Anesthetists v. Allina Health
Sys. Corp., 276 F.3d 1032, 1040 (8th Cir. 2002) (stating, in a qui
tam case where information was allegedly publicly disclosed, that
“[a]t the threshold, we must decide whether we have subject-matter
jurisdiction over this case”). We therefore begin our review by
addressing the FCA’s “public disclosure” bar, found at 31 U.S.C.
§ 3730(b)(4), and review the district court’s grant of summary
judgment under a de novo standard of review, using the same
standard utilized by the district court. See Kerr v. Lyford, 17
F.3d 330, 336 (5th Cir. 1999) (holding that, under a Rule 56
standard, the record must be viewed in the light most favorable to
the non-movant).
III.
ANALYSIS OF THE PUBLIC DISCLOSURE BAR
A. Presentation of the Disputed Issue – Whether Mayfield is the “Original Source” of Information
As we have discussed the procedure and the historical
underpinnings of the qui tam provisions of the FCA in prior
opinions, we need not repeat them here. See Riley v. St. Luke’s
Episcopal Hosp., 252 F.3d 749, 752-53 (5th Cir. 2001) (en banc);
7 Searcy v. Philips Elec. N. Am. Corp., 117 F.3d 154, 160 (5th Cir.
1997). Suffice it to say that in certain circumstances, suits by
private parties on behalf of the United States against anyone
submitting a false claim to the government are permitted. Hughes
Aircraft Co. v. United States ex rel. Schumer, 520 U.S. 939, 941
(1997).
The FCA, the 1863 Civil War statute under which these suits
are permitted, has been amended only twice, once in 1943 and, more
recently, in 1986 by the Grassley Amendments. Id. In 1943,
interpreting the qui tam provisions as then written, the Supreme
Court stated that a private plaintiff might bring a qui tam action
even though his knowledge of fraud was gained second-hand from a
government criminal indictment. See United States ex rel. Marcus
v. Hess, 317 U.S. 537 (1943). In response, Congress amended the
FCA to bar a court’s jurisdiction over qui tam suits that were
“based on evidence or information the Government had when the
action was brought.” 31 U.S.C. § 3730(b)(4) (1982 ed.)
(superceded). However, this amendment led to unintended results as
it deprived potential relators who had themselves given valuable
information to the government before filing their qui tam action of
an ability to sue under the FCA. See, e.g., United States ex rel.
Wisconsin v. Dean, 729 F.2d 1100, 1106 (7th Cir. 1984) (holding
that the district court had no jurisdiction over a qui tam action
brought by Wisconsin based on information of Medicaid fraud the
8 state had uncovered because the state had reported the Medicaid
fraud to the federal government before bringing suit).
In response, in 1986, Congress amended the Act (to its current
form). Specifically, it repealed the “government knowledge”
jurisdictional bar and replaced it with the “public disclosure”
bar. See United States ex rel. Rabushka v. Crane Co., 40 F.3d
1509, 1511 (8th Cir. 1994) (discussing the purpose behind the
repeal as an accommodation of both of the FCA’s goals of promoting
private citizen involvement in exposing fraud against the
government and preventing parasitic suits by opportunistic late-
comers who add nothing to the exposure of fraud).
Under § 3730(e)(4)(A), the jurisdictional provision for qui
tam actions under the FCA now provides that:
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.
31 U.S.C. § 3730(e)(4)(A) (2000). In the related subsection
immediately following this bar, the statute further defines an
“original source” as:
[A]n 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.
9 Id. § 3730(e)(4)(B).
In Federal Recovery Services, Inc., we drew from the plain
language of § 3730(e)(4) to set forth the three questions to be
asked in a § 3730 jurisdictional inquiry as: (1) whether there has
been a “public disclosure” of allegations or transactions,
(2) whether the qui tam action is “based upon” such publicly
disclosed allegations, and (3) if so, whether the relator is the
“original source” of the information. Fed. Recovery Servs., Inc.,
72 F.3d at 451.
Here, Mayfield does not dispute that Mayfield I served as a
“public disclosure” of the information alleged in Mayfield II, nor
does he challenge the finding that the allegations in this case are
“based upon” the information disclosed in Mayfield I.2 Instead,
2 Mayfield does generally argue that the jurisdictional bar is inapplicable here because he is the one who made the public disclosure in the first place. However, Federal Recovery Services discusses the public disclosure bar in the context of a case where the information was disclosed by individuals who filed an initial state court action before filing, as relators, their federal qui tam action in the name of their newly filed corporation. 72 F.3d at 448. Indeed, United States ex rel. Jones v. Horizon Healthcare Corp., 160 F.3d 326, 330 (6th Cir. 1998), cites to this Fifth Circuit case in rejecting a similar argument from a relator: “Because the public disclosure and the qui tam action in this case both came from Appellant, she argues that it is improper to consider the qui tam action ‘based upon’ the prior suit. Although Appellant’s argument has some intuitive appeal, several courts have rejected the contention” because the public disclosure bar is an express statutory bar to the subject matter jurisdiction of the courts to review a case based on information that has been publicly disclosed. Id. at 333 (citing Federal Recovery Servs., Inc., 72 F.3d at 447). We find this reasoning persuasive. To the extent Mayfield thus argues that relators involved in the initial public disclosure of information are not subject to the “public disclosure” bar, we reject the argument.
10 Mayfield contends that as the “original source” of the information,
he is saved from the jurisdictional bar. The question before us on
appeal thus turns on the statutory construction of the “original
source” exception.
B. The Parameters of the “Original Source” Exception
The statutory construction of the “original source” exception
is the subject of much disagreement amongst the courts of appeals
that have addressed it. The exception explicitly requires the
satisfaction of a two-part test: (1) the relator must demonstrate
that he or she has “direct and independent knowledge of the
information on which the allegations are based” and (2) the relator
must demonstrate that he or she has “voluntarily provided the
information to the Government before filing” his or her qui tam
action. 31 U.S.C. § 3730(e)(4)(B).
Here, the district court found that:
Mayfield clearly does not have direct knowledge of conduct occurring at Lockheed after he filed his state court action because he was laid off from Lockheed before that suit was filed. As such, Mayfield is not an “original source” with respect to any wrongful conduct occurring after the filing of his prior lawsuit.
Mayfield II, 186 F.Supp.2d at 715-16. As developed more fully
below, we do not read the “original source” exception to the
jurisdictional bar to require that a relator have “direct” and
“independent” knowledge of each false claim alleged in his
11 complaint to have been submitted by the defendant.3
A full understanding of the distinct definitions of “direct”
knowledge and “independent” knowledge in the “original source”
definition requires an analysis of the entire phrase “direct and
independent knowledge of the information on which the allegations
are based.” The courts of appeals are currently split regarding
whether the phrase “the information on which the allegations are
based” refers to information on which the allegations in the qui
tam relator’s complaint are based or information on which the
allegations in the public disclosure are based. The Fourth, Sixth,
Eighth and D.C. Circuits have read “information” in subsection (B)
of the “original source” definition in tandem with the term
“information” in subsection (A) of the “public disclosure” bar
immediately preceding the “original source” definition. This
reading logically leads them to conclude that “information” in
subsection (B) refers to the information on which the publicly
disclosed allegations are based rather than the information
contained in the relator’s qui tam complaint. See Minn. Ass’n of
Nurse Anesthetists, 276 F.3d at 1048 (“We have interpreted
‘independent knowledge’ to mean knowledge not derived from the
public disclosure. The independent knowledge requirement clearly
3 Our interpretation of the jurisdictional bar does not release the relator from the requirement that he plead all false claim allegations in his qui tam complaint with particularity as interpreted by our case law. See, e.g., United States ex rel. Russell v. Epic Healthcare Mgmt. Group, 193 F.3d 304, 308 (5th Cir. 1999) (discussing the particular pleading required under the FCA). Whether Mayfield has pled his qui tam fraud allegations with particularity is not the question before us on appeal. 12 serves the congressional goal of barring parasitic actions, but it
is worth noting that it does not bar actions based on old news, in
which the relator independently discovers information already known
to the public.”) (internal citations omitted); United States ex
rel. Grayson v. Advanced Mgmt. Tech. Inc., 221 F.3d 580, 583 (4th
Cir. 2000) (stating that the relators were not original sources of
information underlying the publicly disclosed allegations, not the
allegations in the qui tam complaint); United States ex rel.
Findley v. FPC-Boron Employees’ Club, 105 F.3d 675, 690 (D.C. Cir.
1997) (“[T]he allegations referred to in subparagraph (B) can only
mean those allegations publicly disclosed, since those are the only
allegations mentioned at all in section 3730(e)(4). Thus, an
‘original source’ is a relator with direct and independent
knowledge of ‘the information’ [i.e., any essential element of the
fraud transaction] on which the [publicly disclosed] allegations
are based.”) (internal citations omitted); United States ex rel.
McKenzie v. Bellsouth Tele., Inc., 123 F.3d 935, 943 (6th Cir.
1997) (“To qualify as an original source, the relator must have
direct and independent knowledge of the information on which the
publicly disclosed allegations are based.”).
In contrast, the Third, Ninth and Tenth Circuits have
construed “the information” in the phrase “the information on which
the allegations are based” to refer to the information contained in
the qui tam complaint filed by the relator rather than the
information contained in the public disclosure. See United States
ex rel. Hafter v. Spectrum Emergency Care, Inc., 190 F.3d 1156,
13 1162 (10th Cir. 1999) (“To establish original source status
knowledge, a qui tam plaintiff must allege specific facts – as
opposed to mere conclusions – showing exactly how and when he or
she obtained direct and independent knowledge of the fraudulent
acts alleged in the complaint and support those allegations with
competent proof.”) (emphasis added); United States ex rel. Mistick
v. Housing Auth. of the City of Pitts., 186 F.3d 376, 388-89 (3d.
Cir. 1999) (finding that the relator was not the “original source”
because he did not have “direct and independent knowledge” of the
most critical element of his claims in the qui tam complaint);
United States ex rel. Barajas v. Northrop Corp., 5 F.3d 407 (9th
Cir. 1993) (holding that an employee of a government subcontractor
had “direct and independent knowledge” of the allegations contained
in his qui tam complaint).
Based on the district court’s holding that it lacked
jurisdiction because Mayfield did not have “direct and independent
knowledge” of each separate NASA Form 533 submission claimed to
constitute a false claim in the Mayfield II complaint, the district
court apparently assumed the “direct and independent knowledge”
requirement was tied to the “information” contained in the qui tam
complaint rather than the “information” contained in the publicly
disclosed material. In so assuming, it, without citation, followed
the holdings of the Third, Ninth and Tenth Circuits. We disagree
with this interpretation of § 3730(e)(4)(B).
Looking at the “public disclosure” bar under (e)(4)(A) and the
“original source” definition under (e)(4)(B) together, it makes
14 sense that the first element of the “original source” exception is
satisfied if an individual has “direct and independent knowledge”
of the “information” on which the allegations in the public
disclosure are based. We see no logic in interpreting the word
“information” in subparagraph (A) to refer to information publicly
disclosed and then interpreting “information” in subparagraph (B)
– a subparagraph clearly intended to define a term identified in
subparagraph (A) – to refer to each false claim alleged in the
relator’s qui tam complaint. This construction fails to harmonize
the subparagraphs of § 3730(e)(4). See also Atl. Cleaners & Dyers,
Inc. v. United States, 286 U.S. 427, 433 (1932) (stating that
identical words used in different parts of the same statutory
section are intended to have the same meaning). As stated by Judge
Luttig in United States ex rel. Siller v. Becton Dickinson & Co.,
21 F.3d 1339, 1352 (4th Cir. 1994):
[T]he fact that sub-paragraph (B) refers to “the information on which the allegations are based” confirms that the only possible reference of the word “information” in sub-paragraph (B) is to the information publicly disclosed – the exact same reference of the word in sub-paragraph (A).
Id. at 1352 (emphasis added).
As further support that this is the construction intended by
Congress, we recognize that those courts which define “information”
to refer to allegations contained in the qui tam complaint have
difficulty distinguishing between the terms “direct” and
“independent” – two discrete and necessary concepts under the
“original source” definition. See United States ex rel. Dick v.
15 Long Island Lighting Co., 912 F.2d 13, 16 (2d Cir. 1990)
(discussing the significance of the conjunction “and” in “direct
and independent” knowledge); see also McKenzie, 123 F.3d at 941
(“In construing the term ‘original source’ other courts have
‘impose[d] a conjunctive requirement – direct and independent – on
qui tam plaintiffs.’”) (quoting United States ex rel. Springfield
Terminal Ry. v. Quinn, 14 F.3d 645, 656 (D.C. Cir. 1994)). For
example, in Hafter, the Tenth Circuit defined “direct” knowledge to
mean “knowledge gained by the relator’s own efforts and not
acquired from the labors of others” and “independent” knowledge to
mean “knowledge not derivative of the information of others”.
Hafter, 190 F.3d at 1161. We fail to see a distinction between
these terms as so defined.
In contrast, those courts that define “information” to refer
to information publicly disclosed do not encounter as much
resistance in formulating distinct definitions for the two separate
terms “direct” and “independent.” See, e.g., Findley, 105 F.3d at
690 (“In order to be ‘direct,’ the information must be first-hand
knowledge. In order to be ‘independent,’ the information known by
the relator cannot depend or rely on public disclosures.”);
McKenzie, 123 F.3d at 941 (“The word ‘direct’ is usually
interpreted as ‘marked by absence of intervening agency,’ while
‘independent knowledge’ is not ‘dependent on public disclosure.’”)
(internal citation omitted); Minn. Ass’n of Nurse Anesthetists, 276
F.3d at 1048-49 (defining “direct” as “unmediated by anything but
the plaintiff’s own labor” and “independent” as “knowledge not
16 derived from the public disclosure”). The (we think incorrect)
construction of “information” as referring to allegations in the
qui tam complaint renders the term “independent” meaningless, which
we are bound not to do. See INS v. Phinpathya, 464 U.S. 183, 189
(1984); White v. Black, 190 F.3d 366, 368 (5th Cir. 1999). For
these reasons, we read the term “information” in subsection (B) of
the “original source” definition to refer to the information on
which the publicly disclosed allegations are based rather than the
information contained in the relator’s qui tam complaint.
As Mayfield is responsible for filing the publicly disclosed
information in Mayfield I, it is beyond dispute that dismissal on
the basis that his knowledge is not “independent” of the public
disclosure as that term is defined in § 3730(e)(4)(B) would have
been in error. However, we believe that remand is appropriate to
allow the district court an opportunity to make factual findings
regarding whether Mayfield also satisfies the “direct” knowledge
requirement based on the construction of the statute cited above.
To aid the district court in this endeavor, prudence dictates some
discussion of the “direct” knowledge requirement.
The courts of appeals have used varying formulations to define
the term “direct.” See, e.g., Minn. Ass’n of Nurse Anesthetists,
276 F.3d at 1048-49 (defining “direct” as “unmediated by anything
but the plaintiff’s own labor”); Hafter, 190 F.3d at 1161 (defining
“direct” as “knowledge gained by the relator’s own efforts and not
acquired from the labors of others”); United States ex rel.
Stinson, Lyons, Gerlin Bustamante, P.A. v. Prudential Ins. Co., 944
17 F.2d 1149, 1160 (3d Cir. 1991) (defining “direct” as “marked by
absence of an intervening agency, instrumentality or influence;
immediate”); Findley, 105 F.3d at 690 (defining “direct” as “first-
hand knowledge” of the information).
We interpret the term “direct” by its plain meaning as
knowledge derived from the source without interruption or gained by
the relator’s own efforts rather than learned second-hand through
the efforts of others. WEBSTER’S NEW INTERNATIONAL DICTIONARY 640 (3d ed.
1961). In so defining, we note that Congress plainly and
intentionally used the phrase “an original source” rather than “the
original source” to craft the savings clause. 31 U.S.C.
§ 3730(e)(4)(B). Thus, for a court in this circuit to have
jurisdiction pursuant to this exception, it is not charged with the
duty of finding “the” single one true whistleblower. See Stinson,
944 F.2d at 1154, 1161 (discussing the legislative history to the
1986 amendments as demonstrating a congressional intent to
encourage qui tam suits brought “by insiders, such as employees who
come across information of fraud in the course of their
employment”) (citing S. Rep. No. 345 at 4, 6, reprinted in 1986
U.S.S.C.A.N. 5269, 5271). Rather, it must look to the factual
subtleties of the case before it and attempt to strike a balance
between those individuals who, with no details regarding its
whereabouts, simply stumble upon a seemingly lucrative nugget and
those actually involved in the process of unearthing important
information about a false or fraudulent claim. Compare Minn. Ass’n
of Nurse Anesthetists, 276 F.3d at 1050 (finding that nurse
18 association had “direct” knowledge that anesthesiologists routinely
submitted fraudulent bills to Medicare for anesthesia procedures
because the nurses had personal knowledge of the defendants’
alleged false claims by virtue of communications with the
defendants themselves and had seen the hospital records containing
false claims), and United States ex rel. Stone v. Rockwell Int’l
Corp., 282 F.3d 787, 802 (10th Cir. 2002) (holding that the relator
satisfied the “direct” knowledge requirement even though he no
longer worked with the defendant when the faulty pondcrete blocks
were manufactured because he learned the facts underlying his claim
while looking at the plans for production), and United States ex
rel. Cooper v. Blue Cross & Blue Shield of Fla., Inc., 19 F.3d 562,
568 (11th Cir. 1994) (holding that a relator’s knowledge of an
alleged fraud by a Medicare secondary payor was “direct” because it
was acquired through “three years of [the relator’s] own claims
processing, research, and correspondence with members of Congress
and [the Health Care Financing Admin.]”), and Wang v. FMC Corp.,
975 F.2d 1412, 1417 (9th Cir. 1992) (holding that an engineer-
relator who had been called in to study a problem with a product
had “direct” knowledge because “he saw [the problem] with his own
eyes” and his knowledge was “unmediated by anything but [his] own
labor”), with Grayson, 221 F.3d at 583 (finding no jurisdiction to
entertain a qui tam action brought by relator attorneys who had
represented two unsuccessful bidders in protesting the award of an
FAA contract because they “at best verified” their clients’
information alleged in the publicly disclosed administrative
19 protest), and United States v. Alcan Elec. & Eng’g, Inc., 197 F.3d
1014, 1021 (9th Cir. 1999) (holding that a member of an electrical
workers’ union did not meet the “direct” knowledge element since
“he never participated in the negotiating, drafting, or
implementation” of relevant agreements, “does not allege that he
played any role in submitting false claims to the government,” and
simply heard second-hand (as a member of the union) that the
electrical contractors were submitting false claims to the
government).
We thus remand for the district court to make factual findings
regarding the “direct” knowledge requirement of the first element.
IV.
ANALYSIS OF THE CLAIM PRECLUSIVE EFFECT OF MAYFIELD I ON MAYFIELD II
In addition to finding that Mayfield did not qualify as an
“original source” of information regarding claims submitted by
Lockheed after he was terminated, the district court held that the
doctrine of res judicata (claim preclusion) barred Mayfield from
relitigating any claims arising out of conduct complained of in his
prior state court action. As stated, we see it beneficial to
remand this case for factual findings regarding the “direct”
knowledge requirement. However, in the interest of judicial
efficiency, we now address the district court’s conclusion
regarding Lockheed’s affirmative defense.
Assuming without deciding that the district court would find
subject matter jurisdiction present on remand, we disagree with the
20 district court’s determination that Mayfield I precludes Mayfield
from raising his qui tam claims in Mayfield II.
When a federal court is asked to give claim preclusive effect
to a state court judgment, the federal court must determine the
preclusiveness of that state court judgment according to the
principles of claim preclusion of the state from which the judgment
was rendered. See Semtek Int’l Inc. v. Lockheed Martin Corp., 531
U.S. 497, 508-09 (2001); Jones v. Sheehan, Young & Culp, P.C., 82
F.3d 1334, 1338 (5th Cir. 1996). Here, because a Texas state court
rendered the judgment in Mayfield I, we must defer to Texas’s law
on claim preclusion.
A. The Doctrine of Claim Preclusion under Texas Law
In Texas, “[r]es judicata or claim preclusion prevents the
relitigation of a claim or cause of action that has been finally
adjudicated, as well as related matters that, with the use of
diligence, should have been litigated in the prior suit.” Barr v.
Resolution Trust Corp., 837 S.W.2d 627, 628 (Tex. 1992). For a
judgment to have claim preclusive effect in a later action, the
proponent must demonstrate the existence of three elements:
(1) there was a prior final judgment on the merits by a court of
competent jurisdiction, (2) identity of the parties or those in
privity with them exists between the two actions, and (3) the
second action is based on the same claims as were raised or could
have been raised in the first action. Amstadt v. United States
Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996).
B. Application of the Factors
21 Here, Mayfield does not contest the satisfaction of the first
element – that a prior final judgment on the merits by a court of
competent jurisdiction was rendered. However, he maintains that
the district court erred in holding, in a footnote, that “Mayfield
and Lockheed are the only two parties before the Court” and that
because the government elected not to intervene, “the United States
is not a party to this action.” Mayfield II, 186 F. Supp. 2d at
714 n.1 (emphasis in original). He further contends that the
district court erred in holding that Mayfield I and Mayfield II are
based on the same claims as defined by Texas law.
(1) Identity of Parties
In Texas, the “‘identity of parties’ [element] requires that
both parties to the current litigation be parties to the prior
litigation or in privity with parties to the prior litigation.”
Jones, 82 F.3d at 1341. If a party’s interests are represented in
a prior action, the identity of parties element is satisfied.
Getty Oil Co. v. Ins. Co. of N. Am., 845 S.W.2d 794, 800 (Tex.
1992). This satisfaction is not defeated by a change in the
capacity in which an individual sues, Freeman v. Lester Coggins
Trucking, Inc., 771 F.2d 860, 863 (5th Cir. 1985), nor is it
defeated by the inclusion of additional parties to the second suit.
Jones, 82 F.3d at 1342-43.
The district court’s statement that the United States is not
a party in interest before the court is simply incorrect. As we
stated in Searcy, “the United States is a real party in interest
even if it does not control the False Claims Act suit.” Searcy,
22 117 F.3d at 156. Further, in Searcy, as well as in numerous other
cases, we detailed the mechanisms present in the qui tam framework
that enable the government to retain a tremendous amount of control
over a qui tam suit even when it chooses not to intervene. Id.;
see also Riley, 252 F.3d at 756 & n.10; Russell, 193 F.3d at 307.
To the extent the district court held that “the United States is
not a party to this action” such that the “identity of parties”
element is even at issue, it thus erred. As recognized by our case
law and the clear language of the statute, the suit is brought for
the government and on behalf of the government, which will
ultimately retain the lion’s share of the proceeds and retains the
unilateral power to dismiss the case at any time notwithstanding
the objections of Mayfield and regardless of its decision not to
intervene.
However, it would also be incorrect for us to state that
Mayfield is not a party in interest in both actions (Mayfield I
and Mayfield II). Where an FCA suit is initiated by a private
person, as here, the text of the statute explicitly states that
although the suit is “brought in the name of the Government,” the
action is brought “for the person and for the Government.” 31
U.S.C. § 3730(b)(1) (emphasis added); see also Russell, 193 F.3d at
306; United States ex rel. Foulds v. Tex. Tech Univ., 171 F.3d 279,
289 n.16 (5th Cir. 1999) (“Our own circuit precedent describes the
United States as ‘a’ real party in interest rather than ‘the’ real
party in interest.”); see also Vt. Agency of Natural Res. v. United
States ex rel. Stevens, 529 U.S. 765, 772-73 (2000) (stating that
23 “[t]he FCA can reasonably be regarded as effecting a partial
assignment of the Government’s damages claim” and that “the statute
gives the relator himself an interest in the lawsuit, and not
merely the right to retain a fee out of the recovery”) (emphasis in
original); cf. United States ex rel. Gebert v. Transport Admin.
Serv., 260 F.3d 909, 918 (8th Cir. 2001) (holding that a bankruptcy
settlement agreement and release between putative relators, co-
shareholders and a corporation precluded subsequent qui tam claims
by the putative relators against the co-shareholder and corporation
because the FCA effectuates a partial assignment of an interest
that should have been listed as a potential claim in Schedule B).
Mayfield brings this action on behalf of the government at his
own expense, 31 U.S.C. § 3730(f), by way of partial assignment that
enables him to recover up to 30 percent of the proceeds recovered
for the government. Stevens, 529 U.S. at 773. If the FCA claims
here are such that Mayfield should have (and ultimately could have)
exercised this assigned interest in Mayfield I – the inquiry
relevant to the third element of the claim preclusion test
discussed below – we find Mayfield’s interests were sufficiently
represented in Mayfield I to satisfy the “identity of parties”
element. This is not to say that another relator would be
precluded from bringing this suit on behalf of the United States.
It is to say that the identity of parties element as to Mayfield is
satisfied.
(2) The Same Cause of Action
For Mayfield I to preclude Mayfield from raising claims
24 against Lockheed in Mayfield II under Texas’s doctrine of claim
preclusion, Lockheed must additionally prove an identity of claims
between the two suits. To determine whether the same “claim” is
involved in two actions, Texas courts employ the modern
transactional test of the Restatement (Second) of Judgments, under
which a judgment in an earlier suit precludes a second action by
the parties and their privies not only on matters actually
litigated, but also on causes of action or defenses which arise out
of the same “subject matter” and which might have been litigated in
the first suit. Getty Oil, 845 S.W.2d at 798.
The critical issue in determining whether the two actions
arise out of the same “subject matter” is whether they are based on
the “same nucleus of operative fact.” Jones, 82 F.3d at 1342;
Getty Oil, 845 S.W.2d at 798. As stated by the Texas Supreme Court
in Barr, a transaction or claim is not equivalent to a sequence of
events. 837 S.W.2d at 631. Rather, the determination of whether
later causes of action are extinguished by an earlier action is to
be made pragmatically, giving weight to whether the facts alleged
are related in time, space, origin, or motivation, whether the
causes of action form a convenient trial unit, and whether their
treatment as a trial unit conforms to the parties’ expectations or
business understanding or usage. Id.; see also Flores v. Edinburg
Consol. Indep. Sch. Dist., 741 F.2d 773, 779 (5th Cir. 1984) (“A
different cause of action is not merely a different theory of
recovery; it should differ in ‘the theories of recovery, the
operative facts, and the measure of recovery.’”) (citing Dobbs v.
25 Navarro, 506 S.W.2d 671, 673 (Tex. Civ. App. – Houston [1st Dist.]
1974, no writ)).
While there is factual overlap between those facts alleged in
Mayfield I and those facts alleged in Mayfield II, we do not think
the wrongful termination claim brought by Mayfield in his
individual capacity in Mayfield I, and the FCA claims brought by
Mayfield in his capacity as a relator on behalf of the United
States here would form a convenient trial unit for purposes of
claim preclusion under Texas law. As demonstrated from the Texas
court of appeals’ opinion in Mayfield I, the subject matter of the
state court suit revolved around the central question whether a
certain exception to Texas’s doctrine of at-will employment should
be extended to situations where an employee is allegedly terminated
for inquiring into whether an act he is required to perform is
illegal and, if so, whether Mayfield was terminated for so
inquiring. Mayfield I, 970 S.W.2d at 187. The terms of the ETA
Contract between Lockheed and NASA and the facts related to the
origin and formation of this contract would have been of little
value to this inquiry; indeed, the contract itself is not even
mentioned in the Mayfield I opinion. Nor would evidence regarding
the intent of Mayfield to defraud the government have been helpful
to Mayfield’s state tort claims. In contrast, the centerpiece
evidence in Mayfield II involves the terms of the ETA Contract and
evidence enlightening whether Lockheed intended falsely or
fraudulently to submit the initial bid for the ETA contract and
later falsely or fraudulently to submit NASA Form 533 reports in
26 violation of the terms of this contract.
Further, as between Mayfield I and Mayfield II, the remedies
sought and the measure of recovery for Mayfield are completely
different. In Mayfield I, Mayfield sought general damages and lost
wages, as well as mental anguish and exemplary damages, all in his
personal capacity. In Mayfield II, Mayfield, as relator, sought
set statutory penalties under the FCA and pre- and post-judgment
interest. Evidence related to Mayfield’s job performance record,
qualifications, future earning capacity and personal damages have
absolutely nothing to do with proof necessary for the FCA claims
alleged in Mayfield II or for the damages sought. Moreover, as
stated, in qui tam actions, the largest portion of any recovery (at
least 70%) goes to the government, not Mayfield. Finally,
Mayfield’s motivation in bringing his wrongful discharge suit in
Mayfield I is different from his motivation for bringing a qui tam
suit in Mayfield II. In Mayfield I, he wished to be compensated or
made whole following what he saw as a wrongful discharge that was
personal. In contrast, in this case, Mayfield sues to recover from
Lockheed on behalf of the government and in the name of the
government for alleged fraud on the government through Lockheed’s
false submissions to NASA.
In sum, while the factual underpinnings of each suit are
certainly related, we do not see convenience in trying the two
cases together, especially given the procedural requirements
related to filing a qui tam case under seal in order to give the
government an opportunity to intervene, 31 U.S.C. § 3730(b)(1), and
27 the likely continued involvement of the government in the qui tam
suit. See id. § 3730(b)(4)(B). This case and the relation it has
to Mayfield’s state law claim for wrongful discharge in an at-will
employment state cannot easily be compared to those cases (cited by
Lockheed in support of its assertion that Mayfield I and Mayfield
II arise from the same subject matter) that involve relators
asserting both qui tam and retaliation claims under the retaliation
provisions of the FCA. See, e.g., Ragsdale v. Rubbermaid, Inc.,
193 F.3d 1235, 1240-41 (11th Cir. 1999); Hindo v. Univ. of Health
Scis., 65 F.3d 608, 614-15 (7th Cir. 1995).4 In contrast to these
cases, the FCA claims and the state tort claim cannot be naturally
grouped. Therefore, on remand, assuming the district court finds
that Mayfield satisfies the “direct” knowledge requirement, we
further hold that Mayfield’s qui tam claims are not extinguished by
the doctrine of claim preclusion.
CONCLUSION
We VACATE the judgment of the district court and REMAND for
further proceedings consistent with this opinion.
4 A close read of the Hindo opinion reveals support for Mayfield rather than Lockheed. There, the plaintiff medical professor first brought an unsuccessful state court suit for state retaliatory discharge against the defendant university. Hindo, 65 F.3d at 610. Later, he brought qui tam claims pursuant to the FCA (31 U.S.C. § 3729(a)) against the defendant university for fraudulently seeking reimbursement for salaries of radiology residents and, simultaneously, brought a retaliation claim also pursuant to the FCA (31 U.S.C. § 3730(h)) for threatening to terminate his tenure in retaliation for reporting the alleged fraud. Id. The Seventh Circuit dismissed only the retaliation claim as barred by the earlier state court suit. Id. at 614.