Current Issues in Qui Tam Litigation in the Energy Industry. Michael L. Beatty BEATTY & WOZNIAK, P.C.

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1 Current Issues in Qui Tam Litigation in the Energy Industry Michael L. Beatty BEATTY & WOZNIAK, P.C. March 10, 2006

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3 What is the False Claim Act? A False Claim Act case (or qui tam action) allows a private individual to bring a civil action where a fraud has been committed against the Government. 3

4 Qui Tam Energy Cases U.S. ex rel. Johnson v. Shell Oil Co., No. 9:96-CV-66 (E.D. Tex) ($400 million settlement against 18 major oil producers relating to oil valuation) U.S. ex rel. Wright v. AGIP Petroleum, No. 03-CV-264 (E.D. Tex) (claim against gas producers for undervaluation of natural gas) In re Natural Gas Royalties Qui Tam Litigation, MDL No (D.Wyo) (claim against gas producers and pipelines for undermeasurement of natural gas) 4

5 Relator Status [I]n order to be a proper relator under the FCA, the relator (1) must provide the government with a written disclosure of material evidence and information relating to the alleged fraud, 31 U.S.C. 3730(b)(2); (2) may only assert allegations that have not been publicly disclosed (or for which the relator is an original source), 31 U.S.C. 3730(e)(4); and (3) must be the first to file an action complying with the following requirements, 31 U.S.C. 3730(b)(5). 5

6 3730(b)(2) A copy of the complaint and written disclosure of substantially all material evidence and information the person possesses shall be served on the government pursuant to Rule 4(d)(4) of the Federal Rules of Civil Procedure. 6

7 Woodard Decision U.S. ex rel. Woodard v. Country View Care Center, Inc., 797 F.2d 888 (10 th Cir. 1986) 7

8 Sufficient Disclosure Sufficient disclosure includes a written submission containing: A description of the program defrauded. An identification of the defendant. The nature and operation of the fraud. The nature of the physical evidence establishing the false claim. 8

9 Disclosure in Woodard The evidence supporting the allegations in the complaint includes 1) copies of the cost reports, 2) microfilm prints of remittance advices, 3) copies of letters sent by Social Services advising of rate calculations for Country View, 4) microfilm prints of original patient claim forms submitted by defendants and 5) report No. LD-40- R10-1 nursing home paid claims for service date by process date. 9

10 Kennard Decision U.S. ex rel. Kennard v. Construction Resources, Inc., 363 F.3d 1039 (10th Cir. 2004) stated: 3730(e)(4) does not contain an exception for complying with the mandatory jurisdictional requirements of 3730(b)(2) 10

11 (b)(2) and the United States DOJ BE SENSITIVE TO THE CONCERNS OF THE DOJ. 11

12 3730(e)(4) 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. 12

13 Kennard Four-Step Inquiry (1) whether the alleged public disclosure contains allegations or transactions from one of the listed sources; (2) whether the alleged disclosure has been made public within the meaning of the False Claims Act; (3) whether the relator s complaint is based upon this public disclosure; and, if so, (4) whether the relator qualifies as an original source. 13

14 Original Source Analysis Section 3730(e)(4) operates to satisfy the dual goals of avoidance of parasitism and encouragement of legitimate citizen enforcement actions. United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 651 (D.C. Cir. 1994). Consistent with these purposes, we believe the threshold based upon analysis is intended to be a quick trigger for the more exacting original source analysis. 14

15 Kennard Four-Step Inquiry (1) whether the alleged public disclosure contains allegations or transactions from one of the listed sources; (2) whether the alleged disclosure has been made public within the meaning of the False Claims Act; (3) whether the relator s complaint is based upon this public disclosure; and, if so, (4) whether the relator qualifies as an original source. 15

16 Definition of Original Source An individual that 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. 16

17 10 th Circuit Cases Interpreting Original Source U.S. ex rel. Kennard v. Construction Resources, Inc., 363 F.3d 1039 (10th Cir. 2004) Grynberg v. Praxair, 369 F.3d 1038 (10th Cir. 2004) 17

18 3730(b)(5) First to File When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action. 18

19 LaCorte Decision U.S. ex rel. LaCorte v. Smithkline Beecham, 149 F.3d 227 (3d Cir. 1998): A later case need not rest on precisely the same facets as a previous claim to fun afoul of this statutory bar. Rather, if a later allegation states all the essential facts of a previously-filed claim, the two are related and section 3730(b)(5) bars the later claim, even if that claim incorporates somewhat different details. 19

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21 Conclusion THE KEY IS -- WHY SHOULD A SELFISH GOVERNMENT PAY A BOUNTY? 21