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U.S. EX REL MERENA v. SMITHKLINE BEECHAM CORP.

August 31, 2000

UNITED STATES OF AMERICA, EX REL. ROBERT J. MERENA, PLAINTIFF,
V.
SMITHKLINE BEECHAM CORPORATION, SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC., DEFENDANTS. UNITED STATES OF AMERICA, EX REL. GLENN GROSSENBACHER AND CHARLES W. ROBINSON, JR., PLAINTIFFS, V. SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC., DEFENDANT. UNITED STATES OF AMERICA, EX REL. KEVIN J. SPEAR, THE BERKELEY COMMUNITY CIVIL ACTION LAW CENTER, JACK DOWDEN, PLAINTIFFS, V. SMITHKLINE BEECHAM LABORATORIES, INC., DEFENDANT.



The opinion of the court was delivered by: VanARTSDALEN, Senior District Judge.

OPINION AND ORDER

The case is now ripe for final resolution by the District Court in compliance with the guidelines provided by the Court of Appeals. The parties essentially agree as to the main issues to be decided by the district court on the remand. The amount to be paid to the qui tam plaintiffs (hereafter usually referred to as the relators) will in large part be dependent upon whether any relator was an "original source" of the information on which the allegations of the "automated chemistry" claims were based that all of the relators in the above three civil actions have agreed among themselves as to how they will share in whatever qul tam award or awards are made in this proceeding. that were included in the overall settlement negotiated between the government and the defendants. In my original decision I ruled that the separate claims asserted by the qui tam relators could not be allocated as to any dollar amounts out of the total settlement negotiated between the government and the defendants. The Court of Appeals concluded that "the relators' share of the proceeds must be based on a claim-by-claim analysis" and that my conclusion that there was "no evidence" upon which to determine the percentage of the settlement attributable to the automated chemistry claims was "clearly erroneous."

Fortunately, the parties now agree that the proper amount to be allocated to the "automated chemistry claims," including interest, should be $241,281,206. out of the total settlement of approximately $334,000,000, including interest, recovered by the government on behalf of itself and various governmental agencies and also on behalf of certain claims asserted by several state governments.*fn2 The "automated chemistry claims" remain in dispute as to whether any relator is entitled to any portion or share of those proceeds and, if so, the percentage of those proceeds that should be paid to any relator or relators.

The Court of Appeals also ruled that it was beyond dispute that the "relators' automated chemistry claims were `based upon' a public disclosure" as defined in Section 3730(e)(4)(A) of the False Claims Act, 31 U.S.C. § 3729 et seq. and that none of the relators could recover any of the settlement proceeds based on those claims "unless they qualify as original sources of information under section (e)(4)(B)." United States ex rel. Merena v. SmithKline Beecham Corporation, 205 F.3d 97, 107 (3d Cir. 2000). Consequently the major issue for determination is whether any relator, and if so, which one or ones, was or were an "original source" or "original sources" of the information on which the allegations as to the automated chemistry claims were based. The automated chemistry claims, as agreed by the parties, constituted approximately $241,280,000 of the total amount of the settlement.

I conclude that relator Robert J. Merena was an "original source" who had, in the words of the statute (31 U.S.C. § 3730 (e)(4)(B)) "direct and independent knowledge of the information on which the allegations [of the automated chemistry claims] were based" and that he "voluntarily provided the information to the Government before filing" the qui tram action. I further conclude that the relators in Civil Action 95-6953 (the Grossenbacher and Robinson relators) are barred from a qui tam share primarily because of the so-called "first to file" rule of 31 U.S.C. § 3730 (b)(5) that provides "[w]hen 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." [Underlining added].

The underlying question as to whether relator Robert J. Merena was an "original source" requires extensive analysis. Section 3730(e)(4) is the key section. It provides as follows:

(A) 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.
(B) For purposes of this paragraph, "original source" means 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.

There are relatively few circuit court cases that have focused squarely on whom or what is "an original source." In part, this may be due to the seemingly expansive interpretation that some courts, including the Third Circuit Court of Appeals, have given to the phrase and meaning of "an action . . . 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." Because of the interpretations that some courts have placed on the above quoted "based upon" section of the statute, it appears that in most litigated circumstances, where there has been a public disclosure of one of the specified types, qui tam relators have been foreclosed from receiving any share of the proceeds. Under some court decisions, government counsel could plausibly argue that no qui tam relator could ever recover a share in the proceeds when there has been a statutorily specified type of public disclosure that occurs before the filing of a qui tam action, or, alternatively, at least unless the relator was the source of the information bringing about the public disclosure. This appears to be the mainstay of the government's argument that the relators are entitled to no share in the automated chemistry claims.

The most recent case from the Third Circuit, prior to the instant case, was United States, ex rel. Mistick v. Housing Authority of the City of Pittsburgh, 186 F.3d 376 (3d Cir. 1999). That case focused primarily on what constituted an action "based upon" the specified types of public disclosures; more specifically, whether a governmental response to a Freedom of Information Request is a public disclosure for purposes of interpreting the statute. The panel majority, after thoroughly reviewing the case law in the Third Circuit and the other Circuits concluded that:

We thus hold that a qui tam action is "based upon" a qualifying disclosure if the disclosure sets out either the allegations advanced in the qui tam action or all of the essential elements of the qui tam action's claims.

Id. at 388. Becker, Chief Judge, in a thorough review of the existing case law, dissented. Id. 389-402.

The Court of Appeals in the case presently before the Court has unequivocally ruled that the allegations in the qui tam actions were "based upon" a public disclosure of the type specified in Section 3730(e)(4) by stating:

It is beyond dispute that, under our circuit's interpretation of Section 3730(e)(4) in Mistick, 186 F.3d at 385-89, the relators' automated chemistry claims were "based upon" a public disclosure specified in that provision. See Joint App. at 1432-1441, 1442-1450, 1451-1457, 1470-1473; 1492-1498. As we explained above, relators who bring such a claim cannot recover unless they qualify as original sources of information under section (e)(4)(B).

Consequently, it is neither necessary nor appropriate for purposes of the present decision, to engage in any discussion of whether the allegations of the qui tam complaints of the relators, Merena and/or Grossenbacher-Robinson, were based upon a prior public disclosure. I believe, however, that much of the difficulty in properly interpreting the "original source" exception stems from the interrelation between an action "based upon the public disclosure of allegations or transactions" and the alleged original source's "direct and independent knowledge of the information on which the allegations [presumably the allegations of the qui tam complaints filed in this case] are based." Also, under case law in this circuit and a majority of the Courts of Appeals, an action can be "based upon" a public disclosure, even though the relator does not rely upon or derive any information or in any way utilize a public disclosure in preparing the qui tam complaint or providing the requisite information to the government, and even if the relator is completely unaware of any prior public disclosure. See: e.g., Mistick, 186 F.3d 376, at 386 (". . . the relator's independent knowledge of the [publicly disclosed] information is irrelevant.").

The critical issue, which must be decided in this case, depends upon a correct interpretation of the "original source" exception under subsection (B) of § 3730(e)(4).

In Mistick the panel majority determined that relator Mistick was not an "original source" because Mistick "did not have `direct and independent knowledge' of the most critical elements of its claims; viz., that the Authority had made the alleged misrepresentations to HUD regarding its knowledge about Glid-Wall's unsuitability as a lead-based paint encapsulant at the time of the original specifications." Id. 388. The Court then cited from United States ex rel. Stinson, et. al. v. Prudential Insurance Company, 944 F.2d 1149, at 1160 (3d Cir. 1991):

[A] relator who would not have learned of the information absent public disclosure [does] not have "independent" information within the statutory definition of original source.

The Stinson panel (Scirica, dissenting) noted that the statutory definition of "original source" is "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" Id. 1160.*fn4 The Court emphasized the significance of the conjunctive of "direct and independent" knowledge.

In this case, even though the Court of Appeals has ruled that under controlling case law, relators' qui tam actions were based upon publicly disclosed information, the record seems clear that the allegations contained in each of the relator's qui tam complaints, including all of the allegations as to the automated chemistry claims were prepared by the relators without reference to or reliance upon any public disclosure of any type or kind. Mr. Merena and Dr. Robinson each had direct and independent knowledge of the information on which the allegations of their respective qui tam complaints were based, even though, as the Court of Appeals has ruled, "the relators' automated chemistry claims were `based upon' a public disclosure". United States ex rel. Merena v. SmithKline Beecham Corp., et. al., 205 F.3d 97, 107 (3d Cir. 2000). Clearly, under Table A that the Court of Appeals included in its decision, an "original source" is, under Section 3730(e)(4)(B), "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" the qui tam action. Such a qui tam relator plaintiff qualifies as an original source under the statute, notwithstanding that the action is "based upon" a public disclosure.

Robert Merena, was a former employee of the defendant who had personal knowledge of the methods by which the defendant allegedly manipulated the billings to the government for various automated chemistry tests, by having series of laboratory tests that were ordered by doctors to be performed as a single series of tests later split apart into several laboratory tests and billed as separate tests for purposes of increasing the billings to various government agencies. Mr. Merena was what the cases and congressional history of the statute describe as the paradigmatic "original source," a "whistleblowing insider" employee. Stinson, 944 F.2d 1149 at 1161. So also was Dr. Charles Robinson, Jr., whose claims included splitting apart or unbundling certain tests from a standardized series of tests about which, at least as to some of the specific split billings, there may have been no prior public disclosures, either by the government or the news media, and some of the practices may have been unknown to the government at the time of relator's disclosure to the government.

The government does not contend or make any argument that either relator Robinson or Merena lacked direct and independent knowledge of the information on which their respective complaints were based. See transcript of hearing of August 9, 2000, page 187. The government's focus of its main argument that none of the relators can be an original source is founded on the proposition that "a relator must come forward with his `voluntary disclosure to the government' before the public disclosure of the allegations and transactions involved in his complaint." United States Brief on Remand, page 26. The statute makes no such requirement by its direct wording. The statute merely requires that a relator, in order to qualify as an "original source", have direct and independent knowledge of the information on which the allegations are based and have "voluntarily provided the information to the Government before filing an action under this section." 31 U.S.C. § 3730 (e)(4)(B). The statute by its express wording, at least, makes no other temporal requirement as to when the information must be provided to the government. Had the statute intended an additional requirement that the voluntary disclosure occur before there is any public disclosure, the statute could easily have so stated quite plainly and simply.*fn5

The government makes no argument that the relators lacked direct and independent knowledge of the information on which the allegations in their respective qui tam actions are based or that they failed to provide that information to the government before filing their complaints. Instead, the government argues that statute has the additional requirement that the relators provide the information to the government before any public disclosure by any entity. The government contends that this requirement has been adopted by four Circuit Courts of Appeal.

The Second and the Ninth Circuit Courts of Appeal have specifically included a requirement that where there has been a public disclosure, the relator must be the source of the information to the entity that makes the public disclosure, in order to qualify under the "original source" exception. Those cases are: United States ex rel. Dick v. Long Island Lighting Co., 912 F.2d 13 (2d Cir. 1990) and United States ex rel. Wang v. FMC Corp., 975 F.2d 1412 (9th Cir. 1992). Those cases do not expressly require, as the government apparently contends, that relators provide the information to the government before there is a public disclosure. Rather, they require that the relator provide the information to the entity that makes the public disclosure.

The Sixth Circuit in United States ex rel. McKenzie v. Bell South Telecommunications, 123 F.3d 935 (6th Cir. 1997), noted that the Circuit Courts of Appeal have taken several different approaches to the interpretation of the meaning of the term "original source" (Id. at 941). After reviewing the cases, the Sixth Circuit concluded "that, to become an original source, a relator must inform the government of the alleged fraud before the information has been publicly disclosed," but need not be the source of the publicly disclosed information. (Id. 942-943). The Court explained:

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 addition, the relator must provide the government with the information prior to any public disclosure. There is no additional requirement that the relator be responsible for providing the information to the entity that publicly disclosed the allegation of fraud as long as the relator provides the information to the government prior to any public disclosure.

Id. at 943. In effect the Sixth Circuit rule would preclude a relator from any qui tam award if the relator brings suit after there has been a public disclosure, unless the relator provides the information to the government before there has been any public disclosure by any entity.

The District of Columbia Circuit held in United States ex rel. Findley v. FPC-Boron Employees' Club, 105 F.3d 675 (D.C.Cir. 1997), cert. denied, 522 U.S. 865, 118 S.Ct. 172, 139 L.Ed.2d 114 (1997) that if a relator learns of fraud from a public disclosure, the relator cannot have independent knowledge of the information on which the allegations are based, and therefore cannot be an "original source." That court further held that the information must be provided to the government by the "original source"-relator prior to any public disclosure, but the relator need not be the party providing the information to the entity that makes the public disclosure. Id. at 690.

The Fourth Circuit Court of Appeals has flatly rejected the Second and Ninth Circuits' interpretation that the relator must be the party that provides the information to the entity that makes the public disclosure to qualify as an original source. United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339 (4th Cir. 1994), cert. ...


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