The opinion of the court was delivered by: VanARTSDALEN, Senior District Judge.
The primary issue to be decided in the present proceeding is the
amount, if any, that should be paid by the government to the qui tam
relators in Civil Actions 93-5974 and 95-6953.*fn1 On April 8, 1998, a
final judgment, accompanied by an opinion, was awarded in favor of the
relators in the sum of $42,312,802 in Civil actions 93-5974 and 95-6953.
United States ex rel. Merena v. SmithKline Beecham Corporation,
52 F. Supp.2d 420 (E.D.Pa. 1998). On appeal the United States Court of
Appeals for the Third Circuit, reversed by an opinion filed on February
29, 2000, that was amended by an "Order Amending Slip Opinion" filed on
April 21, 2000. A mandate was issued to the District Court on May 3,
2000. After a conference held with all interested counsel, it was agreed
that all of the remaining issues to be decided on the remand should be
resubmitted on briefs, without holding any additional evidentiary
hearing. The parties were, however, free to utilize any of the materials
previously entered into the record. The relators in their submissions have
requested that the court make numerous additional findings of fact.
Following the submission of briefs and answers and counter briefs, oral
argument was held in open court on August 9, 2000. The transcript of that
hearing was filed on or about August 22, 2000.
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.
Obviously, if that would follow, the Court of Appeals in this case,
would have had no reason to remand for a determination of whether any
relator was an "original source . . . of the information on which
the allegations [of the automated chemistry claims] are based" (section
3730(e)(4)(B).) In the present case, clearly neither relator was a
source, original nor otherwise, of any of the public disclosures that
occurred before the filing of the respective qui tam actions; that is,
the public disclosures of the government's ongoing investigation of the
alleged fraudulent billing practices of the major national medical
laboratories, including the SmithKline laboratories. Both the
investigation and public disclosures about the investigation began after
the successful prosecution and civil settlement of governmental claims of
fraud against National Health Laboratories (NHL) in December of 1992. No
relator has claimed credit for any of the public disclosures that
occurred prior to the filing of the respective qui tam actions, and there
is no evidence that any relator, prior to providing information to the
government, was the source of, or made any public disclosure of the type
that the Circuit Court concluded the qui tam actions were "based
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
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
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. ...