US ex rel. Steven May v. Purdue Pharma L.P.
Filing
PUBLISHED AUTHORED OPINION filed. Originating case number: 5:10-cv-01423. [999257590]. [12-2287]
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-2287
UNITED STATES ex rel. STEVEN MAY AND ANGELA RADCLIFFE,
Plaintiff - Appellant,
v.
PURDUE PHARMA L.P.,
PHARMA, INCORPORATED,
a
limited
partnership,
and;
PURDUE
Defendants − Appellees.
−−−−−−−−−−−−−−−−−−−−−−−−−−−−
UNITED STATES OF AMERICA,
Amicus Curiae.
Appeal from the United States District Court for the Southern
District of West Virginia, at Beckley.
Irene C. Berger,
District Judge. (5:10-cv-01423)
Argued:
September 20, 2013
Decided:
December 12, 2013
Before TRAXLER, Chief Judge, DIAZ, Circuit Judge, and Gina M.
GROH, United States District Judge for the Northern District of
West Virginia, sitting by designation.
Vacated and remanded by published opinion. Chief Judge Traxler
wrote the opinion, in which Judge Diaz and Judge Groh joined.
ARGUED:
Mark Tucker Hurt, Abingdon, Virginia, for Appellant.
Howard Morris Shapiro, WILMERHALE LLP, Washington, D.C., for
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Appellees.
Henry C. Whitaker, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Amicus Curiae.
ON BRIEF:
Paul
W. Roop, II, ROOP LAW OFFICE, LC, Beckley, West Virginia, for
Appellant. Jennifer M. O'Connor, Christopher E. Babbitt, Daniel
Winik, WILMER CUTLER PICKERING HALE AND DORR LLP, Washington,
D.C., for Appellees.
Beth S. Brinkmann, Acting Assistant
Attorney General, Michael S. Raab, Civil Division, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Amicus Curiae.
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TRAXLER, Chief Judge:
Appellants
Steven
May
and
Angela
Radcliffe
brought
this
action under the False Claims Act, 31 U.S.C. §§ 3729-33 (the
“FCA”),
against
Purdue
(together, “Purdue”).
Pharma
L.P.
and
Purdue
Pharma,
Inc.
Giving preclusive effect to this court’s
decision in United States ex rel. Radcliffe v. Purdue Pharma
L.P., 600 F.3d 319 (4th Cir. 2010), the district court dismissed
the action on res judicata grounds.
Because we agree with the
appellants that this action is not barred by res judicata, we
vacate the decision of the district court and remand for further
proceedings.
I.
Mark Radcliffe, the husband of appellant Angela Radcliffe,
was a district sales manager for Purdue.
as
part
of
a
reduction
in
force
Radcliffe was laid off
in
June
2005,
and
he
subsequently executed a general release (the “Release”) of all
claims against Purdue in order to receive an enhanced severance
package.
Radcliffe
thereafter
filed
an
FCA
action
against
Purdue (“Qui Tam I”) 1 in which he alleged that Purdue falsely
marketed its narcotic pain medication OxyContin to physicians as
being twice as potent as MS Contin (a cheaper, off-patent drug
1
“A private enforcement action under the FCA is called a
qui tam action, with the private party referred to as the
‘relator.’”
United States ex rel. Eisenstein v. City of New
York, 556 U.S. 928, 932 (2009).
3
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also
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manufactured
by
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Purdue),
thus
making
it
OxyContin was cheaper per dose than MS Contin.
appear
that
The government
investigated Radcliffe’s allegations and declined to intervene
in his action.
The
district
court
eventually
dismissed
Qui
Tam
I
with
prejudice, concluding that Radcliffe’s amended complaint did not
satisfy the heightened pleading requirements of Rule 9.
See
Fed. R. Civ. P. 9(b) (“In alleging fraud or mistake, a party
must
state
with
particularity
fraud or mistake. . . .”).
the
circumstances
constituting
On appeal, we affirmed the with-
prejudice dismissal on alternate grounds, concluding that the
Release barred Radcliffe’s FCA claims.
See Radcliffe, 600 F.3d
at 333.
After we issued our opinion in Radcliffe, Steven May and
Angela
Radcliffe
(the
“Relators”)
commenced
this
FCA
action
against Purdue (“Qui Tam II”) setting forth allegations nearly
identical to those advanced by Mark Radcliffe in Qui Tam I.
As
noted, Angela Radcliffe is Mark Radcliffe’s wife; Steven May was
formerly
a
sales
representative
for
Purdue
under
Mark
Radcliffe’s supervision.
Purdue
moved
to
dismiss
the
Relators’
complaint
on
res
judicata grounds, arguing that our decision in Radcliffe barred
the Relators from proceeding with Qui Tam II.
See, e.g., Martin
v. Am. Bancorporation Retirement Plan, 407 F.3d 643, 650 (4th
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Cir. 2005) (“Res judicata . . . precludes the assertion of a
claim after a judgment on the merits in a prior suit by the
parties or their privies based on the same cause of action.”).
Purdue also argued that the FCA’s public-disclosure bar, see 31
U.S.C. § 3730(e)(4), divested the district court of jurisdiction
over the action and that the complaint did not allege fraud with
the particularity required by Rule 9.
As
to
the
res
judicata
question,
Purdue
contended
that
Radcliffe was a judgment on the merits because it affirmed a
with-prejudice dismissal; that the claims asserted in Qui Tam I
and
Qui
Tam
II
were
identical;
and
that
the
parties
were
identical because Qui Tam I was “brought on behalf of the United
States as the real party in interest,” such that the government
“and any other relators seeking to allege identical claims are
bound by its judgment.”
J.A. 83.
The Relators argued that
Radcliffe was not a decision on the merits for res judicata
purposes, but they did not directly dispute Purdue’s contention
that the parties were identical.
Citing Adkins v. Allstate Insurance Co., 729 F.2d 974 (4th
Cir.
1984),
the
district
court
held
that
Radcliffe
was
necessarily a decision on the merits because it affirmed the
grant of a summary-judgment motion.
n.3
(“For
purposes
of
res
See Adkins, 729 F.2d at 976
judicata,
a
summary
judgment
has
always been considered a final disposition on the merits.”).
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because
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the
Relators
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did
not
challenge
the
other
res-
judicata requirements, the district court held without further
analysis that “the instant case is barred by the doctrine of res
judicata.”
J.A. 225.
the
without
action
Purdue.
The district court therefore dismissed
considering
the
other
issues
raised
by
This appeal followed.
II.
The Relators argue on appeal that the district court erred
by giving preclusive effect to Radcliffe and dismissing their
action on res judicata grounds.
The preclusive effect of a
judgment issued by a federal court is a legal question governed
by federal common law and subject to de novo review.
v.
Sturgell,
determines
553
U.S.
preclusive
880,
891
effect
(2008)
of
(federal
federal-court
See Taylor
common
law
judgment);
Clodfelter v. Republic of Sudan, 720 F.3d 199, 210 (4th Cir.
2013) (district court’s application of res judicata reviewed de
novo).
Generally
speaking,
whether
res
judicata
precludes
a
subsequent action “turns on the existence of three factors: (1)
a final judgment on the merits in a prior suit; (2) an identity
of the cause of action in both the earlier and the later suit;
and (3) an identity of parties or their privies in the two
suits.”
Clodfelter, 720 F.3d at 210 (4th Cir. 2013) (internal
quotation marks omitted).
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A.
The Relators contend that Radcliffe was not a “judgment on
the merits” because the decision was premised on a determination
that Mark Radcliffe lacked standing to pursue the FCA claims.
Because
Article
III
standing
requirements
are
jurisdictional,
see, e.g., United States v. Day, 700 F.3d 713, 721 (4th Cir.
2012), cert. denied, 133 S. Ct. 2038 (2013), and jurisdictional
dismissals are not “judgment[s] on the merits for purposes of
res judicata,” Goldsmith v. Mayor of Balt., 987 F.2d 1064, 1069
(4th
Cir.
1993), 2
the
Relators
argue
that
Radcliffe
is
not
entitled to preclusive effect.
We disagree with the Relators’ reading of our decision in
Radcliffe.
Standing principles require the plaintiff to have
suffered an “injury in fact.”
Lujan v. Defenders of Wildlife,
504 U.S. 555, 560 (1992) (internal quotation marks omitted).
In
the context of the FCA, however, it is the government, not the
private-citizen
relator,
defendant’s fraud.
bring
an
assignment
FCA
of
has
been
injured
by
the
FCA relators nonetheless have standing to
action
the
that
because
the
Government’s
FCA
“effect[s]
damages
claim”
statutorily vests private citizens with standing.
2
a
partial
and
thus
Vt. Agency of
“However, a jurisdictional dismissal . . . still operates
to bar relitigation of issues actually decided by that former
judgment.” Goldsmith, 987 F.2d at 1069.
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Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 773
(2000).
In Radcliffe, we discussed FCA standing principles in the
course
of
rejecting
one
of
Radcliffe’s
arguments
against
enforcement of the Release.
As we explained, “Radcliffe had a
statutory
the
[FCA]
claim,
and
necessary
legal
standing
as
partial assignee” once the government suffered an injury and
Radcliffe became aware of the fraud.
(emphasis
added).
We
did
not
Radcliffe, 600 F.3d at 329
conclude
that
Radcliffe
lost
standing when he executed the Release, but instead simply held
that his execution of the Release effected a waiver of his right
to sue Purdue.
See id. at 329 (explaining that Mark Radcliffe
“had the right” to bring an FCA action before he signed the
Release, “a right he waived under the terms of the Release”).
B.
Although we reject the Relators’ assertion that Radcliffe
was a jurisdictional dismissal, we nonetheless agree with their
bottom-line position that the district court erred by giving
Radcliffe preclusive effect.
As
the
government
notes
in
its
amicus
brief,
the
traditional res-judicata inquiry is modified in cases where the
earlier action was dismissed in accordance with a release or
other settlement agreement.
See Keith v. Aldridge, 900 F.2d
736, 740-41 (4th Cir. 1990).
A judgment entered “based upon the
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parties’ stipulation, unlike a judgment imposed at the end of an
adversarial proceeding, receives its legitimating force from the
fact that the parties consented to it.”
Norfolk S. Corp. v.
Chevron, U.S.A., Inc., 371 F.3d 1285, 1288 (11th Cir. 2004).
Thus, where a dismissal is “based on a settlement agreement, . .
. the principles of res judicata apply (in a somewhat modified
form)
to
the
matters
specified
in
rather than the original complaint.”
the
settlement
Id.
agreement,
That is, given the
contractual nature of consent decrees and settlement agreements,
the preclusive effect of a judgment based on such an agreement
can be no greater than the preclusive effect of the agreement
itself. 3
See Keith, 900 F.3d at 740 (“When a consent judgment
entered upon settlement by the parties of an earlier suit is
invoked by a defendant as preclusive of a later action, the
preclusive effect of the earlier judgment is determined by the
intent
of
the
parties.”);
18A
Charles
A.
Wright,
Arthur
R.
Miller & Edward H. Cooper, Federal Practice & Procedure § 4427
(“Judgments that rest on stipulations, admissions in pleadings,
3
Whether our decision in Radcliffe bars the current action
is a legal issue that the Relators preserved by opposing the
dismissal below and on appeal.
That the Relators do not raise
this particular argument does not preclude our consideration and
application of it.
See Kamen v. Kemper Fin. Servs., Inc., 500
U.S. 90, 99 (1991) (“When an issue or claim is properly before
the court, the court is not limited to the particular legal
theories advanced by the parties, but rather retains the
independent power to identify and apply the proper construction
of governing law.”).
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or consent to the very judgment itself should be given effect
according to the intention of the parties . . . .”); see also
Ohio Valley Envtl. Coal. v. Aracoma Coal Co., 556 F.3d 177, 211
(4th
Cir.
2009)
principles,
agreement
and
(“Settlement
thus
should
be
the
agreements
preclusive
measured
by
the
operate
effect
intent
of
of
on
contract
a
settlement
the
parties.”
(internal quotation marks omitted)). 4
The Release executed by Mark Radcliffe in Qui Tam I was
personal to him and addressed only his rights and the claims
that he might assert against Purdue.
Neither the Relators nor
the government were parties to or intended beneficiaries of the
Release.
See Restatement (Second) of Contracts § 302; see also
United States ex rel. Ubl v. IIF Data Solutions, 650 F.3d 445,
451 (4th Cir. 2011) (explaining that the effect of an agreement
settling FCA claims is a question of federal common law as to
which the Restatement (Second) of Contracts provides guidance).
The Release itself, therefore, could not serve as a defense to
any claims that the Relators (or other non-signatories) might
assert
against
Purdue.
Indeed,
4
we
made
this
very
point
in
While this case involves a release executed before the
commencement of any litigation, many of the cases addressing
this issue involve consent decrees or other settlements reached
after the commencement of litigation.
See, e.g., Keith v.
Aldridge, 900 F.2d 736, 738 (4th Cir. 1990).
As to the resjudicata question, there is no meaningful difference between a
post-filing settlement agreement and the pre-filing release at
issue here.
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Radcliffe when we noted that the Release “did not prohibit the
government
or
another
against Purdue.”
in
Radcliffe
broaden
the
Release
the
from
pursuing
similar
Radcliffe, 600 F.3d at 329 n.8.
enforcing
does
Purdue,
relator
scope
of
not
bar
judgment
the
the
Release
Release.
not
the
from
Our decision
(and
Accordingly,
non-signatories
enforcing
did
could
because
proceeding
Release
claims
cannot
not)
the
against
bar
such
claims.
Purdue’s arguments to the contrary are not persuasive.
dismissal
in
Radcliffe
may
“on the merits” under Rule 41.
well
have
been
a
Our
dismissal
See Fed. R. Civ. P. 41 (“Unless
the dismissal order states otherwise, a dismissal under this
subdivision (b) and any dismissal not under this rule--except
one for lack of jurisdiction, improper venue, or failure to join
a
party
under
Rule
19--operates
as
an
adjudication
on
the
merits.”); Shoup v. Bell & Howell Co., 872 F.2d 1178, 1181 (4th
Cir. 1989) (“[F]or purposes of res judicata, a summary judgment
has always been considered a final disposition on the merits.”
(internal quotation marks omitted)).
As the Supreme Court has
explained, however, “it is no longer true that a judgment ‘on
the merits’ [for purposes of Rule 41] is necessarily a judgment
entitled to claim-preclusive effect.”
Lockheed
added).
Martin
Corp.,
531
U.S.
497,
Semtek Int’l, Inc. v.
503
(2001)
(emphasis
As discussed above, the preclusive effect of a judgment
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enforcing a settlement agreement is determined by the intent of
the parties as reflected by the terms of that agreement, and the
Release
did
bringing
not
suit
bar
against
anyone
other
Purdue.
than
Mark
Regardless
of
Radcliffe
the
from
procedural
vehicle through which our decision enforcing the Release was
entered, our decision simply did not broaden the scope of the
Release.
See Am. Cyanamid Co. v. Capuano, 381 F.3d 6, 17 (1st
Cir. 2004) (“[A] dismissal with prejudice contained in a consent
decree is not a ruling on the merits that applies to others
under the law of claim preclusion.” (internal quotation marks
and
alterations
omitted)).
Accordingly,
the
district
court
erred by dismissing Qui Tam II as barred by principles of res
judicata.
III.
We
turn
now
to
the
contention
urged
by
Purdue
and
the
government that the district court’s dismissal can be affirmed
because the action is prohibited by 31 U.S.C. § 3730(e)(4), the
FCA’s
“public
requires
us
to
disclosure”
first
bar.
determine
Addressing
which
version
that
of
the
argument
statute
applies to this case.
A.
The complaint focuses on conduct occurring between 1996 and
2005.
At that time, the public-disclosure bar provided:
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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) (2005) (emphasis added).
Section 3730(e)(4), however, was amended on March 23, 2010
-- after the occurrence of the conduct alleged in the complaint,
but
before
the
Protection
&
10104(j)(2),
commencement
Affordable
124
Stat.
of
Care
119,
this
action.
See
Act,
Pub.
111–148,
901-02.
The
L.
statute
as
Patient
§
amended
provides that:
The court shall dismiss an action or claim under this
section,
unless
opposed
by
the
Government,
if
substantially the same allegations or transactions as
alleged
in
the
action
or
claim
were
publicly
disclosed-(i)
in
a
Federal
criminal,
civil,
or
administrative hearing in which the Government or its
agent is a party;
(ii)
in
a
congressional,
Government
Accountability
Office,
or
other
Federal
report,
hearing, audit, or investigation; or
(iii) 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)
(2010)
(emphasis
added).
Purdue
argues that the amended version of the statute applies, while
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the
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Relators
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argue
that
the
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prior
version
of
the
statute
applies.
“[T]he principle that the legal effect of conduct should
ordinarily
be
assessed
under
the
law
that
existed
conduct took place has timeless and universal appeal.”
when
the
Landgraf
v. USI Film Prods., 511 U.S. 244, 265 (1994) (internal quotation
marks omitted).
Accordingly, a “presumption against retroactive
legislation is deeply rooted in our jurisprudence,” id., and
that “time-honored presumption” must apply “unless Congress has
clearly manifested its intent to the contrary,” Hughes Aircraft
Co. v. United States ex rel. Schumer, 520 U.S. 939, 946 (1997).
The presumption against retroactivity, however, is limited to
statutes
“that
would
have
Landgraf, 511 U.S. at 277.
genuinely
‘retroactive’
effect.”
A statute has retroactive effect if
it “takes away or impairs vested rights acquired under existing
laws,
or
attaches
creates
a
new
a
new
obligation,
disability,
considerations already past.”
in
imposes
respect
to
a
new
duty,
or
transactions
or
Id. at 269 (internal quotation
marks omitted).
Applying these principles, the Supreme Court has twice held
that the 2010 FCA amendments may not be applied to cases arising
before the effective date of the amendments.
See Graham Cnty.
Soil & Water Conservation Dist. v. United States ex rel. Wilson,
559 U.S. 280, 283 n.1 (2010) (“The legislation makes no mention
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of retroactivity, which would be necessary for its application
to pending cases given that it eliminates petitioners’ claimed
defense to a qui tam suit.”); see also Schindler Elevator Corp.
v. United States ex rel. Kirk, 131 S. Ct. 1885, 1889 n.1 (2011)
(citing Graham County and stating that the 2010 amendments “are
not
applicable
to
pending
cases”).
The
circuit
courts
considering the issue have likewise applied the pre-2010 version
of
the
statute.
See
United
States
ex
rel.
Zizic
v.
Q2Administrators, LLC, 728 F.3d 228, 232 n.3 (3d Cir. 2013);
United States ex rel. Goldberg v. Rush Univ. Med. Ctr., 680 F.3d
933,
934
(7th
Cir.
2012);
United
States
ex
rel.
Jamison
v.
McKesson Corp., 649 F.3d 322, 326 n.6 (5th Cir. 2011); United
States ex rel. Poteet v. Bahler Med., Inc., 619 F.3d 104, 107
n.2 (1st Cir. 2010); United States ex rel. Hixson v. Health
Mgmt. Sys., Inc., 613 F.3d 1186, 1188 n.3 (8th Cir. 2010).
Purdue suggests the analysis should be different in this
case, however, because Graham County and Schindler, unlike this
case, involved complaints that were filed before the statute was
amended.
the
We disagree.
underlying
filed.
conduct
The retroactivity inquiry looks to when
occurred,
not
when
the
complaint
was
See Landgraf, 511 U.S. at 265 (“[T]he legal effect of
conduct should ordinarily be assessed under the law that existed
when the conduct took place . . . .” (emphasis added)).
While
changes in jurisdictional and procedural rules are often applied
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to
Doc: 46
pending
controls,
Filed: 12/12/2013
cases,
see
that
Hughes
is
Pg: 16 of 28
not
Aircraft,
because
520
U.S.
the
at
date
946
of
filing
(refusing
to
apply 1986 FCA amendments to action that was commenced after the
effective date of the amendments), but because application of
those new rules often does not have an impermissible retroactive
effect.
See Landgraf, 511 U.S. at 274 (“Application of a new
jurisdictional rule usually takes away no substantive right but
simply changes the tribunal that is to hear the case.” (internal
quotation
marks
omitted));
id.
at
275
(“Because
rules
of
procedure regulate secondary rather than primary conduct, the
fact that a new procedural rule was instituted after the conduct
giving rise to the suit does not make application of the rule at
trial retroactive.”).
The Supreme Court determined in Graham County and Schindler
that application of the 2010 amendments would have retroactive
effect
if
applied
in
those
cases,
and
we
conclude
that
the
amendments likewise would have retroactive effect if applied in
this case.
See Baldwin v. City of Greensboro, 714 F.3d 828, 836
(4th Cir. 2013) (retroactivity inquiry looks to “whether the new
statute
would
have
retroactive
effect
as
applied
to
the
particular case” (internal quotation marks omitted)); Gordon v.
Pete’s Auto Serv. of Denbigh, Inc., 637 F.3d 454, 459 (4th Cir.
2011) (“Th[e retroactivity] inquiry is narrow, for it asks not
whether
the
statute
may
possibly
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have
an
impermissible
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retroactive
applying
Filed: 12/12/2013
effect
the
retroactive
in
statute
any
to
consequence
case,
the
in
Pg: 17 of 28
but
person
the
specifically
objecting
disfavored
whether
would
sense.”
have
a
(internal
quotation marks and citation omitted)).
Under
the
prior
version
of
the
statute,
§
3730(e)(4)
operated as a jurisdictional limitation -- the public-disclosure
bar,
if
applicable,
divested
the
district
matter jurisdiction over the action.
court
of
subject-
See 31 U.S.C. § 3730(e)(4)
(2005) (“No court shall have jurisdiction over an action under
this section based upon the public disclosure of allegations . .
. .” (emphasis added)); Rockwell Int’l Corp. v. United States,
549 U.S. 457, 468-69 (2007) (explaining that § 3730(e)(4) is a
“jurisdiction-removing
provision”).
It
is
apparent,
however,
that the public-disclosure bar is no longer jurisdictional.
The
amended statute does not mention jurisdiction but instead states
that in cases where the bar is applicable, the court “shall
dismiss”
the
action
“unless
U.S.C. § 3730(e)(4) (2010).
the
unambiguous
opposed
by
the
Government.”
31
The 2010 amendments thus deleted
jurisdiction-removing
language
previously
contained in § 3730(e)(4) and replaced it with a generic, notobviously-jurisdictional phrase (“shall dismiss”), while at the
same
time
retaining
jurisdiction-removing
17
language
in
§§
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3730(e)(1) and (e)(2). 5
that
the
In our view, these changes make it clear
public-disclosure
removing provision.
Pg: 18 of 28
bar
is
no
longer
a
jurisdiction-
See, e.g., Brewster v. Gage, 280 U.S. 327,
337 (1930) (“The deliberate selection of language so differing
from that used in the earlier acts indicates that a change of
law was intended.”); Pirie v. Chi. Title & Trust Co., 182 U.S.
438, 448 (1901) (“When the purpose of a prior law is continued,
usually its words are, and an omission of the words implies an
omission of the purpose.”); Chertkof v. United States, 676 F.2d
984, 987 (4th Cir. 1982) (“[T]he deletion of language, having so
distinct
words
of
a
meaning,
such
plain
almost
compels
meaning
are
the
opposite
excised.”).
result
Indeed,
when
it
is
difficult to understand how the amended public-disclosure bar
could be jurisdictional when the government has the ability to
veto a dismissal under that section.
See Gonzalez v. Thaler,
132 S. Ct. 641, 648 (2012) (“Subject-matter jurisdiction can
never be waived or forfeited.”); Brickwood Contractors, Inc. v.
Datanet Eng’g, Inc., 369 F.3d 385, 390 (4th Cir. 2004) (en banc)
(“Subject-matter
jurisdiction
cannot
5
be
conferred
by
the
See 31 U.S.C. § 3730(e)(1) (2010) (providing that “[n]o
court shall have jurisdiction over” certain FCA actions brought
by present or former members of the armed forces); id.
§
3730(e)(2)(A)
(providing
that
“[n]o
court
shall
have
jurisdiction over” certain FCA actions brought against members
of Congress, senior executive branch officials, or members of
the judiciary).
18
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parties,
Filed: 12/12/2013
nor
can
a
defect
waived by the parties.”).
in
Pg: 19 of 28
subject-matter
jurisdiction
be
And even if the changes somehow did
not establish Congress’ intent to convert the public-disclosure
bar into a non-jurisdictional basis for dismissal, the omission
of the jurisdictional language would nonetheless require us to
treat the amended public-disclosure bar as such.
See Sebelius
v. Auburn Reg’l Med. Ctr., 133 S. Ct. 817, 824 (2013) (Unless
“Congress has clearly stated that the [statutory limitation] is
jurisdictional . . . , courts should treat the restriction as
nonjurisdictional in character.” (internal quotation marks and
alteration omitted)).
Moreover,
the
2010
amendments
scope of the public-disclosure bar.
the
statute,
disclosures
in
significantly
changed
the
Under the prior version of
federal
and
state
trials
and
hearings qualify as public disclosures, see, e.g., McElmurray v.
Consol. Gov’t of Augusta–Richmond Cnty., 501 F.3d 1244, 1252
(11th Cir. 2007), and disclosures in federal and state reports,
audits,
or
disclosures,
amendments,
investigations
see
Graham
however,
likewise
Cnty.,
only
559
U.S.
disclosures
in
constitute
at
public
301.
After
the
federal
trials
and
hearings and in federal reports and investigations qualify as
public disclosures.
(2010).
See 31 U.S.C. §§ 3730(e)(4)(A)(i) & (ii)
The 2010 amendments thus substantially narrowed the
class of disclosures that can trigger the public-disclosure bar.
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By the same token, the amendments expand the number of private
plaintiffs
entitled
to
bring
qui
tam
actions
by
including
plaintiffs who learn of the underlying fraud through disclosures
in state proceedings or reports.
And as we will discuss in more detail in the next section,
the 2010 amendments also changed the required connection between
the
plaintiff’s
claims
and
the
qualifying
public
disclosure.
Under the pre-amendment version of the statute, an action is
barred
if
the
action
is
“based
upon”
a
qualifying
public
disclosure, see 31 U.S.C. § 3730(e)(4)(A) (2009), a standard we
have interpreted to mean that the plaintiff must have “actually
derived” his knowledge of the fraud from the public disclosure.
United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d
1339, 1348 (4th Cir. 1994).
As amended, however, the public-
disclosure bar no longer requires actual knowledge of the public
disclosure,
but
instead
applies
“if
substantially
allegations or transactions were publicly disclosed.”
§ 3730(e)(4)(A) (2010).
the
same
31 U.S.C.
Because the Relators allege that they
did not derive their knowledge of Purdue’s fraud from any public
disclosure,
their
claims
are
viable
under
the
pre-amendment
version of the FCA, but not under the amended version, which
focuses on the similarity of the allegations of fraud rather
than the derivation of the knowledge of fraud.
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We believe that these significant revisions to the statute
“change[] the substance of the existing cause of action,” Hughes
Aircraft, 520 U.S. at 948, such that the amended statute would
have
retroactive
amendments
effect
deprive
if
Purdue
applied
of
in
the
this
case.
previously
The
2010
available
jurisdictional defense and replace it with a non-jurisdictional
defense that is triggered by a substantially narrower range of
public disclosures and is, even then, subject to veto by the
government.
See id. (1986 FCA amendment had retroactive effect
because it “eliminate[d] a defense to a qui tam suit . . . and
therefore
change[d]
the
substance
of
the
existing
cause
of
action for qui tam defendants” (internal quotation marks and
alteration omitted)); id. at 948-49 (1986 amendment “create[d] a
new cause of action” by “exten[ding] . . . an FCA cause of
action to private parties in circumstances where the action was
previously foreclosed” (internal quotation marks omitted)).
The
2010 amendments similarly imperil the Relators’ right to assert
their claims against Purdue, a right they possessed and could
have acted upon up until the moment that the amendments took
effect.
See Landgraf, 511 U.S. at 269 (statute has retroactive
effect if it “takes away or impairs vested rights acquired under
existing laws” (internal quotation marks omitted)); cf. Brown v.
Angelone, 150 F.3d 370, 373 (4th Cir. 1998) (“When application
of a new limitation period would wholly eliminate claims for
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substantive rights or remedial actions considered timely under
the old law, the application is impermissibly retroactive.
The
legislature cannot extinguish an existing cause of action by
enacting
a
new
limitation
period
without
first
providing
a
reasonable time after the effective date of the new limitation
period in which to initiate the action.” (citations and internal
quotation
marks
omitted)).
Accordingly,
because
the
2010
amendments have retroactive effect and the legislation is silent
as to retroactivity, the 2010 version of the public-disclosure
bar cannot be applied in this case, notwithstanding the fact
that the complaint was filed after the effective date of the
amendments.
See Hughes Aircraft, 520 U.S. at 946 (declining to
apply 1986 FCA amendments to action alleging pre-amendment fraud
that was commenced after the effective date of the amendments).
B.
Having concluded that the pre-2010 version of § 3730(e)(4)
applies,
we
turn
to
the
question
of
whether
the
public-
disclosure bar requires dismissal of this action.
As
previously
noted,
the
pre-amendment
version
of
public-disclosure bar 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
22
the
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Attorney General or the person bringing the action is
an original source of the information.
31 U.S.C. § 3730(e)(4)(A) (2005) (emphasis added).
Although
most circuits have interpreted the “based upon” language to bar
actions where the allegations of fraud were “supported by” or
“substantially
disclosed,
Housing
similar”
see,
Auth.,
e.g.,
186
to
United
F.3d
376,
fraud
that
States
386
ex
(3d
had
rel.
Cir.
been
Mistick
1999)
publicly
PBT
v.
(collecting
cases), this circuit has interpreted the clause as barring only
those actions where the relator’s knowledge of the fraud alleged
was actually derived from the public disclosure itself.
See
Siller, 21 F.3d at 1348 (“[A] relator’s action is ‘based upon’ a
public
disclosure
of
allegations
only
where
the
relator
has
actually derived from that disclosure the allegations upon which
his qui tam action is based.” (emphasis added)).
The public-
disclosure bar applies and requires dismissal if the action is
“even partly” derived from prior public disclosures. See United
States ex rel. Vuyyuru v. Jadhav, 555 F.3d 337, 351 (4th Cir.
2009).
Whether a relator derived his knowledge of the fraud from a
public disclosure is a jurisdictional fact to be resolved by the
district court.
Although
the
See id. at 348, 350; Siller, 21 F.3d at 1349.
district
court
dismissed
this
action
on
res
judicata grounds without addressing the public-disclosure bar,
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Purdue contends that the record nonetheless establishes that the
allegations in this action were at least partly derived from the
publicly
disclosed
complaint.
Purdue
allegations
points
out
contained
in
that
allegations
the
the
Qui
Tam
of
I
the
complaints in Qui Tam I and Qui Tam II are nearly identical, and
that many of the allegations in Qui Tam II are verbatim copies
of Qui Tam I allegations.
overlap
of
the
In Purdue’s view, “[t]he verbatim
complaints
forecloses
any
argument
that
the
complaint in this action was not at least partly based on the .
. . [c]omplaint in Qui Tam I.”
Br. of Resp’t at 31.
We
disagree.
Under Siller, the question is not whether the allegations
set
out
disclosed
in
the
relator’s
allegations
of
complaint
fraud;
the
are
similar
question
is
to
publicly
whether
the
relator’s knowledge of the fraud was actually derived from the
public disclosure – that is, whether the relator learned about
the fraud from the public disclosure.
See Siller, 21 F.3d at
1347, 1348 (“[T]he only fair construction” of § 3730(e)(4) is
that “a qui tam action is only ‘based upon’ a public disclosure
where the relator has actually derived from that disclosure the
knowledge
of
the
facts
underlying
his
action.”
(emphasis
added)); see also id. at 1348 (explaining that an FCA action
could “include[] allegations that happen to be similar (even
identical) to those already publicly disclosed, but were not
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actually derived from those public disclosures”).
standard
urged
by
Purdue
is
the
circuits but rejected by Siller.
standard
Indeed, the
adopted
by
other
See id. (“We are aware . . .
that other circuits have not embraced this interpretation of the
phrase, assuming instead that an action is based upon a public
disclosure of allegations if its allegations are identical or
similar to those already publicly disclosed.”).
The
Relators
both
submitted
affidavits
to
the
district
court asserting that their knowledge of Purdue’s fraud was not
derived from the Qui Tam I complaint or any other qualifying
public disclosure, but from conversations with Mark Radcliffe
and, in Steven May’s case, from his own experiences as a Purdue
sales representative.
each
complaint
The similarity between the allegations in
could
provide
a
basis
for
disbelieving
the
Relators’ assertions, see Vuyyuru, 555 F.3d at 350-51, but that
is an issue for the district court as fact-finder, not this
court.
Because the district court has not made the factual
findings
necessary
bar
precludes
to
this
determine
action,
we
whether
must
the
remand
public-disclosure
this
case
to
the
district court for discovery and other proceedings as necessary
to
resolve
the
public-disclosure
issues
related
bar.
See
to
United
the
applicability
States
ex
rel.
of
Carter
the
v.
Halliburton Co., 710 F.3d 171, 184 (4th Cir. 2013), petition for
cert.
filed,
82
U.S.L.W.
3010
(June
25
24,
2013)
(“Because
the
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district court should have the opportunity in the first instance
to address the facts relevant to public disclosure, we remand
this issue to the district court.”); Siller, 21 F.3d at 1349
(remanding for district court to determine whether allegations
were “actually derived” from prior suit).
If the district court
determines that the Relators’ knowledge of the fraud alleged
here
was
actually
derived,
even
in
part,
from
a
qualifying
public disclosure and that the Relators are not original sources
of the information, then the district court must dismiss this
action for lack of subject-matter jurisdiction.
See Vuyyuru,
555 F.3d at 355.
IV.
Purdue makes two additional arguments for sustaining the
district court’s dismissal of this action that do not require
extended discussion.
First, Purdue contends that dismissal was proper because
the
Relators’
complaint
fails
to
allege
fraud
with
the
specificity required by Rule 9 of the Rules of Civil Procedure.
We disagree.
Assuming without deciding that the complaint does
not allege the fraudulent conduct with the specificity required
by Rule 9, see U.S. ex rel. Nathan v. Takeda Pharm. N. Am.,
Inc., 707 F.3d 451, 456-57 (4th Cir. 2013), petition for cert.
26
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filed, 81 U.S.L.W. 3650 (May 10, 2013), 6 the Relators have yet to
amend
their
complaint,
and
they
requested
an
opportunity
amend if the court believed the allegations deficient.
to
Leave to
amend a complaint should generally be freely granted, and there
is at present no basis in the record for this court to conclude
that any efforts to amend would be futile or otherwise improper.
See, e.g., Mayfield v. NASCAR, Inc., 674 F.3d 369, 379 (4th Cir.
2012) (“[A] request to amend should only be denied if one of
three facts is present: the amendment would be prejudicial to
the opposing party, there has been bad faith on the part of the
moving party, or amendment would be futile.” (internal quotation
marks
omitted)).
Because
the
Relators
have
not
had
the
opportunity to amend their complaint, we believe it would be
improper
to
rely
on
any
Rule
9
deficiencies
to
affirm
district court’s dismissal of the action with prejudice.
the
The
district court on remand is free to consider Purdue’s Rule 9
argument in the first instance.
Second,
Purdue
argues
that
we
can
affirm
the
district
court’s order because dismissal is required by the FCA’s “first
to file” bar.
provides
that
See 31 U.S.C. 3730(b)(5).
“[w]hen
a
person
6
brings
an
Section 3730(b)(5)
action
under
this
On October 7, 2013, the Supreme Court invited the
Solicitor General to express the views of the United States on
the pending petition.
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subsection, no person other than the Government may intervene or
bring a related action based on the facts underlying the pending
action.”
Although this action is clearly based on the facts
underlying Qui Tam I, we recently held that the first-to-file
bar applies only if the first-filed action was still pending
when the subsequent action was commenced.
at 182-83.
See Carter, 710 F.3d
By the time this action was commenced, Qui Tam I had
been dismissed by the district court, the dismissal had been
affirmed by this court in Radcliffe, and certiorari had been
denied by the Supreme Court.
longer
pending
at
the
time
Qui Tam I, therefore, was no
this
action
making the first-to-file bar inapplicable.
was
commenced,
thus
See Carter, 710 F.3d
at 183 (“[O]nce a case is no longer pending the first-to-file
bar does not stop a relator from filing a related case.”).
V.
Accordingly,
for
the
foregoing
reasons,
we
vacate
the
district court’s order dismissing this action on res judicata
grounds and remand for further proceedings consistent with this
opinion.
VACATED AND REMANDED
28
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