Shepard et al v. Grand Junction Regional Airport Authority et al
ORDER. The Government's Motion for Order to Approve Settlement Notwithstanding Relators' Objection (Doc. # 32 ) is GRANTED and the Settlement Agreement (Doc. # 32-1) is APPROVED. By Judge Christine M. Arguello on 02/27/2017. (athom, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 13-cv-00736-CMA
UNITED STATES OF AMERICA, ex rel,
DAVID H. SHEPARD, and
WILLIAM M. MARVEL, appearing qui tam,
GRAND JUNCTION REGIONAL AIRPORT AUTHORITY,
REX TIPPETTS, individually,
EDDIE STORER, individually,
JASON VIRZI, individually, and
MORGAN EINSPAHR, individually,
ORDER GRANTING THE GOVERNMENT’S MOTION FOR ORDER TO APPROVE
SETTLEMENT NOTWITHSTANDING THE RELATORS’ OBJECTIONS
This matter is before the Court on the Government’s Motion for Order to Approve
Settlement Notwithstanding Relators’ Objections. (Doc. # 32.) For the following
reasons, the Court grants the motion and approves the settlement.
This case arises from a dispute over a fence project at the Grand Junction Airport
funded by the Federal Aviation Administration (FAA). On March 20, 2013, David H.
Shepard and William M. Marvel (Relators), both owners of hangers at the subject
airport, filed this qui tam action on behalf of the Government alleging, as pertinent here,
that payment for the fence was the product of false claims made to the FAA by the
Grand Junction Regional Airport Authority (Airport Authority) in violation of the False
Claims Act (FCA), as amended in 1986. As pertinent here, the FCA provides that any
knowingly presents, or causes to be presented, a false or
fraudulent claim to the United States for payment or approval
. . . is liable to the United States Government for a civil
31 U.S.C. § 3729(a)(1)(A). “[K]nowing” and “knowingly” means that the person has
actual knowledge, acts in deliberate ignorance of the truth or falsity of the information,
or acts in reckless disregard of the truth or falsity of the information. § 3729(b)(1).
The Office of the Inspector General for the United States Department of
Transportation, with help from the FBI and IRS, conducted a two-year investigation into
the Relators’ allegations. At first, the investigation included consideration of criminal
liability, but ultimately, the Government declined to pursue criminal charges. In regard
to this civil proceeding, the investigation revealed that some of the Relators’ claims were
actionable under the FCA, but others were not.
On March 21, 2016, the Government intervened 1, and on June 8, 2016, the
Government filed a motion requesting that this Court approve a proposed settlement
between it and the Airport Authority. (Doc. # 32.) The Relators object to the settlement
(Doc. # 38) and, in light of their objections, the Court held a fairness hearing on
February 16, 2017, following which this Court took the matter under advisement.
The Government has intervened in the action only against the Airport Authority. Relators’
claims against the remaining Defendants are unaffected by the settlement at issue here.
STANDARD OF REVIEW
The Court first addresses the parties’ disagreement about the appropriate
standard for reviewing a qui tam settlement.
Title 31, § 3730(c)(2)(B), of the United States Code provides, “The Government
may settle a [qui tam] action with the defendant notwithstanding the objections of the
person initiating the action if the court determines, after a hearing, that the proposed
settlement is fair, adequate, and reasonable under all the circumstances.” The Tenth
Circuit has not clarified what this statute means by “fair, adequate, and reasonable
under all circumstances.” Id.
The Government argues that the Court should apply the highly deferential
standard adopted in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing
Com., 151 F.3d 1139, 1145 (9th Cir. 1998). Under Sequoia:
A two-step analysis applies . . . to test the justification for
dismissal: [the government must identify] (1) identification of
a valid government purpose; and (2) a rational relation
between dismissal and accomplishment of the purpose. If
the government satisfies the two-step test, the burden
switches to the relator to demonstrate that dismissal is
fraudulent, arbitrary and capricious, or illegal.
Id. This standard, however, was set forth for review of qui tam dismissals under 31
U.S.C. § 3730(c)(2)(A), not qui tam settlements under 31 U.S.C. § 3730(c)(2)(B). See
Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 931 (10th Cir. 2005) (adopting the Sequoia
Orange standard for qui tam dismissals).
The Relators, on the other hand, request that this Court apply the standards
governing judicial review of class action settlements under Federal Rule of Civil
Procedure 23(e)(2), which, like 31 U.S.C. § 3730(c)(2)(B), requires a finding that the
settlement is “fair, reasonable, and adequate.” The Tenth Circuit considers the
following factors when reviewing Rule 23 settlements:
(1) whether the proposed settlement was fairly and honestly
negotiated; (2) whether serious questions of law and fact
exist, placing the ultimate outcome of the litigation in
doubt;(3) whether the value of an immediate recovery
outweighs the mere possibility of future relief after protracted
and expensive litigation; and (4) the judgment of the parties
that the settlement is fair and reasonable.
Rutter & Wilbanks Corp. v. Shell Oil Co., 314 F.3d 1180, 1188 (10th Cir. 2002).
The Court recognizes the split of authority on this issue. Compare U.S. ex rel.
Souza v. Am. Access Care Miami, LLC, Case No. 11-22686-CIV-Lenard, slip op. (D.E.
53) (extending Sequoia Orange to judicial review of settlement in a qui tam action and
citing three other unpublished district court cases that have done so), with U.S. ex rel.
Schweizer v. Oce N. Am., 956 F. Supp. 2d 1, 10–11 (D.D.C. 2013) and U.S. ex rel.
Nudelman v. Int’l Rehab. Associates, Inc., 00–cv–1837, 2004 WL 1091032, at *1 n. 1
(E.D.Pa. May 14, 2004) (finding, as a matter of first impression, that since Congress
borrowed the key language of § 3730(c)(2)(B) from the rule governing judicial review of
class action settlements, courts evaluating proposed FCA settlements should apply the
same factors used in evaluating proposed class action settlements).
After reviewing the relevant legal principles and applicable case law, the Court
finds the Sequoia Orange standard more appropriate for reviewing a qui tam settlement
under § 3730(c)(2)(B). In Sequoia Orange, the Ninth Circuit panel discussed the
purpose of the FCA, as it was amended in 1986. 151 F.3d at 1144. Before 1986, if the
government elected to intervene in a qui tam action, the suit was conducted solely by
the government. Id. The 1986 amendments increased a relator’s role in the action but
maintained that the government has “primary responsibility” for the case, with
supervisory powers over the relator. See 31 U.S.C. § 3730(c)(1). Among other things,
the FCA allows the government to limit the relator’s witnesses and the length of their
testimony; stay the relator’s discovery requests; and outright dismiss an action as long
as the relators are afforded notice and a hearing. 31 U.S.C. § 3730(c)(2), (4). The
Sequoia Orange panel explained that the 1986 Amendments “actually increased, rather
than decreased, executive control over qui tam lawsuits.” 151 F.3d at 1144; see
Ridenour, 397 F.3d at 931 (“Through the 1986 amendments, Congress granted the
Government additional opportunities to intervene and increased its power to control qui
tam actions.”); United States ex rel. Stillwell v. Hughes Helicopters, Inc., 714 F.Supp.
1084, 1090 (C.D. Cal. 1989) (“The 1986 version of the False Claims Act continues the
evolution of greater executive control over qui tam lawsuits.”); see also United States ex
rel. Killingsworth v. Northrop Corp., 25 F.3d 715, 724 (9th Cir.1994) (“The Court will not
assume that the qui tam provisions of the False Claims Act were intended to curtail the
prosecutorial discretion of the Attorney General.”). The panel added that the
congressional intent behind the FCA was to “create only a limited check on
prosecutorial discretion to ensure suits are not dropped without legitimate governmental
purpose.” 151 F.3d at 1145. Ultimately, the Sequoia Orange panel held that the
government may dismiss a qui tam suit, even a meritorious one, as long as the
government shows a valid purpose that is rationally related to the dismissal. Id. The
Tenth Circuit has readily adopted this standard, even allowing the government to
dismiss a qui tam action without prior intervention. Ridenour, 397 F.3d at 934–35.
This Court sees no reason why the government should be given such broad
discretion to dismiss a case but not to settle it under circumstances that it deems fair,
adequate, and reasonable. See Oce N. Am., Inc., 956 F. Supp. 2d at 1 (a fairness
hearing regarding a qui tam settlement serves a “limited purpose of forcing the
government to provide some reasoning behind its decision to settle a case. . . .”).
Indeed, to significantly hamper the government’s ability to settle may run afoul of the
separation of powers doctrine. See Sequoia, 151 F.3d at 1145–46 (stating that a
rational relation test avoids any separation of powers concerns). To condition the
Government’s right to settle an action—over which it has been granted “primary
responsibility” by statute, see 31 U.S.C. § 3730(c)(1)—on a standard guided by such
vigilant judicial scrutiny as required when reviewing a Rule 23 class action settlement
would place the FCA on constitutionally unsteady ground. Because the Court is to
interpret statutes in a manner that renders them constitutionally valid, Zadvydas v.
Davis, 533 U.S. 678, 689 (2001), the Court should avoid an interpretation that
unnecessarily binds the government. See Ridenour, 397 F.3d at 934 (stating the same
with regard to dismissals of qui tam actions).
Moreover, the high degree of vigilance that is required when scrutinizing Rule 23
class action settlements is arguably less necessary in this context. That scrutiny is
meant “to protect the rights of the many absent class members who were not involved in
the negotiations leading to settlements.” In re Corrugated Contained Antitrust Litig., 643
F.2d 195, 225 (5th Cir. 1981). Here, however, the Government, not absent class
members, is the real party in interest, and “[t]he [c]ourt need not protect the
[g]overnment from itself by closely scrutinizing settlements it negotiates at an arm’s
length with the [d]efendant.” Souza, Case No. 11-22686-CIV-Lenard, slip op. As the
Tenth Circuit has made clear, relators’ objections to “proposed settlements between the
government and defendant should not pose a significant burden for the government or
courts.” Ridenour, 397 F.3d at 931, n.10.
Accordingly, the Court reviews this qui tam action under the deferential Sequoia
Orange standard, looking to ensure that the Government has presented (1) a valid
purpose and (2) a rational relationship between settlement and the accomplishment of
that purpose. 2
The Government’s purpose for settling this dispute is based on its belief,
following a long and thorough investigation, that
many of the Relators’ allegations are not likely meritorious and little to
no recovery would result after protracted and expensive litigation; and
those claims that are meritorious warrant punishing the Airport
Authority, but because the damages would be difficult, if not
impossible, to prove, settling for a penalty, rather than pursuing a
treble damages award, will best deter the Airport Authority and
preserve Government resources.
After reviewing the extensive documents in this case and thoroughly considering
the Government’s justification and the Relators’ objections, the Court finds that the
Although the Court maintains that the Sequoia Orange standard is the more appropriate
standard for approval of a settlement under 31 U.S.C. § 3730(c)(2)(B), the Court also finds that
applying the Rule 23 factors would not change the outcome in this case.
Government’s reason for settling is valid and rationally related to the ultimate settlement
obtained. Nonetheless, the Court addresses the Relators’ objections in turn.
A. Wildlife Concern
The Relators contend that the settlement ignores the merits of their claim that the
Airport Authority violated 31 U.S.C. § 3729(a)(1)(A) of the FCA when it falsely certified
that it needed to erect the fence to control wildlife. Relators argue that the fence, which
was erected only on the south side of the airport, does not prevent the incursion of
wildlife and that the Airport Authority never actually intended it to do so. The Relators
add that the Airport Authority’s true desire was to construct a security fence, for which it
would not have been provided funding. The Government did not find this contention to
be actionable, in part because (1) the Airport Authority initially expressed concern for
wildlife control and security, (2) the presence of wildlife at the airport was welldocumented in a Wildlife Hazard Assessment conducted by the United States
Department of Agriculture (USDA), and (3) the Airport Authority legitimately relied on
the USDA Wildlife Hazard Assessment.
In support, the Government presented the Airport Authority’s initial application for
funding, which states that the fence was needed to “potentially decrease the amount of
mammalian wildlife entering and residing on airport property” and to “improve the safety
and security of air operations at the airport.” (Doc. 1-2 at 8.) At the fairness hearing,
FAA representative John Bauer testified that the following language accurately
represented the Airport Authority’s need for the fence:
PURPOSE: The purpose of the proposed project is to
construct 45,000 linear feet of perimeter fence to reduce the
potential of wildlife and aircraft incursions, and help prevent
and detect unauthorized entry of individuals into the Air
Operations Area of the Airport.
NEED: A Wildlife Hazard Assessment . . . recommended the
installation of chain link fence to deter the mammalian
population from entering and residing on airport property. . . .
The proposed project would [also] allow for the airport to
control and monitor access to the airport which would
increase overall security and safety of the airport.
(Doc. # 40-1.) Mr. Bauer added that both wildlife and security concerns are eligible for
funding under the FAA.
Moreover, Section 6.11 of the Wildlife Hazard Assessment recommended to the
Airport Authority that it erect a fence because:
Due to [their] adaptable behavior, it is nearly impossible to
permanently disperse resident fox or coyote from the entire
airfield using only habitat modification or hazing procedures.
A chainlink skirting attached to the bottom of the entire
perimeter fence ran at a 45 degree angle on the outside,
then covered with soil; along with a 10 foot “no-climb” 1-inch
chain-link fence with 3-strand barbed-wire risers on the top
would be the best long term solution. 3
(Doc. # 60-2 at 38.) The Airport Authority’s Wildlife Management Plan reiterates this
wildlife concern and discusses its need for funding on that basis. (Exhibit 15 at 8.)
Moreover, at the fairness hearing, Joe O’Haver of the Inspector General’s Office, who
oversaw the investigation into the Relator’s claims, testified that, based on his review of
all the evidence in this case, the Airport Authority’s concern about wildlife was wellsupported. Mr. O’Haver expressed some initial concern about why the fence, as built,
At the fairness hearing the Relators expressed concern that the section of the Wildlife Hazard
Assessment entitled “7.0 Recommendations” did not specifically recommend a wildlife fence.
(Doc. # 60-2 at 19). The absence of the recommendation under Section 7.0, however, does not
change that fact that the fence was specifically recommended in Section 6.11. (Id. at 38.)
did not cover the north side of the airport—a side clearly open to wildlife incursion—but
explained that his concerns were assuaged when the FAA informed him that
the north boundary was in [the] process of being moved as
part of a . . . runway relocation project. . . . [so while the
Airport Authority] could have completed the fence it would
have cost considerable amount of money to tear that down
and move it again once that project got under way.
Ultimately, Mr. O’Haver was satisfied that the Airport Authority had not knowingly
defrauded the FAA with respect to its concerns about wildlife at the airport.
Based on this Court’s review of the parties’ written submissions and oral
presentations at the fairness hearing, the Court finds the Government was justified in its
decision not to pursue the Relators’ contention that the Airport Authority falsely
contrived the need for a wildlife fence. The Relators’ contrary objections do not
undermine the reasonableness, adequacy, or fairness of the proposed settlement in this
case. See Oce N. Am., 956 F. Supp. 2d at 11 (emphasizing that a fairness hearing is
not a hearing on the merits of the relators’ claims).
B. Socio-Economic Misrepresentations and Damages
The Relators’ next objection relates to their claim that the Airport Authority falsely
certified to the FAA in its Categorical Exclusion Forms (CatEx Forms) that it met all the
criteria imposed by the National Environment Policy Act (NEPA), thereby avoiding
mandatory environmental impact study requirements. The Government agrees that the
Airport Authority violated the FCA when it initially reported that the fence would have no
socio-economic impact on businesses at the airport.
The Relators argue that this misrepresentation should result in a substantial
financial penalty that includes treble damages under the FCA. See 31 U.S.C. §
3729(a)(1)(A) (setting forth a statutory penalty of $5,500 to $11,000, plus treble
damages consisting of 3 times the amount of damage sustained because of fraudulent
behavior); see also 28 CFR § 85.3(a)(9). Relators specifically believe the damages
award should be at least $16,500,000 ($5,000,000 in costs to the United States
government for constructing the fence, multiplied by 3, plus interest and costs).
The Government, however, negotiated with the Airport Authority for a penaltyonly settlement totaling $16,500 (approximately $5,500 for each false Cat-Ex form).
The Government justifies this decision based on concerns that damages would be
difficult, if not impossible, to prove because the FAA conceded that a timely disclosure
of the socio-economic impact on businesses would not have changed whether the FAA
approved the fence project.
The Court finds that the Government’s reasoning is valid and the settlement
penalty is fair, adequate, and reasonable under the circumstances. Although a number
of businesses were significantly impacted by the fence, the Court cannot overlook the
clear testimony of FAA representative John Bauer. He explained that, although the
Airport Authority falsely certified its compliance with NEPA in its initial Cat-Ex form, the
Airport Authority eventually revealed, in detail, the appropriate socio-economic impacts
in a subsequent Cat-Ex form. Once the FAA became aware of the socio-economic
impacts, it still approved the fence project. 4 Indeed, Mr. Bauer testified that, had the
The Court is not persuaded by the Relators’ contention that the FAA’s approval was based on
the fact that the fence project was well underway by the time the socio-economic impacts were
revealed. To the contrary, Mr. Bauer testified that the progress of the fence did not impact his
decision to approve the project.
socio-economic impacts “been submitted in Cat-Ex No. 1,” the FAA still “would have
approved [the project].”
C. The Claw-Back Request
The Relators also contend that the settlement is inadequate because it does not
take into account the FAA’s request for a refund from the Airport Authority for the costs
of the electrification of a three-strand wire topper on the fence (termed the “claw-back
request” by the parties). That refund request totaled $520,450.83. (Doc. # 42-2.) The
Government argues that it did not consider the claw-back request pertinent to the
lawsuit or the settlement because it was not the result of fraud by the Airport Authority,
but rather an oversight by the FAA.
Testimony from the fairness hearing supports the Government’s position. Mr.
O’Haver testified that, after speaking with the FAA, he concluded that the refund for
electrification of the wire topper was not relevant to the fraud investigation. Rather, the
initial FAA decision to provide funds for electrification was “an oversight on the FAA’s
part[;] . . . they had inadvertently allowed [it].” Moreover, Mr. Bauer from the FAA
testified that “[t]here was no misrepresentation” from the Airport Authority about the
topper. Indeed, the Airport Authority’s submissions merely represented the topper as
an alternate option.
Thus, the Court cannot conclude that it was unreasonable or unjustified for the
Government to exclude consideration of the claw-back request from the settlement.
Indeed, this case is about fraud by the Airport Authority, and testimony at the fairness
hearing, supported by other exhibits in the record, sufficiently indicate that there was no
such fraud in relation to electrification of the wire topper.
D. Arm’s Length Negotiations
Finally, the Relators express concern that the Government’s close relationship
with the FAA and significant bargaining power over the Airport Authority undermines the
legitimacy of the Government’s investigation and settlement. In essence, the Relators
believe that settlement negotiations were not arms-length.
In assessing whether a settlement was fairly negotiated, courts often consider
whether the settlement is the product of arm’s length negotiations or whether it results
from fraud, overreaching, or collusion. Wilkerson v. Martin Marietta Corp., 171 F.R.D.
273, 283 (D. Colo. 1997).
Here, the Relators have presented no evidence that the relationships between
the FAA, Government, and Airport Authority resulted in fraud, overreaching, collusion,
or lack of a thorough investigation into the Relators’ allegations. Indeed, if they had, the
logical outcome would be a settlement that unfairly disadvantages the Airport Authority
and creates a questionably large award for the Government, which is not the case here.
Moreover, the Court finds that the Government conducted an extensive investigation
into this matter that reveals no signs of fraud, overreaching, collusion. At the fairness
hearing, Mr. O’Haver testified that, among other things, he reviewed all the documents
related to the case, interviewed witnesses, spoke with the Relators, met with FAA and
airport personnel, and ultimately conducted a very “thorough investigation.” The
Government maintains that it reviewed thousands of documents and interviewed
dozens of witnesses before reaching its ultimate decision to settle the case.
The Court finds that this settlement is the product of arm’s length negotiations.
The Court commends the Relators for their intervention in this case. It is clear
that they spent a significant amount of time and energy on this matter which resulted in
a positive change in the management of the airport. Without their diligent efforts, this
matter would not have been brought to the Government’s or the Court’s attention.
Nonetheless, having fully considered the parties’ written and oral presentations,
as well as the voluminous exhibits in the record and the applicable legal authority, the
Court finds that the Government has met its burden of showing that the settlement is
fair, adequate, and reasonable in all circumstances pursuant to 37 U.S.C. § 3730
Accordingly, the Government’s Motion for Order to Approve Settlement
Notwithstanding Relators’ Objection (Doc. # 32) is GRANTED and the Settlement
Agreement (Doc. # 32-1) is APPROVED.
DATED: February 27, 2017
BY THE COURT:
CHRISTINE M. ARGUELLO
United States District Judge
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