USA et al v. Sears Holdings Corporation et al

Filing 72

ORDER re 71 Notice filed by USA: the Court and the USA CONSENT to the dismissal of certain claims via amendment of the complaint. See Order for details. Signed by Judge Michael J. Reagan on 07/25/2012. (mmr)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
UNITED STATES OF AMERICA,
STATE OF CALIFORNIA, et al., ex rel.
MICHAEL YARBERRY,
Plaintiffs,
v.
SEARS HOLDINGS CORPORATION and
KMART, INC.,
Defendants.

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Case No. 09-CV-588-MJR

ORDER
REAGAN, District Judge:
This qui tam False Claims action pursuant to 31 U.S.C. § 3279, et seq., was filed
by the relator, Michael Yarberry, on August 3, 2009 (Doc. 2).

After multiple extensions of the

60-day period within which the government may intervene, the United States elected not to
intervene in this action, as is its right under 31 U.S.C. ' 3730(b)(4). United States Magistrate
Judge Philip M. Frazier subsequently granted the relator leave to file a second amended
complaint which, in effect, resulted in the voluntary dismissal of “usual and customary” price
fraud claims and 11 of the 17 plaintiff-states (and by extension, dismissal of the related state law
“usual and customary” price fraud claims) (Doc. 68).
Before the Court is the United States’ Notice of Consent to Relator’s Voluntary
Dismissal of Usual and Customary Price fraud Claims (Doc. 71).

The government specifies

that it consents to the dismissal of the “usual and necessary” price fraud claims rights of the
relator with prejudice, and without prejudice as to the rights of the United States.

The Court

will take this opportunity to tend to the formalities of the False Claims Act, and to address
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whether the dismissal of the “usual and customary” price fraud claims is with or without
prejudice.
Section 3730(b)(1) provides in pertinent part: “The action may be dismissed only
if the court and the Attorney General give written consent to the dismissal and their reasons for
consenting.”

However, Section 3730(c)(3) provides: “If the Government elects not to proceed

with the action, the person who initiated the action shall have the right to conduct the action.” In
any event, in U.S. ex rel. Eisenstein v. City of New York, New York, 556 U.S. 928 (2009), the
Supreme Court specified that, when the government elects not to intervene, “[t]he United States is
thereafter limited to exercising only specific rights during the proceeding,” including “vetoing a
relator’s decision to voluntarily dismiss the action, § 3730(b)(1).” Id. at 932. The consent
provision ensures that private parties prosecuting on the government’s behalf do not dismiss
legitimate claims that the government may want to ensure are prosecuted. See generally Bailey v.
Shell Western E&P, Inc., 609 F.3d 710, 719 (5th Cir. 2010).
The government now has filed a written notice of its consent, making further
discussion of the applicability of the consent requirement academic. Like the relator and the
government, the Court agrees that the “usual and customary” price fraud claims are properly
dismissed because 31 U.S.C. ' 3730(b)(5) dictates that when there is a pending False Claims Act
qui tam action, no one other than the government may bring a related action based on the facts of
the underlying pending action, and United States ex rel. Garbe v. Kmart Corp., No. 08-CV-4669
(Cent. Dist. Cal. Jul. 15, 2008), is just such a case, predating this qui tam action. In such a
situation, subject matter jurisdiction is lacking. See Bailey, 609 F.3d at 720-721.
The government would have the Court dismiss the “usual and customary” price
fraud claims with prejudice as to the relator, and without prejudice as to the United States.
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As a

general matter, the Court’s acceptance of an amended complaint amounts to a dismissal without
prejudice. See French v. Wachovia Bank, 574 F.3d 830, 835 (7th Cir. 2009); see also
Baker-McKee, Jansen, Corr, FEDERAL CIVIL RULES HANDBOOK 546 (2012). The government has
offered no rationale or authority for dismissing with prejudice relative to the relator.

Although

the relator has acknowledged that at this time subject matter jurisdiction exists only in Gabe,
neither the relator nor the government have addressed whether the Section 3730(b)(5)
jurisdictional limitation is, in effect, permanent.

Therefore, the Court will do nothing to alter

the presumption that the dismissal by way of amendment is without prejudice as to both the
United States and the relator.
Relative to the 11 plaintiff-states not included in the second amended complaint,
the amendment of the complaint merely acts to moot the relator’s request that the Court exercise
supplemental jurisdiction under 30 U.S.C. § 3732(b).1 Therefore, the Court need not await
confirmation from the 11 plaintiff-states regarding whether they consent to this Court
relinquishing supplemental jurisdiction in accordance with 28 U.S.C. 1367(c)(4), due to the
unusual nature of this action and qui tam litigation in general.
The Court and the United States have now formally consented to the dismissal by
way of amendment of the “usual and customary” price fraud claims under the False Claims Act;

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30 U.S.C. § 3732(b) grants the Court supplemental jurisdiction over related state law claims “if
the action arises from the same transaction or occurrence as an action brought under section 3730.”
In accordance with Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 496-497 (1983),
jurisdictional statutes only granting jurisdiction over a particular class of cases do not support
“arising under” original jurisdiction.
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therefore, the action may proceed on the second amended complaint.
IT IS SO ORDERED.
DATED: July 25, 2012
s/ Michael J. Reagan
MICHAEL J. REAGAN
UNITED STATES DISTRICT JUDGE

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