Fifth Circuit affirms ruling that government employees may bring whistleblower actions

Fifth Circuit affirms ruling that government employees may bring whistleblower actions

Energy
April 2, 2015

The Fifth Circuit recently affirmed a prior ruling of first impression for its court that government investigators may bring whistleblower actions in their individual capacities.  In the course of upholding its prior ruling, the court also removed U.S. District Judge Lynn Hughes from the action for stalling the proceeding and failing to heed the appellate court’s directive on remand.  

Background

In early 2006, two government auditors filed Little v. Shell Exploration & Production Co. in their individual capacities as whistleblowers under the False Claims Act (FCA), alleging the oil company had failed to pay the U.S. government at least $19 million in royalties.  The auditors were employed by the Minerals Management Service, an Interior Department agency.  They alleged Shell had avoided royalties by taking unauthorized deductions for expenses to gather and store oil on 12 of its offshore drilling platforms.  Judge Hughes initially granted summary judgment in favor of Shell in 2011 on two statutory bases.  First, he ruled §3730(b)(1) of the FCA prohibited the auditors, as government employees, from bringing suit on the government’s behalf as whistleblowers.  Second, he found their claim had already been publicly revealed and therefore the lawsuit was precluded unless the relator could demonstrate he was the “original source” of the information.  The District Court held it lacked jurisdiction due to the public disclosure bar contained in §3730(e)(4) and dismissed the FCA claim.

Initial appeal to the Fifth Circuit

Plaintiffs appealed and the Fifth Circuit reversed on both grounds.  The Court of Appeals ruled for the first time in that circuit that a government employee – even one whose job it is to investigate fraud – is deemed a “person” under the FCA and may maintain a qui tam action.  The court also addressed the standard that applies to prior public disclosures and whether this presents a bar to an FCA claim.  The guiding query is whether relators could have alleged the substance of the complaint merely by synthesizing public disclosures of a scheme.  “An irreducible minimum is that the disclosures furnish evidence of the fraudulent scheme alleged.”  The Court of Appeals reversed on this issue because the District Court had applied an overly broad definition of “public disclosure” which did not require a showing that the plaintiffs had merely synthesized public information to formulate their complaint.

On remand to the District Court

On remand, Judge Hughes (again) granted Shell’s motion for summary judgment.  The District Court held that the FCA suit was barred because the auditors’ allegations had already been exposed in previous civil suits, a government investigation, and regulatory proceedings and reports.  It was from this order that the relators recently appealed. 

The Fifth Circuit reverses again

The Fifth Circuit again reversed on February 23, 2015 stating that Judge Hughes had ignored its instructions and had reached flawed conclusions.  He had failed, for example, to determine whether the public disclosures corresponded “in scope and breadth” to the allegations in the complaint.  The Court of Appeals reassigned the case because the trial court’s opinion was “conclusory and unsupported by the summary judgment record.”  It was apparent to the three-judge panel that Judge Hughes would have “substantial difficulty in setting aside his previously expressed views” and that “reassignment would be advisable to preserve the appearance of justice, given the long delays, repeated errors, and cursory reasoning in the District Court’s opinions to date” – a resounding bench slap. 

The Fifth Circuit has now affirmed its ruling that government employees may bring whistleblower actions so long as their suit is not based upon publicly disclosed information.  This opinion frees a new category of whistleblowers to file claims in the Fifth Circuit. 

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