The opinion
Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
9-29-1999
United States v Univ. of Pittsburgh
Precedential or Non-Precedential:
Docket 98-3552
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Filed September 29, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 98-3552
UNITED STATES OF AMERICA,
ex rel. ERDEM I. CANTEKIN, an individual
v.
UNIVERSITY OF PITTSBURGH, a non-profit Pennsylvania
corporation; CHILDREN'S HOSPITAL OF PITTSBURGH, a
non-profit Pennsylvania corporation; CHARLES D.
BLUESTONE, an individual;
United States of America, ex rel. Erdem I. Cant ekin,
Appellant
(Amended pursuant to Clerk's order dated 1/7/99)
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. No. 91-cv-00715)
District Judge: Hon. Donald E. Ziegler, Chief Judge
Argued June 17, 1999
BEFORE: NYGAARD, STAPLETON and COWEN,
Circuit Judges
(Filed September 29, 1999)
Robert L. Potter, Esq.
Strassburger, McKenna, Gutnick
& Potter
322 Boulevard of the Allies
Suite 700
Pittsburgh, PA 15222
Edward T. Dangel, III, Esq. (Argued)
Dangel & Fine
10 Derne Street
Boston, MA 02114
Counsel for Appellant
Hunter A. McGeary, Jr., Esq.
David B. Fawcett, Jr., Esq.
Dickie, McCamey & Chilcote
Two PPG Place Suite 400
Pittsburgh, PA 15222-5402
Counsel for Appellee Children's
Hospital of Pittsburgh, a non-profit
Pennsylvania corporation
Martha H. Munsch, Esq. (Argued)
Jack B. Cobetto, Esq.
Reed, Smith, Shaw & McClay
435 Sixth Avenue
Pittsburgh, PA 15219-1886
Counsel for Appellees Charles D.
Bluestone, an individual and
University of Pittsburgh, a non-
profit Pennsylvania corporation
OPINION OF THE COURT
COWEN, Circuit Judge.
This case concerns a medical researcher's failure to
disclose his industry funding on a number of grant
applications that he submitted to the National Institutes of
Health (NIH). The undisclosed funding included several
million dollars from pharmaceutical companies making the
drugs that the NIH paid the researcher to evaluate.
2
On this appeal we must determine when a private party
can properly bring a suit under the False Claims Act's qui
tam provision, 31 U.S.C. S 3730(b), which allows an
individual to sue on the government's behalf for damages
caused by another party's false claims. Congress has
changed several times the rules limiting when a private
party can bring a qui tam suit under the False Claims Act.
We must resolve which of two versions of the Act apply to
the various grant applications that the researcher
submitted to the NIH and what effect each version has on
the claims it controls.
A recent Supreme Court decision, Hughes Aircraft Co. v.
United States ex rel. Schumer, 520 U.S. 939, 117 S.Ct. 1871
(1997), discussed the retroactivity of the 1986 Grassley
Amendments, Congress's latest change to the Act's qui tam
rules. Applying Hughes, the District Court concluded that
Erdem Cantekin, the appellant, could not pursue qui tam
claims based on grant applications that Charles Bluestone,
the researcher and appellee, submitted before October 27,
1986. Although our reasoning differs from the District
Court's, we will affirm its ruling on these applications
submitted in 1986 or earlier.
For Cantekin's remaining qui tam claim, which was based
on an application submitted after the effective date of the
1986 amendments, the District Court granted summary
judgment in favor of Bluestone and the other defendants
because the Court concluded that Bluestone did not
knowingly omit his industry funding from the application.
Contrary to the District Court, we conclude that genuine
factual disputes preclude summary judgment on whether
Bluestone knowingly submitted a false claim.1
I
Both the appellant, Erdem Cantekin, and the appellee,
_________________________________________________________________
1. The University of Pittsburgh and Children's Hospital of Pittsburgh
joined Bluestone in applying for various grants and were also named as
defendants. For convenience, we have referred throughout our opinion to
the claims against Bluestone, but our analysis applies equally to the
other named defendants.
3
Charles Bluestone, are professors of otolaryngology at the
University of Pittsburgh's medical school and have worked
together on research since the early 1970s. As part of their
collaboration, they created the Otitis Media Research
Center to investigate acute otitis media and otitis media
with effusion, two ear diseases common in children.
Much of the research they conducted together focused on
testing the effectiveness of various antibiotics, such as
amoxicillin, in treating the different types of otitis media.
This research was particularly significant because while the
drugs are widely used, controversy continues about the
desirability and effectiveness of using antibiotics for these
conditions. Not only are there medical reasons for worrying
about unwarranted use of antibiotics, but also according to
Cantekin's brief, the public spends over half a billion
dollars annually buying antibiotics to treat the various
forms of otitis media.
To pursue the research on antibiotics, Bluestone
submitted numerous grant applications to the NIH
throughout the 1970s and 1980s and ultimately was
awarded approximately $17.4 million. At the same time,
Bluestone began receiving funding from various
pharmaceutical companies to test the effectiveness of their
antibiotics in treating otitis media. Collectively, this
industry funding totaled approximately $3.4 million.
Cantekin claims that as early as 1976, he raised with
Bluestone his failure to list his industry funding on his NIH
grant applications, but Bluestone allegedly brushed him off,
saying that he was not going to tell the "federal feather
merchants" because it was "none of their business" and
would "muddy up the waters." App. at 523. Cantekin also
disputed Bluestone's interpretation of research results, in
particular the results of several industry-funded studies.
In May of 1987, Cantekin wrote to the NIH complaining
about Bluestone's conduct, but the NIH chose to take no
action, instead deferring to an investigation conducted by
the University of Pittsburgh. When the university
announced on June 22, 1987 that it had cleared Bluestone
of any wrongdoing, the NIH dropped the matter.
Dissatisfied with the university's investigation and with the
4
NIH's reliance on it, Cantekin later testified before the
United States House of Representatives at hearings
investigating scientific fraud in federally funded research.
While the congressional report from the hearings was
pending, the NIH decided to conduct its own inquiry into
Bluestone's conduct. The resulting report by Howard Hyatt,
then director of the NIH's Division of Management Survey
and Review, concluded that Bluestone and the Otitis Media
Research Center had "not generally disclosed to NIH the
extent of its industry-sponsored research." App. at 508. But
Hyatt continued that since the grant instructions were
ambiguous, Bluestone's conduct was excusable. Hyatt also
rejected Cantekin's claim that Bluestone's research results
were biased.
On September 10, 1990, the House released its report,
which discussed ten cases where grant recipients had
engaged in misconduct. See H.R. Rep. No. 101-688, Are
Scientific Misconduct and Conflict of Interest Hazardous to
Our Health?, 19th Report, Committee on Government
Operations, 101st Cong., 2d Sess. (Sept. 10, 1990).
Bluestone's case was included among the ten. The House
report excoriated both the University of Pittsburgh's
investigation as well as Hyatt's report and challenged many
of their findings. Several months later, in December of
1990, the NIH issued a new report by the agency's recently
created Office of Scientific Integrity (OSI), which had
reopened the agency's inquiry into Bluestone's conduct. Dr.
Suzanne Hadley, then Acting Deputy Director of OSI, was
in charge of this second NIH investigation. Her affidavit
explained that the OSI report
recommended that the Director of NIH require that Dr.
Bluestone be place on a period of five years of
administrative oversight for having failed to disclose his
private pharmaceutical company research to NIH and
having analyzed the data from NIH-funded research in
a manner biased towards the effectiveness of the
antibiotics he had evaluated with public monies.
App. at 481.
To illuminate how Bluestone's failure to disclose his
industry funding could have affected the NIH's approval of
5
his grants, Cantekin provided the following overview of the
application process. Applications are first assigned to one of
several institutes within the NIH. In Bluestone's case, his
applications were sent to the National Institute for
Neurological, Communication Disorders, and Stroke, which
then forwarded them to the Communication Disorders
Review Committee (CDRC), one of the review committees
within the institute. A review committee is the body
primarily responsible for evaluating the merits of
applications like Bluestone's. Each review committee is
composed of experts who are not NIH employees and are
paid per diem for evaluating the applications. Frequently,
the review committee members have themselves received
NIH grants in conducting their own research.
The review committee takes two votes on an application.
The first vote is to "approve" or "disapprove" the requested
grant; receiving approval at this stage, however, does not
assure that the application will be funded. The application
may still be rejected based on the second vote, which
establishes a "priority score." To determine the priority
score, each member of the review committee gives the
proposal a score between 1, for the highest priority, and 5
for the lowest. Each member's score is then added together,
the total is divided by the number of members, and the
resulting average is multiplied by 100, yielding thefinal
priority score. Thus, the highest priority score possible is
100 and the lowest 500.
In 1984, Bluestone and Children's Hospital of Pittsburgh
submitted an application to extend an earlier grant by five
years. Their first request for an extension received a priority
score of 154 and was not funded, but later Bluestone and
the Otitis Media Research Center submitted a revised
application that received a priority score of 131, which was
good enough to receive funding.
If we combine the NIH's method of calculating the priority
score and the rough guideline that an application with a
score of 154 or higher would not receive funding, at least
around the time that Bluestone's application was
considered, we can see that one or two members can easily
raise an applicant's priority score above the cut-off for
funding. For example, votes of 1, 1, 1, 1, and 5 yield a
6
priority score of 180; and votes of 1, 2, 1, 1, and 3 yield a
score of 160. Even votes of 1, 1, 1, 1, and 3 could place an
applicant on the edge of rejection with a priority score of
140.
After the priority vote, an executive secretary, who
functions as a staff member for the committee, writes a
report describing the review committee's deliberations and
submits the report to the Council of the Institute. The
council receives applications from the various review
committees within the institute and makes the final
determination of which applications will be funded. Council
members, like the review committee members, are not NIH
employees and are chosen for their expertise in their field.
Unlike the review committee members, however, council
members are appointed to serve for four-year terms.
Once a multi-year grant has been approved for funding,
NIH assigns the grant to a "program administrator," who is
in charge of administering the grant. Each year the grant's
principal investigator, Bluestone in our case, and the
grantee institution must submit a special continuing
application, or progress report. These progress reports are
"noncompetitive" in that funding during the allotted time
has already been approved. The purpose of the progress
reports is to informed the NIH of how the research is
advancing, identify the amount of the budget for the next
year, and provide information about key personnel engaged
in the research.
Two of the five members of an NIH review committee that
voted to approve one of Bluestone's grants stated in
affidavits that if they had known about his industry
funding, it would have affected their decision. Dr. Perkell,
one of the review committee members, said that Bluestone's
undisclosed industry funds were not "common knowledge."
He continued:
[I]t is my opinion that had Dr. Bluestone disclosed his
relationships with the private pharmaceutical industry,
the competing renewal application of NS 16337 which
came before the Review Committee of which I was a
member would have been evaluated more critically with
regards to: demands on investigator time, possible
7
conflicts of interest, the effects of bias on the value of
the proposed studies, safeguards in the study design to
ensure unbiased interpretation and evaluation of the
results of the proposed studies. The more critical
evaluation would have had an impact on the
recommendation for approval and on the priority score.
The impact on the priority score I gave would have
been material and negative. In my opinion, based on
my knowledge of past behavior of my fellow ]members
of the Review Committee in evaluating and assigning
priority scores to several hundred other applications
the impact on the overall priority funding score would
have been material and negative.
App. at 473-74.
Dr. Schwartz, the chair of the review committee, also
stated in an affidavit that she was unaware of Bluestone's
industry funding and that had she known, it would have
had a "material and negative" effect on her evaluation of the
application. She explained that a researcher who receives
substantial funding from a pharmaceutical company can be
subtly biased in favor of finding that the company's drugs
are effective. Disclosure of this potential source of bias is
important to reviewers even if the grant might be ultimately
approved since the review committee might not approve the
application until certain additional safeguards are
implemented. "When bias, or potential bias, are revealed by
disclosure of a funding source with a vested interest in the
outcome of the research, reviewers are alerted to look for
defects in the experimental design which could compromise
the work proposed." App. at 1125. Elsewhere, she
explained:
A bias experimenter can still perform valid work, but
the experiments must be carefully designed so that
enrolled patients are randomly assigned to different
test groups, objective criteria for measuring function
are used, and both subject and observer are blinded as
to which experimental condition (i.e. new drug, current
standard drug, or other control substance) applied to a
particular subject. Appropriate statistical tests must be
applied to the data to assure that interpretations of
efficacy of the test drugs are valid.
8
Id.
The three other members of the review committee, Drs.
Miller, Meyerhoff, and Goode, all submitted affidavits saying
that they were aware of Bluestone's industry funding. Dr.
Miller, for example, stated that "I was fully aware that Dr.
Bluestone was receiving very substantial support from
private pharmaceutical companies to do drug efficacy
studies. . . . I was not at all troubled by the fact that Dr.
Bluestone was receiving such funding." App. 1104-05.
None of the three, however, informed Drs. Perkell or
Schwartz of this outside funding. Dr. Schwartz's affidavit
notes that the other committee members did not mention
Bluestone's undisclosed funding at the review committee
meetings, nor did they "raise the issue of possible conflicts
of interest or of the adequacy of safeguards to control
against bias in the interpretation of study results..." App. at
1125.
II
We have jurisdiction pursuant to 28 U.S.C. S 1291, and
we exercise plenary review of a district court's grant of
summary judgment. Barnes v. American Tobacco Co., 161
F.3d 127, 138 (3d Cir. 1998). On a motion for summary
judgment, a court must determine whether the evidence
shows that "there is no genuine issue as to any material
fact and that the moving party is entitled to judgment as a
matter of law." Fed.R.Civ.P. 56(c). Factual disputes invoked
to resist summary judgment must be both material in the
sense of bearing on an essential element of the plaintiff 's
claim and genuine in the sense that a reasonable jury could
find in favor of the nonmoving party. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248-251, 106 S.Ct. 2505, 2510-
12 (1986). A court should not prevent a case from being
presented to the jury simply because the court favors one
of several reasonable views of the evidence, for"the judge's
function is not himself to weigh the evidence and determine
the truth of the matter but to determine whether there is a
genuine issue for trial." Anderson, 477 U.S. at 249, 106
S.Ct. at 2511.
9
III
We begin with the threshold issue of which grant
applications can be subject to a qui tam suit. Prior to the
1986 amendments to the False Claims Act, a private party
was barred from bringing a qui tam suit if the action was
"based on evidence or information the Government had
when the action was brought." 31 U.S.C. S 3730(b)(4) (1982
ed.). The government itself, of course, could still bring suit
for such a violation; only private parties were barred from
seeking recovery. The implicit logic of the pre-1986 law was
that if the government had the relevant information before
the plaintiff initiated suit, then the government must be
aware of the false claims and didn't need the assistance of
private parties to ferret them out. And if the government
knew about the information yet did nothing, then the
government probably thought the suit meritless, and any
private action was apt to be spurious, driven only by the
lure of the Act's sizable damages.
Despite the pre-1986 law's legitimate aim of preventing
spurious suits, its bar for qui tam suits imperfectly
achieved its purposes for a variety of reasons: 1) the
government lacks the resources to investigate and
prosecute all false claims even when the government has
information revealing fraud; 2) a government official who is
deemed to "have" the information may not recognize the
connection between the information and a particular false
claim; 3) the official may have an interest in not bringing
the fraud to light for a number of reasons, such as an
interest in protecting the official's or the agency's
reputation; and 4) other mechanisms, more directly focused
on the merits of a suit, are available for filtering out
spurious claims. Congress was also concerned that under
the old law, whistleblowers who came forward and exposed
fraud to government officials before filing suit were later
being barred from bringing a qui tam suit. Indeed, as our
discussion below makes clear, Cantekin's case itself
illustrates this consequence of the pre-1986 law.
With the enactment of the Grassley Amendments,
Congress generally gave greater scope to qui tam suits.
Among other changes, such as increasing the damages
from double to treble the harm caused, and increasing the
10
percentage that a qui tam plaintiff received of those
damages, compare 31 U.S.C. SS 3730(a) and (c) (1982 ed.)
with 31 U.S.C. SS 3730(d)(1) and (2), the amendments also
eliminated the old law's bar to qui tam suits.
Instead of prohibiting all qui tam suits that are based on
information the government "has" when the suit is brought,
the Grassley Amendments introduced a new standard: a qui
tam suit will be barred only if it is based on information
that was "publicly disclosed" at various hearings, in certain
types of reports, or by the media. 31 U.S.C. S 3730(e)(4)(A).
Information that the government "has," but that was never
publicly disclosed, does not bar a qui tam suit. Even if there
is "public disclosure" within the meaning of the Grassley
Amendments, a qui tam suit can still go forward if the
plaintiff is an original source of that publicly disclosed
information. 31 U.S.C. S 3730(e)(4)(B). An original source is
defined as someone who has "direct and independent
knowledge" of the information and who has "voluntarily
provided" the government with the information before the
suit was initiated. Id.
Groundless suits are addressed in part by provisions
requiring that all qui tam plaintiffs submit sealed
information to the government before the suit proceeds.
After reviewing this information, the government can decide
whether to join the suit, allow the private party to continue
alone, or, most significantly, dismiss the suit. See 31 U.S.C.
SS 3730(b)(2) and (c)(2)(A).
In Hughes Aircraft Co. v. United States ex rel. Schumer,
520 U.S. 939, 117 S.Ct. 1871 (1997), the Supreme Court
held that the 1986 amendments did not apply retroactively
to conduct occurring prior to the amendment's effective
date. The Court stated in a footnote, however, that since in
Hughes both the "false claim submission" and the
"disclosure to the government" of the fraud occurred before
the effective date of the 1986 amendments, the Court did
not have to address which of the two events should be used
for determining retroactivity. 520 U.S. at 946, n. 4, 117
S.Ct. at 1876, n.4.
In applying Hughes, the District Court concluded that for
all of Bluestone's grant applications submitted prior to the
11
1986 effective date, the date of "disclosure to the
government" also occurred before October 27, 1986. Thus,
the District Court decided that, as in Hughes, it did not
have to resolve whether the disclosure date or the date of
submission controls.
Although the parties sharply dispute whether there was
"disclosure to the government" prior to the 1986 effective
date, we need not resolve the issue. We conclude that even
though the Supreme Court did not expressly reach in
Hughes whether retroactivity is determined based on the
submission date or the disclosure date, the Court's analysis
strongly supports using the former, i.e., the date the
allegedly false claim was submitted. And once we use the
submission date and apply the pre-1986 law to all grant
applications submitted prior to the October 27, 1986
effective date, there can be no doubt that before Cantekin
began his qui tam suit, the government "had" the
information upon which it was based.
By the time Cantekin filed his complaint in the District
Court on April 29, 1991, the House had conducted its
hearings and issued its report, and the NIH had issued
both Hyatt's memo and the later report by the Office of
Scientific Integrity. These events unquestionably establish
that the government had the information on which
Cantekin's suit was based.2 Thus, the only live issue is why
we should use the submission date for determining
retroactivity.
When the Supreme Court concluded in Hughes that the
Grassley Amendments should not be applied retroactively,
_________________________________________________________________
2. Cantekin objects that when the District Court granted summary
judgment against his pre-1986 claims, the Court erred by converting a
12(b)(6) motion into a motion for summary judgment without first giving
adequate notice and an opportunity to respond. See, e.g., Rose v. Bartle,
871 F.2d 331, 342 (3d Cir. 1989). Cantekin raised this point in a motion
for reconsideration, but the District Court rejected the argument, noting
that under Rose a failure to give notice can be excused if "harmless." Id.
Since we evaluate retroactivity based on the submission date, and since
it is undisputed that Cantekin's suit was filed after the NIH and
Congressional investigations, we conclude that any error stemming from
the conversion of the motion was indeed harmless.
12
the Court recognized that knowingly submitting a false
claim is illegal under both versions of the statute. The
Court also noted that under both the amended statute and
the previous statute, the total amount of a defendant's
liability does not depend on who sued; the defendant must
pay the same amount regardless of whether the government
or a qui tam relator brought the action. Nonetheless, the
Supreme Court reasoned that the amendment's change in
when qui tam suits can be brought does impose new
penalties on defendants.
While we acknowledge that the monetary liability faced
by an FCA defendant is the same whether the action is
brought by the Government or by a qui tam relator, the
1986 amendment eliminates a defense to a qui tam
suit -- prior disclosure to the Government -- and
therefore changes the substance of the existing cause
of action for qui tam defendants by "attach[ing] a new
disability, in respect to transactions or considerations
already past."
520 U.S. at 948, 117 S.Ct. at 1877 (citations omitted). After
noting that the 1986 amendments eliminate a defense, the
Court commented that the amendments also in effect create
a new cause of action because the courts are open to an
expanded class of plaintiffs.
We think this reasoning would be in deep tension, if not
outright conflict, with using the date of disclosure instead
of the date of submission for determining retroactivity. Our
primary rationale is very simple. If we invoked the
disclosure date to apply the amendments to a false claim
submitted before the amendment's effective date, then the
new penalties listed by the Court, i.e., the loss of a defense
and the creation of a new cause of action, would be
imposed after the defendant acted. The reason that using
the disclosure date would have this effect is that the
defendant's conduct ends with submitting the false claims;
the defendant is not the one, or at least not usually, who
makes the disclosure to the government. Since the Court
rejected in Hughes an application of the Grassley
Amendments that would allow the law to "attach new
disabilities" to conduct committed prior to the amendment's
13
passage, we think the Court implicitly foreclosed using the
disclosure date.
Another problem with using the date of "disclosure to the
government" to determine retroactivity is that it is not clear
what test should be applied to determine that date. The
Supreme Court's phrase "disclosure to the government,"
straddles the 1986 amendment's "public disclosure"
language and the pre-1986 standard of "information the
government had." By speaking of disclosure "to" the
government, rather than disclosure "by" the government,
the Supreme Court's language may suggest that the Court
was referring to the pre-1986 "government knowledge" test.
The "government knowledge" test is primarily focused on
what other people release to the government while the
amendment's "public disclosure" test has a substantial
emphasis on information released by government . On the
other hand, the Supreme Court's phrase, "disclosure to the
government," does not accurately capture the pre-1986 law
since the government could "have" the information within
the meaning of the pre-1986 test based on what the
government learned from its own investigative efforts. And
by speaking of "disclosure," and not information the
government "has," the Supreme Court's language is
suggestive of the "public disclosure" test.
Regardless of how one parses the language, however, the
real problem is that choosing between the pre- and post-
1986 standards injects a kind of circularity into the
retroactivity analysis. To determine the date of"disclosure
to the government," we must apply either the pre-or post-
1986 test in order to decide whether we will apply the pre-
or post-1986 test to the alleged false claim. This awkward
need to stipulate at the outset what our analysis is
supposed to decide reinforces our conclusion that the date
the claim was submitted should determine the retroactivity
of the Grassley Amendments.3
_________________________________________________________________
3. It is true that a court could apply pre-1986 law to assign a date to
the
"disclosure to the government" and yet stillfind that post-1986 law
should ultimately control the claim. For example, suppose that after the
defendant submitted a false claim in 1985, the plaintiff informed the
government of the fraud in 1987, filed a qui tam suit in 1988, and
14
The District Court noted in passing that a Ninth Circuit
opinion, decided before the Supreme Court's opinion in
Hughes, relied on the disclosure date for determining the
retroactivity of the Grassley Amendments. See United States
ex rel. Anderson v. Northern Telecom., Inc., 52 F.3d 810,
814 (9th Cir. 1995). The main problem with Anderson is
that its reasoning rested heavily on the point that "the 1986
amendment did not change the legal consequences of
[defendant] Northern Telecom's conduct." 52 F.3d at 814.
Since Hughes rejected that position and emphasized that
the Grassley Amendments do "attach new disabilities" to a
defendant's past conduct, we think that Anderson's
authority has been undermined. In short, we conclude that
we should use the date the claim was submitted for
determining the retroactivity of the Grassley Amendment's
"public disclosure" bar to qui tam suits.
Did Bluestone knowingly submit false claims?
Not all of Cantekin's claims were based on grant
applications submitted prior to October 27, 1986. On
January 28, 1987, Bluestone submitted a new grant
application without listing his industry funding, and he
again failed to disclose when he revised the application on
May 1, 1987. The District Court dismissed Cantekin's qui
_________________________________________________________________
qualified as an original source. Even if we applied the pre-1986 law to
date "disclosure to the government," we would not bar the plaintiff 's
suit. This follows because the date that the government learned of the
fraud, i.e., sometime in 1987, was after the effective date of the 1986
amendments. And once we applied the amended law, we would see that
the plaintiff could go forward with the suit since the plaintiff is an
original source, and no public disclosure occurred aside from the
plaintiff's suit.
The circularity of our presupposing pre-1986 law isn't really
eliminated, however, just because in a certain class of cases using the
pre-1986 law to assign a date to disclosure leads us to apply post-1986
law. We still need a justification for applying the pre-1986 law at the
outset when it may foreclose many claims that the post-1986 disclosure
test would not. We could, of course, appeal to the considerations cited in
Hughes for using the pre-1986 law. But once we adopt those arguments,
we have reason to abandon the "date of disclosure" altogether as a way
of determining retroactivity.
15
tam claim based on this revised application because the
Court concluded on summary judgment that the evidence
"does not permit a finding that Dr. Bluestone`knowingly'
submitted false or fraudulent claims to the government."
App. at 1627.
The False Claims Act defines "knowing" and"knowingly"
as including a defendant's "actual knowledge," "deliberate
ignorance," or "reckless disregard" of the truth or falsity of
information in the defendant's claim to the government. 31
U.S.C. S 3729(b). The statute adds that "no proof of specific
intent to defraud is required." Id. In applying these
standards to the record before us, we must heed the basic
rule that a defendant's state of mind typically should not be
decided on summary judgment. See, e.g. , Hunt v.
Cromartie, ___ U.S. ___, 119 S.Ct. 1545, 1552 (1999).
The District Court's primary rationale for granting
summary judgment was that the grant application and
instructions were unclear. Before we address whether the
instructions are ambiguous, or more properly whether there
is no genuine dispute that they are, we note that Cantekin
stated in his affidavit that he specifically informed
Bluestone that he should disclose his private funding.
In 1976, when Dr. Bluestone and I were applying for
various NIH grants, I raised with Dr. Bluestone the
question whether he, as principal investigator, should
not be disclosing to NIH his other research support,
especially from pharmaceutical companies. Dr.
Bluestone replied that it was "none of their business,"
and that he was not going to tell the "federal feather
merchants" because it would "muddy up the waters."
Dr. Bluestone added that "idiots like Buckminster
Ranney would not understand." Dr. Buckminster
Ranney was an NIH-employee working with the
National Institute of Neurological, Communicative
Disorders, and Stroke ("NINCDS") with whom Dr.
Bluestone had dealt.
App. at 523. This affidavit not only creates a genuine
dispute that Bluestone "knowingly" omitted his industry
funding, but it also provides evidence that Bluestone had
the specific intent to defraud, proof of which is not required
for a violation of the False Claims Act.
16
Even apart from the evidence that Bluestone was
specifically informed that he should disclose his industry
funding, we conclude that there is ample evidence that the
instructions are clear. Other members of Bluestone's Otitis
Media Research Center correctly followed the instructions
and disclosed their outside research funding, including
private sources. App. at 38. Similarly, one of the NIH review
committee members, Schwartz, stated in his affidavit that:
I have written or helped to write numerous NIH grant
applications for fellowships, research grants, program
projects and training grants. As principal investigator I
have held an R01 grant from NIH which has been
continuously funded since 1972 involving seven
competing renewals and several revised resubmissions
. . . I have always found directions for completing the
"other support" pages of NIH grant applications to be
unambiguous.
App. at 439-40. Another member of the review committee,
Perkell, submitted a similar affidavit saying that he had
applied for and received a number of NIH grants and found
the "other support" section to be unambiguous.
A review of the instructions themselves suggests that
they clearly indicate that industry funding should be
disclosed. On the page that instructs applicants to list their
"other support," the form provides:
For each of the professionals named on page 2, list, in
three separate groups: (1) active support; (2)
applications pending review and/or funding; (3)
applications planned or being prepared for submission.
Include all Federal, non-Federal, and institutional
grant and contract support. If none, state "NONE." For
each item give the source of support, identifying
number, project title, name of principal investigator /
program director, time or percent of effort on the
project by professional named, annual direct costs, and
entire period of support. (If part of a larger project,
provide the titles of both the parent grant and the
subproject and give the annual direct costs for each.)
Briefly describe the contents of each item listed. If any
of these overlap, duplicate, or are being replaced or
17
supplemented by the present application, justify and
delineate the nature and extent of the scientific and
budgetary overlaps and boundaries.
App. at 1196 (emphasis in original). The instructions
specifically request that the applicant list "all... non-
Federal... support" and give detailed information about each
grant.
In concluding that the instructions were ambiguous, the
District Court relied on Hyatt's report, which cited an
earlier version of the instructions and said that"many
institutions were found to interpret those instructions
improperly." App. at 509. Hyatt explained that the NIH
changed the instructions to avoid ambiguities.
The District Court's reliance on Hyatt's memo is
problematic for a number of reasons. First, Bluestone's
post-1986 grant applications used the improved
instructions. Second, even if potential confusion from the
earlier applications was relevant, perhaps because the
earlier instructions gave Bluestone erroneous expectations,
we seriously question whether the earlier instructions were
ambiguous. The instructions that Hyatt claimed were
ambiguous read in part:
List all research support for each individual including
requests now being considered, as well as any
proposals being planned, regardless of relevance to this
application. Include also current awards, research
career program awards, training grants, regardless of
the source of support.
App. at 509. Hyatt apparently believed that these
instructions were ambiguous because, unlike the improved
instructions, they did not specifically refer to"non-Federal"
sources. The instructions did, however, direct applicants to
list "all" research support "regardless of source" and
"regardless of relevance." Hyatt claimed that"many"
institutions had incorrectly interpreted the earlier
instructions, but the drafter of the NIH forms testified that
he could not recall any specific case, except Bluestone's of
course, where a researcher misunderstood what was
required by the "other support" question.
18
Third, the House report sharply criticized Hyatt's
conclusions and explained that:
NIH officials were incorrect in describing the content of
the NIH forms; the section regarding "Other Support"
was revised in late 1979 and revised forms, containing
the more explicit language were available to applicants
in 1980 or 1981, depending on the type of application.
App. at 38.
Fourth, Dr. Hadley, the Acting Deputy Director of the
NIH's Office of Scientific Integrity, asserted in her affidavit
that she had not encountered any evidence that applicants
found the instructions to be ambiguous.
In my opinion and based on my [prior] experience as
an Executive Secretary [who works with review
committees in evaluating grant applications,]... there
was never any problem with ambiguity in PHS
instructions on how to complete the "Other Support"
section of a PHS Grant Application or Continuation
Application. From Fall, 1979 on, the instructions
explicitly required the disclosure of all sources of
support, both federal and non-federal.
App. at 482.
Finally, one can infer that Bluestone, a highly-educated
professional, would have been aware that the NIH might be
interested in his industry ties when the agency decided
whether to award him substantial funding to test a key
drug in a half-billion dollar industry. As Cantekin points
out, people are likely to give much greater weight to NIH
research than to the findings of companies making the
drugs at issue. Given this greater public trust in the results
of government-funded research, and the undeniable risks of
bias, the government clearly has a strong interest in
ensuring that it acts as an impartial investigator, especially
when investigating treatments that have a disputed efficacy
and a high aggregate cost. Bluestone can be reasonably
expected to know of the government's heightened interest in
avoiding bias. As a scientist, he must be fully aware that
rooting out potential sources of bias in our interpretations
of empirical data is central to scientific inquiry.
19
The District Court and the appellees' next argument is
that in the materials accompanying some of Bluestone's
applications, there were references to his industry funding.
These references were by no means complete disclosures of
the grants he was receiving from pharmaceutical
companies, nor did the references include the full
information, such as the amount of the funding, that was
requested in the "Other Support" section of the grant
application. Furthermore, many of the references that the
appellees rely upon were included with "progress reports,"
which were submitted after a grant was approved. But the
most important point is that scattered references buried in
voluminous accompanying materials do not comply with
the application's disclosure requirements.
When a reviewer is faced with complex proposals that
include large masses of accompanying information, it
makes sense to insist that the applicants must disclose in
one place the applicant's other grants that may raise
conflicts of interests or impose competing demands on the
applicant's time. A reviewer who is reading an applicant's
accompanying journal article may not notice, while
engrossed in the details of a specialized scientific issue, a
fleeting reference to private funding and think of its
significance for potential conflicts of interest. Applications
distill and organize information for a reason.
Evidence in the record bears out this point. One of the
review committee members, Perkell, stated in his affidavit
that:
As a grant reviewer and evaluator I have always looked
to the "Other Support" pages to form an estimate of the
percentage of effort the Principal Investigator and other
investigators have available to do the proposed work, to
look for possible overlap between proposed projects
and others already funded or pending, and to identify
possible conflicts of interest or possible sources of bias
in the experiments. These factors are important to me
in evaluating an application as a whole and in
assigning it a priority score.
App. at 472. Schwartz, another review committee member,
likewise stated in her affidavit that she relies on the "Other
20
Support" section to gauge how much time the applicant has
to spend on the research, whether the proposal is
duplicative, and what conflicts of interest the applicant
might have. Despite the references Bluestone cites in the
accompanying materials, neither Schwartz nor Perkell was
aware of Bluestone's industry funding, and both said it
would have affected their evaluation of his application.
The District Court's last reason for concluding that
Bluestone did not knowingly submit a false claim is that he
sent a letter on June 23, 1987 to Elkins, his program
administrator, listing his industry funding. Wefind the
District Court's reliance on this letter unconvincing. Not
only was it written months after Bluestone submitted his
application in January and May of 1987, but more
important, the letter was only sent after he was under
investigation. Given that Bluestone only sent the letter after
Cantekin made his allegations to the NIH and the
university, the timing of the letter tends to reinforce, not
undermine, Cantekin's allegations that Bluestone knew
that he was supposed to disclose his industry funding. One
can easily infer that the letter was not an expression of an
honest oversight, but an attempt to cover up prior
misconduct and limit its damage.
Cantekin alleges that program administrators' interests
are more closely allied with grant applicants' than any
other NIH official, so it is noteworthy that Bluestone chose
to notify Elkins, and Elkins alone, at the NIH. Reading the
evidence in the light most favorable to the nonmoving party,
if Bluestone calculated that disclosure to Elkins would be
the least damaging step he could take, his judgment
apparently proved correct since the letter he sent to Elkins
was never forwarded beyond the program-administration
offices.
Another problem with relying on Bluestone's letter to
Elkins as a way of exonerating him for submitting a false
claim is that the False Claims Act has a specific provision
dealing with someone who comes forward and discloses his
or her false claims. The statute provides that:
[I]f the court finds that --
21
(A) the person committing the violation of this
subsection furnished officials of the United States
responsible for investigating false claims violations with
all information known to such person about the
violation within 30 days after the date on which the
defendant first obtained the information;
(B) such person fully cooperated with any Government
investigation of such violation; and
(C) at the time such person furnished the United States
with the information about the violation, no criminal
prosecution, civil action, or administrative action had
commenced under this title with respect to such
violation, and the person did not have actual
knowledge of the existence of an investigation into
such violation;
the court may assess not less than 2 times the amount
of damages which the Government sustains because of
the act of the person. A person violating this
subsection shall also be liable to the United States
Government for the costs of a civil action brought to
recover any such penalty or damages.
31 U.S.C. S 3729(a)(7).
The first point worth noting is that this provision merely
reduces the defendant's liability from treble to double
damages; it does not exonerate a defendant for a violation.
Second, Bluestone's letter of June 23 was more than 30
days after the date he made his false statements. Third,
Bluestone's letter was sent after he was under
investigation, and thus he arguably cannot satisfy
subsection (C). It also may be open to dispute whether he
has "fully cooperated" or provided "all information" that he
knew about the violation.
Taking up a different issue, the District Court cited
United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1266-
67 (9th Cir. 1996) for the proposition that a "technical
violation of rules and regulations of an agency is not
actionable under the FCA." App. at 1627. What the Ninth
Circuit held in Hopper, however, was that not every
regulatory violation is tantamount to making a knowingly
22
false statement to the government. Since the regulatory
violation in Hopper did not involve making a knowingly
false statement in a claim submitted to the government, the
court held there was no violation of the False Claims Act.
Thus, Hopper does not stand for the proposition that before
a court allows a suit to proceed under the False Claims Act,
it must weigh how serious it thinks a particular knowing
falsehood was in a claim submitted to the government.
Although we reject the District Court's reading of Hopper,
the Court's remark about "technical violations" suggests
two slightly different objections: Bluestone's omissions were
not material, and even if they were, they did not cause any
damages to the government. We will consider first the
materiality objection.
Courts have held that claims under the False Claims Act
are subject to a judicially imposed materiality requirement.
See, e.g., Harrison v. Westinghouse Savannah River Co.,
176 F.3d 776, 784 (4th Cir. 1999). And the Supreme Court
recently held in Neder v. United States,_U.S._, 119 S.Ct.
1827 (1999) that there is a materiality requirement under
the federal mail-fraud, wire-fraud, and bank-fraud statutes.
In a footnote, the Supreme Court indicated, however, that
the term "false statement," unlike "fraudulent statement,"
does not imply a materiality requirement. Neder, 119 S.Ct.
at 1840 n.7. Given that the False Claims Act prohibits
merely making a knowingly false claim and does not require
a specific intent to defraud, perhaps Neder argues against
a materiality requirement. In any event, we need not decide
whether there is a materiality requirement under the False
Claims Act, because even if there is, we think it is clear
that Bluestone's failure to disclose his industry funding
would readily qualify as material. In Neder, the Supreme
Court quoted from the Restatement (Second) of Torts,
which provides two alternatives for showing that a matter is
material:
(a) a reasonable man would attach importance to its
existence or nonexistence in determining his choice of
action in the transaction in question: or
(b) the maker of the representation knows or has
reason to know that its recipient regards or is likely to
23
regard the matter as important in determining his
choice of action, although a reasonable man would not
so regard it.
Neder, 119 S.Ct. at 1840 n.5 (quoting Restatement (Second)
of Torts S 538 (1976)).
As recounted above, industry funding is relevant for
assessing conflicts of interest, how much time an applicant
has to devote to the requested NIH grant, and how the
research fits within a broader research program. Because
the NIH specifically requests the information on its form,
and because the value of this information is readily
apparent, we think that the information is material: a
reasonable NIH grant applicant would know that the NIH
regards the information as important.
We turn now to the issue of damages. Even if the letter
to Elkins does little to undermine Cantekin's claim that
Bluestone knowingly submit false claims, the appellees
argue that the letter still shows that his earlier failure to
disclose caused no harm. Bluestone sent the letter to
Elkins on June 23, 1987, but his pending post-1986
application was not finally approved until February 4,
1988, when he was awarded $321,137. The appellees
argue, therefore, that no harm could have been caused
because Bluestone disclosed his industry funding before
any grant money was dispensed for his post-1986 grant
application.
The first problem with this argument is that, as noted
above, the letter to Elkins never left the program-
administration offices, so the information about Bluestone's
industry funding never reached the review committee or
any other decisionmaker involved in approving Bluestone's
grant. Thus, we do not know whether the review committee
or the council of the institute would have approved the
grant if they had known about the information included in
the letter. Given that two committee members who reviewed
Bluestone's application in 1984 and 1985 would have
assigned lower priority scores to his application, and given
that one member's vote can effectively deny funding, we
think whether the grant would have been approved and
what damages were incurred raise genuine factual
24
disputes. We also want to point out that even if the review
committee and council would have approved the application
once they knew about the industry funding, they still might
have imposed additional safeguards or requirements.
Having not been informed, they did not have an opportunity
to consider these other intermediate steps.
It may seem unfair to hold Bluestone accountable for the
decision made in the program-administration offices not to
pass along Bluestone's letter. As noted above, however, the
statute expressly provides a mechanism for dealing with a
defendant who reveals his false claim. Since this provision
merely reduces the defendant's liability for the damages
actually caused, and since, in any event, Bluestone may
not satisfy the prerequisites, Bluestone remains liable for
the harm that in fact was caused to the government as a
result of his false statements.
It is a basic principle of tort law that once a defendant
sets in motion a tort, the defendant is generally liable for
the damages ultimately caused, unless there are
intervening causes. See, e.g., W. Keeton, D. Dobbs, R.
Keeton, & D. Owen, Prosser and Keeton on Law of Torts
S 44 (5th ed. 1984). Analysis of intervening causes is often
used as a way of evaluating and assigning responsibility for
harm caused. Id. Given that Bluestone only sent his letter
after he was under the pressure of investigation, his letter
does little to lessen his culpability, and therefore, the fact
that the letter was not forwarded is not plausibly treated as
an intervening cause. To the extent that analysis of
intervening causes focuses on the foreseeability of a
putative intervening cause, we think it is significant that
Bluestone chose to send the letter to Elkins, his program
administrator, who did not decide whether he would receive
funding for his application. Bluestone did not, for instance,
submit another revised application as he did earlier in the
spring. In short, the fact that the letter was not forwarded
was a risk that Bluestone assumed when he submitted the
claims.
The appellees have directed our attention to several cases
discussing causation requirements under the False Claims
Act. In United States v. First Nat'l Bank of Cicero, 957 F.2d
1362 (7th Cir. 1992) the court held that the government
25
only needed to show that it would not have made a
payment "but for" the false statement. In reaching that
holding, the Seventh Circuit expressly disagreed with
United States v. Hibbs, 568 F.2d 347 (3d Cir. 1977), which,
according to Cicero, imposed a more stringent causation
requirement. Specifically, Cicero said that in addition to
requiring that the government would not have paid the
claim but for the false statement, Hibbs effectively held that
the "subject matter of the false statement . . . be the source
of the government's loss." 957 F.2d at 1373 (citing Hibbs,
568 F.2d at 349, 351). We need not decide either whether
Hibbs should be read as imposing such a requirement, or
whether Hibbs is consistent with the changes made in the
False Claims Act since that decision. We think it suffices to
point out that both standards can be satisfied: as we
concluded in our discussion of damages, Cantekin has
presented evidence that Bluestone's grant might not have
been approved but for his false statements about his
industry funding (or that the grant would have been
approved with additional restrictions or requirements). And
the content of Bluestone's omissions about his industry
funding could have made the difference in whether his
grant was approved or not, so even under the Seventh
Circuit's reading of Hibbs, the "subject matter of the false
statement" could have been the source of the government's
loss.
IV
For the foregoing reasons, we will affirm the order of the
District Court dated February 9, 1998 and reverse the
order dated September 4, 1998. Each party to bear its own
costs.
26
STAPLETON, Circuit Judge, concurring:
Because, in my view, (1) the uncontradicted evidence
establishes that responsible government employees knew of
the private funding and alleged conflict of interest prior to
the effective date of the Grassley Amendments; (2) the
instructions to applicants are clear and unambiguous on
their face; and (3) Dr. Cantekin's affidavit alone establishes
a dispute of fact as to whether Dr. Bluestone knowingly
submitted false claims, I join the judgment of the Court.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
27