United States Ex Rel. Laird v. Lockheed Martin Engineering & Science Services Co.

United States Court of Appeals

Fifth Circuit

F I L E D

IN THE UNITED STATES COURT OF APPEALS

June 24, 2003

FOR THE FIFTH CIRCUIT Charles R. Fulbruge III

Clerk

_____________________

No. 02-40504

_____________________

UNITED STATES OF AMERICA, ex rel, PATRICIA LAIRD; ET AL

Plaintiffs

UNITED STATES OF AMERICA, ex rel, JAMES MAYFIELD

Plaintiff - Appellant

v.

LOCKHEED MARTIN ENGINEERING AND SCIENCE SERVICES CO

Defendant - Appellee

_________________________________________________________________

Appeal from the United States District Court

for the Southern District of Texas

_________________________________________________________________

Before KING, Chief Judge, and REAVLEY and STEWART, Circuit Judges.

KING, Chief Judge:

James Mayfield brought a qui tam action under the False Claims

Act, 31 U.S.C. § 3729 (2000). On a motion for summary judgment,

the district court concluded that (1) Mayfield was barred by the

doctrine of res judicata from bringing the majority of his claims

against Lockheed, and (2) the court lacked subject matter

jurisdiction pursuant to the “public disclosure” provisions of the

False Claims Act to consider the rest of Mayfield’s claims against

1

Lockheed.

In determining that Mayfield did not qualify as an “original

source” of the information publicly disclosed in his prior state

court lawsuit, the district court aligned itself with a minority of

the circuits interpreting the original source exception. As a

matter of first impression for this court, we choose instead to

follow the majority interpretation. We thus vacate the judgment of

the district court and remand for findings under this test. We

further hold that Mayfield’s prior state court lawsuit did not bar

him from bringing the present claims under the False Claims Act.

I.

STATEMENT OF THE FACTS AND PROCEDURAL HISTORY

From November 1989 until his termination in March 1995, James

Mayfield was employed with Lockheed Martin Engineering & Sciences

Company (“Lockheed”). From January 1994 until this termination,

Mayfield worked with Lockheed as its project specialist and was

responsible for, among other things, overseeing the contents,

preparation, execution and delivery of National Aeronautics and

Space Administration (“NASA”) Form 533 reports.

Pursuant to the Engineering, Test and Analysis Contract (“ETA

Contract”) between Lockheed and NASA, Lockheed was required to file

one version of the NASA Form 533 report – the 533M report – with

NASA on a monthly basis and another version – the 533Q report –

with NASA on a quarterly basis. Essentially, the NASA Form 533

2

reports provided a basis for reporting and evaluating Lockheed’s

costs and expenses under the ETA Contract. The ETA Contract

explicitly provided that payment of fees to Lockheed under the

contract was contingent upon compliance with contractual provisions

controlling Lockheed’s reporting of accurate cost overruns and cost

at completion figures.

A. The State Court Action

On February 17, 1995, Mayfield filed a wrongful discharge suit

in state court, alleging that Lockheed wrongfully terminated his

employment in retaliation for internally inquiring into whether an

act he was required to perform was illegal.

As alleged in Mayfield’s first amended petition, in December

1994, Mayfield became aware (through his supervisor, Ben Carroll)

that Lockheed was knowingly failing to report excessive costs and

anticipated cost overruns under the ETA Contract as required by the

compliance provisions of the contract. After Carroll told Mayfield

that the budgets being used to complete the NASA Form 533 reports

for NASA understated the future costs of operations, Mayfield began

to inquire into the legality of this conduct. Mayfield involved

more of his supervisors and management level employees in the

matter, but, as alleged, soon became “the victim of blatant

retaliation.”

In August 1996, the state district court granted summary

judgment in favor of Lockheed. Final judgment against Mayfield was

3

subsequently affirmed by the state court of appeals. See Mayfield

v. Lockheed Eng’g & Scis. Co., 970 S.W.2d 185, 187-88 (Tex. App. –

Houston [14th Dist.] 1998 pet. denied) (“Mayfield I”).

B. The Federal Action

On April 24, 2000, Mayfield filed a second suit against

Lockheed in federal court pursuant to the qui tam provisions of the

False Claims Act, 31 U.S.C. §§ 3729-33 (“FCA”).1

Mayfield alleged in his first amended complaint that Lockheed

knowingly failed to report excessive costs and anticipated cost

overruns as required by the compliance provisions of the ETA

Contract and, indeed, knew that it could not perform in accordance

with the costs specified in the initial bid to NASA for the ETA

Contract but knowingly submitted a false bid for the contract

anyway.

On February 13, 2002, the district court granted Lockheed’s

motion for summary judgment. United States ex rel. Mayfield v.

Lockheed Martin Eng’g & Scis. Co., 186 F. Supp. 2d 711, 713 (S.D.

Tex. 2002) (“Mayfield II”). It held that the doctrine of res

judicata precluded litigation of Mayfield’s FCA claims to the

extent they were based on the conduct complained of in his state

1

In accordance with 31 U.S.C. § 3730(b)(2), Mayfield

filed his complaint under seal and served a copy on the United

States Department of Justice. On February 22, 2001, the

Department of Justice notified the district court of its decision

to decline to intervene in the case; Mayfield thereafter

proceeded as the qui tam relator.

4

court action. Id. at 715. It further held that although Mayfield

was not barred by res judicata from relitigating any claims arising

out of conduct not complained of in his prior lawsuit, the court

lacked subject matter jurisdiction over these claims because

Mayfield was not the “original source” with respect to any

allegedly wrongful conduct occurring after the filing of his prior

lawsuit.

Mayfield timely filed a notice of appeal, requesting review of

both aspects of this final judgment.

II.

STANDARD OF REVIEW

By its terms, the “public disclosure” bar is jurisdictional.

Other circuit courts have specifically held that “[i]n a qui tam

suit brought under the FCA, the jurisdictional issue of ‘public

disclosure’ clearly arises out of the same statute that creates the

cause of action . . . Thus, a challenge under the FCA

jurisdictional bar is necessarily intertwined with the merits” and

should be resolved pursuant to either Federal Rule of Civil

Procedure 12(b)(6) or 56. See, e.g., United States ex rel.

Ramseyer v. Century Healthcare Corp., 90 F.3d 1514, 1518 (10th Cir.

1996). While our court has not addressed this specific

jurisdictional point, we have previously stated that “[t]he

questions of subject matter jurisdiction and the merits will

normally be considered intertwined where the statute provides both

5

the basis of federal court subject matter jurisdiction and the

cause of action.” Clark v. Tarrant Cty., 798 F.2d 736, 742 (5th

Cir. 1986); see also Eubanks v. McCotter, 802 F.2d 790, 792-93 (5th

Cir. 1986) (“When the basis of federal jurisdiction is intertwined

with the plaintiff’s federal cause of action, the court should

assume jurisdiction over the case and decide the case on the

merits.”). We see this case as presenting one such instance where

questions of subject matter jurisdiction and the merits are

intertwined because “the defendant’s challenge to the court’s

jurisdiction is also a challenge to the existence of a federal

cause of action.” Williamson v. Tucker, 645 F.2d 404, 415-16 (5th

Cir. 1981) (citing Bell v. Hood, 327 U.S. 678 (1945)). The proper

course of action for the district court was thus “to find that

jurisdiction exist[ed] and deal with the merits of the case.”

Williamson, 645 F.2d at 415.

The district court basically followed this procedure here. It

styled Lockheed’s challenge to the court’s subject matter

jurisdiction as a summary judgment and, presumably, utilized this

standard. However, instead of first considering the “public

disclosure” bar question (which goes to the subject matter

jurisdiction of the court), it first considered Lockheed’s

affirmative defense of res judicata. We believe the jurisdictional

bar should have been considered by the district court before it

moved to the merits of Lockheed’s affirmative defense. United

6

States ex rel. Fed. Recovery Servs., Inc. v. Crescent City E.M.S.,

72 F.3d 447, 448 (5th Cir. 1996) (“We are persuaded that . . . the

district court never had jurisdiction over [the action.]”); United

States ex rel. Minnesota Assoc. of Nurse Anesthetists v. Allina

Health Sys. Corp., 276 F.3d 1032, 1040 (8th Cir. 2002) (stating, in

a qui tam case where information was allegedly publicly disclosed,

that “[a]t the threshold, we must decide whether we have subject-

matter jurisdiction over this case”). We therefore begin our

review by addressing the FCA’s “public disclosure” bar, found at 31

U.S.C. § 3730(b)(4), and review the district court’s grant of

summary judgment under a de novo standard of review, using the same

standard utilized by the district court. See Kerr v. Lyford, 17

F.3d 330, 336 (5th Cir. 1999) (holding that, under a Rule 56

standard, the record must be viewed in the light most favorable to

the non-movant).

III.

ANALYSIS OF THE PUBLIC DISCLOSURE BAR

A. Presentation of the Disputed Issue – Whether Mayfield is

the “Original Source” of Information

As we have discussed the procedure and the historical

underpinnings of the qui tam provisions of the FCA in prior

opinions, we need not repeat them here. See United States ex rel.

Riley v. St. Luke’s Episcopal Hosp., 252 F.3d 749, 752-53 (5th Cir.

2001) (en banc); Searcy v. Philips Elec. N. Am. Corp., 117 F.3d

154, 160 (5th Cir. 1997). Suffice it to say that in certain

7

circumstances, suits by private parties on behalf of the United

States against anyone submitting a false claim to the government

are permitted. Hughes Aircraft Co. v. United States ex rel.

Schumer, 520 U.S. 939, 941 (1997).

The FCA, the 1863 Civil War statute under which these suits

are permitted, has been amended only twice, once in 1943 and, more

recently, in 1986 by the Grassley Amendments. Id. In 1943,

interpreting the qui tam provisions as then written, the Supreme

Court stated that a private plaintiff might bring a qui tam action

even though his knowledge of fraud was gained second-hand from a

government criminal indictment. See United States ex rel. Marcus

v. Hess, 317 U.S. 537 (1943). In response, Congress amended the

FCA to bar a court’s jurisdiction over qui tam suits that were

“based on evidence or information the Government had when the

action was brought.” 31 U.S.C. § 3730(b)(4) (1982 ed.)

(superceded). However, this amendment led to unintended results as

it deprived potential relators who had themselves given valuable

information to the government before filing their qui tam action of

an ability to sue under the FCA. See, e.g., United States ex rel.

Wisconsin v. Dean, 729 F.2d 1100, 1106 (7th Cir. 1984) (holding

that the district court had no jurisdiction over a qui tam action

brought by Wisconsin based on information of Medicaid fraud the

state had uncovered because the state had reported the Medicaid

fraud to the federal government before bringing suit).

8

In response, in 1986, Congress amended the Act (to its current

form). Specifically, it repealed the “government knowledge”

jurisdictional bar and replaced it with the “public disclosure”

bar. See United States ex rel. Rabushka v. Crane Co., 40 F.3d

1509, 1511 (8th Cir. 1994) (discussing the purpose behind the

repeal as an accommodation of both of the FCA’s goals of promoting

private citizen involvement in exposing fraud against the

government and preventing parasitic suits by opportunistic late-

comers who add nothing to the exposure of fraud).

Under § 3730(e)(4)(A), the jurisdictional provision for qui

tam actions under the FCA now 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 Attorney General or

the person bringing the action is an original source of

the information.

31 U.S.C. § 3730(e)(4)(A) (2000). In the related subsection

immediately following this bar, the statute further defines an

“original source” as:

[A]n individual who has direct and independent knowledge

of the information on which the allegations are based and

has voluntarily provided the information to the

Government before filing an action under this section

which is based on the information.

Id. § 3730(e)(4)(B).

In Federal Recovery Services, Inc., 72 F.3d at 451, we drew

9

from the plain language of § 3730(e)(4) to set forth the three

questions to be asked in a § 3730 jurisdictional inquiry as:

(1) whether there has been a “public disclosure” of allegations or

transactions, (2) whether the qui tam action is “based upon” such

publicly disclosed allegations, and (3) if so, whether the relator

is the “original source” of the information. Fed. Recovery Servs.,

Inc., 72 F.3d at 451.

Here, Mayfield does not dispute that Mayfield I served as a

“public disclosure” of the information alleged in Mayfield II, nor

does he challenge the finding that the allegations in this case are

“based upon” the information disclosed in Mayfield I.2 Instead,

Mayfield contends that as the “original source” of the information,

he is saved from the jurisdictional bar. The question before us on

2

Mayfield does generally argue that the jurisdictional

bar is inapplicable here because he is the one who made the

public disclosure in the first place. However, Federal Recovery

Services discusses the public disclosure bar in the context of a

case where the information was disclosed by individuals who filed

an initial state court action before filing, as relators, their

federal qui tam action in the name of their newly filed

corporation. 72 F.3d at 448. Indeed, United States ex rel.

Jones v. Horizon Healthcare Corp., 160 F.3d 326, 330 (6th Cir.

1998), cites to this Fifth Circuit case in rejecting a similar

argument from a relator: “Because the public disclosure and the

qui tam action in this case both came from Appellant, she argues

that it is improper to consider the qui tam action ‘based upon’

the prior suit. Although Appellant’s argument has some intuitive

appeal, several courts have rejected the contention” because the

public disclosure bar is an express statutory bar to the subject

matter jurisdiction of the courts to review a case based on

information that has been publicly disclosed. Id. at 333 (citing

Federal Recovery Servs., Inc., 72 F.3d at 447). We find this

reasoning persuasive. To the extent Mayfield thus argues that

relators involved in the initial public disclosure of information

are not subject to the “public disclosure” bar, we reject the

argument.

10

appeal thus turns on the statutory construction of the “original

source” exception.

B. The Parameters of the “Original Source” Exception

The statutory construction of the “original source” exception

is the subject of much disagreement amongst the courts of appeals

that have addressed it. The exception explicitly requires the

satisfaction of a two-part test: (1) the relator must demonstrate

that he or she has “direct and independent knowledge of the

information on which the allegations are based” and (2) the relator

must demonstrate that he or she has “voluntarily provided the

information to the Government before filing” his or her qui tam

action. Id. § 3730(e)(4)(B).

Here, the district court found that:

Mayfield clearly does not have direct knowledge of

conduct occurring at Lockheed after he filed his state

court action because he was laid off from Lockheed before

that suit was filed. As such, Mayfield is not an

“original source” with respect to any wrongful conduct

occurring after the filing of his prior lawsuit.

Id. at 715-16. As developed more fully below, we do not read the

“original source” exception to the jurisdictional bar to require

that a relator have “direct” and “independent” knowledge of each

false claim alleged in his complaint to have been submitted by the

defendant.3

3

Our interpretation of the jurisdictional bar does not

release the relator from the requirement that he plead all false

claim allegations in his qui tam complaint with particularity as

interpreted by our case law. See, e.g., United States ex rel.

11

A full understanding of the distinct definitions of “direct”

knowledge and “independent” knowledge in the “original source”

definition requires an analysis of the entire phrase “direct and

independent knowledge of the information on which the allegations

are based.” The courts of appeals are currently split regarding

whether the phrase “the information on which the allegations are

based” refers to information on which the allegations in the qui

tam relator’s complaint are based or information on which the

allegations in the public disclosure are based. The Fourth, Sixth,

Eighth and D.C. Circuits have read “information” in subsection (B)

of the “original source” definition in tandem with the term

“information” in subsection (A) of the “public disclosure” bar

immediately preceding the “original source” definition. This

reading logically leads them to conclude that “information” in

subsection (B) refers to the information on which the publicly

disclosed allegations are based rather than the information

contained in the relator’s qui tam complaint. See Minn. Assoc’n of

Nurse Anesthetists, 276 F.3d at 1048 (“We have interpreted

‘independent knowledge’ to mean knowledge not derived from the

public disclosure. The independent knowledge requirement clearly

serves the congressional goal of barring parasitic actions, but it

is worth noting that it does not bar actions based on old news, in

which the relator independently discovers information already known

Russell v. Epic Healthcare Mgmt. Group, 193 F.3d 304, 308 (5th

Cir. 1999) (discussing the particular pleading required under the

FCA). Whether Mayfield has pled his qui tam fraud allegations

with particularity is not the question before us on appeal.

12

to the public.”) (internal citations omitted); United States ex

rel. Grayson v. Advanced Mgmt. Tech. Inc., 221 F.3d 580, 583 (4th

Cir. 2000) (stating that the relators were not original sources of

information underlying the publicly disclosed allegations, not the

allegations in the qui tam complaint); United States ex rel.

Findley v. FPC-Boron Employees’ Club, 105 F.3d 675, 690 (D.C. Cir.

1997) (“‘[T]he allegations referred to in subparagraph (B) can only

mean those allegations publicly disclosed, since those are the only

allegations mentioned at all in section 3730(e)(4). Thus, an

‘original source’ is a relator with direct and independent

knowledge of ‘the information’ [i.e., any essential element of the

fraud transaction] on which the [publicly disclosed] allegations

are based.”) (internal citations omitted); United States ex rel.

McKenzie v. Bellsouth Tele., Inc., 123 F.3d 935, 943 (6th Cir.

1997) (“To qualify as an original source, the relator must have

direct and independent knowledge of the information on which the

publicly disclosed allegations are based.”).

In contrast, the Third, Ninth and Tenth Circuits have

construed “the information” in the phrase “the information on which

the allegations are based” to refer to the information contained in

the qui tam complaint filed by the relator rather than the

information contained in the public disclosure. See United States

ex rel. Hafter v. Spectrum Emergency Care, Inc., 190 F.3d 1156,

1162 (10th Cir. 1999) (“To establish original source status

knowledge, a qui tam plaintiff must allege specific facts – as

opposed to mere conclusions – showing exactly how and when he or

13

she obtained direct and independent knowledge of the fraudulent

acts alleged in the complaint and support those allegations with

competent proof.”) (emphasis added); United States ex rel. Mistick

v. Housing Auth. Of the City of Pitts., 186 F.3d 376, 388-89 (3d.

Cir. 1999) (finding that the relator was not the “original source”

because he did not have “direct and independent knowledge” of the

most critical element of his claims in the qui tam complaint);

United States ex rel. Barajas v. Northrop Corp., 5 F.3d 407 (9th

Cir. 1993) (holding that an employee of a government subcontractor

had “direct and independent knowledge” of the allegations contained

in his qui tam complaint”).

Based on the district court’s holding that it lacked

jurisdiction because Mayfield did not have “direct and independent

knowledge” of each separate NASA Form 533 submission claimed to

constitute a false claim in the Mayfield II complaint, the district

court apparently assumed the “direct and independent knowledge”

requirement was tied to the “information” contained in the qui tam

complaint rather than the “information” contained in the publicly

disclosed material. In so assuming, it, without citation, followed

the holdings of the Third, Ninth and Tenth Circuits. We disagree

with this interpretation of § 3730(e)(4)(B).

Looking at the “public disclosure” bar under (e)(4)(A) and the

“original source” definition under (e)(4)(B) together, it makes

sense that the first element of the “original source” exception is

satisfied if an individual has “direct and independent knowledge”

of the “information” on which the allegations in the public

14

disclosure are based. We see no logic in interpreting the word

“information” in subparagraph (A) to refer to information publicly

disclosed and then interpreting “information” in subparagraph (B)

– a subparagraph clearly intended to define a term identified in

subparagraph (A) – to refer to each false claim alleged in the

relator’s qui tam complaint. This construction fails to harmonize

the subparagraphs of § 3730(e)(4). See also Atl. Cleaners & Dyers,

Inc. v. United States, 286 U.S. 427, 433 (1932) (stating that

identical words used in different parts of the same statutory

section are intended to have the same meaning). As stated by Judge

Luttig in United States ex rel. Siller v. Becton Dickinson & Co.,

21 F.3d 1339, 1352 (4th Cir. 1994):

[T]he fact that sub-paragraph (B) refers to “the

information on which the allegations are based” confirms

that the only possible reference of the word

“information” in sub-paragraph (B) is to the information

publicly disclosed – the exact same reference of the word

in sub-paragraph (A).

Id. at 1352 (emphasis added).

As further support that this is the construction intended by

Congress, we recognize that those courts which define “information”

to refer to allegations contained in the qui tam complaint have

difficulty distinguishing between the terms “direct” and

“independent” – two discrete and necessary concepts under the

“original source” definition. See United States ex rel. Dick v.

Long Island Lighting Co., 912 F.2d 13, 16 (2d Cir. 1990)

(discussing the significance of the conjunction “and” in “direct

and independent” knowledge); see also McKenzie, 123 F.3d at 941

15

(“In construing the term ‘original source’ other courts have

‘impose[d] a conjunctive requirement – direct and independent – on

qui tam plaintiffs.’”) (quoting United States ex rel. Springfield

Terminal Ry. v. Quinn, 14 F.3d 645, 656 (D.C. Cir. 1994)). For

example, in Hafter, the Tenth Circuit defined “direct” knowledge to

mean “knowledge gained by the relator’s own efforts and not

acquired from the labors of others” and “independent” knowledge to

mean “knowledge not derivative of the information of others”.

Hafter, 190 F.3d at 1161. We fail to see a distinction between

these terms as so defined.

In contrast, those courts that define “information” to refer

to information publicly disclosed do not encounter as much

resistance in formulating distinct definitions for the two separate

terms “direct” and “independent.” See, e.g., Findley, 105 F.3d at

690 (“In order to be ‘direct,’ the information must be first-hand

knowledge. In order to be ‘independent,’ the information known by

the relator cannot depend or rely on public disclosures.”);

McKenzie, 123 F.3d at 941 (“The word ‘direct’ is usually

interpreted as ‘marked by absence of intervening agency,’ while

‘independent knowledge’ is not ‘dependent on public disclosure.’”)

(internal citation omitted); Minn. Assoc’n of Nurse Anesthetists,

276 F.3d at 1048-49 (defining “direct” as “unmediated by anything

but the plaintiff’s own labor” and “independent” as “knowledge not

derived from the public disclosure”). The (we think incorrect)

construction of “information” as referring to allegations in the

qui tam complaint renders the term “independent” meaningless, which

16

we are bound not to do. See INS v. Phinpathya, 464 U.S. 183, 189

(1984); White v. Black, 190 F.3d 366, 368 (5th Cir. 1999). For

these reasons, we read the term “information” in subsection (B) of

the “original source” definition to refer to the information on

which the publicly disclosed allegations are based rather than the

information contained in the relator’s qui tam complaint.

As Mayfield is responsible for filing the publicly disclosed

information in Mayfield I, it is beyond dispute that dismissal on

the basis that his knowledge is not “independent” of the public

disclosure as that term is defined in § 3730(e)(4)(B) would have

been in error. However, we believe that remand is appropriate to

allow the district court an opportunity to make factual findings

regarding whether Mayfield also satisfies the “direct” knowledge

requirement based on the construction of the statute cited above.

To aid the district court in this endeavor, prudence dictates some

discussion of the “direct” knowledge requirement.

The courts of appeals have used varying formulations to define

the term “direct.” See, e.g., Minn. Assoc’n of Nurse Anesthetists,

276 F.3d at 1048-49 (defining “direct” as “unmediated by anything

but the plaintiff’s own labor”); Hafter, 190 F.3d at 1161 (defining

“direct” as “knowledge gained by the relator’s own efforts and not

acquired from the labors of others”); United States ex rel.

Stinson, Lyons, Gerlin Bustamante, P.A. v. Prudential Ins. Co., 944

F.2d 1149, 1160 (3d Cir. 1991) (defining “direct” as “marked by

absence of an intervening agency, instrumentality or influence;

immediate”); Findley, 105 F.3d at 690 (defining “direct” as “first-

17

hand knowledge” of the information).

We interpret the term “direct” by its plain meaning as

knowledge derived from the source without interruption or gained by

the relator’s own efforts rather than learned second-hand through

the efforts of others. WEBSTER’S NEW INTERNATIONAL DICTIONARY 640 (3d ed.

1961). In so defining, we note that Congress plainly and

intentionally used the phrase “an original source” rather than “the

original source” to craft the savings clause. 11 U.S.C.

§ 3730(e)(4)(B). Thus, for a court in this circuit to have

jurisdiction pursuant to this exception, it is not charged with the

duty of finding “the” single one true whistleblower. See Stinson,

944 F.2d at 1154, 1161 (discussing the legislative history to the

1986 amendments as demonstrating a congressional intent to

encourage qui tam suits brought “by insiders, such as employees who

come across information of fraud in the course of their

employment”) (citing S. Rep. No. 345 at 4, 6, reprinted in, 1986

U.S.S.C.A.N. 5269, 5271). Rather, it must look to the factual

subtleties of the case before it and attempt to strike a balance

between those individuals who, with no details regarding its

whereabouts, simply stumble upon a seemingly lucrative nugget and

those actually involved in the process of unearthing important

information about a false or fraudulent claim. Compare, Minn.

Assoc’n of Nurse Anesthetists, 276 F.3d at 1050 (finding that nurse

association had “direct” knowledge that anesthesiologists routinely

submitted fraudulent bills to Medicare for anesthesia procedures

because the nurses had personal knowledge of the defendants’

18

alleged false claims by virtue of communications with the

defendants themselves and had seen the hospital records containing

false claims), and United States ex rel. Stone v. Rockwell Int’l

Corp., 282 F.3d 787, 802 (10th Cir. 2002) (holding that the relator

satisfied the “direct” knowledge requirement even though he no

longer worked with the defendant when the faulty pondcrete blocks

were manufactured because he learned the facts underlying his claim

while looking at the plans for production), and United States ex

rel. Cooper v. Blue Cross & Blue Shield of Fla., Inc., 19 F.3d 562,

568 (11th Cir. 1994) (holding that a relator’s knowledge of an

alleged fraud by a Medicare secondary payor was “direct” because it

was acquired through “three years of [the relator’s] own claims

processing, research, and correspondence with members of Congress

and [the Health Care Financing Admin.]”), and Wang v. FMC Corp.,

975 F.2d 1412, 1417 (9th Cir. 1992) (holding that an engineer-

relator who had been called in to study a problem with a product

had “direct” knowledge because “he saw [the problem] with his own

eyes” and his knowledge was “unmediated by anything but [his] own

labor”), with United States ex rel. Grayson v. Advanced Mgmt. Tech.

Inc., 221 F.3d 580, 583 (4th Cir. 2000) (finding no jurisdiction to

entertain a qui tam action brought by relator attorneys who had

represented two unsuccessful bidders in protesting the award of an

FAA contract because they “at best verified” their clients’

information alleged in the publicly disclosed administrative

protest), and United States v. Alcan Elec. & Eng’g, Inc., 197 F.3d

1014, 1021 (9th Cir. 1999) (holding that a member of an electrical

19

workers’ union did not meet the “direct” knowledge element since

“he never participated in the negotiating, drafting, or

implementation” of relevant agreements, “does not allege that he

played any role in submitting false claims to the government,” and

simply heard second-hand (as a member of the union) that the

electrical contractors were submitting false claims to the

government).

We thus remand for the district court to make factual findings

regarding the “direct” knowledge requirement of the first element.

IV.

ANALYSIS OF THE CLAIM PRECLUSIVE EFFECT OF MAYFIELD I ON

MAYFIELD II

In addition to finding that Mayfield did not qualify as an

“original source” of information regarding claims submitted by

Lockheed after he was terminated, the district court held that the

doctrine of res judicata (claim preclusion) barred Mayfield from

relitigating any claims arising out of conduct complained of in his

prior state court action. As stated, we see it beneficial to

remand this case for factual findings regarding the “direct”

knowledge requirement. However, in the interest of judicial

efficiency, we now address the district court’s conclusion

regarding Lockheed’s affirmative defense.

Assuming without deciding that the district court would find

subject matter jurisdiction present on remand, we disagree with the

district court’s determination that Mayfield I precludes Mayfield

from raising his qui tam claims in Mayfield II.

20

When a federal court is asked to give claim preclusive effect

to a state court judgment, the federal court must determine the

preclusiveness of that state court judgment according to the

principles of claim preclusion of the state from which the judgment

was rendered. See Semtek Int’l Inc. v. Lockheed Martin Corp., 531

U.S. 497, 508-09 (2001); Jones v. Sheehan, Young & Culp, P.C., 82

F.3d 1334, 1338 (5th Cir. 1996). Here, because a Texas state court

rendered the judgment in Mayfield I, we must defer to Texas’s law

on claim preclusion.

A. The Doctrine of Claim Preclusion under Texas Law

In Texas, “[r]es judicata or claim preclusion prevents the

relitigation of a claim or cause of action that has been finally

adjudicated, as well as related matters that, with the use of

diligence, should have been litigated in the prior suit.” Barr v.

Resolution Trust Corp., 837 S.W.2d 627, 628 (Tex. 1992). For a

judgment to have claim preclusive effect in a later action, the

proponent must demonstrate the existence of three elements:

(1) there was a prior final judgment on the merits by a court of

competent jurisdiction, (2) identity of the parties or those in

privity with them exists between the two actions, and (3) the

second action is based on the same claims as were raised or could

have been raised in the first action. Amstadt v. United States

Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996).

B. Application of the Factors

Here, Mayfield does not contest the satisfaction of the first

element – that a prior final judgment on the merits by a court of

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competent jurisdiction was rendered. However, he maintains that

the district court erred in holding, in a footnote, that “Mayfield

and Lockheed are the only two parties before the Court” and that

because the government elected not to intervene, “the United States

is not a party to this action.” Mayfield II, 186 F. Supp. 2d at

714 n.1 (emphasis in original). He further contends that the

district court erred in holding that Mayfield I and Mayfield II are

based on the same claims as defined by Texas law.

(1) Identity of Parties

In Texas, the “‘identity of parties’ [element] requires that

both parties to the current litigation be parties to the prior

litigation or in privity with parties to the prior litigation.”

Jones, 82 F.3d at 1341. If a party’s interests are represented in

a prior action, the identity of parties element is satisfied.

Getty Oil Co. v. Ins. Co. of N. Am., 845 S.W.2d 794, 800 (Tex.

1992). This satisfaction is not defeated by a change in the

capacity in which an individual sues, Freeman v. Lest Coggins

Trucking, Inc., 771 F.2d 860, 863 (5th Cir. 1985), nor is it

defeated by the inclusion of additional parties to the second suit.

Jones, 82 F.3d at 1342-43.

The district court’s statement that the United States is not

a party in interest before the court is simply incorrect. As we

stated in Searcy v. Philips Electronics North American Corp., 117

F.3d 154 (5th Cir. 1997), “the United States is a real party in

interest even if it does not control the False Claims Act suit.”

Id. at 156. Further, in Searcy, as well as in numerous other

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cases, we detailed the mechanisms present in the qui tam framework

that enable the government to retain a tremendous amount of control

over a qui tam suit even when it chooses not to intervene. Id.;

see also Riley, 252 F.3d at 756 & n.10; Russell, 193 F.3d at 307.

To the extent the district court held that “the United States is

not a party to this action” such that the “identity of parties”

element is even at issue, it thus erred. As recognized by our case

law and the clear language of the statute, the suit is brought for

the government and on behalf of the government, which will

ultimately retain the lion’s share of the proceeds and retains the

unilateral power to dismiss the case at any time notwithstanding

the objections of Mayfield and regardless of its decision not to

intervene.

However, it would also be incorrect for us to state that

Mayfield is not a party in interest in both actions (Mayfield I

and Mayfield II). Where an FCA suit is initiated by a private

person, as here, the text of the statute explicitly states that

although the suit is “brought in the name of the Government,” the

action is brought “for the person and for the Government.” 31

U.S.C. § 3730(b)(1) (emphasis added); see also Russell, 193 F.3d at

306; United States ex rel. Foulds v. Tex. Tech Univ., 171 F.3d 279,

289 n.16 (5th Cir. 1999) (“Our own circuit precedent describes the

United States as ‘a’ real party in interest rather than ‘the’ real

party in interest.”); see also Vermont Agency of Natural Res. v.

United States ex rel. Stevens, 529 U.S. 765, 772-73 (2000) (stating

that “[t]he FCA can reasonably be regarded as effecting a partial

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assignment of the Government’s damages claim” and that “the statute

gives the relator himself an interest in the lawsuit, and not

merely the right to retain a fee out of the recovery”) (emphasis in

original); cf. United States ex rel. Gebert v. Transport Admin.

Serv., 260 F.3d 909, 918 (8th Cir. 2001) (holding that a bankruptcy

settlement agreement and release between putative relators, co-

shareholders and a corporation precluded subsequent qui tam claims

by the putative relators against the co-shareholder and corporation

because the FCA effectuates a partial assignment of an interest

that should have been listed as a potential claim in the Schedule

B).

Mayfield brings this action on behalf of the government at his

own expense, 31 U.S.C. § 3730(f), by way of partial assignment that

enables him to recover up to 30 percent of the proceeds recovered

for the government. Stevens, 529 U.S. at 773. If the FCA claims

here are such that Mayfield should have (and ultimately could have)

exercised this assigned interest in Mayfield I – the inquiry

relevant to the third element of the claim preclusion test

discussed below – we find Mayfield’s interests were sufficiently

represented in Mayfield I to satisfy the “identity of parties”

element. This is not to say that another relator would be

precluded from bringing this suit on behalf of the United States.

It is to say that the identity of parties element as to Mayfield is

satisfied.

(2) The Same Cause of Action

For Mayfield I to preclude Mayfield from raising claims

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against Lockheed in Mayfield II under Texas’s doctrine of claim

preclusion, Lockheed must additionally prove an identity of claims

between the two suits. To determine whether the same “claim” is

involved in two actions, Texas courts employ the modern

transactional test of the Restatement (Second) of Judgments, under

which a judgment in an earlier suit precludes a second action by

the parties and their privies not only on matters actually

litigated, but also on causes of action or defenses which arise out

of the same “subject matter” and which might have been litigated in

the first suit. Getty Oil, 845 S.W.2d at 798.

The critical issue in determining whether the two actions

arise out of the same “subject matter” is whether they are based on

the “same nucleus of operative fact.” Jones, 82 F.3d at 1342;

Getty Oil, 845 S.W.2d at 798. As stated by the Texas Supreme Court

in Barr v. Resolution Trust Corp., a transaction or claim is not

equivalent to a sequence of events. 837 S.W.2d at 631. Rather,

the determination of whether later causes of action are

extinguished by an earlier action is to be made pragmatically,

giving weight to whether the facts alleged are related in time,

space, origin, or motivation, whether the causes of action form a

convenient trial unit, and whether their treatment as a trial unit

conforms to the parties’ expectations or business understanding or

usage. Id.; see also Flores v. Edinburg Consol. Indep. Sch. Dist.,

741 F.2d 773, 779 (5th Cir. 1984) (“A different cause of action is

not merely a different theory of recovery; it should differ in ‘the

theories of recovery, the operative facts, and the measure of

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recovery.’”) (citing Dobbs v. Navarro, 506 S.W.2d 671, 673 (Tex.

Civ. App. – Houston [1st Dist.] 1974, no writ)).

While there is factual overlap between those facts alleged in

Mayfield I and those facts alleged in Mayfield II, we do not think

the wrongful termination claim brought by Mayfield in his

individual capacity in Mayfield I, and the FCA claims brought by

Mayfield in his capacity as a relator on behalf of the United

States here would form a convenient trial unit for purposes of

claim preclusion under Texas law. As demonstrated from the Texas

court of appeals’ opinion in Mayfield I, the subject matter of the

state court suit revolved around the central question whether a

certain exception to Texas’s doctrine of at-will employment should

be extended to situations where an employee is allegedly terminated

for inquiring into whether an act he is required to perform is

illegal and, if so, whether Mayfield was terminated for so

inquiring. Mayfield I, 970 S.W.2d at 187. The terms of the ETA

Contract between Lockheed and NASA and the facts related to the

origin and formation of this contract would have been of little

value to this inquiry; indeed, the contract itself is not even

mentioned in the Mayfield I opinion. Nor would evidence regarding

the intent of Mayfield to defraud the government have been helpful

to Mayfield’s state tort claims. In contrast, the centerpiece

evidence in Mayfield II involves the terms of the ETA Contract and

evidence enlightening whether Lockheed intended falsely or

fraudulently to submit the initial bid for the ETA contract and

later falsely or fraudulently to submit NASA Form 533 reports in

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violation of the terms of this contract.

Further, as between Mayfield I and Mayfield II, the remedies

sought and the measure of recovery for Mayfield are completely

different. In Mayfield I, Mayfield sought general damages and lost

wages, as well as mental anguish and exemplary damages, all in his

personal capacity. In Mayfield II, Mayfield, as relator, sought

set statutory penalties under the FCA and pre- and post-judgment

interest. Evidence related to Mayfield’s job performance record,

qualifications, future earning capacity and personal damages have

absolutely nothing to do with proof necessary for the FCA claims

alleged in Mayfield II or for the damages sought. Moreover, as

stated, in qui tam actions, the largest portion of any recovery (at

least 70%) goes to the government, not Mayfield. Finally,

Mayfield’s motivation in bringing his wrongful discharge suit in

Mayfield I is different from his motivation for bringing a qui tam

suit in Mayfield II. In Mayfield I, he wished to be compensated or

made whole following what he saw as a wrongful discharge that was

personal. In contrast, in this case, Mayfield sues to recover from

Lockheed on behalf of the government and in the name of the

government for alleged fraud on the government through Lockheed’s

false submissions to NASA.

In sum, while the factual underpinnings of each suit are

certainly related, we do not see convenience in trying the two

cases together, especially given the procedural requirements

related to filing a qui tam case under seal in order to give the

government an opportunity to intervene, 31 U.S.C. § 3730(b)(1), and

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the likely continued involvement of the government in the qui tam

suit. See id. § 3730(b)(4)(B). This case and the relation it has

to Mayfield’s state law claim for wrongful discharge in an at-will

employment state cannot easily be compared to those cases (cited by

Lockheed in support of its assertion that Mayfield I and Mayfield

II arise from the same subject matter) that involve relators

asserting both qui tam and retaliation claims under the retaliation

provisions of the FCA. See, e.g., Ragsdale v. Rubbermaid, Inc.,

193 F.3d 1235, 1240-41 (11th Cir. 1999); Hindo v. Univ. of Health

Scis., 65 F.3d 608, 614-15 (7th Cir. 1995).4 In contrast to these

cases, the FCA claims and the state tort claim cannot be naturally

grouped. Therefore, on remand, assuming the district court finds

that Mayfield satisfies the “direct” knowledge requirement, we

further hold that Mayfield’s qui tam claims are not extinguished by

the doctrine of claim preclusion.

CONCLUSION

We VACATE the judgment of the district court and REMAND for

further proceedings consistent with this opinion.

4

A close read of the Hindo opinion reveals support for

Mayfield rather than Lockheed. There, the plaintiff medical

professor first brought an unsuccessful state court suit for

state retaliatory discharge against the defendant university.

Hindo, 65 F.3d at 610. Later, he brought qui tam claims pursuant

to the FCA (31 U.S.C. § 3729(a)) against the defendant university

for fraudulently seeking reimbursement for salaries of radiology

residents and, simultaneously, brought a retaliation claim also

pursuant to the FCA (31 U.S.C. § 3730(h)) for threatening to

terminate his tenure in retaliation for reporting the alleged

fraud. Id. The Seventh Circuit dismissed only the retaliation

claim as barred by the earlier state court suit. Id. at 614.

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