United States Ex Rel. Davis v. District of Columbia

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 16, 2011 Decided May 15, 2012

No. 11-7039

UNITED STATES OF AMERICA, EX REL. MICHAEL L. DAVIS,

APPELLANT

v.

DISTRICT OF COLUMBIA,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 1:06-cv-00629)

Frederick A. Douglas argued the cause for appellant.

With him on the briefs were Curtis A. Boykin and Alex M.

Chintella.

Stacy L. Anderson, Assistant Attorney General, Office of

the Attorney General for the District of Columbia, argued the

cause for appellee. With her on the brief were Irvin B.

Nathan, Attorney General, Todd S. Kim, Solicitor General,

and Donna M. Murasky, Deputy Solicitor General.

Before: BROWN, GRIFFITH, and KAVANAUGH, Circuit

Judges.

Opinion for the Court filed by Circuit Judge GRIFFITH.

2

GRIFFITH, Circuit Judge: Michael L. Davis brought this

qui tam 1 suit alleging the District of Columbia and its schools

violated the False Claims Act by submitting a Medicaid

reimbursement claim without maintaining adequate

supporting documentation. The district court dismissed the

case, relying on a precedent of this Court. Because we

conclude that the Supreme Court has implicitly overruled that

precedent, we reverse.

I

It is common knowledge that Medicaid is a joint federal

and state program that funds health care services for certain

groups. Less well known is the process by which Medicaid

funds are disbursed through local government agencies to care

for those in need and the safeguards in place to make sure that

the proper amounts of funds are provided for services

properly rendered. This case involves allegations of

misconduct that undermine some of those safeguards brought

by one involved in that process.

The Medical Assistance Administration (MAA), a

District agency, administered the District’s Medicaid Plan at

the time relevant to this suit. The District of Columbia Public

Schools (DCPS) is eligible for Medicaid reimbursement for

the medical and transportation services it provides to special

education students. MAA reimburses DCPS for the estimated

costs of these services throughout the year with federal funds

from the Centers for Medicare and Medicaid Services. At the

end of the year DCPS submits a reimbursement claim to

1

Qui tam is short for the Latin phrase “qui tam pro domino

rege quam pro se ipso in hac parte sequitur,” which means “who

pursues this action on our Lord the King’s behalf as well as his

own.” Rockwell Int’l Corp. v. United States, 549 U.S. 457, 463 n.2

(2007).

3

MAA that sets forth the actual costs of these services. Under

the District’s Medicaid Plan, MAA must review those claims

at least once every two years and determine whether DCPS is

owed additional funds or whether the schools must return any

overpayment. This annual filing of a reimbursement claim is

similar to how a tax return reconciles an individual’s

withholdings throughout the year with proof of the actual tax

owed at year end. Federal regulations require DCPS to

maintain financial data based on audit-quality documentation

that allows “proper determination of costs payable.” 42 C.F.R.

§ 413.20(a); see also id. § 413.24(a). To ensure that the

claimed services were actually provided, auditors check for

financial documentation and review student files for service-

specific medical records or progress notes signed by the

actual service provider. Claims lacking “the required service-

specific documentation . . . [may] not be part of any cost

settlement.” Def.’s Mot. to Dismiss Ex. D, at 3.

II

Because we are reviewing the grant of a motion to

dismiss, we accept Davis’s version of the facts and draw all

inferences in his favor. Atherton v. D.C. Office of the Mayor,

567 F.3d 672, 677 (D.C. Cir. 2009). Davis’s firm, Davis &

Associates (D&A), prepared the Medicaid reimbursement

claims made by DCPS for fiscal years 1995, 1996, and 1997.

While D&A was preparing the claim for fiscal year 1998,

DCPS replaced the firm with Maximus, Inc. D&A completed

work on the claim anyway, but DCPS never submitted it to

MAA, filing instead a claim prepared by Maximus. According

to Davis, only he had the required documentation supporting

the claim, and he never gave it back to DCPS. Upon learning

that DCPS had submitted the claim prepared by Maximus,

Davis told District officials that the claim lacked supporting

documentation and did not represent the full amount owed to

4

DCPS. Despite Davis’s warnings, DCPS made no adjustments

to its claim at that time.

In May 2000, MAA paid DCPS $10.3 million as a

tentative settlement for fiscal year 1998. MAA also hired an

auditor to review DCPS’s claims for fiscal years 1996-1998.

The auditor determined that portions of DCPS’s claims should

be disallowed because they were not adequately documented,

and MAA eventually returned to the federal government $7.6

million that had been overpaid to DCPS for 1998. On August

7, 2002, the Office of the District of Columbia Auditor

released to the public a report disclosing that for fiscal years

1996-1998, “$15 million of costs incurred for services

rendered to special education students [by DCPS] were

disallowed for Medicaid reimbursement due to the absence or

unavailability of supporting documentation,” and that

“documentation of services” had to be “immediately

improved.” Def.’s Mot. to Dismiss Ex. E, at ii.

On April 4, 2006, Davis filed this action alleging that the

District and DCPS had violated the False Claims Act,

31 U.S.C. §§ 3729-3733, by submitting the 1998

reimbursement claim without maintaining adequate

supporting documentation. The Act prohibits false or

fraudulent claims for payment from the United States,

id. § 3729(a), and authorizes private individuals to bring suit

in the government’s name to remedy such fraud, id.

§ 3730(b)(1). These whistleblower plaintiffs (known as

“relators”) are permitted to share in the government’s

recovery. Id. § 3730(d). The Act authorizes a statutory penalty

for each violation, plus treble damages for any actual damages

suffered by the government. See id. § 3729(a). Davis’s

amended complaint alleges that the submission of the 1998

reimbursement claim without supporting documentation

violates the Act’s prohibitions on knowingly presenting a

false claim, id. § 3729(a)(1), using a false statement to get a

5

false claim paid, id. § 3729(a)(2), and conspiring to get a false

claim paid, id. § 3729(a)(3). Davis asserts that submitting a

claim for Medicaid reimbursement that lacks the supporting

documentation called for by regulation defrauds the United

States because the government would not have knowingly

paid such a claim. Davis does not allege, however, that any

claimed services were not provided or that any costs were

exaggerated.

The 1986 version of the Act, which applies to this case,

bars suits “based upon the public disclosure of allegations or

transactions . . . 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) (2006)

(amended 2010). An original source is “an 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 short, if a qui tam suit is “based upon” a

“public disclosure,” the suit is barred unless the relator is an

“original source.”

On December 23, 2008, the district court granted in part

the defendants’ motion to dismiss Davis’s qui tam action.

United States ex rel. Davis v. District of Columbia (Davis I),

591 F. Supp. 2d 30 (D.D.C. 2008). The court dismissed DCPS

as a defendant because D.C. law provides that it cannot be

sued directly. Id. at 40. The court also dismissed Davis’s

treble damages and conspiracy claims because he had not

alleged actual damage to the government. Id. at 39-40. The

court rejected, however, the District’s challenge to its subject

matter jurisdiction, holding that even though the Auditor’s

report had publicly disclosed the alleged fraud, Davis was an

original source. Id. at 36-37. The parties proceeded with

6

discovery and Davis filed an amended complaint. Davis then

moved for summary judgment and the District moved again to

dismiss for lack of subject matter jurisdiction.

This time, the district court agreed and concluded Davis

was not an original source under our decision in United States

ex rel. Findley v. FPC-Boron Employees’ Club, 105 F.3d 675

(D.C. Cir. 1997). United States ex rel. Davis v. District of

Columbia (Davis II), 773 F. Supp. 2d 21, 32 (D.D.C. 2011).

In Findley, we held that a relator must provide his information

to the government not only prior to filing suit but “prior to

any public disclosure.” 105 F.3d at 690. Because there was no

evidence that Davis notified the federal government of the

alleged fraud before the 2002 Auditor’s report, the court

concluded it was without jurisdiction to hear his claim. Davis

II, 773 F. Supp. 2d at 33-34.

Davis timely appealed both the district court’s conclusion

that it lacked subject matter jurisdiction and its dismissal of

his claims for treble damages and conspiracy. We take

jurisdiction under 28 U.S.C. § 1291.

III

A

Davis first argues that his suit is not “based upon” the

August 2002 Auditor’s report. We have explained that a suit

is “based upon” publicly disclosed “allegations or

transactions” when the allegations in the complaint are

“substantially similar” to those in the public domain. Findley,

105 F.3d at 682. This rule prevents suits by those other than

an “original source” when the government already has enough

information “to investigate the case and to make a decision

whether to prosecute” or where the information “could at least

7

have alerted law-enforcement authorities to the likelihood of

wrongdoing.” U.S. ex rel. Springfield Terminal Ry. v. Quinn,

14 F.3d 645, 654 (D.C. Cir. 1994) (quoting United States ex

rel. Joseph v. Cannon, 642 F.2d 1373, 1377 (D.C. Cir. 1981)).

The 2002 Auditor’s report disclosed that, for fiscal years

1996-1998, DCPS was not reimbursed for $15 million worth

of services provided to special education students but not

adequately documented. Def.’s Mot. to Dismiss Ex. E, at ii.

The report revealed to the public the “allegation” that DCPS

did not have adequate supporting documentation for its 1998

Medicaid reimbursement claim and provided ample reason for

the government to investigate further. See Springfield

Terminal, 14 F.3d at 654. Davis contends that his allegation is

more specific than what was in the Auditor’s report, and that

is true. He points out the 1998 claim lacked any

documentation while the Auditor’s report found some for

three years, just not enough. But providing “more specific

details about what happened” does not change the fact that

Davis’s allegation is substantially similar to and therefore

“based upon” the publicly disclosed allegations in the

Auditor’s report. United States ex rel. Settlemire v. District of

Columbia, 198 F.3d 913, 919 (D.C. Cir. 1999).

Davis’s claim can proceed only if he is an “original

source.”

B

The District argues that Davis is not an original source

because he did not prove he voluntarily provided his

information to the government before filing suit, let alone that

8

he did so before Findley’s public-disclosure deadline. 2 The

district court found that he had provided his information to the

government before filing suit, relying on two letters Davis

received from federal officials which acknowledged that he

had written them alleging “Medicaid fraud” and “diversion of

Medicare funds.” Davis II, 773 F. Supp. 2d at 32. At oral

argument, we questioned whether these letters, vague as they

are, were sufficient. After argument, Davis provided us with

other letters he sent to the government and an affidavit

asserting their authenticity. 3 Most relevant, in a letter dated

August 19, 2004, he informed the Inspector General of the

U.S. Department of Health & Human Services that the

District and DCPS “do not have in their possession

documentation to support a drawdown of federal medicaid

funds for [1996-1998].” Appellant’s Mot. to Suppl. R.,

Attach. at 1. This letter removed any concern we had about

whether Davis had “provided the information to the

Government” before filing suit.

Relying upon our decision in Findley, the district court

dismissed Davis’s suit because he failed to provide his

information to the government prior to the publication of the

Auditor’s report. Davis II, 773 F. Supp. 2d at 33-34. Davis

argues that the Supreme Court eliminated this requirement in

2

The District concedes on appeal that Davis had direct and

independent knowledge that the 1998 claim for Medicaid

reimbursement lacked documentation. Appellee’s Br. 34.

3

Although we normally do not consider evidence presented

for the first time on appeal, we have discretion to make “limited

exceptions to this rule when ‘injustice might otherwise result.’” In

re AOV Indus., Inc., 797 F.2d 1004, 1012 (D.C. Cir. 1986) (quoting

Singleton v. Wulff, 428 U.S. 106, 121 (1976)). Because these new

documents go “to the heart of the contested issue, it would be

inconsistent with this court’s own equitable obligations . . . to

pretend that they do not exist.” Id. at 1013.

9

Rockwell International Corp. v. United States, 549 U.S. 457

(2007). The district court acknowledged that Rockwell raised

doubts about Findley but concluded that it would not “lightly

infer an abrogation of settled precedent.” Davis II, 773 F.

Supp. 2d at 33. Although we have previously expressed doubt

about whether this part of Findley survived Rockwell, see

United States ex rel. Davis v. District of Columbia, 413 F.

App’x 308, 310 (D.C. Cir. 2011) (noting this concern but

dismissing a related suit by Davis on different grounds), we

have not yet had occasion to address the issue squarely.

Today we do, and we agree with Davis.

Findley established this requirement based on its reading

of the statute and a resulting policy concern. First, interpreting

§ 3730(e)(4)’s text, the court concluded that “the allegations”

referred to in subparagraph (B) were the publicly disclosed

“allegations or transactions” in subparagraph (A), “since those

are the only allegations mentioned at all in section

3730(e)(4).” Findley, 105 F.3d at 690. From this, the court

determined that the word “information” in both subparagraphs

referred to the information “on which the [publicly disclosed]

allegations are based.” Id. (alteration in original). Under this

reading, the information an original source must provide to

the government is the information underlying the publicly

disclosed allegations.

Findley then turned to the question at issue here: when

must the relator provide this information to the government?

Although the text seems to impose a clear deadline of “before

filing an action,” Findley held that “the only reading of the

statute that accounts for the requirement that an ‘original

source’ voluntarily provide information to the government

before filing suit, and Congress’ decision to use the term

‘original source’ . . . is one that requires an original source to

provide the information to the government prior to any public

10

disclosure.” Id. at 691. The court offered two primary reasons

for this reading. First, it would be odd to call someone an

“original source” of information if the government had

already obtained the relevant information from the public. See

id. Second, and more centrally, Findley surmised that “[o]nce

the information has been publicly disclosed . . . there is little

need for the incentive provided by a qui tam action.” Id. A

relator adds little value, so the thinking goes, by repeating

what is already publicly available and known to the

government.

In Rockwell, the Supreme Court rejected Findley’s

reading of what information a relator must provide the

government, concluding that the word “information” in

§ 3730(e)(4) refers to “the information on which the relator’s

allegations are based[, not] the information on which the

publicly disclosed allegations that triggered the public-

disclosure bar are based.” 549 U.S. at 470. With the wrong

“information” in mind, Findley’s argument that the

information must be provided to the government not only

before suit is filed but before a public disclosure is made

simply unravels. Findley’s concern about why Congress used

the term “original source” is answered: The relator can be an

“original source” to the government of his information even if

the publicly disclosed information came from someone else.

And Findley’s judgment that “[o]nce the information has

been publicly disclosed . . . there is little need for the

incentive provided by a qui tam action,” 105 F.3d at 691, no

longer follows because Rockwell changed the premise. We

now understand that the “information” provided is the

relator’s. Importantly, the relator’s information can be

different and more valuable to the government than the

information underlying the public disclosure, which might be

nothing more than speculation or rumors. See Rockwell, 549

11

U.S. at 472. The relator may have an eyewitness account or

important documents supporting the public allegation, but not

available from any other source, which could aid the

government. Findley’s reading of the statute assumed the

relator could provide nothing new after a public disclosure.

Rockwell rejected that view. Given this, it is apparent that

Findley’s categorical rule bars productive suits. See United

States ex rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d

13, 24-25 (1st Cir. 2009) (concluding that Rockwell

“substantially undercuts” Findley and shows that Findley “has

the potential to bar productive suits”). Findley’s requirement

no longer has any textual basis, and the policy judgment upon

which it relied contradicts Rockwell’s rationale.

Applying the 1986 version of the Act, we will no longer

require that a relator provide information to the government

prior to any public disclosure of allegations substantially

similar to the relator’s and will instead enforce only the text’s

deadline of “before filing an action.” 4 Because Davis satisfies

4

Although Rockwell corrected Findley’s tendency to bar some

productive suits, the 1986 Act’s approach is itself imperfect

because it allows suits in which the relator’s information does in

fact mirror the publicly disclosed information, the situation Findley

assumed would always apply. Congress has since addressed this

problem by amending the statute to provide incentives to only those

relators whose information adds value. The Act now defines an

“original source” as

an individual who either (i) prior to a public disclosure . . . has

voluntarily disclosed to the Government the information on

which allegations or transactions in a claim are based, or (2)

who has knowledge that is independent of and materially adds

to the publicly disclosed allegations or transactions, and who

has voluntarily provided the information to the Government

before filing an action under this section.

12

the requirements of § 3730(e)(4)(B), we conclude that he is an

original source and that the district court has jurisdiction over

his claims.

IV

Davis also argues that the district court wrongly

dismissed his claims for treble damages and conspiracy on the

ground that he failed to allege actual damage to the United

States. He argues that the entire amount the federal

government paid to DCPS in 1998 constitutes damages

because the government would not have paid DCPS anything

had it known there was no documentation for its

reimbursement claim. We conclude, however, that the district

court was right to find that the government suffered no

damages.

The False Claims Act imposes two types of liability:

First, a defendant who submits a false claim . . . is liable

for civil penalties regardless of whether the government

shows that the submission of that claim caused the

government damages. Second, the defendant is liable for

“3 times the amount of damages which the Government

sustains because of the act of [the defendant].”

United States v. Sci. Applications Int’l Corp., 626 F.3d 1257,

1277-78 (D.C. Cir. 2010) (quoting 31 U.S.C. § 3729(a))

31 U.S.C. § 3730(e)(4)(B) (Supp. 2010). Thus, as the district court

explained, the Act now “allows a relator to proceed if he either

meets the Findley pre-public disclosure notification requirement, or

if he possesses knowledge independent of the public disclosure that

materially adds to the public disclosure, and he provides the

information to the Government prior to filing suit.” Davis II, 773 F.

Supp. 2d at 33 n.9.

13

(citation omitted). Our decision in Science Applications sets

forth the proper framework for determining damages in qui

tam actions. There, a contractor who had agreed to provide a

federal agency with expert advice certified it had no conflicts

of interest. The contractor provided the advice but failed to

disclose several conflicts. Id. at 1261-62. Like Davis does

here, the government sought damages equal to the full amount

it had paid the contractor and relied on evidence showing it

would not have paid the contractor anything had it known of

the conflicts. But we explained that this evidence only proved

causation, not damages, because False Claims Act damages

are meant to “put[] the government in the same position as it

would have been if the defendant’s claims had not been

false.” Id. at 1278. Thus, “[t]o establish damages, the

government must show not only that the defendant’s false

claims caused the government to make payments that it would

have otherwise withheld, but also that the performance the

government received was worth less than what it believed it

had purchased.” Id. at 1279. Although the government was

not entitled to recover all of its payments, we concluded that a

jury could find that the value of the contractor’s performance

“was compromised by the appearance of bias created by the

company’s failure to live up to its contractual conflict of

interest obligations.” Id. at 1278. We therefore instructed that

the proper measure of damages was the difference in value

between “services tainted by potential conflict” and the

untainted services promised. Id. at 1280.

Under the Medicaid program, the federal government

pays for specified services to be provided to eligible

recipients. In this case, Davis does not allege that any services

paid for were not provided. The sole defect Davis claims is

the failure to maintain documentation for those services.

Unlike the contractor’s undisclosed conflicts in Science

Applications, the defect in this case in no way calls into

14

question the value of the medical care provided by DCPS.

The purpose of maintaining documentation is to ensure that

the government pays only for services actually rendered.

Because all agree that the services paid for were provided, the

maintenance of documents to prove that they were has no

independent monetary value. This is the rare case in which

there is no allegation that what the “government received was

worth less than what it believed it had purchased.” Id. at

1279; cf. United States ex rel. Schwedt v. Planning Research

Corp., 59 F.3d 196, 200 (D.C. Cir. 1995) (finding actual

damage because, unlike here, the defendant’s false claims had

caused the government to pay for “useless goods”). A server’s

failure to bring a receipt after dinner causes no harm when

you know you’ve been properly charged. The same is true

here: The government got what it paid for and there are no

damages. Cf. Ab-Tech Constr., Inc. v. United States, 31 Fed.

Cl. 429, 434 (1994); United States v. Woodbury, 359 F.2d

370, 379 (9th Cir. 1966). If Davis proves his claims he may

still be eligible to share in the statutory penalties assessed

against the District.

Finally, the District invokes the Act’s six-year statute of

limitations to bar some of Davis’s claims. See 31 U.S.C.

§ 3731(b)(1). Because the district court had no occasion to

address this question, we leave it the opportunity to do so in

the first instance on remand.

V

For the foregoing reasons, the district court’s order

dismissing the case for lack of jurisdiction is vacated and the

case is remanded for further proceedings consistent with this

opinion.

So ordered.