Opposition Brief — Crane Co. v. United States ex rel. Rabushka

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No. 94-1725 . CLERK

IN THE

Supreme Court of the Hnited States

OctTosBer TERM, 1994

Crane Co.,

Petitioner,

v.

UnNrtrep STATES OF AMERICA ex rel. STANLEY RABUSHKA

and STANLEY RABUSHKA,

Respondents.

In Opposition to the Petition for a Writ of Certiorari to the

United States Court of Appeals for the Eighth Circuit

BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI

Rosert L. KinG

Counsel of Record

Rex Carr

Carr, Korein, TILLERY,

Kunin, Montroy & GLass

701 Market Street, Suite 300

St. Louis, Missouri 63101

(314) 241-4844

Counsel for Respondents

St. Louis Law Printing. Inc. 13307ManchesterRd. St Louis,MO 63131 314-231-4477

QUESTIONS PRESENTED

I

Does section 3730(e)(4)(A) of the False Claims Act, which

divests district courts of subject matter jurisdiction over actions

“based upon the public disclosure of allegations or transactions,”

bar an action when the alleged “public disclosure” disclosed no

fraud?

Il

When a district court determines solely on the basis of

uncontradicted, documentary evidence that certain statements in

that documentary evidence constitute allegations of fraud within

the meaning of the False Claims Act, is that decision a finding of

fact which a court of appeals should review under the clearly

erroneous standard or a question of law which a court of appeals

should review de novo?

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TABLE OF CONTENTS

Page

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SESS Se 7

I. The Eighth Circuit’s holding, that an “allegation or

transaction” within the meaning of section

3730(e)(4)(A) of the False Claims Act must reveal

the defendant’s fraud against the government, is

dictated by the plain language of the statute, com-

pletely supported by the legislative history, and

absolutely consistent with the decision of every

federal court of appeals to have addressed the

ANI Aten puaidticnehuhainibhibsbeennicicniglicaninbeneenan 7

Ii. Crane’s argument that the majority refused, in defi-

ance of controlling Supreme Court and Eighth Cir-

cuit precedent, to review the district court’s factual

findings under the “clearly erroneous” standard is

an absolute red herring, because the facts were

undisputed and the only disagreement between the

Eighth Circuit and the district court concerns the

legal conclusions to be drawn from those undis-

icc icles nnciiatonsioaienanestenicnnnan 16

I saliniishalasstiaivirsiclansitnaiaiensdseissiemmenuinsiienaesescbins 22

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TABLE OF AUTHORITIES

Page(s)

CASES:

Anderson v. City of Bessemer, 470 U.S. 564 (1985)..... 17,21

Drevlow v. Lutheran Church, Mo. Synod, 991 F.2d 468

ls PU she taidedilacneiacniescaiitinsiacensiadinnsascaaies 17

Herbert v. Nat'l Academy of Sciences, 974 F.2d 192

as NG SIE ac disiicecnidistactsab Counts uaiuton Udpeienamonaniatenll 17

Hohri v. United States, 782 F.2d 227 (D.C. Cir. 1986),

vacated on other grounds 482 U.S. 64 (1987) ..... 17

Osborn v. United States, 918 F.2d 724 (8th Cir.

i sivicsdissied disused ial tics niicpnesaasldaca lca 17

Pettis ex rel. United States v. Morrison-Knudsen Co.,

FEE Fee le CHEE AE. BFE) wirccstrnenconssrvoninveesisbnnens 13

United States ex rel. Dick v. Long Island Lighting Co.,

Re ae Cr Ct des SI vitevcaticssenrtncsarndiremnninnns 8

United States ex rel. Doe v. John Doe Corp., 960 F.2d

ee IE Wrbinieiheninabastanithisincaneksactoonscie 9,10,,12,13

United States ex rel. Joseph v. Cannon, 642 F.2d 1373

ie eG See isda bissiihsapininhsdeeneatinrnanncnebeteadiedeeinten 13

United States ex rel. Marcus v. Hess, 317 U.S. 537

SUIT sciniin bidantectinniniatdahabiaiaaieeinadnhathsssankaabipaaicsanaiie 11

United States ex rel. Precision Co. v. Koch Indus., Inc.,

Fk Fe re CN Gee BBE vvcitncsncinevesnccscannzersss 9,10

United States ex rel. §. Prawer and Co. v. Fleet Bank,

Be ce CE Gls FID chcssnnecvccesncessninsenenesovee 11,12

United States ex rel. Springfield Terminal Ry. v. Quinn,

£4 F.3d 645 (D.C. Civ. P94) ....cccrcccrssccesssesees 7-14, 16-19,

21,22

United States ex rel. Stinson v. Prudential Ins., 944 F.2d

A Th Re hhimsicenineniameaneees amie 8-10

United States v. United States Gypsum, 333 U.S. 364

CET saissviecsnkivniecpiokaiatacnid nnabedaahddiasaceinacapaaienats 21

Wang ex rel. United States v. FMC Corp., 975 F.2d 1412

CE, Fee cisschincsctansdnrnanencrinmtanens > EO 9,11,13,19

Williamson v. Tucker, 645 F.2d 404 (Sth Cir. 1981)..... 17

Ynclan v. Dept. of Air Force, 943 F.2d 1388 (Sth Cir.

SIPR i ccsanisauaneiasalinsindatuiainmedabuabinaiestbubipaaasaaaaia 17

STATUTES

Be Sa ie FOE vicinnesrtentnssintanvicnsantntintncsnticioens l

Fe ae ne Oe a viridis anceesenitgtndavtiainnninnonseniacamaglie 7

BE EE ie 0 ae hccocisontrecnteneninhbebaiesuhiciincetdannncsiia 7

31 U.S.C. § 3730(b)(4) (repealed 1986)... 12

FE TBA. B TTA D cesverctocscvsccsennrscerecsenicts 4,5,7,8,10,11,

13,14,18-20

Be ee eo is chtsiistatncccmansctinniinatinionten 7

MISCELLANEOUS:

Biack’s Law Dictionary (Sth ed. 1979)... 3

Bosse, JOHN T., Civit FALSE CLAIMS AND Qu! TAM ACTIONS

EN sia sini bssniistanccialsaceseadchadadasciuniinisaminceeeeiiacaioan 7

— ee,

Dianna B. Henriques, A Nagging Pension Question

Threatens Crane, N.Y. Times, March 29, 1992,

I iD cia ycatiiigacescatinniapeitinsanantnincennnesinenstiatnineds 3,4,15

H.R. Rep. No. 660, 99th Cong., 2d Sess. 22 (1986) ...... 8

S. Rep. No. 345, 99th Cong., 2d Sess. (1986), reprinted

ee Ai Fees icvisniiecsiiesesierniteesiuiinens 8,12,13

No. 94-1725

IN THE

Supreme Court of the United States

Octoser TERM, 1994

CRANE Co.,

Petitioner,

V.

Unrrep STATES OF AMERICA ex rel. STANLEY RABUSHKA

and STANLEY RABUSHKA,

Respondents.

In Opposition to the Petition for a Writ of Certiorari to the

United States Court of Appeals for the Eighth Circuit

BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI

STATEMENT OF THE CASE

Respondent Stanley Rabushka brought this case pursuant to

the False Claims Act (“FCA”), 31 U.S.C. §§ 3729-3733. The

FCA authorizes any individual to bring suit as a gui tam relator

on behalf of the United States for frauds perpetrated against it.

Rabushka, a former shareholder of Crane Company, has alleged

that Crane masterminded and executed a scheme to defraud the

federal Pension Benefit Guaranty Corporation (“PBGC’’) out of

hundreds of millions of dollars. Specifically Rabushka has

alleged that Crane misrepresented to the PBGC the true amount

of unfunded, PBGC- insured pension plan liabilities of its former

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subsidiary, CF&I Steel Corporation. CF&I’s pension plan was

so grossly underfunded that without the financial support of

Crane, both the plan and CF&I were doomed to bankruptcy and

an inevitable PBGC bailout.

In May 1985, Crane, which then owned 96.3% of the outstand-

ing CF&I stock, divested itself of all ownership in CF&I by

distributing its CF&I shares to Crane shareholders. Had the

PBGC known of the truly staggering amount of CF&I’s un-

funded pension liabilities, it would have had no choice but to

terminate the pension plan prior to the 1985 spin-off of CF&I,

while Crane was still liable for the unfunded liabilities.

Just prior to the 1985 spin-off of CF&I, Crane ensured the

success of its fraudulent scheme by hand-picking a new manage-

ment for the about-to-be independent CF&I—a majority of the

new CF&I directors were also members of Crane’s board of

directors.’ After the spin-off, Crane and the newly selected

CF&I management conspired to conceal Crane’s fraud on the

PBGC.

Crane schemed to conceal the true amount of underfunding

long enough for CF&I plausibly to portray the massive

underfunding as the result of post-spin-off events unrelated to

Crane. Thus, in the proxy statement in which Crane proposed the

spin-off, Crane falsely reported CF&I’s unfunded pension plan

liabilities to be the manageable sum of $46 million? at the end of

1984. Thereafter, the new CF&I directors gradually began to

'In its 1985 proxy statement, Crane declared its intent to vote its 96.3% of

CF&I shares in favor of the slate of nominees chosen by Crane. Of that slate

of nominees for CF&I's new directors, five served as directors of both Crane

and CF&I. Crane’s proxy statement explained that the five common directors

would constitute a majority of the CF&I board of directors and would

“provide for continuity of experienced oversight of the business of CF&I.”

?CF&I’s net worth of $82 million, as reported by Crane in the 1985 proxy

statement, would have been far more than sufficient to cover that underfunding.

pean, Viren

reveal incrementally greater and greater amounts of the true

underfunding: by the end of 1986, CF&I reported the under-

funding to be $120 million and, by late 1990, $140 million.

By offering innocent explanations for these purported “‘in-

creases,” CF&I continued to hide the fact that its and Crane’s

representations to the PBGC were fraudulent, even after it could

no longer completely hide the true extent of the massive un-

funded pension liabilities. For instance, CF&I fraudulently

explained the 1986 “increase” as being due to “early retire-

ments,” “reduced interest rates,” “lower assumed average retire-

ment age of active participants,” and “the adoption of new

accounting standards.” When the PBGC finally terminated the

pension plan in 1992 (over a year after Rabushka filed this

lawsuit), it reported CF&I’s unfunded liabilities to be approxi-

mately $270 million, more than five times the amount originally

reported by Crane at the time of the spin-off.

Shortly after CF&I filed for bankruptcy in 1990, Rabushka

filed this action against Crane and CF&I under seal in accor-

dance with the requirements of the FCA. Reasoning that the

PBGC had not yet terminated CF&I’s pension plan and had thus

not paid any claim, the district court dismissed the suit as

premature. That dismissal came even before the district court

had lifted the seal or authorized issuance of summonses to the

defendants. Therefore, both Crane and CF&I were unaware of

the suit at the time of that dismissal.

Rabushka appealed the dismissal. The court of appeals did not

continue to treat the case as being under seal. Accordingly, while

that appeal was pending, Crane learned of the suit through an

article appearing on the front-page of The New York Times’

Business Section,’ which described the lawsuit and Rabushka’s

> DIANNA B. Henriques, A NAaGGinG Pension QuesTION THREATENS CRANE,

N.Y. Times, March 29, 1992, section 3, p. 1.

allegations against Crane. Crane scrambled to intervene in the

appeal, directly blaming — in Crane’s own words — the “pre-

mature public disclosure” of Rabushka’s allegations for a de-

cline of over $60 million in the value of Crane’s stock the day

following the public disclosure of this case in The New York

Times. Crane explained that the $60 million decline occurred on

a trading volume which exceeded that for the entire previous

week. In support of its motion to intervene, Crane bitterly

complained that it and its shareholders would continue to suffer

“from the uncertainty created in the marketplace by the publicity

surrounding this case and they will continue io suffer unt! this

cloud has been removed.”

Meanwhile, the PBGC terminated CF&I’s pension plan, ren-

ering the appeal moot. The Eighth Circuit remanded the case

to the district court, which then authorized issuance of summons

to Crane. After being served, Crane responded to the complaint

with a motion to dismiss for lack of subject matter jurisdiction

based on section 3730(e)(4)(A) of the FCA, which divests

district courts of subject matter jurisdiction over qui tam suits

“based upon the public disclosure of allegations or transactions

ina...civil... hearing... or from the news media.” Notwith-

standing the fact that only months before it had insisted in the

court of appeals that Rabushka’s allegations had been “prema-

turely publicly disclosed,” Crane argued the diametric opposite

in the district court: that Rabushka’s allegations were a “rehash”

of old news, a mere “second toot.”

Rabushka readily acknowledged that the public disclosures to

which Crane pointed — several newspaper articles and a state-

ment made by CF&I’s attorney in CF&I’s bankruptcy proceed-

ings — were, indeed, public disclosures. Rabushka pointed out,

however, that because those public disclosures revealed no

fraud, they were not “public disclosures” of “allegations or

transactions” within the meaning of the FCA. The district court

agreed with Rabushka that the word “allegation” means an

allegation of fraud, but the court disagreed that a transaction

within the meaning of the FCA had to reveal the defendant’s

fraud: “‘transaction’ means just that, ‘an act of transacting or

conducting any business.’ Appendix to Crane’s Petition (here-

inafter “App.”’). at 45B (quoting BLack’s Law Dictionary at

1341 (Sthed. 1979)). Holding that Rabushka’s suit was based on

transactions that had been publicly disclosed — without any

regard for whether those transactions revealed Crane’s fraud —

the district court agreed with Crane that Rabushka’s suit was

barred by section 3730(e)(4)(A). In addition, the court held that

the statement made by CF&I’s bankruptcy attorney was “essen-

tially” an allegation of fraud. App. at 47B. The district court

therefore dismissed the case for lack of subject matter jurisdic-

tion.

The Eighth Circuit unanimously concluded that the district

court’s interpretation of section 3730(e)(4)(A) was overly broad.*

On the application of the law to the undisputed facts of the case,

however, the panel split. The panel majority first held that

CF&I’s attorney’s statement did not constitute an allegation of

fraud within the meaning of the FCA. The court also held that

a “transaction” within the meaning of section 3730(e)(4)(A)

must reveal a defendant’s fraud, unlike any of the transactions

relied upon by Crane and the district court. Accordingly, the

court held that section 3730(e)(4)(A)’s jurisdictional bar did not

apply, reversed the district court’s dismissal, and thereafter

denied both Crane’s petition for rehearing and suggestion for

rehearing en banc.

SUMMARY OF ARGUMENT

Although Crane claims that the Eighth Circuit’s decision

conflicts with the decisions of five other circuits, no suchconflict

*Even the dissenting judge “agree[d] with the majority that the district

court's application of the jurisdictional bar whenever there is disc!osure of the

‘subject transactions’ was too broad.” App. at 10A n.3.

exists. In actuality the Eighth Circuit cited two of those decisions

with approval and expressly adopted the holding of a third, as

Crane itself acknowledges in its Petition. The court of appeals

neither expressly nor implicitly departed from the holding of any

federal court of appeals, and Crane’s claim to the contrary is

wholly contrived.

In addition, Crane claims that the court of appeals disregarded

factual findings of the district court. That is patently false. The

district court made no findings of fact because, as Crane itself has

admitted in its Petition, “the evidence presented by Crane was

documentary and not contradicted in any material respect.’”* The

only issue was whether the “‘allegations and transactions” which

Crane claimed bar this suit constituted “allegations or transac-

tions” within the meaning of the False Claims Act. It was this

point of law upon which the district court and the court of appeals

disagreed, a legal issue which the court of appeals was obligated

to review de novo.

The decision below was a straightforward application of the

plain and unambiguous language of the FCA, and it does not

conflict with the decision of any other federal court of appeals or

of this Court. Accordingly, there is no question of law at issue

that justifies the grant of a writ of certiorari in this case.

*Crane’s Petition at 13.

ARGUMENT

I. The Eighth Circuit’s holding, that an “allegation or

transaction” within the meaning of section 3730(e)(4)(A)

of the False Claims Act must reveal the defendant’s

fraud against the government, is dictated by the plain

language of the statute, completely supported by the

legislative history, and absolutely consistent with the

decision of every federal court of appeals to have ad-

dressed the issue

The FCA includes a qui tam® provision which broadly grants

“a person” the right to “bring a civil action” for frauds perpe-

trated against the federal government. 31 U.S.C § 3730(a).

Subsection 3730(e)(4)(A), however, jurisdictionally bars “an

action under this section based upon the public disclosure of

allegations or transactions ina... civil... hearing... or from

the news media.”’ The gravamen of every FCA violation is

getting the government to pay a “false or fraudulent claim.”

Therefore, the only “allegations or transactions” whichcan serve

as the basis of an FCA suit are ones which reveal that a false or

fraudulent claim has been submitted to the government for

payment or that the government has otherwise been defrauded of

money or property. See 31 U.S.C. §3729(a).

Because an FCA action can never be “based upon” an allega-

tion or transaction which does not constitute fraud against the

*" Qui tam is an abbreviation for qui tam pro domino rege quam pro seipso,

which means ‘he who as much for the king as for himself.’ United States ex

rel. Springfield Terminal Ry. v. Quinn, 14 F.3d 645, 647 n.1 (D.C. Cir. 1994)

(quoting JoHN T. Boese, Civic Fatse CLamms and Qui Tam Actions 1-6

(1993)).

"However, if the gui tam relator qualifies as an “original source,” his suit

is not barred even if it is “based upon the public disclosure of allegations or

ransactions” which have revealed the fraud. 31 U.S.C. §§ 3730(e)(4)(A)-

(B).

*See 31 U.S.C. §§ 3729(a)(1)-(7).

government, it naturally follows that section 3730(e})\4)(A)’s

jurisdictional bar is triggered only by allegations or transactions

which reveal a fraud against the government. The Eighth |

Circuit’s holding to that effect is nothing more than a straightfor-

ward application of section 3730(e)(4)(A)’s plain language.

The Eighth Circuit’s holding is also abundantly supported by

the legislative history to section 3730(e)(4)(A) and the case law

interpreting it. “One theme recurring through the legislative

history . . . is the intent to encourage persons with first-hand

knowledge of fraudulent misconduct to report fraud.” United

States ex rel. Stinson v. Prudential Ins., 944 F.2d 1149, 1153 (3d

Cir. 1991) (emphasis added). “The purpose of the qui tam

provisions of the False Claims Act is to encourage private

individuals who are aware of fraud being perpetrated against the

Government to bring such information forward.” H.R. Rep. No.

660, 99th Cong. 2d Sess. 22 (1986) (quoted in United States ex

rel. Dick v. Long Island Lighting Co., 912 F.2d 13, 18 (2d Cir.

1990)) (emphasis added). The Senate Report explained that

“changes [in the qui tam provisions were] necessary to halt the

so-called ‘conspiracy of silence’ that has allowed fraud against

the government to flourish.” S. Rep. No. 345, 99th Cong., 2d

Sess. (1986) 6 (emphasis added), reprinted in 1986 U.S.C.C.A.N.

5266, 5271.’

The first and only other circuit ever to address whether a

publicly disclosed “allegation or transaction” must reveal the

defendant’s fraud, was the District of Columbia Circuit in United

States ex rel. Springfield Terminal Ry. v. Quinn, 14 F.3d 645 -

(D.C. Cir. 1994). That court held that “qui tam actions are barred :

only when enough information exists in the public domain to

expose the fraudulent transaction . . . or the allegation of fraud.”

Id. at 654. “Many potentially valuable qui tam suits would be

aborted by a reading of the jurisdictional provision that barred

Hereinafter “Senate Report.” Page references will be tothe U.S.C.C.A.N.

iia melee

suits when the only publicly disclosed information was itself

innocuous.” /d.

Demonstrating its own misunderstanding of the jurisdictional

bar, and of Springfield’ s interpretation of it, Crane observes that

“[iJronically, under the [Eighth Circuit’s] interpretation, the

more flagrant its fraud and more bereft of innocent explanations

for its conduct, the more likely a defendant is to escape a gui tam

action....”'° That is precisely correct. As the Springfield court

explained, once the fraud has been publicly disclosed, “there is

little need for qui tam actions, which would tend to be suits that

the government presumably had chosen not to pursue or which

might decrease the government’s recovery in suits it has chosen

to pursue.” /d.

Only two courts have ever held that the jurisdictional bar can

be triggered by “allegations or transactions” which do not reveal

fraud against the government: the district court in Springfield,

which the D.C. Circuit reversed, and the district court in the

present case, which the Eighth Circuit reversed. By holding that

the jurisdictional bar is triggered “only when specific allegations

of fraud or the vital ingredients to a fraudulent transaction exist

in the public eye,” Springfield, 14 F.3d at 657, the Eighth and

D.C. Circuits have simply held expressly what every other court

has apparently considered to be self-evident.

Crane claims that the Eighth Circuit’s decision “plainly con-

flicts” with the rulings of five other circuits,'' yet Crane fails to

'°Crane’s Petition at 10 note 9.

'' Those five decisions from other circuits are: United States ex rel. Doe

v. John Doe Corp., 960 F.2d 318 (2d Cir. 1992); United States ex rel. Stinson

v. Prudential Ins., 944 F.2d 1149 (3d Cir. 1991); United States ex rel.

Precision Co. v. Koch Indus., Inc., 971 F.2d 548 (10th Cir. 1992); Wang ex

rel. United States v. FMC Corp., 975 F.2d 1412 (9th Cir. 1992); and United

States ex rel. Springfield Terminal Ry. v. Quinn, 14 F.3d645 (D.C. Cir. 1994).

me + oneereseee

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explain that supposed conflict. In fact, no such conflict exists.

The Eighth Circuit actually cited with approval two of the

supposedly conflicting decisions, Koch and Stinson. App. at 3A.

More importantly, unlike the present case, four of those cases —

Doe, Stinson, Koch and Wang — did not even involve any

dispute about whether the “allegation or transaction” revealed

the defendants’ frauds. Rather, the issue in those cases was

whether the allegations or transactions at issue had been “pub-

licly disclosed.” That was never an issue in the present case

because the district court relied only upon items which Rabushka

acknowledged had been publicly disclosed. Thus, there is

simply no merit to Crane’s claim of conflict between the Eighth

Circuit and the Second, Third, Ninth and Tenth Circuits.'?

Crane’s claim of discord between the Eighth Circuit’s deci-

sion in this case and the D.C. Circuit’s decision in Springfield

(the fifth of the five cases) is even more incomprehensible and

meritless. Despite this claim of conflict, Crane grudgingly (and

condescendingly) admits that “[t]he court of appeals adopted

'2 It is quite clear that each of the other courts took for granted that

“allegations or transactions” would have to reveal fraud against the govern-

ment. In Doe, for instance, the Second Circuit wrote that “[p]ublic disclosure

of the allegations upon which the qui tam complaint rests is the bedrock of

§ 3730(e)(4)(A)’s jurisdictional bar. We have recently stated that allegations

of fraud are publicly disclosed when they are placed in the ‘public domain.’”

960 F.2d at 322 (emphasis added). In Stinson, the Third Circuit wrote that

“because section 3730(e)(4) does not bar a gui tam action unless the action is

based upon publicly disclosed ‘allegations or transactions,’ nothing con-

tained here would bar suit by someone who learned of the fraud from an

insider, if the information had not yet been publicly disclosed.” 944 F.2d at

1161 (emphasis added). And in Koch, the court noted that the purpose of the

jurisdictional bar was to curtail qui tam suits “by opportunists attempting to

capitalize on public information without seriously contributing fo the disclo-

sure of the fraud.” 971 F.2d at 552. Likewise, in Wang, the Ninth Circuit

wrote that the jurisdictional bar applies to “‘those who come forward after

public disclosure of possible False Claims Act violations[.]’’”” 975 F.2d at

1419.

ee

oe | en

what it understood to be the reasoning of [Springfield].”"'* Crane’s

discussion of this so-called conflict with Springfield exposes

Crane’s true criticism of the Eighth Circuit's decision, which is

that, in Crane’s opinion, the court of appeals “misapplied Spring-

field in this case.”'* Crane attempts to transform this alleged

“contrast” between the facts of Springfield and “the facts in this

case”’* into a conflict between the two circuits. The Eighth

Circuit’s repeated citation to, quotation of and agreement with

Springfield debunks Crane’s claim of a conflict between the

circuits regarding the proper interpretation of section

3730(e)(4)(A).

The 1986 amendments to the FCA

broadened qui tam jurisdiction

Crane also attempts to portray the Eighth Circuit’s decision as

being at odds with the long history of the FCA. Although Crane

argues that “[s]ince its enactment in 1863, the FCA has barred a

qui tam action whenever the government had prior inquiry notice

of the potential fraud,”'® the fact is that from 1863 to 1943

plaintiffs could “bring{] suits based exclusively on information

that was already in the government’s possession.” Springfield,

14 F.3d at 649. There was no jurisdictional bar of any kind to qui

tam suits during that period. Indeed, in United States ex rel.

Marcus v. Hess, 317 U.S. 537 (1943), this Court held that a gui

tam relator who had merely copied a federal criminal indictment

and converted it into a civil FCA gui tam complaint was not

barred under the Act from doing so. The decision provoked

Congress into “restrict[ing] the universe of litigants who could

avail themselves of the FCA’s gui tam provisions.” United

States ex rel. S. Prawer and Co. v. Fleet Bank, 24 F.3d 320, 325

'3Crane’s Petition at 7.

'*Crane’s Petition at 8.

'SCrane’s Petition at 9.

'°Crane’s Petition at 1 1.

(Ist Cir. 1994). “[T]he final 1943 legislation precluded all gui

tam actions ‘based on evidence or information the Government

had when the action was brought.’” /d. (quoting 31 U.S.C. §

3730(b)(4) (repealed 1986)).

“Once again, the passage of time revealed that Congress, in its

attempt to evade Scylla, had steered precipitously close to

Charybdis.” Springfield, 14 F.3d at 650. “Qui tam actions under

the FCA had gone in forty years from unrestrained profiteering

to a flaccid enforcement tool.” Doe, 960 F.2d at 321. Congress

recognized that “the most serious problem plaguing effective

enforcement is a lack of resources on the part of the Federal

enforcement agencies.” Senate Report at 5272. “Allegations

that perhaps could develop into very significant cases are often

left unaddressed at the outset due to a judgment that devoting

scarce resources to a questionable case may not be efficient.” /d.

Congress meant to cure this “most serious problem” by

“encourag[ing] assistance from the private citizenry” in the form

of whistleblower suits. /d. at 5273.

The legislative history thus puts the lie to Crane’s unsupported

claims that the 1986 amendments “restricted jurisdiction by

barring suits ... whenever the government was on constructive

inquiry notice of possible fraud,” that “Congress [in 1986]

elected to constrain qui tam jurisdiction,” and that “(t]he power-

ful enforcement arms of today’s government do not require the

10,000 attorneys general which the Lincoln administration re-

quired.””"” To the contrary, Congress, “[c]oncerned about

‘sophisticated and widespread fraud’ depleting the national fisc,

. concluded that ‘only a coordinated effort of both the

Government and the citizenry will decrease this wave of de-

frauding public funds.’” Springfield, 14 F.3d at 650-51 (footnote

omitted) (quoting Senate Report at 5266-67). “As one means of

encouraging private citizens to expose fraud, Congress repealed

'’Crane’s Petition at 11, 12.

3

;

2

:

the ‘government knowledge’ jurisdictional bar to qui tam actions

... and enacted narrowly circumscribed exceptions to qui tam

jurisdiction.” Doe, 960 F.2d at 321-22 (emphasis added). “In

part, the 1986 amendments were ‘aimed at correcting restrictive

[court] interpretations of the act’s . . . qui tam jurisdiction’

provisions.” Wang, 975 F.2d at 1419 (quoting the Senate Report

at 5269).

Thus, the Eighth Circuit correctly applied Springfield’ s hold-

ing that section 3730(e)(4)(A) is triggered only when “the

essential elements exposing the transaction as fraudulent. . .

[are] publicly disclosed.” App. at 8A (citing Springfield, 14 F.3d

at 655). Even prior to the 1986 amendments, when the FCA

barred qui tam suits “based upon evidence or information in the

possession of the United States,” the mere fact that the govern-

ment might have had in its possession “some information related

to an allegedly false claim [did] not mean that suit under the Act

is barred... .” United States ex rel. Joseph v. Cannon, 642 F.2d

1373, 1377 (D.C. Cir. 1981). Rather, the information in the

government's possession had to be “‘sufficient to enable it

adequately to investigate the case and to make a decision

whether to prosecute’” or “‘at least [sufficient to] have alerted

law-enforcement authorities to the likelihood of wrongdo-

ing....” /d. (quoting Pettis ex rel. United States v. Morrison-

Knudsen Co., 577 F.2d 668, 674 (9th Cir. 1978)). A fortiori,

under the present and broader qui tam provisions, a public

disclosure must at least, as the Eighth Circuit correctly held,

“raise a reasonable inference of fraud” against the government,

in order to trigger the jurisdictional bar.

The PBGC’s investigation was not prompted

by any alleged “public disclosure”

Crane belatedly and falsely claims for the first time in its

present Petition that there was in this case “ample public infor-

mation . . . to alert the PBGC to the likelihood of the false claim

my ee

alleged.”’* Crane well knows that this assertion is simply not true

and lacks any shred of support in the record. The only evidence

in the record is that other individuals—not public disclosures —

had privately alerted the PBGC to Crane's fraud; there is not one

scintilla of evidence in this case that the PBGC was aware of or

acted upon any alleged public disclosures.'’

The depositions of Crane's officers

taken by the SEC in the course of an unrelated

insider-trading investigation did not reveal Crane's fraud

Crane’s assertion that the transcripts of depositions taken by

the SEC in an unrelated insider-trading investigation were “pub-

lic disclosures” is wrong. Even the district court did not rely

upon the SEC depositions in its dismissal of this case. The mere

fact that those deposition transcripts might have been theoreti-

ally available to the public “via a Freedom of Information Act

request,” as Crane alleges without the benefit of any evidentiary

support,” does not mean that those transcripts have been pub-

licly disclosed within the meaning of the FCA. The D.C. Circuit

directly addressed this issue in Springfield. When materials are

“only theoretically available upon the public’s request,” those

materials “are not yet in the public eye” and do not trigger section

3730(e)(4)(A)’s public disclosure bar. 14 F.3d at 652-53.

'§Crane’s Petition at 7.

‘Crane apparently believes that Judge Magill’s dissenting opinion in this

case provides sufficient cover for Crane to make this outrageously deceitful

claim. Judge Magill erroneously believed that one or more public disclosures

had spurred a PBGC investigation of Crane. App. at 30A. Judge Magill made

this mistaken assertion without any citation to any portion of the record. Even

Crane had not taken this position in either the district court nor in the court of

appeals, undoubtedly because there is absolutely no evidence which supports

the claim.

2° See Crane’s Petition at 4 note 1.

More importantly, and not surprisingly, Crane’s officers most

certainly did not reveal their fraud on the PBGC during their SEC

depositions. The SEC transcripts of those depositions — which

Crane hardly mentioned in its brief in the court of appeals—

simply show that Crane wanted to divest itself of ownership of

CF&I because of its pension problems. Nowhere do the tran-

scripts so much as hint that Crane had perpetrated or even

considered perpetrating a fraud in order to get rid of CF&I. If,

as Crane so adamantly insists, it committed no fraud, why would

its own officers needlessly and recklessly jeopardize their com-

pany and their livelihoods, not to mention seriously risking

criminal prosecution, by making such unfounded allegations?

The answer is simple. Crane’s officers did not reveal Crane’s

fraud in their SEC depositions, and Crane’s claim to the contrary

is not only false, it is entirely preposterous.

Crane’s own initial reaction to this case after The New York

Times published Rabushka’s allegations is perhaps the most

persuasive confirmation of the Eighth Circuit’s conclusion that

there were no prior “allegations or transactions” that revealed

Crane’s fraud. In its attempt to intervene in the previous appeal

in this case, Crane bitterly complained that the Times’ article was

a “premature public disclosure.” That claim exposes the utter

disingenuousness of Crane’s present claim that Rabushka’s

allegations are a mere “second toot” of prior public disclosures.

If, as Crane argued below, there had already been an “exten-

sively covered,” “exhaustively disclosed,” “widely published”

and “trumpeted” public tooting of Crane’s fraud, then why did

that supposed “first toot” not have consequences like the more

than $60 million drop in the price of Crane’s stock which

Rabushka’s supposed “second toot” caused? Since the alleged

“revelations” of Crane’s fraud by its own corporate officers in

SEC depositions failed to cast a “cloud” over Crane, then how

could the “second toot” of amere shareholder like Rabushkacast

a “cloud” over Crane? If there had already been a “widely

<=

published” tooting of Crane’s fraud, why did the stock market,

as well as Crane, react to Rabushka’s “second toot” as if they

were hearing such allegations of fraud for the first time? This

answer, too, is simple: Rabushka’s allegations were the first

public disclosure of “rane’s fraud. Crane’s frantic attempt to

intervene in the appeal on the grounds that the “premature public

disclosure” of Rabushka’s allegations was having a “seriously

negative impact” on Crane’s stock, lays bare Crane’s present

“public disclosure” argument as nothing short of dissemblance.

The Eighth Circuit’s decision in this case is not only consistent

with the decisions of every other court of appeals which has

interpreted the FCA’s jurisdictional bar, it is correct on the facts

as well. Accordingly, Crane’s Petition for a Writ of Certiorari

should be denied.

II. Crane’s argument that the majority refused, in defi-

ance of controlling Supreme Court and Eighth Circuit

precedent, to review the district court’s factual findings

under the “clearly crroneous” standard is an absolute

red herring, because the facts were undisputed and the

only disagreement between the Eighth Circuit and the

district court concerns the legal conclusions to be drawn

from those undisputed facts

With all the drama — and accuracy — of Chicken Little’s

claim that the sky was falling, Crane claims that the Eighth

Circuit’s decision in this case “threatens to erode appellate court

deference to the factual findings of trial courts.”*' Crane makes

this alarmist claim despite the fact that the district did not make

any findings of fact; despite the fact that, on this issue (too), the

Eighth Circuit implicitly followed the D.C. Circuit’s holding in

Springfield that a court of appeals must review de novo a district

court’s “legal conclusions” drawn “from undisputed facts’; and

despite the fact that the Eighth Circuit did not write so much as

*! Crane’s Petition at 15.

,

|

ee

oo

a single word which could conceivably be interpreted as autho-

rizing a departure from the “clearly erroneous” standard for

reviewing a district court’s findings of fact.

The reason that neither the panel majority nor the dissenting

judge in this case discussed the applicable standard of review is

that there were no factual disputes for the court to review under

any standard. As Crane itself admitted in its brief in the court of

appeals and has reiterated in its Petition, “the evidence presented

by Crane was documentary and not contradicted in any material

respect.” It is well-established that “[w]here material! facts are

notin dispute, as in this case, [the appellate court will] review the

district court’s determination that it lacks jurisdiction de novo.”

Drevlow v. Lutheran Church, Mo. Synod, 991 F.2d 468, 470 (8th

Cir. 1993). Accord Springfield, 14 F.3d at 655; Herbert v. Nat’!

Academy of Sciences, 974 F.2d 192, 197 (D.C. Cir. 1992);

Ynclan v. Dept. of Air Force, 943 F.2d 1388, 1390 (Sth Cir.

1991); Osborn v. United States, 918 F.2d 724, 730 (8th Cir.

1990); Hohri v. United States, 782 F.2d 227, 241 (D.C. Cir.

1986), vacated on other grounds 482 U.S. 64 (1987); Williamson

v. Tucker, 645 F.2d 404, 413 (Sth Cir. 1981).

The Court’s decision in Anderson v. City of Bessemer, 470

U.S. 564 (1985), which Crane has cited, is completely irrelevant

to the present case. In Anderson, this Court reversed the court of

appeals for substituting its own assessment of disputed facts

(such as whether a hiring committee was biased against hiring

women) for the findings of the district court. To reiterate, there

are no disputed facts in the present case. Rather, only the legal

significance of the documentary evidence is in dispute: do the

public disclosures upon which Crane relies constitute “the public

disclosure of allegations or transactions” within the meaning of

the False Claims Act, even though these disclosures revealed no

fraud?

2 Crane's Petition at 13.

—. on

Even though in Springfield the D.C. Circuit addressed the

precise issue presented here, that decision, which Crane features

sO prominently in the first half of its Petition, is conspicuously

absent from this section of Crane’s Petition. Crane’s failure to

cite Springfield is understandable, given the fact that the D.C.

Circuit held in Springfield that, when the facts are undisputed,

the issue of whether there have been publicly disclosed “‘allega-

tions or transactions” within the meaning of section 3730(e)(4)(A)

is a question of law to be reviewed de novo. 14 F.3d at 655.

In Springfield, the qui tam relator, Springfield, had obtained

a federal arbitrator's (Quinn’s) pay vouchers and telephone

records through discovery in other litigation. Springfield con-

ducted an investigation and discovered that Quinn “had fraudu-

lently billed the government for days on which he had not

actually worked on Springfield’s dispute.” Jd. at 648. When

Springfield later filed a qui tam FCA suit, Quinn moved to

dismiss the action under section 3730(e)(4)(A), contending that

the “allegations or transactions” underlying Springfield’s suit

had been publicly disclosed in the other litigation. The district

court granted the motion, reasoning that Springfield’s suit was

“based upon” publicly disclosed information — Quinn’s pay

vouchers and phone records. /d.

As discussed more fully in the first section of this brief, the

Springfield court held that only publicly disclosed “allegations

or transactions” which reveal a defendant’s fraud against the

government come within the meaning of section 3730(e)(4)(A).

Since the parties in Springfield did not dispute that the pay

vouchers and telephone records had been publicly disclosed,

“[rjesolution of the ‘allegations or transactions’ issue . . . d[id]

not turn on ‘a determination of fact which only a fact-finder

could make but which has not been made.” /d. at 655. As the

court explained, “the district court assumed without analysis that

the pay vouchers and telephone records disclosed during the

discovery constituted ‘allegations or transactions’ within the

— wen

meaning of the jurisdictional bar.” /d. at 653 (emphasis added).

The court of appeals was thus required to engage in “independent

review of the legal sufficiency of the district court’s views and

of its application of the law to undisputed facts.” Id. at 655.

Just as the parties in Springfield did not dispute that the pay

vouchers and telephone records had been publicly disclosed, the

parties in the present case do not dispute that the statement made

in a bankruptcy proceeding or that the newspaper articles relied

upon by Crane were publicly disclosed. Therefore, just as in

Springfield “[rJesolution of the ‘allegations or transactions’

issue . . . d[id] not turn on ‘a determination of fact which only a

fact-finder could make but which has not been made.” Just as the

D.C. Circuit had done in Springfield, the Eighth Circuit in the

present case merely engaged in an “independent review of the

legal sufficiency of the district court’s views and of its applica-

tion of the law to undisputed facts.” The Eighth Circuit unani-

mously concluded that the district court’s interpretation of

section 3730(e)(4)(A)’s jurisdictional bar was “too broad,” and

the panel majority held, on the basis of the undisputed facts, that

none of the public disclosures relied upon by the district court

constituted “allegations or transactions” within the meaning of

section 3730(e)(4)(A).

Moreover, any conclusion that there had been “allegations or

transactions” which revealed Crane’s fraud would have, indeed,

been “clearly erroneous.” The only “allegation” upon which

Crane relied was the statement of CF&I’s bankruptcy attorney,

Frank Cummings, that “there were what we believe to be

miscalculations . . . by the actuary for this plan.” As the Ninth

Circuit has held in an FCA case based on faulty calculations:

“Bad math is no fraud.” Wang, 975 F.2d at 1420. Similarly, Mr.

Cumming’s allegation of “miscalculations” by an independently

retained actuary could not possibly constitute an “allegation” of

fraud against Crane within the meaning of the False Claims

_

Act.”? The Eighth Circuit's review of the district court’s appli-

cation of the law to Cummings’ undisputed statement was

clearly appropriate, and its conclusion that the statement did not

constitute an “allegation” of fraud within the meaning of section

3730(e)(4)(A) is beyond any rational dispute.

Likewise, the district court, under the mistaken belief that the

“subject transactions” need not reveal fraud against the govern-

ment, expressed no opinion as to whether the “transactions” did

reveal any fraud. The Eighth Circuit carefully analyzed the

newspaper articles which revealed those “transactions” — i.e.,

Crane’s 1985 spin-off of CF&I, the pension plan’s post-spin-off

troubles, and CF&I’s 1990 bankruptcy filing — which, accord-

ing to Crane, bar this suit. The court concluded:

Although CF&I’s pension funds were squarely in the public

eye prior to Rabushka’ suit, the available information cited

by Crane reports seemingly legitimate transactions and

fails to suggest to the uninitiated reader the state of affairs

alleged by Rabushka — that CF&I’s pension liability was

intentionally understated and that the spinoff was con-

cocted in the hope that Crane would avoid eventual liabil-

ity. Rabushka was the first to assert that Crane officials

knew that the underfunding at the time of the spinoff was

23 Crane’s myopic focus on Mr. Cummings’ statement entirely and inde-

fensibly ignores the context of his remarks. Mr. Cummings also stated:

The reason for the plan being — and I use the word in quotes —

underfunded is the same reason that so many plans in the steel industry

end up inthis condition. Youcan be underfunded in this universe in any

industry including steel simply by obeying the law which, when enacted

in 1974, gave you 40 years to amortize the liability. .. . In addition, in

the steel industry there are heavily subsidized special early retirement

benefits built into the plan which occur when a facility shuts down and

people are permanently laid off in connection with that shutdown.

In its full context, Mr. Cummings’ statement can in no way constitute an

allegation of wrongdoing.

—

much greater than reported and that Crane officials were

aware that the liability was sufficient to “sink” Crane if

Crane was held responsible.

App. at 7A-8A. The Eighth Circuit’ s review of those articles was

just like (and just as correct as) the D.C. Circuit’s review of the

pay vouchers and telephone records at issue in Springfield. In

both cases the courts properly reviewed the undisputed, docu-

mentary evidence to determine, purely as a matter of law,

whether that evidence constituted “‘allegations or transactions’

within the meaning of the jurisdictional bar.” Springfield, 14

F.3d at 653. In both cases, the courts properly concluded that the

FCA does not bar qui tam suits “when the only publicly disclosed

information was itself innocuous,” id. at 654, and “the publicly

disclosed transactions involved do not raise . . . an inference of

fraud.” App. at 8A.*4

The Eighth Circuit employed no language in its opinion to

suggest some departure from the “clearly erroneous” standard

for reviewing a district court's findings of fact. Anderson v. City

of Bessemer is alive and well in the Eighth Circuit. The Eighth

Circuit’s decision does not, as Crane claims, undermine the

“validity” of that decision, and there is thus no need for this Court

to “restore” the unquestioned “validity” of that decision.

“It is abundantly clear from the Eighth Circuit’ s opinion that the district

court's decision could not withstand review even under the deferential,

“clearly erroneous” standard. The “foremost” principle governing an appel-

late court’s review under this standard is that “{a] finding is ‘clearly errone-

ous’ when although there is evidence to support it, the reviewing court on the

entire evidence is left with the definite and firm conviction that a mistake has

beencommitted.”” Anderson, 470 U.S. at 573 (quoting United States v. United

States Gypsum, 333 U.S. 364, 395 (1948)). That is exactly how the Eighth

Circuit felt about this case: “we ‘are confident in this case that the information

putin the public domain. . . did not present so clear or substantial an indication

of foul play as to qualify as either an allegation of fraud or a fraudulent

transaction.”’” App. at 8A (quoting Springfield, 14 F.3d at 656).

CONCLUSION

The Eighth Circuit’s decision in this case does not conflict

with the decisions of any other federal court of appeals. In fact,

the Eighth Circuit explicitly adopted the reasoning and holding

of the D.C. Circuit’s decision in Springfield, notwithstanding

Crane’s unexplained criticism to the contrary.

In addition, the Eighth Circuit’s decision does not question the

applicability of a “clearly erroneous” standard of review to the

findings of fact made by a district court. The district court in this

case made no findings of fact to which the court of appeals could

have applied that standard of review. Thus, the court of appeals

did not even address itself to this non-issue, much less depart

from the well-established case law of this Court and of the Eighth

Circuit.

Accordingly, there is no question of law at issue that justifies

the grant of a writ of certiorari in this case. Crane’s Petition for

a Writ of Certiorari should be denied.

Respectfully submitted,

RoBeErT L. KING

REx CARR

CarRR, KOREIN, TILLERY,

KUNIN, Montroy & GLass

701 Market Street, Suite 300

St. Louis, Missouri 63101

(314) 241-4844

Attorneys for Respondents

United States of America ex rel. Stanley

Rabushka and Stanley Rabushka

Ps Py iP as aS