IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
May 9, 2008
No. 07-50732 Charles R. Fulbruge III
Clerk
United States of America, ex rel, JOSEPH FRIED; PUBLIC PROGRAM
TESTING ORGANIZATION,
Plaintiffs - Appellants
v.
WEST INDEPENDENT SCHOOL DISTRICT
Defendant - Appellee
Appeal from the United States District Court
for the Western District of Texas
Before DAVIS and SOUTHWICK, Circuit Judges, and DRELL, District Judge.*
SOUTHWICK, Circuit Judge:
Relators Joseph Fried and Public Program Testing Organization challenge
the district court’s dismissal of their qui tam action brought on behalf of the
United States under the False Claims Act. We affirm.
FACTS
Joseph Fried, an Ohio resident and director of Public Program Testing
Organization, identifies himself as a government-waste opponent. He is
particularly concerned about fraud and waste in the Social Security System.
*
District Judge of the Western District of Louisiana, sitting by designation.
No. 07-50732
Fried filed this False Claims Act qui tam suit against West Independent School
District (“West ISD”) alleging that it had defrauded the Social Security
Administration by representing that certain employees were entitled to Social
Security benefits when in fact they were not.1
The sine qua non of this litigation is a quirky provision in Social Security
regulations. According to the relator, for state and local government employees
to be covered by Social Security, they must not be covered by some other
retirement plan. In addition, they must qualify under the agreement entered
between the relevant State and the Social Security Administration which
establishes the details of how that State’s public employees will become eligible
for benefits. The agreements, named for the section of the Social Security Act
that authorizes them, are called Section 218 Agreements. Texas teachers have
a separate retirement system and accordingly would not appear eligible for
Social Security. However, a number of school districts in Texas, including West
ISD, allowed certain retiring teachers to work their last day in a non-teacher
position that was covered by Social Security. By that one day of work, the
teachers became entitled to benefits they would not otherwise receive. The
participants would pay a processing fee to the participating school district, and
work their last day of employment in a janitorial or clerical position.
Fried alleges that these teachers were not properly classified as full-time
employees, did not perform bona fide employment, and therefore were not
1
Fried has brought these same claims against a number of other school districts in
Texas. Two of these cases have been stayed pending the decision in this case. United States
ex rel. Fried v. Lindale Indep. Sch. Dist., No. 6:05-CV-440 (E.D. Tex. filed Nov. 21, 2005); and
United States ex rel. Fried v. Hidalgo ISD, et al., No. 3:06-CV-00777 (S.D. Tex. filed Dec. 11,
2006). One case was dismissed on the same basis as the district court here. United States ex
rel. Fried, et al. v. Hudson Indep. Sch. Dist., No. 9:05-CV-00245 (E.D. Tex. filed Dec. 21, 2005).
Two other cases were voluntarily dismissed. United States ex rel. Fried, et al. v. Fort Davis
Indep. Sch. Dist., et al., No. 5:06-CV-01078 (W.D. Tex. filed Dec. 11, 2006); United States ex
rel. Fried v. Yoakum Indep. Sch. Dist., No. 6:05-CV-00111 (S.D. Tex. filed Nov. 21, 2005).
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No. 07-50732
entitled to the relevant benefits. By representing that these individuals were
eligible for benefits, Fried claims West ISD defrauded the government.
West ISD filed a motion for summary judgment, arguing that Fried’s
claims were barred because his allegations were based on publicly disclosed
information and Fried was not an original source of the information. The district
court granted the motion. Fried filed a timely appeal.
DISCUSSION
A. Standard of Review
We review the grant of a motion for summary judgment de novo, and we
apply the same standard as the district court, “viewing the evidence in a light
most favorable to the non-movant.” Fruge ex rel. Fruge v. Parker Drilling Co.,
337 F.3d 558, 560 (5th Cir. 2003).
B. False Claims Act
The False Claims Act is designed to permit “suits by private parties on
behalf of the United States against anyone submitting a false claim to the
government.” Hughes Aircraft Co. v. United States ex rel. Schumer, 520 U.S.
939, 941 (1997); 31 U.S.C. § 3729 et seq. The Act “promot[es] private citizen
involvement in exposing fraud against the government,” while at the same time,
“prevent[s] parasitic suits by opportunistic late-comers who add nothing to the
exposure of fraud.” United States ex. rel. Reagan v. East Texas Med. Ctr., 384
F.3d 168, 174 (5th Cir. 2004) (internal citations omitted).
To prevent “parasitic suits” the Act prohibits a relator from pursuing an
action – and strips federal courts of subject matter jurisdiction over the claim –
when the allegations of fraud are based on information that has been publicly
disclosed in a “criminal, civil, or administrative hearing, in a congressional,
administrative, or Governmental 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
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information.” 31 U.S.C. § 3730(e)(4)(A); Rockwell Int’l Corp. v. United States,
127 S. Ct. 1397, 1405-07 (2007). Thus, a relator is prohibited from bringing a
claim under the FCA when the claim is “based on” information that has been
“publicly disclosed” unless the relator is an “original source” of the information.
Reagan, 384 F.3d at 173.
(a) Were Fried’s claims based on a “public disclosure”?
The district court held that Fried’s claims were based on publicly disclosed
information. On appeal Fried argues that the district court misapprehended the
nature of his claim. Specifically, Fried alleges that while information about the
“last day” exemption program was publicly disclosed, the specific allegations or
transactions of fraudulent claims by West ISD were not disclosed until Fried
revealed the conduct.
To the contrary, the record shows that the very essence of the allegations
made by Fried had been publicly disclosed on several occasions prior to Fried’s
suit in 2005. For example, the General Accounting Office received an inquiry
through its FraudNET system in 2002 which questioned the use of the “last day”
exemption by Texas school districts. As a result of this inquiry, that Office
issued a report on the programs (including their “potential for abuse”) in August
2002. U.S. Gov’t Accountability Office, Revision to the Government Pension
Offset Exemption Should Be Reconsidered (2002) (presented to the H. Comm. on
Ways and Means, S. Comm. on Soc. Security). In addition, Congressional
hearings were held in 2003 and 2004 in which the loophole was debated – and
its use by Texas school districts was specifically noted. H.R. 4391, The “Public
Servant Retirement Protection Act”: Hearing on H.R. 4391 Before the Subcomm.
on Social Security of the H. Comm. on Ways and Means, 108th Cong. (2004);
Social Security Provisions Affecting Public Employees: Hearing Before the
Subcomm. on Social Security of the H. Comm. on Ways and Means, 108th Cong.
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No. 07-50732
(2003). Finally, West ISD’s program itself was disclosed in trade publications
and on the internet.
Thus, much of Fried’s information duplicates what was uncovered in
governmental investigations. Further, a large section of the evidentiary basis
of Fried’s claims is the information received pursuant to the Texas Public
Information Act (the Texas equivalent to the federal Freedom of Information
Act). This court has explicitly stated that a response to a public records request
constitutes a “public disclosure” under the FCA. Reagan, 384 F.3d at 176. In
fact, we have held that if a qui tam action is “even partly based upon public
allegations or transactions” then the jurisdictional bar applies. United States ex
rel. Fed. Recovery Servs., Inc. v. E.M.S., Inc., 72 F.3d 447, 451 (5th Cir. 1995).
Even if Fried uncovered some nuggets of new, i.e., non-public, information, his
claims of fraud are based at least in part on allegations already publicly
disclosed. Therefore, we hold that Fried’s qui tam suit is based on publicly
disclosed information. His claims thus are barred unless he can show that he is
the original source of the information underlying his claim.
(b) Was Fried the “original source” of the information underlying
his claim?
An “original source” is someone with “direct and independent knowledge
of the information” which forms the basis of his claims, who provides the
information to the Government before filing suit.2 31 U.S.C. § 3730(e)(4)(B);
Reagan, 384 F.3d at 177. “In order to be ‘direct,’ the information must be
firsthand knowledge. In order to be ‘independent,’ the information known by the
relator cannot depend or rely on the public disclosures.” United States ex rel.
Findley v. FPC-Boron Employees’ Club, 105 F.3d 675, 690 (D.C. Cir. 1997).
2
Fried provided the Government the information he had before filing suit. After
receiving Fried’s information the Government declined to intervene in the action.
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No. 07-50732
Fried argues his professional experience with the Social Security
Administration and the information he acquired after conducting his own
independent investigation into the use of the “last day” exemption by West ISD
make him an “original source” of the information underlying his fraud claim.
As an initial matter, the record must show that Fried did more than apply
his expertise to publicly-disclosed information:
second-hand information may [not] be converted into “direct
independent knowledge” simply because the plaintiff discovered
through investigation or experience what the public already knew.
Instead, the investigation or experience of the relator either must
translate into some additional compelling fact, or must demonstrate
a new and undisclosed relationship between disclosed facts, that
puts a governmental agency “on the trail” of fraud, where that fraud
might otherwise go unnoticed.
Reagan, 384 F.3d at 179. Fried particularly focuses us on the information he
obtained through conversations and email exchanges with West ISD’s business
manager. He posed as either a retiring teacher or someone seeking other
employment. Through his sleuthing, Fried discovered that under the “last day”
exemption a teacher could work 6.5 hours and receive social security coverage
whereas someone not participating in the program would not be able to obtain
social security benefits unless they worked over 30 hours. These are the “direct”
and “independent” allegations he asserts.
This is not the type of direct or independent knowledge contemplated by
the False Claims Act. Fried merely received information about a program that
had been publicly disclosed and hotly debated. Fried’s argument that his
allegations are unique because they relate to this school district’s fraud is also
insufficient. Fried argues that without the information he received through his
independent investigation, the manner in which the “last day” exemption was
being implemented by West ISD would have gone undetected by the Social
Security Administration. The record belies this contention. Every aspect of the
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“last day” exemption program was well known – including its potential for abuse
by Texas school districts. The burden was on Fried to show that the information
and allegations he discovered were “qualitatively different information than
what had already been discovered” and not merely the “product and outgrowth”
of publicly disclosed information. Fed. Recovery Servs., Inc., 72 F.3d at 452.
Fried has not met this burden.
For these reasons the district court correctly held that Fried was not an
“original source” under the False Claims Act. The judgment of the district court
is AFFIRMED.
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