doc. no. 5 opening brief and required short appendix of plaintiff-appellant cause of action...

No. 15-1143

IN THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT ________________________

UNITED STATES OF AMERICA, ex rel. CAUSE OF ACTION,

Plaintiff-Appellant,

v.

CHICAGO TRANSIT AUTHORITY, Defendant-Appellee.

________________________

On Appeal from the United States District Court for the Northern District of Illinois, Eastern Division

Case No. 12-cv-9673 The Honorable Robert M. Dow, Jr., Presiding

________________________

Opening Brief and Required Short Appendix of Plaintiff-Appellant Cause of Action

________________________ DANIEL Z. EPSTEIN PRASHANT K. KHETAN LAURA N. BEGUN CAUSE OF ACTION INSTITUTE 1919 Pennsylvania Ave., NW Suite 650 Washington, D.C. 20006 (202) 499-4232

Dated: March 4, 2015 Counsel for Cause of Action

Case: 15-1143 Document: 5 Filed: 03/04/2015 Pages: 54

CIRCUIT RULE 26.1 AMENDED DISCLOSURE STATEMENT

Appellate Court No: 15-1143

Short Caption: Cause of Action, Plaintiff-Appellant v. Chicago Transit Authority, Defendant-Appellee

1. The full name of every party that the attorney represents in the case:

Cause of Action Institute, a 501(c)(3) organization, d/b/a Cause of Action.

2. The names of all law firms whose partners or associates have appeared for the party in the case (including proceedings in the district court or before an administrative agency) or are expected to appear for the party in this court: The Law Offices of William B. Kohn

3. If the party or amicus is a corporation:

i) Identify all its parent corporations, if any; and

None.

ii) list any publicly held company that owns 10% or more of the partys or amicus stock: None.

Attorney's Signature: /s/ Prashant K. Khetan Date: March 4, 2015

Attorney's Printed Name: Prashant K. Khetan

Counsel of Record for the above listed parties pursuant to Circuit Rule 3(d). Yes X No ___

Address: 1919 Pennsylvania Ave., NW Suite 650

Washington, DC 20006 Phone: (202) 499-4232 Fax: (202) 330-5842

E-Mail: [email protected]


i

TABLE OF CONTENTS

TABLE OF AUTHORITIES .......................................................................................................... ii

INTRODUCTION .......................................................................................................................... 1

STATEMENT OF JURISDICTION............................................................................................... 3

ISSUE PRESENTED ...................................................................................................................... 3

STATEMENT OF THE CASE ....................................................................................................... 3

STATEMENT OF FACTS ............................................................................................................. 4

A. Background ............................................................................................................. 4

B. Reporting Chronology ............................................................................................ 6

C. The District Court Case .......................................................................................... 8

SUMMARY OF ARGUMENT ...................................................................................................... 8

ARGUMENT ................................................................................................................................ 10

I. Standard of Review. .......................................................................................................... 10

II. The Public Disclosure Bar Does Not Apply In This Case. ............................................... 11

A. Construction Should Be Anchored In Statutory Text. .......................................... 12

1. Bank of Farmington Should Not Control.................................................. 14

2. If The Court Applies Bank of Farmington, It Also Must Apply Glaser... 16

B. Neither The Audit Report, Nor The Memo, Nor FTAs Letter, Is A Public Disclosure. ........................................................................................................... 18

1. The Audit Report was not a public disclosure. ......................................... 18

2. The Memo was not a public disclosure. .................................................... 20

3. The FTA letter was not a public disclosure. ............................................. 22

4. None of the documents cited by the District Court qualify under the statutory test for methods of public disclosure. ........................................ 23

C. FTAs Letter Is Not Substantially Similar To The Complaint ............................. 24

III. Cause Of Action Is An Original Source. .......................................................................... 26

CONCLUSION ............................................................................................................................. 28

CERTIFICATE OF COMPLIANCE

STATEMENT PURSUANT TO CIRCUIT RULE 30(d)

STATEMENT REGARDING ORAL ARGUMENT


ii

TABLE OF AUTHORITIES

CASES

Connecticut Natl Bank v. Germain, 503 U.S. 249 (1992) ....................................................... 9, 14 *Cook County v. United States ex rel. Chandler, 538 U.S. 119 (2003) ................................ passim *Glaser v. Wound Care Consultants, Inc., 570 F.3d 907 (7th Cir. 2009) .................................................................................................................... passim Gold v. Morrison-Knudsen, Inc., 68 F.3d 1475 (2d Cir. 1995) .................................................... 17 Graham County Soil & Water Conservation Dist., 559 U.S. 280 (2010) ........................ 10, 14, 23 Hensen v. CSC Credit Servs., 29 F.3d 280 (7th Cir. 1994) ............................................................ 7 MD Mall Assocs., LLP v. CSX Transp., Inc., 715 F.3d 479 (3d. Cir. 2013) ................................. 26 Meade v. Moraine Valley Cmty. College, 770 F.3d 680 (7th Cir. 2014) ...................................... 10 *Schindler Elevator Corp. v. United States ex rel. Kirk, 131 S. Ct. 1885 (2011) ................................................................................................................................. passim Singleton v. Wulff, 428 U.S. 106 (1976) ....................................................................................... 26 Smith v. Freeman, 892 F.2d 331 (3d Cir. 1989) ........................................................................... 26 *United States ex rel. Absher v. Momence Meadows Nursing Ctr., Inc., 764 F.3d 699 (7th Cir. 2014) .................................................................................................................... passim United States ex rel. Beauchamp v. Academi Training Ctr., Inc., 933 F. Supp. 2d 825 (E.D. Va. 2013) ......................................................................................................................... 14 United States ex rel. Davis v. Prince, 753 F. Supp. 2d 569 (E.D. Va. 2011) ............................... 17 *United States ex rel. Feingold v. AdminaStar Fed., Inc., 324 F.3d 492 (7th Cir. 2003) .................................................................................................................... passim

Authorities upon which we chiefly rely are marked with asterisks.


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United States ex rel. Findley v. FPC-Boron Employees Club, 105 F.3d 675 (D.C. Cir. 1997)......................................................................................................................... 17 United States ex rel. Gear v. Emergency Med. Assocs. of Ill., Inc., 436 F.3d 726 (7th Cir. 2006) ........................................................................................................................... 17 United States ex rel. Fowler v. Caremark RX, L.L.C., 496 F.3d 730 (7th Cir. 2007) .................. 13 United States ex rel. Gross v. Aids Research Alliance-Chicago, 415 F.3d 601 (7th Cir. 2005) ........................................................................................................................... 17 United States ex rel. Heath v. Wis. Bell, Inc., 760 F.3d 688 (7th Cir. 2014) .................... 20, 25, 26 United States ex rel. Mistick PBT v. Housing Auth., 186 F.3d 376 (3d. Cir. 1999) ............... 13, 17 United States ex rel. Reagan v. E. Tex. Med. Ctr. Regl Healthcare Sys., 274 F. Supp. 2d 824 (S.D. Tex. 2002) ........................................................................................................................ 14 United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720 (1st Cir. 2007) .................................. 14, 15 United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645 (D.C. Cir. 1994) . 19, 22 United States ex rel. Williams v. NEC Corp., 931 F.2d 1493 (11th Cir. 1991) ............................ 16 United States ex rel. Yannacopolous v.Gen. Dynamics, 315 F. Supp. 22 939 (N.D. Ill 2004) .... 16 *United States v. Bank of Farmington, 166 F.3d 853 (7th Cir. 1999) ................................... passim Webb v. City of Phila., 562 F.3d 256 (3d Cir. 2009) .................................................................... 26 *Yates v. United States, No. 13-7451, 2015 U.S. LEXIS 1503 (U.S. Feb. 25, 2015) ................................................................................................ 10, 11, 13, 23

STATUTES

28 U.S.C. 1291 ............................................................................................................................. 3 28 U.S.C. 1331 ............................................................................................................................. 3 28 U.S.C. 1345 ............................................................................................................................. 3


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31 U.S.C. 3729 ............................................................................................................................. 1 31 U.S.C. 3730(e)(4) ........................................................................................................... passim 31 U.S.C. 3730(e)(4)(A) ...................................................................................................... 11, 12 31 U.S.C. 3730(e)(4)(A) (1986) ................................................................................ 9, 11, 12, 23 31 U.S.C. 3730(e)(4) (1986) ........................................................................................................ 9 31 U.S.C. 3370(e)(4) (2010) .................................................................................................. 9, 25 31 U.S.C. 3730(e)(4)(A) (2010) ...................................................................................... 9, 12, 23 31 U.S.C. 3730(e)(4)(B) ............................................................................................................ 26 31 U.S.C. 3732(a) ........................................................................................................................ 3 49 U.S.C. 5307 ......................................................................................................................... 3, 4 49 U.S.C. 5335(b) ........................................................................................................................ 4 49 U.S.C. 5336(a)(2) .................................................................................................................... 4 49 U.S.C. 5336(c)(1)(A)(i) .......................................................................................................... 4

REGULATIONS

49 C.F.R. 1.73 ............................................................................................................................ 20

OTHER AUTHORITIES

Fed. R. Civ. P. 12(b)(1)................................................................................................................. 10 Fed. R. Civ. P. 12(b)(6)................................................................................................................. 10


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Dept of Transp. Office of Inspector Gen., FTAs National Transit Database: Data Used for Allocating Transit Grants Were Generally Supported (No. MH-2014-117), 16 (2014), available at https://www.oig.dot.gov/sites/default/files/NTD%20Final%20Report.pdf ............ 7

Fed. Transit Admit., Appendix B, FTA Certifications and Assurances (2010), available at

http://www.dot.ca.gov/hq/tpp/offices/orip/owp/index_files/Updated_10-11_Certs/ FTA_Cert_10-11.pdf ........................................................................................................... 20, 21 Fed. Transit Admin., 2006 Urbanized Area Reporting Manual 396 (2006) (NTD Manual),

available at http://www.ntdprogram.gov/ntdprogram/pubs/ARM/2006_Reporting_Manual_ Glossary.pdf ................................................................................................................................ 5 FTA Circular, Urbanized Area Formula Program: Program Guidance and Application

Instructions II-6 II-7 (Jan. 16, 2014), available at http://www.fta.dot.gov/documents/ FINAL_FTA_circular9030.1E.pdf...................................................................................... 20, 27


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INTRODUCTION

Congress passed the False Claims Act, 31 U.S.C. 3729, et seq. (FCA), to stop fraud

against federal taxpayers. The core question here is whether this law also applies to the Chicago

Transit Authority (CTA).

Between at least reporting years 2001 and 2010, Defendant-Appellee CTA fraudulently

billed and collected approximately $2.6 million to $5.5 million per year in federal funds from the

Department of Transportation (DOT), paid through the Federal Transit Administration

(FTA). CTA defrauded federal taxpayers by charging non-revenue motor bus miles as

revenue miles. CTA charged federal taxpayers for approximately 98.2% of its bus miles,

while the nations eighteen other large bus operators charged for only approximately 83.5%.

By 2007, an independent auditor named Thomas A. Rubin, who had been working on a

team auditing CTA for the State of Illinois Auditor General, discovered that CTA had been

overstating revenue miles by a significant amount. Rubin wrote a memorandum

documenting CTAs overreporting. Rubins memorandum recommended, in part, that CTA

recalculate revenue miles for past years and report revenue miles in a compliant manner going

forward.

At that time, CTA did not correct its past reports nor change its reporting practices.

Further, the Auditor General did not report the matter and buried precisely two sentences about it

on page 72 of its lengthy audit report, issued in March 2007. During this time, Ray LaHood

(former Illinois congressman who chaired the committee that, in part, funded CTA) was U.S.

Secretary of Transportation, Robert Rivkin (former CTA General Counsel) was DOT General

Counsel, and Valerie Jarrett (former CTA board Chairwoman) was Senior Advisor to the

President.


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Plaintiff-Appellant Cause of Action is an independent non-profit, non-partisan

government oversight group. It obtained information about CTAs fraud from Rubin and

commenced an investigation. On March 28, 2012, it requested then-Acting Associate Attorney

General Tony West to investigate CTAs fraud. It advised Mr. West that between the reporting

years 1982 and 2010, CTA knowingly defrauded taxpayers by gaming federal transportation

grant funding.

On April, 27, 2012, FTA advised CTA to change its billing practices, but allowed it to

keep its misbegotten gains. The pending lawsuit ensued.

The District Court erred on the facts and misapplied the law in dismissing Cause of

Actions complaint. To begin with, FTAs letter, cited by the District Court as grounds for

dismissal, was issued after Cause of Action notified the Department of Justice (DOJ) of CTAs

fraud. And, the District Court wrongly conflated the DOT Office of the Inspector General with

FTA, suggesting significant confusion regarding federal agency structure and organization.

Controlling and persuasive authorities hold that CTAs fraud was not publicly

disclosed under the False Claims Act. There are no facts suggesting that FTA was contacted or

notified about allegations of fraud. Only by resurrecting the congressionally excised

government knowledge bar may Cause of Actions case be dismissed, which it should not (for

the reasons discussed below).

Cause of Action brought new information to the table, commencing this action before any

evidence of fraud was made public or any action taken against CTA for its fraud. The District

Court deviated from plain statutory text and evident legislative intent, wrongly leaving the

taxpayers without any remedy for fraud and abuse. Finally, this case is clearly a matter of


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significant public interest and it should be treated accordingly for all purposes. For all of these

reasons, the ruling below should be reversed.

STATEMENT OF JURISDICTION

The District Court had jurisdiction over Cause of Actions FCA lawsuit under 28 U.S.C.

1331, 1345, and 31 U.S.C. 3732(a). It granted CTAs motion to dismiss on October 20,

2014, entering final judgment on December 23, 2014. SA-12; SA-13.1 Cause of Action timely

filed its Notice of Appeal on January 22, 2015. DR70. This Court has jurisdiction under 28

U.S.C. 1291.

ISSUE PRESENTED

Whether 31 U.S.C. 3730(e)(4) bars this action?

STATEMENT OF THE CASE

This case concerns CTAs false claims between reporting years 2001 and 2010 for

federal highway funds under the Urbanized Area Formula Program, 49 U.S.C. 5307 (UAFP).

JA-2 6-9. UAFP funds are disbursed through a grant formula that pays for vehicle revenue

miles (VRM) that are reported to the National Transit Database (NTD). JA-2 3. The

federal government does not pay for deadhead miles that a vehicle travels when out of revenue

service. JA-2 40. CTA, however, knowingly reported deadhead miles as VRM and thus

defrauded the federal government. JA-2 9, 39.

Cause of Action is a government oversight group with independent and additional

knowledge of the fraud perpetrated by CTA. JA-3, 4 13, 15; JA-4 19. On March 28, 2012,

Cause of Action notified DOJ of CTAs fraud. DR3 Ex. 5. On May 8, 2012, Cause of Action

1 Citations are as follows: SA__ for page numbers of the Short Appendix pursuant to Cir. R. 30(a); JA__ for page numbers of the separate Stipulated Joint Appendix pursuant to Cir. R. 30(e); and DR__ for the docket number of the District Court record.


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sued CTA in the District Court for the District of Maryland. JA-1. On November 28, 2013, the

case was transferred to the District Court for the Northern District of Illinois. DR18.

On October 20, 2014, the District Court issued a Memorandum Opinion and Order

(Opinion), granting CTAs motion to dismiss, and holding that the suit was barred under 31

U.S.C. 3730(e)(4) because the allegations [of fraud] were publicly disclosed when Cause of

Action filed the complaint and because Cause of Action was not an original source. SA-12.

STATEMENT OF FACTS

This case concerns CTAs false claims for federal highway funds under UAFP between

reporting years 2001 and 2010. JA-2 6-9.

A. Background

FTA is an agency within the DOT that administers formula grants for transit systems

under UAFP. JA-34. In general, UAFP provides federal grant monies to fund the capital and

operating expenses of transit programs in urbanized areas, such as Chicago. 49 U.S.C. 5307;

JA-1 2.

Grant recipients are required by statute to submit data regarding their transit systems to

NTD and to certify that such information is correct. 49 U.S.C. 5335(b); JA-2 3-5. FTA

uses the data to apportion over $5 billion each year in grant funds for transit agencies in

urbanized areas. See What is the NTD Program?, Natl Transit Database, Fed. Transit Admin.,

http://www.ntdprogram.gov/ntdprogram/ntd.htm (last visited March 4, 2015). The portion of

allocated grant funds that each area is entitled to receive depends, in part, on the ratio between its

total bus vehicle revenue miles operated in or directly serving the urbanized area divided by the

total bus vehicle revenue miles attributable to all areas. 49 U.S.C. 5336(c)(1)(A)(i); see also

id. 5336(a)(2). For example, as a result of the total number of VRM that CTA reported in


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2004, each mile was worth thirty-eight cents ($0.38) in UAFP funding. DR3 Ex. 3 at 1. An

entity that reports more VRM receives more money. JA-35.

At all relevant times, FTA defined VRM as [t]he miles that vehicles are scheduled to or

actually travel while in revenue service. Fed. Transit Admin., 2006 Urbanized Area Reporting

Manual 396 (2006) (NTD Manual), available at http://www.ntdprogram.gov/ntdprogram/pubs/

ARM/2006/pdf/2006_Reporting_Manual_Glossary.pdf (emphasis added). This definition

includes layover and recovery time, but specifically excludes deadhead. Id. Deadhead miles are

defined as the miles a vehicle travels when out of revenue service. Id. at 352.

Revenue Service is defined as the time when a vehicle is available to the general

public and there is an expectation of carrying passengers. NTD Manual at 384. Revenue

Service also includes layover and recovery time and excludes deadhead. Id. Bus is defined

as a transit mode comprised of rubber-tired passenger vehicles operating on fixed routes and

schedules over roadways. Id. at 348 (emphasis added).

Taken together, these definitions require that for bus mileage to constitute VRM, two

conditions must exist: (1) the bus must be driven on a fixed route and schedule; and (2) the bus

must be available to the public with an expectation of carrying passengers. JA-36.

Each fiscal year, a transportation provider submits a certification of data, including that

years VRM, to NTD for UAFP funding. JA-2 3. In this case, CTAs president provided the

requisite certifications. JA-2 5. At all relevant times, CTA knowingly over-reported VRM by

counting deadhead miles as VRM, which defrauded the federal government. JA-2 6, 9. For

example, CTAs deadhead ratio for the 2004 reporting year was 1.8%, while its peers reported

ratios ranging from 11.9% to 23.3%. DR3 Ex. 3 at 19. For the 2004 reporting year, the

additional UAFP funding CTA received through over-reporting VRM ranges from


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approximately $2.6 to $5.5 million. DR3 Ex. 3 at 25. Between 1999 and 2004, CTAs peer

group typically claimed payment for 87% of total bus miles in a given year, but CTA typically

claimed payment for 99% of total bus miles. JA-8 42-43.

From reporting year 2001 to 2010, CTA claimed payment for 95% to 99% of total bus

miles. JA-5 26 JA-6 35. Given the estimated financial impact range for 2004, it is

reasonable to infer that CTA received excess grant funding for the 2001 to 2010 reporting years

in the range of $26 million to $55 million.2

B. Reporting Chronology

In 2006 and 2007, the Illinois Office of the Auditor General (IL-OAG) contracted for

an audit of CTA. JA-6 JA-7 36; DR3 Ex. 4. Rubin is a certified public accountant licensed

in California and was a subcontractor on the audit team. DR3 Ex. 2 2-3. Rubin discovered

CTA was wrongfully over-reporting VRM and, therefore, receiving more grant funds than it was

entitled to receive. JA-7 37. He prepared a 25-page memorandum entitled Chicago Transit

Authority Overreporting of Motor Bus Vehicle Revenue Miles (the Memo) recommending

that CTA self-report to FTA. DR3 Ex. 3 at 1, 4. The Memo also recommended that CTA

recalculate revenue miles for past years and report revenue miles in a compliant manner going

forward. DR3 Ex. 3 at 1.

CTA did not submit a copy of the Memo to FTA, but did have discussions with FTA

regarding its reporting data. DR3 Ex.3 at 13. CTA did not recalculate its past reports of revenue

miles or change how it did business in response to the Memo. JA-8 45.

2 CTA reported a ratio of deadhead miles between 1.4% and 2.0% every year since 1986 (the year for which the 1984 reporting data would have been used to allocate UAFP funds), indicating a potential for over-reporting VRM and excess UAFP funds for many more years than in Cause of Actions complaint. DR3 Ex.3 at 25. CTA may have wrongfully taken well over $150 million in federal taxpayer funds. JA-49.


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On information and belief, IL-OAG did not report CTA. JA-8 53. Instead, the IL-

OAG Audit Report issued in March 2007 (the Audit Report) said only that [o]ur review

raised questions about the accuracy of CTAs reporting of revenue vehicle hours and miles.

CTA may be incorrectly reporting deadhead hours/miles as revenue hours/miles. DR3 Ex. 4 at

72 (emphasis added). It made no fraud claim, focusing instead on total vehicle hours and

vehicle miles . . . in the assessment of service efficiency to cover CTA. DR3 Ex. 4 at 72

(emphasis added).

In 2009, Rubin sent the Memo to DOTs Office of the Inspector General (DOT-OIG).

DR3 Ex. 2 8. DOT-OIG apparently took no action at that time. The Memo did not charge

CTA with fraud.3 Notably, former CTA General Counsel Robert Rivkin was Department of

Transportation General Counsel and former CTA board Chairwoman Valerie Jarrett was Senior

Advisor to the President during this time. JA-48, 49.

Cause of Action privately received the Audit Report, the Memo and a sworn statement

by Rubin. JA-9 56-59. This included independent and additional information about CTAs

fraud. JA-3 15; JA-4 19. Cause of Action commenced an investigation. On March 28, 2012,

Cause of Action requested that DOJ investigate the fraud. DR3 Ex. 5.

On April 27, 2012, FTA sent CTA a letter noting an in-depth review involving CTAs

reporting of VRM to NTD. JA-54, 55. The letter stated that CTA should revise its data for the

3 See Dept of Transp. Office of Inspector Gen., FTAs National Transit Database: Data Used for Allocating Transit Grants Were Generally Supported (No. MH-2014-117), 16 (2014), available at https://www.oig.dot.gov/sites/default/files/NTD%20Final%20Report.pdf ([A] 2011 OIG hotline complaint alleged that CTA overstated its vehicle revenue miles and hours in the NTD. In response, FTA directed CTA to stop including the miles that buses travel from the bus depot to the established route. Based on FTAs actions, OIG closed the complaint in June 2012.). As a matter of public record, the Court may take judicial notice of a September 16, 2014 government report on the origin of DOT-OIGs 2011 review of CTA. Hensen v. CSC Credit Servs., 29 F.3d 280, 284 (7th Cir. 1994).


8

2011 Report Year, but FTA will not, however, require CTA to revise its annual NTD Reports

from prior years. JA-54. FTA did not allege fraud or request reimbursement.

C. The District Court Case

On May 8, 2012, Cause of Action sued CTA pursuant to the FCA under seal in the

District Court for the District of Maryland. JA-1. The case was transferred to the District Court

for the Northern District of Illinois on November 28, 2013. DR18. On December 18, 2013, DOJ

filed a Notice of Election to Decline Intervention. DR27. The case was unsealed on December

20, 2013. DR29.

On March 13, 2014, CTA filed a motion to dismiss (the Motion). JA-15 (memorandum

in support). On May 22, 2014, Cause of Action filed its opposition. JA-28. On June 30, 2014,

CTA filed its reply. JA-56. On October 20, 2014, the District Court granted CTAs Motion.

SA-12. On December 23, 2013, the District Court entered final judgment. SA-13. This appeal

followed.

SUMMARY OF ARGUMENT

Properly construed, 31 U.S.C. 3730(e)(4) does not bar this case.

The District Court cited three public disclosures to justify its application of the

statutory bar: (1) the Audit Report (FCA 1986 amendments); (2) the Memo (FCA 1986

amendments); and (3) FTAs letter to CTA (FCA 1986 and 2010 amendments).4 SA-9, 10.

However, the Audit Report and the Memo did not contain allegations of fraud and did not occur

4 The Opinion reflects some confusion about the underlying circumstances. It refers to the federal DOT-OIG as having responsibility for the claim in question. SA-11. But this is not accurate the FTA, not the DOT-OIG, was the authority responsible for the matter. See infra Argument, III.


9

in a statutory report, audit, or investigation. 31 U.S.C. 3730(e)(4) (1986).5 Also, the Memo

was not public. See id. Similarly, FTAs letter to CTA was not public, did not contain

allegations of fraud, and was not part of an investigation. 31 U.S.C. 3730(e)(4) (2010); 31

U.S.C. 3730(e)(4) (1986). Finally, Cause of Actions complaint was not substantially similar

to FTAs letter because Cause of Actions claims relied on information obtained prior to, and

independently from, FTAs letter. 31 U.S.C. 3730(e)(4) (2010); 31 U.S.C. 3730(e)(4)

(1986).

Section 3730(e)(4) bars suits only when the allegations of fraud or the essential elements

of fraud have been publicly disclosed. United States ex rel. Absher v. Momence Meadows

Nursing Ctr., Inc., 764 F.3d 699, 707 (7th Cir. 2014). Publicly disclosed means placed in the

public domain. United States ex rel. Feingold v. AdminaStar Fed., Inc., 324 F.3d 492, 495 (7th

Cir. 2003). None of these documents meet this test.

Deviation from the statutory text, through a judicially-created competent public official

bar (see United States v. Bank of Farmington, 166 F.3d 853, 861 (7th Cir. 1999)), has created

doctrinal confusion. Thus, the District Court improperly conflated relevant [government]

authority with public domain (see SA-8 (citations omitted)), effectively, and wrongly,

redrafting 3730(e)(4). See Connecticut Natl Bank v. Germain, 503 U.S. 249, 254 (1992)

(stating Congress says in a statute what it means and means in a statute what is says there).

Consequently, this case presents an unique opportunity for the Court to clarify its authorities by

holding the public disclosure bar inapplicable here.

5 The Audit Report and Memo are not public disclosures under the 2010 amendments. 31 U.S.C. 3730(e)(4) (2010). Only federal reports, hearings, audits or investigations now qualify. Id.


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Finally, if, and only if, this Court determines that a public disclosure occurred, then it

should hold that Cause of Action is an original source. DR3 Ex. 5.

ARGUMENT

I. Standard of Review.

The Court reviews de novo challenges made pursuant to FCAs public disclosure bar and

to Fed. R. Civ. P. 12(b)(6) dismissal. Absher, 764 F.3d at 707; Meade v. Moraine Valley Cmty.

College, 770 F.3d 680, 684 (7th Cir. 2014).6 The complaint should be construed and all

reasonable inferences drawn in Cause of Actions favor. Meade, 770 F.3d at 682.

This case turns on the appropriate construction of 3730(e)(4) and whether the

government knowledge bar that Congress excised from the FCA in 1986 is to be resurrected

by an unrestrained construction of the term public to mean the government itself. See SA-8

(citations omitted) (construing public domain to mean a government official). Statutory text is

the touchstone and the construction must fit Congressional context and intent. See, e.g., Yates v.

United States, No. 13-7451, 2015 U.S. LEXIS 1503, at *15 (U.S. Feb. 25, 2015); Graham

County Soil & Water Conservation Dist., 559 U.S. 280, 294-95 (2010). When Congress has not

defined a statutory term, the Court should generally apply its ordinary meaning. See, e.g., Yates,

2015 U.S. LEXIS 1503, at *40 (Kagen, J., dissenting); Schindler Elevator Corp. v. United States

ex rel. Kirk, 131 S. Ct. 1885, 1891 (2011). Congress intended 3730(e)(4) to allow private

parties to sue even based on information already in the governments possession and it must be

6 It is unclear whether the District Courts dismissal was under Fed. R. Civ. P. 12(b)(1) or Rule 12(b)(6). SA-4, 5, 6. CTA originally styled its Motion as a Rule 12(b)(1) motion for lack of subject matter jurisdiction. JA-15. Cause of Action argued that CTAs Motion should have been brought under Rule 12(b)(6) for failure to state a claim. JA-46, 47. In reply, CTA agreed with Cause of Action. JA-66. Rule 12(b)(6) should control here. United States ex rel. Feingold v. AdminaStar Fed., Inc., 324 F.3d 492, 494 (7th Cir. 2003).


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construed accordingly. Cook County v. United States ex rel. Chandler, 538 U.S. 119, 133 (2003)

(stating statutory purpose of 1986 amendments); cf. Yates, 2015 U.S. LEXIS 1503, at *15.

II. The Public Disclosure Bar Does Not Apply In This Case.

Cause of Action alleges fraud between reporting years 2001 and 2010. JA-11 66; JA-

12 71. The 1986 FCA applies to reporting years 2001 through 2008.7 JA-11 66. The 2010

FCA applies to reporting years 2009 through 2010.8 JA-12 71.

The 1986 public disclosure bar provides: 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.SC. 3730(e)(4)(A) (1986). It was enacted to make FCA a more useful tool against

fraud and thus Congress repealed the government knowledge bar and allowed private parties to

sue even based on information already in the Governments possession. Cook County, 538 U.S.

at 133 (internal citations omitted).

In 2010, Congress amended this section to provide:

The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed

(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; (ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or (iii) 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.

7 The complaint incorrectly identifies the reporting years for Count I as 2001-2007. The correct reporting years under Count I are 2001-2008. 8 The complaint incorrectly identifies the reporting years for Count II as 2008-2010. The correct reporting years under Count II are 2009-2010.


12

31 U.S.C. 3730(e)(4)(A) (2010).9

Thus, the Courts first inquiry is whether allegations have been publicly disclosed in a

report, hearing, audit or investigation.10 31 U.S.C. 3730(e)(4)(A). This case therefore turns in

large part on the Courts construction of the term public disclosure. If the plain language and

Congressional intent control, then the term public will be given its ordinary meaning and the

ruling below reversed.11

A. Construction Should Be Anchored In Statutory Text.

This Circuits public disclosure authorities are detached from the plain statutory text.

The cases find public disclosure when allegations of fraud are in the public domain, or

disclosed to a competent public official, or when the government has commenced an

9 The 2010 amendments revised the bar to apply only to actions that are substantially similar to publicly disclosed allegations in the specified federal contexts. The 2010 amendments also changed language barring actions that were based upon public disclosures to bar actions containing substantially the same allegations or transactions as publicly disclosed information. Compare 31 U.S.C. 3730(e)(4)(A) (1986), with 31 U.S.C. 3730(e)(4)(A) (2010). Further, the 2010 amendments changed the 1986 language from no court shall have jurisdiction to the court shall dismiss. Id. 10 If the Court finds a public disclosure, the Court must then determine whether Cause of Actions claims are substantially similar to publicly disclosed allegations. 31 U.S.C. 3730(e)(4). They are not. Cause of Action alleges wrongdoing materially different from any information evidenced by the purported public disclosures. Moreover, even if the Court finds a public disclosure and that Cause of Actions complaint is substantially similar to that public disclosure, this lawsuit can still proceed because Cause of Action is an original source. Id. 11 The District Court incorrectly found that Cause of Action did not contest CTAs argument that allegations were publicly disclosed under the 1986 amendments to the FCA via the Audit Report and the Memo. SA-7, 10. In fact, Cause of Action advanced a jurisdictional argument challenging CTAs argument. JA-39, 46, 47. The District Court did not rule on Cause of Actions jurisdictional arguments and, thus, this Court should reject the District Courts findings of waiver. Also, Cause of Action did not waive CTAs arguments regarding whether Cause of Actions claims are substantially similar to the information in FTAs letter. The District Court found that Relater did not respond to Defendants argument that the complaint allegations are substantially the same as the Technical Report [i.e. Memo] and the Auditor Generals Report. SA-7. It did not find this with respect to FTAs letter. And, if the Court resolves either of the first two inquiries in Cause of Actions favor, it need never reach the original source question, which Cause of Action clearly was. See infra Argument, III.


13

investigation.12 Absher, 764 F.3d at 708 (public disclosure occurs when allegations of fraud are

in the governments possession or the public domain). But presence in the public domain is the

only appropriate test.13 See Cook County, 538 U.S. at 133; Feingold, 324 F.3d at 495.

In Feingold, this Court defined public to mean accessible to or shared by all members

of the community.14 324 F.3d at 495. The notion that disclosure to a government official and

not by one constitutes public disclosure is unsupported by plain language, statutory context, or

legislative history. Cf. Cook County, 538 U.S. at 133. If Congress had desired the statutory bar

to include cases in which the government received notice of fraud but did nothing, as here, then

it would have written the statute accordingly. Id.; Bank of Farmington, 166 F.3d at 860

(statutory language must ordinarily be regarded as conclusive and the Court cannot distort the

12 Compare Bank of Farmington, 166 F.3d at 861, with United States ex rel. Feingold v. AdminaStar Fed., Inc., 324 F.3d 492, 495-96 (7th Cir. 2003), Absher, 764 F.3d at 707-08, Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 913 (7th Cir. 2009), and United States ex rel. Fowler v. Caremark RX, L.L.C., 496 F.3d 730, 736-37 (7th Cir. 2007). 13 Permitting a construction that authorizes reviewing courts to engage in a game of Whack-A-Mole to select among multiple definitions barring an otherwise viable claim frustrates Congressional intent, which is to encourage legitimate whistleblowing and lawsuits to stop fraudulent claims. Yates, 2015 U.S. LEXIS 1503, at *61 (Kagen, J., dissenting) (a statutes meaning should not hinge on an odd game of Mad Libs); Cook County v. United States ex rel. Chandler, 538 U.S. 119, 133 (2003) (noting Congresss concern with pervasive fraud and enhanced incentives for relators to bring suit). Under this approach, there is a possibility that a public disclosure occurs if facts of fraud are not in the public domain, but a competent public official is aware of them; as well as if the facts are in the public domain, but no competent public official is aware of them. Similarly, public disclosure can occur if a government official fails to take action to investigate the fraudulent information brought to its attention and available in the public domain. Such a construction should not be countenanced. 14 Feingold found that Healthcare Financing Administration (HCFA) statistical reports obtained by the relator were public disclosures. 324 F.3d at 496. Although the Feingold court did not specify how the relator obtained the HCFA statistical reports, the Court cited to a Third Circuit case where agency reports were obtained via the Freedom of Information Act (FOIA). Id. (citing United States ex rel. Mistick PBT v. Housing Auth., 186 F.3d 376, 383 (3d. Cir. 1999)). In Mistick, the Third Circuit noted that the central purpose of FOIA is to ensure that government activities are opened to the sharp eye of public scrutiny. 186 F.3d at 383. Feingold therefore establishes that a public disclosure means that members of the public (i.e., relators) cannot bring FCA suits concerning information released by the government and available to the general public.


14

ordinary meaning of the words and . . . read into the statute provisions that Congress did not

enact). Congress says what it means in a statute. Connecticut Natl Bank, 503 U.S. at 254.

1. Bank of Farmington Should Not Control.

This Court should not apply the 1999 Bank of Farmington competent public official

standard here for it cannot be reconciled with statutory text. This holding is an outlier that

contradicts controlling Supreme Court authority and persuasive sister circuit court cases.15 See,

e.g., Cook County, 538 U.S. at 133; United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 730

(1st Cir. 2007); see also Graham County, 559 U.S. at 294-95 (rejecting reinstitution of the

government knowledge bar); United States ex rel. Beauchamp v. Academi Training Ctr., Inc.,

933 F. Supp. 2d 825, 844 (E.D. Va. 2013) ([T]o date no other circuit has followed [Bank of

Farmington], and instead, circuits that have addressed this issue have uniformly held that merely

providing information to a public official is not a public disclosure.).16

In Rost, the First Circuit thoroughly demolished the rationale for the judicially-created

competent public official bar. 507 F.3d at 720. That court concluded that disclosure to the

appropriate investigatory official would be to reinstate exactly what Congress eliminated -- the

government knowledge bar. Id. at 730. There is no support in either the language or the

15 In Feingold, the Court found that administrative reports substantiating fraud were in the public domain. 324 F.3d at 496. This rule aligns with other circuits: statutory interpretation leads us to join two of our sister circuits in holding that a public disclosure exists under 3730(e)(4)(A) when the critical elements exposing the transaction as fraudulent are placed in the public domain. Id. at 495. The doctrinal problem has arisen because this Court has adopted the public domain standard but failed to expressly reject the competent public official standard in Bank of Farmington, used by the District Court to bar Cause of Actions case. SA-10, 11. These rules, however, are mutually incompatible. Compare Feingold, 324 F.3d at 495 (public disclosure depends on looking at the plain meaning of public which is accessible to or shared by all members of the community), with Bank of Farmington, 166 F.3d at 861 (Disclosure to an official authorized to act for or to represent the community on behalf of government can be understood as public disclosure.). 16 But see United States ex rel. Reagan v. E. Tex. Med. Ctr. Regl Healthcare Sys., 274 F. Supp. 2d 824, 850 (S.D. Tex. 2002), affd, 384 F.3d 168 (5th Cir. 2004).


15

history of the statute for such a reading which would create a new exclusion not articulated in

the text. Id. In fact, the competent public official standard is contrary to . . . Congressional

intent which was to use the requirement of public disclosure, to help keep the government

honest[.]17

This Court already acknowledges that disclosures by the government are public

disclosures. See, e.g., Feingold, 324 F.3d at 496. But, the idea that disclosure to the government

meets the statutory test is simply a bridge too far. See 31 U.S.C. 3730(e)(4); Cook County, 538

U.S. at 133.

Long ago, the Eleventh Circuit expressly (and properly) rejected disclosure to the

government as grounds for the bar, instead insisting that disclosure must be by the government in

one of the statutorily enumerated ways. As it explained:

A plain reading of this language reveals that congressional, administrative or Government Accounting Office modifies report, hearing, audit or investigation. Any other reading of that phrase would be illogical. Because Williamss report on bidding practices was not issued by Congress, an administrative agency, or out of the Government Accounting Office . . . it is not a public disclosure within the meaning of section 3730(e)(4)(A).

17 The First Circuit explained how the competent public standard recreates problems Congress eliminated in 1986:

[I]t fails to further Congresss purpose of discouraging parasitic qui tam actions. If information that could form the basis of a qui tam action is kept confidential and confined to a limited circle of government officials, there is no real danger that a private citizen who does not have direct and independent knowledge of that information will bring an opportunistic qui tam suit based upon the information in the governments possession.

Rost, 507 F.3d at 730 (internal citations omitted). Rost is consistent with Feingold because both cases acknowledge that a public disclosure can occur where the government itself makes information it has received available to the public in Rost via FOIA responses and in Feingold via HCFA agency reports. Here, however, the government has made nothing available to Cause of Action or the public.


16

United States ex rel. Williams v. NEC Corp., 931 F.2d 1493, 1500 (11th Cir. 1991) (emphasis

added). The statutory list of disclosure methods, after all, refers to disclosures in a government

context and that are, by their nature, open to the public.18 Disclosures to the government that are

never made public cannot, by definition, be publicly disclosed. See 31 U.S.C. 3730(e)(4).

This Court has clarified these issues once before with respect to the based upon

analysis of the public disclosure bar and, to the extent necessary, should do so again here with

respect to the competent public official standard.19

2. If The Court Applies Bank of Farmington, It Also Must Apply Glaser.

In Glaser, this Court clarified that mere government awareness is not enough. 570 F.3d

at 913-14. Instead, some action must be taken to investigate the allegations. Id.

This is not a case where the government was simply aware of Wound Cares billing practices. Rather, the appropriate entity responsible for investigating claims of Medicare abuse had knowledge of possible improprieties with Wound Cares billing practices and was actively investigating those allegations and recovering funds . . . CMSs communications with Wound Care indicate that it had commenced an investigation by March 2005 designed to recover money Wound Care should not have received.

Id. (emphasis added).20

18 FCA uses the words in following the words public disclosure of allegations or transactions (1986 amendments) or were publicly disclosed (2010 amendments) to delineate the methods by which public disclosure can occur. The list of disclosure sources in the public disclosure bar is exclusive. United States ex rel. Yannacopolous v. Gen. Dynamics, 315 F. Supp. 22 939, 951 (N.D. Ill 2004) (For information to be a public disclosure it must be enumerated in 3730(e)(4).). Defining public disclosures as allegations released by the government would serve a well-recognized purpose of the public disclosure bar, to strike a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits. Schindler Elevator, 131 S. Ct. at 1894. 19 In Glaser, this Court reversed itself on how to interpret whether claims in a relators complaint are based upon publicly disclosed information. The Court acknowledged that it is out of step with the approach taken by eight other circuits and that [w]e have overruled our prior decisions when our position remains a minority one among other circuits. 570 F.3d at 915. 20 In this case, by contrast, the government has done nothing to recover the money that CTA should not have received. This fact, and this fact alone, should be enough to prevent the public disclosure bar.


17

The idea that public disclosure occurs whenever a government agency discovers fraud

may be afoot simply does not stand up. Contra Feingold, 324 F.3d at 496. Feingold cites a

Third Circuit case, United States ex rel. Mistick PBT v. Housing Auth., 186 F.3d 376, 383 (3d

Cir. 1999), and a Second Circuit case, Gold v. Morrison-Knudsen, Inc., 68 F.3d 1475, 1477 (2d

Cir. 1995). However, Mistick found that an agencys report prepared in response to a FOIA

request was publicly disclosed, not that the mere receipt of the request and the subsequent search

for documents constituted disclosure. 186 F.3d at 383. Gold found a public disclosure existed

when an administrative report prepared by a contractor for a federal agency was part of the

public record. 68 F.3d at 1476.

Feingolds rule has no basis in either Mistick, Gold or any other circuits precedent. In

fact, there are only three cases in any federal appeals court that use the term fraud may be

afoot for deciphering public disclosure under the False Claims Act Glaser and the case cited

by Glaser: Feingold.

The other public disclosure cases cited by Glaser are instructive. Public disclosure

occurred when the General Accounting Office publicly issued a report to Congress (United

States ex rel. Gear v. Emergency Med. Assocs. of Ill., Inc., 436 F.3d 726, 728 (7th Cir. 2006)),

the Federal Drug Administration sent a federal grantee a warning letter temporarily suspending

its participation (United States ex rel. Gross v. Aids Research Alliance-Chicago, 415 F.3d 601,

603-05 (7th Cir. 2005)), and the Senate issued report language on amendments (United States ex

rel. Findley v. FPC-Boron Employees Club, 105 F.3d 675, 685 (D.C. Cir. 1997)). See United

States ex rel. Davis v. Prince, 753 F. Supp. 2d 569, 580 (E.D. Va. 2011) ([T]he Seventh Circuit

and the D.C. Circuit have both concluded that a public disclosure occurs when allegations of


18

fraud are placed in the public domain.). Read in context, these cases support Cause of

Actions interpretation of the public disclosure bar.

B. Neither The Audit Report, Nor The Memo, Nor FTAs Letter, Is A Public Disclosure.

None of the disclosures in this case trigger the 3730(e)(4) bar, even under the

erroneous Bank of Farmington standard.

The District Court relied on Feingold to inform its understanding of public disclosure.

SA-8, 11. This is why Cause of Action focused on effective public disclosure in the District

Court: not to force a strained reading of the statute but instead to better reflect statutory text.

Glaser recognized that the relevant authority must know that there has been a false claim against

the government, not simply that there were reporting inaccuracies of potentially valid claims, as

FTA claimed here. JA-54, 55. Therefore, disclosure to a government official is not enough.

1. The Audit Report was not a public disclosure.

The Audit Report is not a public disclosure. It stated: Our review raised questions about

the accuracy of CTAs reporting of revenue vehicle hours and miles. CTA may be incorrectly

reporting some deadhead hours/miles as revenue hours/miles[.] DR3 Ex. 4 at 72. On this

information alone, the District Court determined that the Audit Report qualifies as a public

disclosure as it indicates that a responsible authority was alerted that fraud may be afoot.

SA-11 (citing Feingold, 324 F.3d at 496).

The Audit Report, however, does not discuss how or why CTAs reporting was

inaccurate and does not show that IL-OAG even considered the possibility of fraud. Instead, it

shows IL-OAG was aware that CTA reported an usually high percentage of revenue miles. DR3

Ex. 4 at 72. The critical fact that this inaccurate reporting over a period of years was a

potential fraud on federal taxpayers was missing. Absher, 764 F.3d at 708. Yet, the District


19

Court took a giant and unsubstantiated leap and held that the Audit Report was disclosure of a

false claim to a responsible authority and, therefore, the 3730(e)(4) bar applies. SA-11.

In Absher, this Court specifically concluded that the statutory bar applies only if the

relevant public disclosure includes the essential elements of fraud . . . providing a basis for the

inference that fraud has been committed. 764 F.3d at 708 (quoting United States ex rel.

Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 654 (D.C. Cir. 1994)). Thus, the Court

found that the government survey reports did not bar FCA claims because they did not disclose

both a misrepresented statement of facts and a true statement of facts. Absher, 764 F.3d. at 709;

see also Feingold, 324 F.3d at 495 (holding that a public disclosure exists when the critical

elements exposing the transaction as fraudulent are placed in the public domain).

The Audit Report, on its own, does not disclose allegations about a false claim to a public

official, does not indicate that the relevant authority was made aware that fraud may be afoot,

and does not evidence an investigation. Feingold, 324 F.3d at 496; Glaser, 570 F.3d at 913.

The District Court therefore misapplied Feingold and Glaser. In Feingold, the

administrative report at issue actually contained the critical information substantiating fraud,

whereas the Audit Report here finds nothing of the sort. DR3 Ex. 4. Furthermore, the Audit

Report reflects no action. Even assuming the Audit Report reflects knowledge of fraud, Glaser

requires more than mere official awareness of wrongdoing. 570 F.3d at 913. Instead, active

investigation is required. Id. The Audit Report indicates that questions were raised but nothing

more was done.21 DR3 Ex. 4 at 72.

21 The District Court failed to make any findings required by Absher. It only found that [a] short section of this lengthy document indicates that the CTA may have been incorrectly reporting deadhead miles as revenue miles, but concluded this was enough to trigger the bar. SA-3; SA-11. The Audit Report does not discuss CTAs inaccurate reporting and it is unreasonable to infer any element of fraud from a disclosure stating that questions were raised


20

Moreover, the public disclosure bar does not apply where the public information, viewed

in a vacuum, fails to establish fraudulent behavior. United States ex rel. Heath v. Wis. Bell, Inc.,

760 F.3d 688, 691 (7th Cir. 2014). The Audit Report was in the public domain. Feingold, 324

F.3d at 495. But, allegations of fraud were not made and the Audit Report failed to report any

government action. Therefore, the District Court erred. Absher, 764 F.3d at 707; Glaser, 570

F.3d at 914; Feingold, 324 F.3d at 496.

2. The Memo was not a public disclosure.

The Memo was not a public disclosure. First, until Cause of Actions complaint was

unsealed, the Memo was never in the public domain or publicly disclosed under the common

meaning of the term. Therefore, the statutory bar does not apply.

Second, the District Court wrongly found that because Rubin sent the Memo to DOT-

OIG in 2009, it was publicly disclosed. SA-11. Even if the Memo had alleged fraud, there is

absolutely no evidence in the record that it had anything to do with FTAs actions in 2012 as the

responsible authority.22

about the accuracy of CTAs reporting of VRM. The Audit Report does not contain a true statement of facts and a misrepresented statement of facts. Absher, 764 F.3d at 709. It does not report facts showing scienter. Id. at 709 n.10. Therefore, the District Court had no basis to find that the Audit Report publicly disclosed possible fraud. 22 It appears that the District Court misapprehended the DOT-OIGs role in this matter. While the Inspector General is authorized to conduct investigations and reports relating to the administration of the programs and operations of the Department, 49 C.F.R. 1.73, it was not the relevant authority for reporting allegations about CTAs fraud. See FTA Circular, Urbanized Area Formula Program: Program Guidance and Application Instructions II-6 II-7 (Jan. 16, 2014), available at http://www.fta.dot.gov/documents/FINAL_FTA_circular9030.1E.pdf (Congress has charged FTA with conducting reviews of recipients or requiring that recipients have independent audits conducted on their programs to determine whether the recipients have met the programs requirements and certifications.). Additionally, grant applicants acknowledged to FTA, not DOT-OIG, that the provisions of the Program Fraud Civil Remedies Act of 1986, 31 U.S.C. 3801 et seq., as implementing Program Fraud Civil Remedies, 49 CFR part 31, apply to any certification, assurance or submission made to FTA. See Fed. Transit Admit., Appendix B, FTA Certifications and Assurances (2010), available at


21

Third, the District Court misapplied Glaser by failing to find that an investigation

followed presentation of the Memo to IL-OAG, but holding that the Memo was publicly

disclosed information. 570 F.3d at 913-14. At most, Rubins presentation of the Memo to IL-

OAG and/or DOT-OIG is a mere governmental awareness of wrongdoing, which is

insufficient. Id. at 913.

Fourth, the District Court again failed to properly apply Absher. The District Courts

findings do not support its conclusion that Rubins disclosure of his findings during the Illinois

performance audit comes within the scope of 3730 (e)(4)(A)(1986). SA-11. It found that

CTA appears to have been improperly classifying as Vehicle Revenue Miles (VRM) and

Vehicle Revenue Hours (VRH) motor bus miles and hours that, under the Federal Transit

Administrations (FTA) National Transit Database (NTDB) regulations, are not properly so

classed. SA-2, 3. It is not reasonable to infer the critical elements of fraud from this.

Absher, 764 F.3d at 708.

The District Court also acknowledged that the Memo further recommends that the CTA

notify FTA of this condition, including rendering this report to FTA, and revise its

methodologies for reporting VRM and VRH to become compliant with the applicable statute and

implementing regulations. SA-3. The District Court found that CTA did not report the issue to

FTA. SA-3. CTA did not revise its reporting in response to the Memo. Again, it is not

reasonable to conclude that allegations of fraud exist based on a finding that CTA did not follow

all of the recommendations in the Memo. The District Courts factual findings are simply

unrelated to its conclusion.

http://www.dot.ca.gov/hq/tpp/offices/orip/owp/index_files/Updated_10-11_Certs/FTA_Cert_10-11.pdf.


22

3. The FTA letter was not a public disclosure.

The FTA letter was not a public disclosure triggering the statutory bar.

First, FTAs letter was not a public disclosure under plain statutory text. Information

can be publicly disclosed and in the public domain if it is accessible to or shared by all members

of the community, i.e., any person other than the very person who received the information.

Feingold, 324 F.3d at 495 (citation omitted); see also Quinn, 14 F.3d at 652-53. The letter was

not.

Second, the District Court relied exclusively on Glaser, yet that case is factually

distinguishable. Glaser found public disclosure when CMS sent a letter . . . demanding

repayment for [defendants] improper use of [the doctors] billing code. 570 F.3d at 913. The

letter from the government to the defendant indicated that it had commenced an investigation by

March 2005 designed to recover money Wound Care should not have received. Id. at 914.

FTAs letter, however, disclaimed any claim on fund recovery and avoided any findings of

wrongdoing. JA-54, 55. Yet, the District Court concluded that because FTA determined that

the CTA needed to revise its data for the 2011 reporting year . . . [its] actions amount to precisely

the type of active investigation that the Seventh Circuit identified in Glaser. SA-9.

Third, the requisite Absher findings are missing. The District Court only found that the

letter discussed the inaccurate reporting of revenue miles and requested that CTA revise the

reporting of revenue miles for reporting year 2011. SA-9. The District Court noted that FTA

determined that the revision was necessary to ensure the application of a consistent definition of

revenue service across all transit systems. SA-10. However, FTAs letter does not reference

wrongdoing. Disclosures concerning inaccurate reporting are not equivalent to allegations

of fraud. Absher, 764 F.3d at 709; Glaser, 570 F.3d at 913. It is not reasonable to infer any

element of fraud from a letter stating that only one year of data revisions were necessary,


23

especially one that does not specify a true statement of facts and a misrepresented statement of

facts. Absher, 764 F.3d at 709. FTAs letter does not contain the element of scienter. Id. at 709

n.10.

4. None of the documents cited by the District Court qualify under the statutory test for methods of public disclosure.

The FCA enumerates the specific channels by which public disclosure can occur in

3730(e)(4)(A), including in a report, hearing, audit, or investigation. 31 U.S.C.

3730(e)(4)(A) (1986).23 These terms are not specifically defined and, therefore, should be

given their ordinary meaning, consistent with the relevant statutory context and intent.24 See,

e.g., Yates, 2015 U.S. LEXIS 1503, at *15; Graham County, 559 U.S. at 294-95.

The Audit Report may qualify as either a government report or an audit in the public

domain. But, it did not include the Memo or the requisite facts and information of fraud, and

could not have been a public disclosure. See Schindler Elevator, 131 S. Ct. at 1893; Absher, 764

F.3d at 708.

The Memo is neither a report nor an audit. Given its treatment by CTA and IL-

OAG, it amounted to miscellaneous material prepared in connection with the Audit Report. The

District Court cited Bank of Farmington to support its holding that the Memo is a public

disclosure. SA-11. Bank of Farmington does not stand for the proposition cited. There, the

Court found that a disclosure occurred in a conversation that was pursuant to an administrative

investigation and reasoned that investigations may be informal or casual inquiries so long as

23 In 2010, Congress revised the bar to apply only in the same contexts (though federal). 31 U.S.C. 3730(e)(4)(A) (2010). 24 In Feingold, the Court found that statistical reports issued by the HCFA were reports within the meaning of the FCA. 324 F.3d at 496. The Supreme Court held that a report carries its ordinary meaning, it must be governmental, and it includes a federal agencys written response to a FOIA request and the records attached to that response. Schindler Elevator, 131 S. Ct. at 1893.


24

they are undertaken by authorized officials with official purposes. 166 F.3d at 862. In contrast,

Rubins presentation of the Memo to IL-OAG was not requested by IL-OAG and the information

was all but ignored. In any event, the Memo was never distributed to the public. See Schindler

Elevator, 131 S. Ct. at 1893. Therefore, it was not a statutory report.

FTAs letter refers to an in-depth review, but even if it had been put into the public

domain (which it was not), it was not a statutory investigation as the District Court found.

FTAs supposed investigation failed to identify either a claim of error by or overpayment to

CTA. The letter states FTA conducted an in-depth review, an initial inquiry, and a study

[of the] situation, JA-55, and the District Court relied on Glaser to support its conclusion that

this letter met the statutory text. SA-9. However, Glaser is inapposite because an actual

investigation to recover funds was underway in that case and no such investigation to recover

funds occurred here.

Also, the District Court stated that CTAs inaccurate reporting was publicly disclosed in

the FTAs investigation by the time the complaint was filed in May 2012. SA-10. This

conclusion is problematic for at least two reasons. First, as noted, disclosures concerning

inaccurate reporting are not equivalent to allegations of fraud. Second, Cause of Action

gave notice of the fraud to DOJ before the FTA letter was issued. DR3 Ex. 5. Because Cause of

Actions allegations were not based upon allegations of fraud (of which there were none) in

either the Audit Report or Memo, and there was no public disclosure by the federal government

in a hearing, audit, or investigation before Cause of Action gave notice of fraud, Cause of

Actions complaint cannot be barred.

C. FTAs Letter Is Not Substantially Similar To The Complaint.

Even if the Court determines that FTAs letter publicly disclosed fraud, to apply the

statutory bar, the Court also must find that Cause of Actions claims were substantially similar.


25

31 U.S.C. 3730(e)(4) (2010); Glaser, 570 F.3d at 920.25 Cause of Actions complaint is not

substantially similar to FTAs letter (nor based upon it) and thus the bar should not apply.

FTAs letter only required CTA to revise data for reporting year 2011. JA-54. It did not

acknowledge, suggest, or even consider that CTA defrauded the taxpayer, and no one reading

FTAs letter would have suspected that it did. However, Cause of Actions complaint:

Alleged fraud for the years between 2001 and 2010.26 JA-11 66; JA-12 71.

Asserted that CTA knowingly used different and noncompliant definitions for

reporting between the years 2001 and 2010. JA-2 6.

Asserted that CTA knowingly submitted false claims to the government. JA-2 8.

Asserted that Cause of Action relied on information obtained from Rubin, as reflected

in his affidavit dated March 22, 2012. JA-9 55-58.

Glaser does not control here. Cause of Actions complaint does not merely add

specificity to the information in FTAs letter instead, it contains very different information.

And, it would have been impossible for Cause of Actions complaint to add specificity to FTAs

25 The 2010 amendments to the FCA explicitly state this standard; thus, Glaser is consistent with claims arising under the 2010 amendments to the FCA. In Glaser, the Court applied the bar because these allegations of wrongdoing are virtually identical--they pertain to the same entity and describe the same fraudulent conduct[.] 570 F.3d at 920. The Glaser court found that the relators complaint merely added specificity to most of the allegations already detailed in publicly disclosed allegations. Id. Then, in Wisconsin Bell, this Court further explained the substantially similar standard articulated in Glaser. 760 F.3d at 691-92. The Court acknowledged that Glaser held that based upon does not mean solely based upon and that an action even partly based upon public information triggers the bar. Id. at 691. Yet, the bar did not apply in Wisconsin Bell because the relators allegations required independent investigation and analysis to reveal any fraudulent behavior. Id. In finding that the relator brought genuinely new and material information to the governments attention, it reasoned that, although the relators allegations relied in part on a publicly available agreement, [n]o one could view the agreement in a vacuum and realize fraud was at hand. Id. The relators prior knowledge of the rates being charged to other similarly situated entities was necessary to understand the significance of the public agreement. Id. at 692. 26 See supra notes 7 and 8 with respect to the correct reporting years for Counts I and II.


26

April 27, 2012 letter because, even if that letter had been in the public domain the very day it

was sent (which it was not), all of the information in Cause of Actions May 9, 2012 complaint

was already referenced in its March 28, 2012 letter to DOJ. DR3 Ex. 5. Wisconsin Bell ought to

control here and, therefore, the statutory bar should not apply.

III. Cause Of Action Is An Original Source.

If, and only if, this Court finds that public disclosure occurred here and that Cause of

Actions complaint is substantially similar to the publicly disclosed information, then it must

determine whether Cause of Action was an original source.27 An original source is someone

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. 31 U.S.C. 3730(e)(4)(B). To show

direct knowledge of the fraud, a relator usually must establish that knowledge of the

wrongdoing was based on investigative efforts and not derived from the knowledge of others.

Glaser, 570 F.3d at 917.

The District Court erred in finding that the allegations in the complaint were conclusory

and insufficient to support qualification as an original source. SA-8. Cause of Action properly

27 The District Court ruled that Cause of Action waived this issue. SA-8. However, waiver is a discretionary doctrine, particularly where, as here, a court is presented with a strictly legal question or when manifest injustice would otherwise result. See Singleton v. Wulff, 428 U.S. 106, 121 (1976); Smith v. Freeman, 892 F.2d 331, 337 n.12 (3d Cir. 1989) (discussing cases). Numerous cases hold that the doctrine may be relaxed whenever the public interest so warrants. See Webb v. City of Phila., 562 F.3d 256, 263 (3d Cir. 2009) (noting that waiver rule serves several important judicial interests, protecting litigants from unfair surprise, promoting the finality of judgments and conserving judicial resources, but may be relaxed where the issues resolution is of public importance). For example, the Third Circuit held that a case dealing with the relative rights of railroads and property owners was of public importance and accordingly decline[d] to apply the general rule of waiver in [that] case. MD Mall Assocs., LLP v. CSX Transp., Inc., 715 F.3d 479, 486 (3d. Cir. 2013). The case at bar implicates the critical public interest in stopping fraud on the government and taxpayers. In such circumstances, the Court should decline to apply the waiver doctrine.


27

alleged its independent investigation in its complaint. JA-3 15; JA-4 19. The complaint

included Cause of Actions letter to DOJ requesting an investigation, which was based on Cause

of Actions witness interview and direct knowledge of CTAs fraud. DR3 Ex. 5; Glaser, 570

F.3d at 917. Cause of Action also highlighted its independent investigation in its opposition

brief. JA-48.

Congress specifically required FTA to conduct audits and investigations of grantees

under UAFP. See FTA Circular, Urbanized Area Formula Program: Program Guidance and

Application Instructions II-6 II-7 (Jan. 16, 2014), available at http://www.fta.dot.gov/

documents/FINAL_FTA_circular9030.1E.pdf (Congress has charged FTA with conducting

reviews of recipients or requiring that recipients have independent audits conducted on their

programs to determine whether the recipients have met the programs requirements and

certifications.). No fact in the record even suggests that Rubin (or anyone else) ever alerted

FTA of CTAs fraud. In fact, the record establishes that the first time CTAs fraud was disclosed

to a proper federal authority was on March 28, 2012, when Cause of Action requested DOJ to

open an investigation. DR3 Ex. 5. Again, this letter predates FTAs April 27, 2012 letter to

CTA. Compare DR3 Ex. 5, with JA-54.

Under the Supreme Courts decision in Schindler Elevator, Cause of Action was an

original source of fraud whose information was based upon independent knowledge, was not

publicly disclosed before Cause of Actions complaint was filed, and which Cause of Action was

the first to disclose to the proper federal authority. The factual record before this Court, in

addition to clearly articulated legal principles and common sense, warrant reversal of the District

Courts ruling.


28

CONCLUSION

31 U.S.C. 3730(e)(4) does not bar this case. An Order vacating the Opinion, and

remanding this action to the District Court to proceed on the merits, should issue.

Dated: March 4, 2015 Respectfully submitted,

/s/ Prashant K. Khetan______________ DANIEL Z. EPSTEIN PRASHANT K. KHETAN LAURA N. BEGUN CAUSE OF ACTION INSTITUTE 1919 Pennsylvania Ave., NW Suite 650 Washington, D.C. 20006 (202) 499-4232

Counsel for Plaintiff-Appellant


CERTIFICATE OF COMPLIANCE

1. This brief complies with the type-volume limitation of Fed. R. App. P.

32(a)(7)(B) because this brief contains 12,010 words, as determined by the word-count function

of Microsoft Word 2010, excluding the parts of the brief exempted by Fed. R. App. P.

32(a)(7)(B)(iii); and

2. This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5), as

modified by Cir. R. 32(b), and the type style requirements of Fed. R. App. P. 32(a)(6) because

this brief has been prepared in a proportionally spaced typeface using Microsoft Word 2010 in

12 point Times New Roman font.

/s/ Prashant K. Khetan________

PRASHANT K. KHETAN CAUSE OF ACTION INSTITUTE 1919 Pennsylvania Ave., NW Suite 650 Washington, D.C. 20006 (202) 499-4232


STATEMENT PURSUANT TO CIRCUIT RULE 30(D)

All of the materials required by Cir. R. 30(a) are included in the Short Appendix

submitted with Plaintiff-Appellants Opening Brief. There are no materials required by Cir. R.

30(b). The parties include additional materials in a separate Stipulated Joint Appendix pursuant

to Cir. R. 30(e).




STATEMENT REGARDING ORAL ARGUMENT

Pursuant to Cir. R. 34(f), Cause of Action hereby requests oral argument. Oral argument

is appropriate because the issue raised presents a conflict between this Courts construction of

the FCAs public disclosure bar and statutory language, as well as a conflict with sister circuit

courts and inconsistency between circuit authorities. Moreover, the issues raised here are of

public importance indeed, the case involves potential fraud of millions of taxpayer dollars.

Finally, the facts are complex enough that oral argument would be beneficial.




No. 15-1143

IN THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT ________________________

UNITED STATES OF AMERICA, ex rel. CAUSE OF ACTION,

Plaintiff-Appellant,

v.

CHICAGO TRANSIT AUTHORITY, Defendant-Appellee.

________________________

On Appeal from the United States District Court for the Northern District of Illinois, Eastern Division

Case No. 12-cv-9673 The Honorable Robert M. Dow, Jr., Presiding

________________________

Short Appendix ________________________

DANIEL Z. EPSTEIN PRASHANT K. KHETAN LAURA N. BEGUN CAUSE OF ACTION INSTITUTE 1919 Pennsylvania Ave., NW Suite 650 Washington, D.C. 20006 (202) 499-4232

March 4, 2015 Counsel for Cause of Action


TABLE OF CONTENTS

Documents submitted with Cause of Actions Opening Brief:

1. Memorandum Opinion and Order DR61 (October 20, 2014)......SA-1

2. Judgment in a Civil Case DR69 (December 23, 2014)....SA-13


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION UNITED STATES OF AMERICA, ex rel. CAUSE OF ACTION

) ) )

Plaintiff-Relator, ) ) Case No. 12 CV 9673 v. ) ) Judge Robert M. Dow, Jr. CHICAGO TRANSIT AUTHORITY, )

)

Defendant. )

MEMORANDUM OPINION AND ORDER

This matter is before the Court on Defendant Chicago Transit Authoritys motion to

dismiss [42] Plaintiff-Relators complaint. Relator brings this qui tam action under the False

Claims Act, 31 U.S.C. 3729 et seq., alleging that Defendant submitted false and fraudulent

claims to the Federal Transit Administration. For the following reasons, Defendants motion is

granted. The case is set for status hearing on 11/06/14 at 9:00 a.m.

I. Factual and Procedural Background1

To combat fraud against the United State government, the False Claims Act (FCA)

imposes civil liability on a party that presents false or fraudulent claims for payment or that uses

a false record or statement material to a false or fraudulent claim. See 31 U.S.C. 3729(a)(1)(A)

& (B). Because it would be impossible for the government alone to investigate and pursue all

potential FCA violations, the statute provides a qui tam enforcement mechanism and allows a

private party (i.e., a relator) to bring suit on behalf of the government. See 31 U.S.C. 3730(b).

In this case, Cause of Action (Relator), a nonprofit organization, has brought suit against the 1 The Courts summary of the facts is drawn from Relators complaint. For purposes of Defendants motion to dismiss, the Court assumes as true all well-pleaded allegations set forth therein. See Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 618 (7th Cir. 2007); Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 44344 (7th Cir. 2009).

Case: 1:12-cv-09673 Document #: 61 Filed: 10/20/14 Page 1 of 12 PageID #:685

SA-1


2

Chicago Transit Authority (CTA or Defendant). Relator alleges that the CTA intentionally

caused the government to allocate additional transportation funds to it that were not authorized.

The CTA is a municipal corporation that provides public transportation services in the

city of Chicago and its suburbs. Under 49 U.S.C. 5307, large urban areas, including the greater

Chicago area served by the CTA, are eligible for transportation funding from the federal

government. Funding is determined by a grant formula that includes the number of bus revenue

vehicle miles that are reported to the National Transit Database (NTD). Compl. 2, 3.

Revenue miles are defined as the miles when a vehicle is available to the general public and

there is an expectation of carrying passengers. Id. at 41. In contrast, deadhead miles are

those in which a vehicle is out of revenue service. See id. at 40. Relator alleges that between

reporting years 2001 and 2010, the CTA knowingly used definitions of bus revenue vehicle

miles and deadhead miles that are both different from and noncompliant with the definitions

required under the NTD reporting manuals, NTD reporting glossary, and U.S. Department of

Transportation, Federal Transit Authority (FTA) circular guidance and/or regulations. Id. at

6. The CTAs improper classification of deadhead miles as revenue miles resulted in the federal

government overpaying the CTA under the 5307 formula grant program. See id. at 9.

The CTAs overstatement of revenue miles was uncovered during a 200607

performance audit for the State of Illinois Auditor General. Two reports discussing the

inaccurate reporting were produced as a result. First, Thomas Rubin, a member of the Illinois

audit team, prepared a 25-page technical report (Technical Report) regarding the overstatement

of revenue miles. The Technical Report states that the CTA appears to have been improperly

classifying as Vehicle Revenue Miles (VRM) and Vehicle Revenue Hours (VRH) motor bus

miles and hours that, under the Federal Transit Administrations (FTA) National Transit

Case: 1:12-cv-09673 Document #: 61 Filed: 10/20/14 Page 2 of 12 PageID #:686

SA-2

Case: 15-1143 Document: 5 Filed: