Opinion
Civil Action No. 3:99-CV-0100-M.
May 28, 2004
MEMORANDUM OPINION AND ORDER
Before the Court is Dallas/Fort Worth International Airport Board's ("Defendant") Motion for Summary Judgment for Lack of Subject Matter Jurisdiction, filed on October 14, 2003. For the reasons stated below, Defendant's Motion is DENIED.
BACKGROUND
Susan Heath ("Relator"), who was previously employed by Defendant as an Environmental Affairs Analyst, filed this qui tam action on January 15, 1999, alleging that Defendant violated the False Claims Act ("FCA") by making misrepresentations to the federal government in order to obtain federal funding for various airport improvement projects.
Under federal law, airports may obtain federal funding for development projects. See 49 U.S.C. § 47101 et seq. In order to receive funding, an airport must submit a grant application for approval by Federal Aviation Administration ("FAA"). Under the National Environmental Policy Act of 1969 ("NEPA"), the FAA is required to assess the potential environmental effects of proposed improvement projects and to approve a Draft and Final Environmental Impact Statement ("DEIS" and "FEIS") documenting the effects of the proposal. As part of the grant application, the applicant airport must state whether the proposal will have an "impact or effect on the environment." Furthermore, the applicant must certify that it will comply with all applicable state and federal laws.
Apparently, while the FAA is responsible for approving the DEIS and FEIS, the FAA permits applicants to prepare drafts of these documents.
In 1987, Congress enacted Clean Water Act Amendments which required the EPA to develop a regulatory program for storm water discharges associated with environmental activity. Accordingly, the EPA developed regulations ("Storm Water National Pollutant Discharge Elimination System (`NPDES') regulations"), which apply to airports, and which require a facility with a storm water discharge to apply for a storm water permit. As part of the permit application, airports must submit a Storm Water Pollution Prevention Plan ("SWP3").
On April 2, 2001, Relator filed her Second Amended Complaint ("Complaint"), which alleges that (1) since 1988, Defendant knowingly and repeatedly misrepresented to the FAA that it was in full compliance with all applicable state and federal environmental statutes and regulations, in order to obtain funding for airport expansion projects, and that as a result of the misrepresentations, the FAA has provided funds to Defendant, and (2) Defendant knowingly discharged pollutants into the waters of the United States, although Defendant did not have a Storm Water NPDES, and as a result, Defendant has become strictly liable to the United States for violations of the Clean Water Act. Specifically, Relator alleges that beginning in 1988 and in association with multiple expansion projects, Defendant failed to disclose to the FAA that its industrial waste system ("IW System") permitted large amounts of pollutants to enter state and federal waters through the System's storm drains, in violation of the Clean Water Act and the Texas Water Code. In its environmental assessments and grant applications, Defendant represented that its IW System would not adversely impact the environment during expansion projects, largely by allegedly misrepresenting that it was complying with state and federal pollution mitigation measures.
The Original Complaint and the Second Amended Complaint named as defendants URS Greiner Woodward-Clyde, a consulting firm hired by Defendant; Jeffrey Fegan, Defendant's CEO; Richard Reeter, Defendant's Environmental Affairs Administrator; and James Lee, an employee of Defendant associated with its Environmental Affairs Department. However, these parties were dismissed by stipulation on June 27, 2003.
The Complaint includes a chart listing twenty-four expansion projects.
On October 14, 2003, Defendant filed its Motion for Summary Judgment for Lack of Subject Matter Jurisdiction, arguing that this Court lacks subject matter jurisdiction over Relator's action because Relator fails to satisfy the FCA's jurisdictional requirements. On February 25, 2004, the Court held a hearing on Defendant's Motion.
ANALYSIS
A. The Federal Claims Act
The FCA imposes monetary liability on any person who knowingly makes a false statement in order to have a false or fraudulent claim paid or approved by the government. 31 U.S.C. § 3729(a)(2). Under the FCA, a person acts "knowingly" if he has "actual knowledge of the information," "acts in deliberate ignorance of the truth or falsity of the information," or "acts in reckless disregard of the truth or falsity of the information." § 3729(b). No proof of specific intent to defraud is required. Id. Section 3730 of the FCA provides that private parties may bring civil actions (or "qui tam" actions) on behalf of the United States for violations of § 3729. If the private party (the "relator") prevails, he or she is entitled to a portion of the award, if any.
§ 3730(d). However, § 3730(e)(4)(A) limits the subject matter jurisdiction of courts adjudicating qui tam actions under the FCA. It 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.
The Court must undertake a three-step inquiry in order to determine whether it has jurisdiction over the claim: (1) whether there has been a "public disclosure" of allegations or transactions; (2) whether the qui tam action is "based upon" such publicly disclosed allegations; and if so, (3) whether the relator is the "original source" of the information. Fed. Recovery Servs., Inc. v. U.S., 72 F.3d 447, 450 (5th Cir. 1995).
Once a party challenges subject matter jurisdiction over a claim, the relator bears the burden of proving all jurisdictional facts for the claim. U.S. ex rel. King v. Hillcrest Health Ctr., Inc., 264 F.3d 1271, 1278 (10th Cir. 2001). Accordingly, Relator bears the ultimate burden of establishing an issue of material fact as to the existence of subject matter jurisdiction over her claims.
1. Has there been a Public Disclosure of Allegations or Transactions?
Defendant argues that a series of documents that were disclosed to the public and to government agencies constitute FCA public disclosures upon which Relator's qui tam action is based. Specifically, Defendant contends that these documents disclosed that Defendant's IW System allowed pollutants to enter into the waters of the United States but Defendant nonetheless certified to the FAA that it was fully complying with all applicable environmental laws and regulations. Thus, Defendant argues, the allegations in Relator's Complaint have been previously publicly disclosed for purposes of § 3730(e)(4)(A). Conceding that the documents were disseminated to the public, Relator nonetheless argues that the disclosures do not constitute "public disclosures" under § 3730(e)(4)(A).
The allegedly disclosing documents proffered by Defendant are summarized below: Document Content Dallas Times Herald 59 Fed. Reg. 13354
Defendant proffers additional newspaper articles that contain the same content.
The storm drain apparently flows into waters of the United States.
Ethylene glycol is a chemical used to de-ice aircraft. According to Defendant, in 1992 and 1993, the FAA issued new guidelines for aircraft de-icing which caused an increased use of glycol by airlines at airports.
In compliance with the Storm Water NPDES regulations, Defendant commissioned an engineering firm to complete an SWP3, which was submitted to the EPA. The SWP3 was updated in 1994.
In 1998, the EPA conducted a "site visit" at DFW Airport to increase the agency's understanding of de-icing operations. According to the report, which the EPA subsequently published, "DFW was selected for a site visit because its southern location results in variable winter weather conditions."
In U.S. ex rel. Barrett v. Johnson Controls, Inc., No. 3:01-CV-1641-M, 2003 WL 21500400 (N.D. Tex. Apr. 9, 2003), this Court explained under § 3730(e)(4)(A), there are three sub-parts to the public disclosure analysis: (1) "public" disclosure; (2) in a particular form specified in the statute; (3) of "allegations or transactions." Id. at *4. Here, the parties do not dispute that the release of documents to the media and the government agencies constitute "public" disclosures of a form covered by the FCA. Accordingly, the Court need not address sub-parts 1 and 2, but only whether the disclosures constitute "allegations or transactions."
The parties agree that the appropriate analysis for determining whether allegations or transactions have been disclosed is that set forth by the D.C. Circuit Court of Appeals in U.S. ex rel. Springfield Terminal Railway v. Quinn, 14 F.3d 645 (D.C. Cir. 1994), which this Court adopted in Johnson Controls, Inc.
In Springfield Terminal, the D.C. Circuit explained that the FCA's requirement that allegations or transactions be disclosed went beyond the simple disclosure of information. Springfield Terminal, 14 F.3d at 653. According to that court, "`allegation' connotes a conclusory statement implying the existence of provable facts," and "`transaction' suggests an exchange between two parties or things that affect or influence one another." Id. To illustrate what the allegation or transaction provision requires, the court explained:
[I]f X + Y = Z, Z represents an allegation of fraud and X and Y represent its essential elements. In order to disclose the fraudulent transaction publicly, the combination of X and Y must be revealed, from which readers or listeners may infer Z, i.e., the conclusion that fraud has been committed. The language employed in § 3730(e)(4)(A) suggests that Congress sought to prohibit qui tam actions only when either the allegation of fraud [Z] or the critical elements of the fraudulent transaction themselves [X and Y] were in the public domain.Id. at 654.
The court further reasoned that in a fraud case, X and Y represent the misrepresented state of facts (X) and the true state of facts (Y), and that "the presence of one or the other in the public domain, but not both, cannot be expected to set government investigators on the trail of fraud." Id. at 655. The rationale behind the court's formula is that if Z has been disclosed, the allegation of fraud is already in the public domain and the government can pursue an FCA action if it chooses, but a relator may not. Similarly, if X and Y have been disclosed, the government has sufficient information from which it can infer fraud, and thus, it is in a position to determine whether to pursue an FCA action, but a relator may not.
Under Springfield Terminal, the key for determining whether allegations or transactions have been publicly disclosed is whether "the critical elements of the fraudulent transaction [X and Y] were in the public domain." The critical elements have been sufficiently disclosed if the disclosures, taken together, would enable the government to draw an inference of fraud.
Relator argues that Defendant does not adequately link its public disclosures to these elements. Relator contends that her Complaint contains factual allegations not contained in the disclosed documents, without which the government would be unable to infer fraud. According to Relator, it is only in her Complaint that both X and Y are present.
Relator argues that the disclosed documents constitute only the X factor — the misrepresented state of facts. Relator contends that the public documents show only that minor amounts of pollutants entered the U.S. and Texas waters through the IW System. Relator also contends that the disclosures show that Defendant took precautions — the implementation of inspection, sampling, and reporting procedures — to reduce the possibility that pollutants would enter the storm drains. According to Relator, such information alone is insufficient to create an inference of fraud.
Specifically, Relator points to the 1974 FEIS, which states that flows in excess of 6000 gallons per minute would be relieved to the storm drains, but such flow would "contain a minimal amount of suspended oils and grease," and the 1990 Reevaluation of the 1974 Environmental Impact Statement, which states that if storms occur which cause the flow to exceed the IW system's capacity, the flow would be diverted to the storm drain, and such flow would "contain only minor amounts of highly diluted oil and grease." Further, Relator contends that the 1991 FEIS indicated that ethlyene glycol would rarely enter the storm drains because the FEIS states that the chemical would only be applied "occasionally during harsh storms." Relator also claims that the SWP3 indicates that the likelihood of pollutants escaping into waters of the United States is rare, because it states only that the system "may reach capacity during some storm events" and that the system's capacity "may be exceeded" during "sustained rain events," and in such instances, run-off material "may be released into the storm drains."
Relator claims that her Complaint provides the requisite Y factor — the true state of facts — that (1) the IW System did not function as described in the disclosures and that large amounts of pollutants were escaping the system; (2) the precautionary procedures were not being followed; and (3) Defendant was aware of the flaws in the system and its failure to follow procedures. Specifically, Relator point to allegations in her Complaint that Defendant knew that discharges of pollutants into the storm drains were illegal; Defendant failed to report such illegal discharges as required under the Storm Water NPDES regulations; in performing required groundwater testing, Defendant routinely tested in unapproved areas; and Defendant directed Relator to stop reporting to state and federal authorities that the IW System was noncompliant. Relator contends that these facts establish that Defendant's conduct was fraudulent, rather than simply negligent or inadvertent.
Defendant argues that Relator mischaracterizes the X and Y factors. According to Defendant, the X factor is the fact that Defendant certified full environmental compliance in its grant applications and the Y factor is the disclosure of the fact that Defendant was not in full compliance because it permitted pollutants to enter waters of Texas and the United States. Defendant asserts that the disclosed documents contain information that Defendant certified that it was compliant with environmental statutes and regulations and that, notwithstanding these assurances, the IW System was in violation of environmental laws, because it permitted pollutants to escape. Thus, Defendant contends that the documents, taken together, adequately support an inference of fraud.
Analyzing the disclosures, the Court recognizes a distinction between the those occurring prior to September 1, 1998 ("pre-1998") and those occurring on or after September 1, 1998. Thus, the Court first addresses the pre-1998 disclosures.
The pre-1998 disclosures, taken alone, fail to give rise to an inference that Defendant acted with reckless disregard to defraud the government in conjunction with Defendant's grant applications. The disclosures — specifically the 1974 FEIS, the 1990 Technical Reevaluation, the 1991 FEIS, and the 1994 SWP3 update — establish that the IW System's design may, under certain conditions, permit small levels of pollutants to enter the environment via storm drains. In addition, the disclosures indicate that Defendant had developed and was engaged in implementing precautionary measures designed to reduce the amount of pollutants that could escape the IW System. In the absence of an indication that the FAA had adopted a zero tolerance policy over pollutant emissions, Defendant's pre-1998 applications certifying compliance with applicable environmental laws, coupled with these disclosures, do not give rise to an inference of fraud. Rather, read alone, the disclosures indicate that Defendant was working with state and federal agencies to reduce the likelihood that small amounts of pollutants would escape the IW System. It is Relator's Complaint that provides the allegations from which fraud may be inferred. Specifically, the Complaint alleges that Defendant was at all times aware that large amounts of pollutants were actually escaping the IW System, that Defendant routinely failed to adhere to the precautionary procedures it had developed in order to be compliant with applicable state and federal law, that Defendant routinely submitted false information to federal agencies during the preparation of its environmental assessments, and that Defendant nonetheless certified to the FAA that it was in full compliance with state and federal law. Only when viewed with these allegations do the pre-1998 public disclosures suggest an inference of fraud. Thus, the Court finds that the pre-1998 documents do not constitute "public disclosures of allegations or transactions" for purposes of § 3730(e)(4)(A). The Court therefore DENIES Defendant's Motion as to Relator's claims based on allegedly fraudulent conduct occurring before September 1, 1998.
However, the Court reaches a different conclusion as to the EPA Engineering Site Visit Report, which was published on September 1, 1998. The report reveals that airport personnel were aware that 60% of glycol used during de-icing operations was entering the IW System, and of that amount, large quantities were regularly escaping the IW System into waters of the United States — 20% of the glycol entering the IW System during dry weather operations and 40% of the glycol entering the System during wet weather operations. One could likely infer fraud from this information. Regardless of any mitigating procedures Defendant was supposed to be observing, the fact that 60% of the glycol used was entering the IW System, and of that amount, 20% to 40% was escaping into waters of the United States, strongly indicates that such procedures were not being followed, and that, following the Report's publication, any certification by Defendant that it was complying with all state and federal laws would give rise to an inference of fraud. Thus, the Court finds that the Engineering Site Visit Report publicly discloses the critical elements of Relator's claims, if any, of FCA violations occurring on or after September 1, 1998. The Court must then determine whether any such claims are "based upon" the 1998 report and, if so, whether Relator was nonetheless an "original source" of the information.
2. Are Relator's FCA Claims "Based Upon" the Publicly Disclosed Allegations?
The Fifth Circuit has held that "`[A]n FCA qui tam actioneven partly based upon publicly disclosed allegations or transactions is nonetheless `based upon' such allegations or transactions.'" Fed. Recovery Servs., Inc., 72 F.3d at 453. Here, there can be no dispute that Relator's claims, if any, that Defendant violated the FCA on or after September 1, 1998 are at least partly based upon the information contained within the Engineering Site Visit Report. Thus, in order for this Court to have subject matter jurisdiction over any such claims, Relator must demonstrate that she was an original source of the information disclosed in the Engineering Site Visit Report.
3. Is the Relator an "Original Source" of the Information?
In order to qualify as an "original source" under § 3730(e)(4)(B), a relator must satisfy a two-part test: (1) she must demonstrate that she has "direct and independent knowledge on which the allegations are based" and (2) she must demonstrate that she has voluntarily provided the information to the government before filing her qui tam action. U.S. ex rel. Laird v. Lockheed Martin Eng. Science Servs. Co., 336 F.3d 346, 352 (5th Cir. 2003). The parties do not dispute that Relator can satisfy the second element. Thus, the Court's inquiry is limited to whether Relator has "direct and independent" knowledge of the information on which the allegations in the September 1, 1998 disclosure are based. Id. Knowledge is "direct" if it is derived from the source without interruption or gained by Relator's own efforts rather than learned second-hand through the efforts of others. Id. at 355. In order to be "independent," Relator's knowledge cannot be dependent on a public disclosure.
As a threshold matter, Defendant contends that Relator's FCA claims must fail because she does not have direct and independent knowledge of the grant application process, and therefore, lacks the requisite basis of knowledge for an FCA claim. Judge Fitzwater addressed a similar issue in U.S. ex rel. Coppock v. Northrop Grumman Corp., No. 3:98-CV-2143-D, 2003 U.S. Dist. LEXIS 12626 (N.D. Tex. July 22, 2003). There, the defendant sought to dismiss the relator's FCA claims, in part because the relator lacked direct and independent knowledge of the actual misrepresentations made to the government. Noting that qui tam actions are supposed to encourage whistleblowers to provide previously unknown information to the government and that the actual misrepresentations are always already in possession of the government, Judge Fitzwater concluded that requiring direct and independent knowledge of the misrepresentations did nothing to further the purposes of qui tam actions. He thus concluded that the relator only needed to show direct and independent knowledge of the fraudulent occurrences, not of the misrepresentations themselves. This Court agrees with Judge Fitzwater's reasoning, and thus finds that Relator's lack of participation in the grant application process does not preclude her from qualifying as an original source.
Relator contends that she possesses direct and independent knowledge of the information contained in the public disclosures because her job required her to familiarize herself with documents and information pertaining to the IW System, and that beginning in February 1997, she engaged in an investigation to locate problems with the IW System, which revealed that pollutants were escaping and that mitigating procedures were not being followed. Specifically, Relator claims she conducted her own tests for glycol during de-icing operations, and discovered that large amounts of glycol were escaping the IW System. Furthermore, she claims her investigation revealed that testing for pollutants was not being conducted at the proper locations, but rather at locations which were likely to produce inaccurate results. In addition, Relator claims she discovered that the IW System had extensive design flaws that were likely to permit pollutants to escape, there were breaks in some of the System's pipes, and the System was not being cleaned.
Defendant argues that prior to conducting her investigation, Relator reviewed two documents which revealed the information ultimately contained in the 1998 Engineering Site Visit Report. Relator's log book indicates that on May 16, 1996, she read the 1994 SWP3 update. The update explained that the IW System had a limited capacity, which "may" be exceeded in wet and dry conditions, and that when exceeded, pollutants would likely enter the storm drains. Relator's log further shows that on December 12, 1996, she began reading a study commissioned by Defendant and conducted by Chiang, Patel Associates ("Chiang Patel Report"). The Chiang Patel Report states that the capacity of the IW System is so small that it is likely to be exceeded "during most rainfall events." The Report further states: "Due to the limited capacity of the IW System, de-icing operations may occur when there is no capacity remaining in the IW System to convey the wastes. Therefore, waste glycol is likely to bypass the IW System and discharge into the storm sewer system." Because Relator's own investigation did not commence until after she reviewed the 1994 SWP3 Update and the Chiang Patel Report, the Court must determine whether these two documents preclude Relator from having direct and independent knowledge of the information that was eventually contained in the 1998 Engineering Site Visit Report. This Court concludes that they do not.
While the 1994 SWP3 update was disclosed to the government, and reveals flaws in the IW System and states that pollutants may escape the IW System under some circumstances, the Court is of the view that the update does not give rise to an inference of fraud. Included with the update's description of the IW System are detailed "best management practices," which, if followed, would "prevent or reduce" pollutants from entering the IW System. When the update was published in 1994, the government had no reason to believe that Defendant was not following these best management practices or that excess amounts of pollutants were in fact escaping into U.S. waters. Thus, when the information was disclosed, the government was unlikely to infer that Defendant was acting fraudulently when it certified its compliance with applicable state and federal law.
The Court need not consider whether the Chiang Patel Report gives rise to an inference of fraud because the parties concede that the Chiang Patel Report was never published or otherwise disseminated to the public.
The 1998 Engineering Site Visit Report states that airport personnel were aware that 60% of glycol being applied during deicing operations was entering the IW System, and that during dry and wet weather operations, 20% to 40% of glycol entering the IW System discharged into the waters of the United States. Thus, the Engineering Site Visit Report reveals that the IW System and Defendant's employees were permitting large amounts of glycol to enter the waters of the United States. The 1994 SWP3 Update and the Chiang Patel Report establish that the IW System had a limited capacity which was likely to be exceeded, and thus, there was a high probability that pollutants would escape into the waters of the United States. There is a difference, however, between what could potentially happen — which is what the 1994 SWP3 Update and the Chiang Patel Report describe — and what actually is happening — which is what the Engineering Site Visit Report shows. Thus, the Court finds that the 1994 SWP3 Update and the Chiang Patel Report do not disclose the information contained in the Engineering Site Visit Report, and therefore, Relator's review of these two documents prior to the commencement of her investigation does not preclude her from having direct and independent knowledge of the same information in the Engineering Site Visit Report.
The Court also finds that Relator's investigation, which revealed that, due to flaws within the IW System and a failure to observe mitigation procedures, large amounts of pollutants were in fact escaping the IW System into the waters of the United States, provided her with direct and independent knowledge of the information contained within the Engineering Site Visit Report. Thus, the Court concludes that Relator constitutes an original source of the information contained in the Engineering Site Visit Report, and therefore, the Court finds that it has subject matter over Relator's claims, if any, of FCA violations occurring on or after September 1, 1998. The Court therefore DENIES Defendant's Motion as to any such claims.