© 2012 The Texas Lawbook.
By Janet Elliott
Staff Writer for The Texas Lawbook
(Aug. 1, 2012) Federal employees, including auditors and investigators, are not barred from seeking monetary awards by filing whistleblower lawsuits, the 5th U.S. Circuit Court of Appeals ruled.
In a case of first impression, a three-judge panel said that there is nothing in the language of the False Claims Act that would prevent two federal auditors from suing Shell Exploration & Production Co. and related entities for allegedly defrauding the government of at least $19 million.
The U.S. government sided with Shell, saying that it would be unseemly and counter-productive to allow government employees to benefit personally from whistleblower bounties. But the 5th Circuit panel of Judges Jerry Smith, Emilio Garza and Leslie Southwick found that there are plausible reasons for Congress to have authorized governmental whistleblower suits.
“The government has monetary and personnel constraints that do not enable it to pursue every lead or prosecute every wrongdoer,” said Southwick. “By nature, bureaucracies can be slow to act, and on occasion can fall victim to corruption or restrictive partisan agendas.
“There is potential for governmental relators to prompt more agency responsiveness even when suits are not filed. Additionally, the prospect of monetary awards might provide public servants with additional incentives to ferret out fraud.”
The opinion noted that four other circuits have held that government employees can bring whistleblower cases, while one circuit has taken the position that at least some federal employees may not be qui tam claimants.
The court remanded the case to U.S. District Judge Lynn Hughes of Houston to determine whether information about the possible fraud had been publicly disclosed. Hughes granted summary judgment for Shell on that issue, but the court said he applied an overly broad definition of disclosure.
The auditors, Randall Little and Joel Arnold, filed two qui tam suits against Shell in 2006. They charged that from October 2001 through 2005, Shell deprived the United States of royalties by taking unauthorized deductions for expenses to gather and store oil on 12 of its offshore drilling platforms.
The auditors are represented by Leif Olson, of counsel to Houston’s Welsh Chapoton. Olson said the auditors had reported the information contained in the lawsuit to their superiors, who declined to take action. They then filed the lawsuit, which the Justice Department declined to join.
“We are pleased that the 5th Circuit joined with the other courts that have found that the meaning of ‘persons’ in the False Claims Act takes its regular meaning and includes government employees who have discovered fraud on the part of government contractors,” Olson said.
The auditors, however, face another hurdle to getting their case to trial. The 5th Circuit remanded it to Hughes to determine whether the information in the lawsuit had been publicly disclosed before the lawsuit was filed.
Shell argued that the allegations had been disclosed in other cases and administrative rulemaking proceedings. Shell was represented at the 5th Circuit by Fulbright & Jaworski partner Daniel McClure.
David Coale, who writes a blog about the 5th Circuit, said the ruling has the potential to expand whistleblower litigation.
“It puts more cooks in the kitchen,” said Coale, a partner in the Dallas firm Lynn Tillotson Pinker Cox.
He said it might make life more complicated for the heads of government agencies that deal closely with private businesses. The court considered this argument and concluded that agencies can manage their concerns through personnel guidelines.
According to the opinion, at oral argument the government was asked why its authority to intervene could not be a vehicle for redressing ethical or administrative concerns involving government whistleblowers. The government’s lawyer admitted that it “was unwilling to incur the political costs associated with dismissing potentially meritorious suits.”
“This candid admission and the DOJ’s guideline, which counsels reduced but not zero recovery, illustrate why it is sound for us to follow the statutory text,” the court said.
© 2012 The Texas Lawbook. Content of The Texas Lawbook is controlled and protected by specific licensing agreements with our subscribers and under federal copyright laws. Any distribution of this content without the consent of The Texas Lawbook is prohibited.