No IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT. Plaintiff-Appellant, Defendants-Appellees.

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1 No IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT P. VICTOR GONZALEZ, QUI TAM PLAINTIFF, ON BEHALF OF THE UNITED STATES & STATE OF CALIFORNIA, Plaintiff-Appellant, v. PLANNED PARENTHOOD OF LOS ANGELES, ET AL., Defendants-Appellees. On Appeal from e United States District Court for e Central District of California BRIEF OF APPELLANT JACK M. SCHULER* SAM D. EKIZIAN SCHULER & BROWN 7100 Hayvenhurst Ave., Suite 310 Van Nuys, CA (818) *Not admitted is jurisdiction JAY ALAN SEKULOW WALTER M. WEBER Lead Counsel CARLY F. GAMMILL* AMERICAN CENTER FOR LAW & JUSTICE 201 Maryland Ave., N.E. Washington, DC (202) Attorneys for Plaintiff-Appellant

2 i TABLE OF CONTENTS TABLE OF AUTHORITIES... iv INTRODUCTION...1 STATEMENT OF JURISDICTION...2 STATEMENT OF ISSUES...3 STATEMENT OF THE CASE...4 Nature of e Case...4 Course of Proceedings...5 Disposition Below...5 FACTS...6 SUMMARY OF ARGUMENT...14 Public Disclosure...15 Original Source...18 ARGUMENT...20 History and Operation of FCA Qui Tam Suits I. THERE WAS NO PUBLIC DISCLOSURE A. DHS Audit There was no public disclosure of e audit

3 ii 2. A state administrative audit is not an enumerated source under e FCA i. Statutory structure and context ii. Legislative history...36 iii. Statutory purpose...39 B. California Legislative Committee Report Congressional refers to Congress, not state legislatures The enumerated government sources in e FCA are all federal in nature C. News Media Reports...44 D. State Court Wrongful Termination Lawsuit II. RELATOR VICTOR GONZALEZ IS AN ORIGINAL SOURCE A. Elements of Original Source Status B. Direct and Independent Knowledge Independent Direct...50 C. Role in Disclosing...52 D. Rationale of District Court...54

4 iii III. THE DISMISSAL OF THE CALIFORNIA FCA COUNTS MUST BE REVERSED...57 CONCLUSION...58 STATEMENT OF RELATED CASES...58 CERTIFICATE OF COMPLIANCE...60 CERTIFICATE OF SERVICE...62

5 iv TABLE OF AUTHORITIES Page CASES A-1 Ambulance Serv. v. California, 202 F.3d 1238 (9 Cir. 2000) , passim Graham County Soil & Water Conservation Dist. v. U.S. ex rel. Wilson, No (U.S. cert. granted June 22, 2009) , passim Hagood v. Sonoma County Water Agency, 81 F.3d 1465 (9 Cir. 1996) Jones v. United States, 527 U.S. 373 (1999)...32 Rockwell Int l Corp. v. United States, 549 U.S. 457 (2007)... 2, passim Seal 1 v. Seal A, 255 F.3d 1154 (9 Cir. 2001) , 28, 29 U. S. ex rel. Aflatooni v. Kitsap Physicians Servs., 163 F.3d 516 (9 Cir. 1998) , 50, 52, 55 U.S. ex rel. Barajas v. Norrop Corp., 5 F.3d 407 (9 Cir. 1993)... 47, 51, 55 U.S. ex rel. Biddle v. Board of Trustees, 161 F.3d 533 (9 Cir. 1998) U.S. ex rel. Bly-Magee v. Premo, 470 F.3d 914 (9 Cir. 2006), cert. denied, 128 S. Ct (2008) , passim U.S. ex rel. Devlin v. California, 84 F.3d 358 (9 Cir. 1996)... 23, 50, 52, 56 U.S. ex rel. Dunleavy v. County of Delaware, 123 F.3d 734 (3d Cir. 1997)...33, 43 U.S. ex rel. Eisenstein v. City of New York, No (U.S. June 8, 2009)...21 U.S. ex rel. Fine v. Chevron, U.S.A., 72 F.3d 740 (9 Cir. 1995) (en banc) , 4 U.S. ex rel. Foundation Aiding e Elderly v. Horizon West, Inc., 265 F.3d 1011, amended, 275 F.3d 1189 (9 Cir. 2001) 26, 45, 46 U.S. ex rel. Green v. Norrop Corp., 59 F.3d 953 (9 Cir. 1995). 46, 47

6 v U.S. ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416 (9 Cir. 1991) U.S. ex rel. Haight v. Caolic Healcare West, 445 F.3d 1147 (9 Cir. 2006) , 25, 39, 41 U.S. ex rel. Harshman v. Alcan Electrical and Engineering, Inc., 197 F.3d 1014 (9 Cir. 1999) , 52 U.S. ex rel. Lindenal v. General Dynamics Corp., 61 F.3d 1402 (9 Cir. 1995) U.S. ex rel. Marcus v. Hess, 317 U.S. 537 (1943) , 22 U.S. ex rel. Meyer v. Horizon Heal Corp., 565 F.3d 1195 (9 Cir. 2009)... 3, passim U.S. ex rel. Newsham v. Lockheed Missiles & Space Co., 190 F.3d 963 (9 Cir. 1999)... 22, 51 U.S. ex. rel. Schumer v. Hughes Aircraft Co., 63 F.3d 1512 (9 Cir. 1995), vacated, 520 U.S. 939 (1997) , 28 U.S. ex rel. Stinson, Lyons, Gerlin and Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149 (3d Cir. 1991) U.S. ex rel. Wang v. FMC Corp., 975 F.2d 1412 (9 Cir. 1992)... 1, passim U.S. ex rel. Wilson v. Graham County Soil & Water Conservation Dist., 528 F.3d 292 (4 Cir. 2008), cert. granted, No (U.S. June 22, 2009) , 43 U.S. ex rel. Zaretsky v. Johnson Controls, 457 F.3d 1009 (9 Cir. 2006) , passim Vermont Agency of Natural Resources v. U.S. ex rel. Stevens, 529 U.S. 765 (2000)...21 STATUTES, RULES, AND LEGISLATIVE HISTORY 28 U.S.C U.S.C U.S.C U.S.C U.S.C , U.S.C , passim

7 vi 31 U.S.C. 3732(a)...2 Cal. Gov t Code 1265(c)...4, 6, 13, 20, Cong. Rec , (1986) , Cong. Rec (1986)...38 Fraud Enforcement and Recovery Act of 2009, Pub. L (May 20, 2009)...5 Rule 4, Fed. R. App. P...3 Rule 54, Fed. R. Civ. P...2 Rule 58, Fed. R. Civ. P....2 S. Rep. No. 345, 99 Cong., 2d Sess. (1986), reprinted in 1986 U.S.C.C.A.N , 50, 55

8 1 INTRODUCTION The federal False Claims Act (FCA) prohibits frauds against e federal government. As a remedial measure, e FCA auorizes certain private individuals -- called relators -- to bring civil suits, in e name of e United States, to enforce e FCA and to recover e fraudulently obtained funds. Such private enforcement actions are known as qui tam suits. The relator bringing such a qui tam suit, if successful, receives a portion of e fraud recovery as a bounty -- an incentive to bring ese suits in e first place. [T]he paradigm qui tam case is one in which an insider at a private company brings an action against his own employer. U.S. ex rel. Fine v. Chevron, U.S.A., 72 F.3d 740, 742 (9 Cir. 1995) (en banc). Accord U.S. ex rel. Wang v. FMC Corp., 975 F.2d 1412, 1419 (9 Cir. 1992); U.S. ex rel. Stinson, Lyons, Gerlin and Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1161 (3d Cir. 1991) ( The paradigmatic original source is a whistleblowing insider ). The relator in is case, P. Victor Gonzalez, is a paradigmatic whistleblower. Yet e district court dismissed his case. The decision

9 2 below rests upon two asserted objections to Gonzalez s suit. As demonstrated herein, neier objection has merit. This Court should reverse and remand. STATEMENT OF JURISDICTION (a) Subject matter jurisdiction is precisely e issue before is Court. The district court had jurisdiction over relator s federal False Claims Act (FCA) counts under 28 U.S.C. 1331, 1345 and 31 U.S.C. 3732(a), unless at jurisdiction was barred by 31 U.S.C. 3730(e)(4). Rockwell Int l Corp. v. United States, 549 U.S. 457, (2007). If e district court had jurisdiction over e federal FCA counts, it also had jurisdiction, under 28 U.S.C and 31 U.S.C. 3732(b), over relator s state law counts under e California FCA. (b) The district court entered a final judgment in is case. Doc. 48 (EOR 2). See Rule 58, Fed. R. Civ. P. This Court has appellate jurisdiction under 28 U.S.C (c) The district court dismissed all counts on Oct. 30, 2008, and entered judgment on Nov. 14, Relator filed a timely motion to alter or amend e judgment under Rule 54, Fed. R. Civ. P., on Nov. 5, 2008.

10 3 The district court denied is motion on Dec. 5, On Jan. 5, 2009, relator filed a timely notice of appeal. See Rules 4(a)(1)(A) & 4(a)(4)(A)(iv), Fed. R. App. P. STATEMENT OF ISSUES I. Wheer e district court erred in holding at ere was a public disclosure under e jurisdictional provisions of e False Claims Act (FCA). Defendants argued in eir motion to dismiss (Doc. 33) at ere was a public disclosure under e FCA, 31 U.S.C. 3730(e)(4)(A). The district court agreed. Doc. 43 (EOR 4). Wheer a particular disclosure triggers e jurisdictional bar of 3730(e)(4)(A) is a mixed question of law and fact, which we review de novo. U.S. ex rel. Meyer v. Horizon Heal Corp., 565 F.3d 1195, 1199 (9 Cir. 2009) (internal quotation marks and citation omitted). II. Wheer e district court erred in holding at relator was not an original source under e jurisdictional provisions of e False Claims Act (FCA). Defendants argued in eir motion to dismiss (Doc. 33) at relator was not an original source under e jurisdictional provisions of e FCA, 31 U.S.C. 3730(e)(4)(B). The district court agreed. Doc. 43 (EOR 4).

11 4 Review of a dismissal for want of subject matter jurisdiction is de novo. U.S. ex rel. Fine v. Chevron U.S.A., Inc., 72 F.3d 740, 742 (9 Cir. 1995) (en banc). III. Wheer e district court erred in holding at e California False Claims Act (CFCA) counts had to be dismissed in light of e district court s disposition of e federal claims. Defendants argued in eir motion to dismiss (Doc. 33) at because e same public disclosure and original source rules governed e CFCA, ose counts had to be dismissed as well. The district court agreed. Doc. 43 (EOR 4). Review of is issue is de novo, as e ruling on e CFCA counts merely piggybacked on e federal FCA ruling. STATEMENT OF THE CASE Nature of e Case This is a whistleblower qui tam suit under e federal False Claims Act, 31 U.S.C. 3730, and e corresponding California False Claims Act, Cal. Gov t Code 12652(c). Essentially, e plaintiff (called a relator in a qui tam case) alleges at e defendants Planned Parenood of Los Angeles et al. fraudulently overbilled e state, and rough it e federal government, to e tune of tens of millions of dollars.

12 5 Course of Proceedings Victor Gonzalez, relator, filed his suit under seal, as required by e 1 False Claims Act, on Dec. 19, U.S.C. 3730(b)(2). After extended consideration, see 3730(b)(3), e United States Government on Nov. 1, 2007, declined to intervene, see 3730(b)(4)(B). Doc. 26. The district court subsequently unsealed e case as to all documents beginning wi e federal government s notice of declination. Doc. 27. On May 1, 2008, relator filed a First Amended Complaint (FAC). Doc. 31 (EOR 17). On July 9, 2008, defendants filed a motion to dismiss. Doc. 33. The FAC contained twelve separate counts. Counts I-III were brought under e FCA. Counts VIII-XI were brought under e California False Claims Act (CFCA). Relator did not defend e remaining counts, which were brought on oer eories, and ose counts are no longer at issue. Disposition Below The district court on Oct. 30, 2008, dismissed e FCA counts for want 1 The False Claims Act (FCA) was amended by a bill signed into law on May 20, Pub. L , Fraud Enforcement and Recovery Act of The private qui tam section of e FCA, 31 U.S.C. 3730, was not amended, wi e exception of 3730(h), e retaliation provision, which is not at issue here.

13 6 of subject matter jurisdiction under 3730(e)(4). Doc. 43 (EOR 4). The district court dismissed e CFCA counts on e eory at identical jurisdictional rules governed ose state law counts. Id. The district court entered judgment on Nov. 14, Doc. 48 (EOR 2). Also on Nov. 14, 2008, relator timely moved to alter or amend e judgment. Doc. 49. The district court denied at motion on Dec. 5, Doc. 53 (EOR 15). Relator filed a timely notice of appeal on Jan. 5, Doc. 56 (EOR 1). FACTS The crux of relator s False Claims Act (FCA) suit is at numerous Planned Parenood (PP) affiliates in California, including e one for which relator worked (PP of Los Angeles), knowingly overbilled e state government, and rough it e federal government, to e tune of tens of millions of dollars, for bir control drugs and devices provided to clients. The lower court did not reach e merits, but instead dismissed is case under e jurisdictional provisions of e FCA. Because e timing of events is important to e jurisdictional elements, relator provides e following chronology of events. FAC refers to e First Amended Complaint.

14 to Present: PP clinics bill California s Department of Heal Services (DHS) at eir usual and customary rates for oral contraceptives (and by implication, for oer bir control drugs and devices), raer an at e lower rate of acquisition cost. FAC Ex. 3d, Planned Parenood Affiliates of California, Inc. (PPAC) handout AB 2151 (Jackson) Q&A, p. 2 (EOR 74). (DHS in turn seeks reimbursement from e federal government, making is a matter wiin e ambit of e FCA.) May Jan. 1998: In correspondence wi Kay Kneer, Executive Director of PPAC, e California Department of Heal Services (DHS) repeatedly instructs PP at it may seek reimbursement for drugs, specifically oral contraceptives, only at acquisition cost, not at usual and customary rates. FAC Exs. 2a, 2b, 2c, 2d (EOR 60-67). PP clinics nevereless continue billing DHS at eir usual and customary rates. FAC Ex. 3d, PPAC handout AB 2151 (Jackson) Q&A, p. 2 (EOR 74). In particular, [t]his has been e practice of all PP affiliates since e FPACT program was inaugurated in 1997, FAC Ex. 10 (EOR 114). See also EOR

15 8 (background on FPACT). Dec. 9, 2002: PPLA hires relator P. Victor Gonzalez as Chief Financial Officer (CFO). FAC 1 (EOR 18). Jan. 26, 2004: The California DHS visits PP of San Diego and Riverside Counties (PPH), initiates an audit focusing on oral contraceptive purchases and reimbursement rates, and announces a plan to audit all state PP affiliates. PPH s President and CEO Mark Salo s is information to oer PP affiliates, including Mara Swiller of PPLA. Swiller forwards e Salo to PPLA staff, including CEO Mary-Jane Wagle and CFO Victor Gonzalez, wi e message, This is bad. FAC Ex. 5 (EOR 80). Jan. 27, 2004: DHS Audits and Investigations representative Stephan J. Edwards, Chief of e Medical Review Section - Sou III, s Bob Coles, Vice President and CFO of PPH, recounting Coles s admission at PPH bills at its usual and customary rates raer an at product acquisition cost. Edwards agrees to pend is part of e audit temporarily in light of objections from PP attorney Lilly Spitz, Chief Legal Counsel, California Planned

16 Parenood Education Fund. FAC Ex. 14 (EOR ). 9 Jan. 29, 2004: PPH s Bob Coles forwards e Edwards to Victor Gonzalez, who in turn forwards it to Mary-Jane Wagle, PPLA CEO. FAC Ex. 14 (EOR ). Feb. 5, 2004: Spitz s PP affiliate CEO s and CFO s, including Victor Gonzalez, to report at Kim Belshe of DHS declined to halt e cost audit at is time. Spitz states at PPAC needs some upto-date information from you including a [c]omplete list of oral contraceptives and contraceptive supplies, e purchase price under nominal pricing, and e amount billed to Medi-Cal. PPAC s Kneer forwards e Spitz to Victor Gonzalez and oer PP staff, adding her own message. Kneer reports at Kim (Belshe) did state at DHS legal office has advised her at e law requires us to bill at acquisition cost. Kneer opines at we have a good chance to succeed on a policy basis to allow clinics to bill at usual and customary rates, and at [t]his change would best be enacted rough trailer bill language. Kneer adds: We have asked each affiliate to provide our office wi information about our affil[ia]tes[ ] billing practice for nominal

17 10 and 340B priced contraceptive meods. I will assure you at is information will not be used publicly except in a state aggregate and to assure we are accurately reflecting e de[]p of e impact and to insure we are fully covering ourselves wi any statute change At is time we are asking at no furer public action be taken -- quietly resolving is as a policy issue wiin e administration is e best strategy at is time. FAC Ex. 14 (EOR ). Feb. 6, 2004: PPLA CEO Wagle forwards Kneer s Feb. 5 to PPLA Senior Staff and identifies Victor Gonzalez as e individual assigned to provide e requested cost impact information. FAC Ex. 7 (EOR ). Feb. 9, 2004: Various PP personnel, including Victor Gonzalez, participate in a conference call wi Kneer regarding e DHS audit and PP s response. EOR 102. Feb. 16, 2004: Victor Gonzalez s PPLA CEO Wagle, summarizing e Feb. 9 conference call and proposing a remedial course of action. The Gonzalez closes wi e following: I would also add at PPAC obviously did not handle is issue well and as a result left e entire system exposed. FAC Ex. 8 (EOR

18 ). Feb , 2004: Victor Gonzalez prepares a draft Report to e Finance Committee of PPLA and submits e draft to PPLA CEO Wagle. The draft repeats portions of e Feb. 16 Gonzalez , including e proposed remedial course of action. EOR Gonzalez also supervises e preparation of a detailed spreadsheet on PPLA revenues from bir control drugs and devices. Feb. 18, 2004: PPLA CEO Wagle s Victor Gonzalez her revised version of e Finance Report, now [r]eady to go out wi attachments, adding Go for it! The revised version does not contain Gonzalez s proposed remedial course of action. The revised version does contain e admission at PP affiliates bill e state at eir usual and customary rates and have done so at least since e FPACT program was inaugurated in FAC Ex. 10 (EOR ). Feb. 20, 2004: Victor Gonzalez s PPLA s outside accountant Tom Schulte at RBZ, attaching e spreadsheet. Gonzalez explains e problem of PPLA s hefty markup over cost being proscribed by

19 12 DHS regulations, wi a consequent multi-million dollar impact. Gonzalez proposes e retention of adequate legal counsel and e booking of a contingency at 50% of e $2m annual effect for e new fiscal year. FAC Ex. 4 (EOR 76-79). Mar. 9, 2004: PPLA fires Victor Gonzalez. FAC (EOR 18). Aug. 9, 2004: The California legislature s Senate Heal and Human Services Committee releases an analysis of AB 2151, e bill designed to solve PP s billing illegality. Doc. 34-3, Ex. 5 (EOR ). Nov. 19, 2004: The California DHS releases its audit report on Planned Parenood of San Diego and Riverside Counties (PPH). The audit covers two periods, viz., July 1, 2002 to June 30, 2003 for two billing codes (for oral contraceptives and contraceptive barrier meods), and Feb. 2, 2003 to May 30, 2004 for a ird billing code (for Plan B products). The audit found at PPH did not comply wi e published billing requirements because it billed at its customary rates raer an at cost. The audit report found at is [f]ailure to comply resulted in overbilling for e audit period

20 13 in e amount of $5,213, FAC Ex. 7 (EOR 90-99). An accompanying letter from Stan Rosenstein, Deputy Director, Medical Care Services at DHS, purports to excuse PP s overbilling and states at it is e decision of DHS at no demand [for recovery of e $5 million-plus in overbilling] will issue pursuant to e audit of Planned Parenood Associates for e cited period. Doc. 34-3, Ex. 3 (EOR ). No mention is made of e previously planned audits of all oer PP affiliates in California. June 2005: Victor Gonzalez sues in state court for wrongful termination. Doc. 34-3, Ex. 4 (EOR ). Nov. 18, 2005: Victor Gonzalez, rough counsel, alerts e United States Attorney General (AG) et al. to e fraudulent overbilling. FAC Ex. 7 (EOR 82-84). Nov. 21, 2005: Victor Gonzalez, rough counsel, supplies supplemental information and documents to e AG et al. FAC Ex. 7 (EOR 88-89). Dec. 19, 2005: Victor Gonzalez files his qui tam suit under e FCA and e California FCA in federal district court.

21 14 SUMMARY OF ARGUMENT The federal False Claims Act (FCA) auorizes private parties to sue to recover (and to receive a portion of) funds obtained in violation of e FCA. 31 U.S.C. 3730(b). However, e FCA denies subject matter jurisdiction -- and us bars private civil actions -- in certain cases of public disclosure of e alleged fraud, unless e person bringing e suit is an original source of e information. 31 U.S.C. 3730(e)(4). The pertinent text is as follows: 3730(e)(4)(A). Public Disclosure Provision No court shall have jurisdiction over an action under is section based upon e 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 e news media, unless e action is brought by e Attorney General or e person bringing e action is an original source of e information. Original Source Provision For purposes of is paragraph, original source means an individual who has direct and independent knowledge of e information on which e allegations are based and has voluntarily provided e information to e Government before filing an action under is section which is based on e

22 15 information. 3730(e)(4)(B). Public Disclosure Defendants in is case identified four purported public disclosures under e FCA, and e district court agreed at two of em qualified. This was error. None of e proffered disclosures triggered e FCA s jurisdictional bar. (1) The state Department of Heal Services (DHS) audit investigation of e defendants fails as a public disclosure for two reasons. First as e district court correctly held, e investigation was not public. The defendants deliberately kept e matter quiet. Discussion of e investigation among e staff of ose being investigated is not public. Second, only federal, not state, audits qualify as sources of public disclosures under e FCA. Hence, e state audit is categorically ineligible to trigger e FCA jurisdictional bar. The text, legislative history, and purposes of e FCA all show at e sources listed in e

23 16 jurisdictional provisions are (aside from news media) exclusively federal in nature. While current Nin Circuit precedent is to e contrary, e U.S. Supreme Court has granted review of a case raising is issue. Graham County Soil & Water Conservation Dist. v. U.S. ex rel. Wilson, No (U.S. cert. granted June 22, 2009). Relator presses is argument in light of e Supreme Court s upcoming clarification of e issue or, in e event e Supreme Court for some reason does not entirely resolve e merits of at question, to highlight e issue for en banc rehearing or Supreme Court review in e present case. (Of course, since e audit investigation here was not public, is Court can reject is purported disclosure wiout addressing e broader Graham issue.) (2) The California state legislative committee report does not qualify as a source of public disclosure under e FCA for two reasons. First, bo e statutory text and Nin Circuit precedent agree at e term congressional in e FCA refers to Congress, i.e., e federal legislature. The district court erefore erred by treating e state legislature as congressional. Second, and more broadly, as noted above, e sources of public

24 17 disclosures (aside from e news media) under e FCA jurisdictional bar are categorically federal, not state, sources. For is additional reason, a state legislative report does not qualify as a public disclosure. (3) The various media reports defendants invoke fail to trigger e FCA public disclosure element. The district court did not even deem defendants argument on is score wory of discussion. And in fact, e media accounts neier identify e particular defendants nor identify e allegedly fraudulent practices. Under Nin Circuit precedent, each of ese deficiencies is independently fatal to defendants argument. (4) The state court wrongful termination complaint which relator Gonzalez filed also fails as a public disclosure. As noted above, e sources enumerated under e FCA are all (aside from e news media) federal in nature, so state court proceedings do not trigger e bar. While current Nin Circuit case law (which e district court followed on is point) treats state court proceedings as an enumerated source under e FCA, is rule may fall in light of e forcoming Graham decision in e Supreme Court, or, if necessary, in en banc review or review on certiorari in is case. In any event, relator Gonzalez qualifies as an original

25 18 source who may proceed wi his qui tam suit, as discussed below. Original Source The absence of any public disclosure suffices to overturn e district court s judgment; absent a public disclosure, ere is no jurisdictional bar under 3730(e)(4). But even if ere were a public disclosure, relator could proceed wi his qui tam suit as an original source of e information at issue. 3730(e)(4)(A), (B). The pertinent information which e FCA refers to is at underlying e relator s complaint, not e information underlying any public disclosure. Rockwell Int l Corp. v. United States, 549 U.S. 457, (2007). Under e FCA, relator Gonzalez is an original source of is information because he voluntarily provided it to e federal government before filing his qui tam suit (which is undisputed), and because he possessed direct and independent knowledge of e pertinent information. Under Nin Circuit precedent, a relator s knowledge is independent if it precedes any public disclosure, and here Gonzalez learned of e unlawful overbilling well before any supposed public disclosure in e

26 19 state legislative committee report or e state court lawsuit (e two events which e district court held were public disclosures). Under Nin Circuit precedent, knowledge is also direct under e circumstances here, namely, at Gonzalez studied it wi his own eyes, in e course of his employment, and by working to fix e problem. While a line of Nin Circuit precedents have imposed an additional, non-textual requirement -- namely, at e relator play a role in any public disclosure at triggers e jurisdictional bar -- is requirement is no longer tenable in light of Rockwell. The Rockwell Court clearly severed any link between e relator s information and e information, perhaps unknowable, underlying any public disclosure. 549 U.S. at If, as e Supreme Court held, Congress did not care wheer a relator knows about e information underlying a publicly disclosed allegation, id. at 471 (emphasis added), en it is likewise unjustifiable to require a relator to contribute to such a disclosure. Thus, while e state court lawsuit in is case would satisfy is additional requirement -- Gonzalez obviously played a role in his own lawsuit -- e requirement itself must be discarded.

27 20 Since neier e public disclosure trigger nor (if ere were a public disclosure) e original source requirements bars e present qui tam action, is Court should reverse e district court and reinstate Counts I-III. The district court s dismissal of e California FCA claims rested entirely upon e dismissal of e federal FCA claims, based upon e proposition at e same jurisdictional rules governed. Whereas e ruling dismissing e federal FCA counts must be reversed, is Court should likewise reverse e district court s ruling as to e California FCA and reinstate Counts VIII-X as well. ARGUMENT This appeal turns on e question wheer e jurisdictional provisions of e federal False Claims Act (and similar provisions under e CFCA) bar relator Victor Gonzalez from bringing e present action. That question in turn hinges upon wheer certain events qualify as public disclosures under e FCA, and if so, wheer relator Gonzalez is an original source of e information at issue. To understand is dispute clearly, it is helpful first to consider briefly

28 e history and operation of private civil actions under e FCA. 21 History and Operation of FCA Qui Tam Suits The FCA establishes a scheme at permits eier e Attorney General, [31 U.S.C.] 3730(a), or a private party, 3730(b), to initiate a civil action alleging fraud on e Government. A private enforcement action under e FCA is called a qui tam action, wi e private party referred to as e relator. U.S. ex rel. Eisenstein v. City of New York, No (U.S. June 8, 2009), slip op. at 3-4 (citation omitted). The FCA was enacted in 1863 wi e principal goal of stopping e massive frauds perpetrated by large private contractors during e Civil War. Vermont Agency of Natural Resources v. U.S. ex rel. Stevens, 529 U.S. 765, 781 (2000) (internal quotation marks, editing marks, and citation omitted). This original version of e FCA contained a qui tam provision allowing any person to sue as a relator, U.S. ex rel. Zaretsky v. Johnson Controls, 457 F.3d 1009, 1017 n.5 (9 Cir. 2006) (emphasis added). As an extreme example, in one case e Supreme Court held at even individuals who had done noing more an copy allegations from a criminal indictment could be qui tam relators. Id. (citing U.S. ex rel.

29 22 Marcus v. Hess, 317 U.S. 537 (1943)). In response to Hess, Congress amended e [FCA] in 1943, removing jurisdiction over qui tam actions whenever... such suit was based upon evidence or information in e possession of e United States, or any agency, officer or employee ereof, at e time such suit was brought. Zaretsky, 457 F.3d at 1017 n.5 (citation omitted). The 1943 FCA amendment led to unintended consequences, however, as it deprived courts of jurisdiction over suits in which e would-be relators had given eir information to e government before filing eir claims. Seal 1 v. Seal A, 255 F.3d 1154, (9 Cir. 2001) (citation omitted). By swinging far in e oer direction, U.S. ex rel. Haight v. Caolic Healcare West, 445 F.3d 1147, 1154 (9 Cir. 2006), Congress essentially eliminated e financial incentive for private citizens to bring fraudulent conduct to e attention of e government, and e use of qui tam suits to fight fraud on behalf of government dramatically declined, U.S. ex rel. Newsham v. Lockheed Missiles & Space Co., 190 F.3d 963, 966 (9 Cir. 1999). In 1986, Congress again amended e [FCA], in part to correct

30 23 restrictive court interpretations at tend to wart e effectiveness of e statute,... and to encourage more private enforcement suits. Zaretsky, 457 F.3d at 1017 n.5 (internal quotation marks, editing marks, and citations omitted). See S. Rep. No. 345, 99 Cong., 2d Sess (1986), reprinted in 1986 U.S.C.C.A.N. 5266, ( The Committee s overall intent in amending e qui tam section of e False Claims Act is to encourage more private enforcement suits ). These 1986 amendments added e public disclosure and original source provisions at issue in e present appeal. As is Court has observed, e 1986 amendments to e FCA steer a course between an overly restrictive interpretation of e FCA on e one hand,... and an unrestrained permissiveness on e oer,... seeking e golden mean.... U.S. ex rel. Devlin v. California, 84 F.3d 358, 362 (9 Cir. 1996) (internal quotation marks and citations omitted). The current jurisdictional provisions relevant to is case provide as follows: Public Disclosure Provision No court shall have jurisdiction over an action under is section based upon e public disclosure of allegations or

31 3730(e)(4)(A). 3730(e)(4)(B). 24 transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from e news media, unless e action is brought by e Attorney General or e person bringing e action is an original source of e information. Original Source Provision For purposes of is paragraph, original source means an individual who has direct and independent knowledge of e information on which e allegations are based and has voluntarily provided e information to e Government before filing an action under is section which is based on e information. In is case, en, e first question is wheer e public disclosure bar applies to Gonzalez s suit. If so, en e second question is wheer Gonzalez meets e original source exception to at bar. The second step -- original source analysis -- is only necessary if ere has been a public disclosure. If ere has been no public disclosure, en Gonzalez need not establish original source status. A-1 Ambulance Serv. v. California, 202 F.3d 1238, 1243 (9 Cir. 2000); U.S. ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1420 (9 Cir. 1991).

32 25 I. THERE WAS NO PUBLIC DISCLOSURE. The first question is wheer ere was a public disclosure under 3730(e)(4)(A) of e FCA. As is Court has explained, a fair reading of section 3730(e)(4)(A) indicates at a district court lacks jurisdiction when: (1) ere has been a public disclosure (2) of allegations or transactions (3) in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from e news media (4) and e relator s action is based upon at public disclosure A survey of cases also suggests at each of ese elements must be satisfied in order to trigger e bar. U.S. ex rel. Lindenal v. General Dynamics Corp., 61 F.3d 1402, 1409 (9 Cir. 1995). The list of sources of public disclosures set for in e FCA is exclusive: a disclosure at is not from one of e sources enumerated in e statute... does not trigger e jurisdictional bar. Haight, 445 F.3d at See also id. at ( By limiting e enumerated sources to at narrow list... Congress sought to capitalize on e independent efforts of prospective qui tam relators who call information to e

33 26 attention of e government ). Accord U.S. ex rel. Meyer v. Horizon Heal Corp., 565 F.3d 1195, 1199 (9 Cir. 2009) ( we must decide wheer e public disclosure originated in one of e sources enumerated in e statute ) (quoting A-1 Ambulance, 202 F.3d at 1243); U.S. ex rel. Foundation Aiding e Elderly v. Horizon West, Inc., 265 F.3d 1011, (9 Cir. 2001) ( Public disclosure can occur... only [in e listed] categories ). In its Motion to Dismiss, defendants Planned Parenood of Los Angeles et al. (hereinafter PP defendants ) identified four purported public disclosures : 1) e DHS audit begun on Jan. 26, 2004; 2) e California legislative committee report issued on Aug. 9, 2004; 3) various media reports from , in combination wi state regulations; and, 4) e amended complaint in relator Victor Gonzalez s state court wrongful termination lawsuit, filed in June of See Doc. 33 at 3, None of ese qualifies as a relevant public disclosure under e FCA. A. DHS Audit The PP defendants claim a public disclosure rough e DHS auditing 2 Opinion amended at 275 F.3d 1189 (9 Cir. 2001).

34 27 3 of PPH. The district court properly rejected is claim. Doc. 43 at 4-5 (EOR 7-8). 1. There was no public disclosure of e audit. The PP defendants kept e DHS audit close to e vest. Indeed, at was eir conscious strategy. As PPAC s Kay Kneer explained to representatives of PP affiliates, we are asking at no furer public action be taken -- quietly resolving is as a policy issue wiin e administration is e best strategy at is time. FAC Ex. 14 (EOR 127). Thanks to is hush-hush approach, e only disclosures were intramural s, phone calls, and conversations among e PP defendants (and PPLA s accounting firm). These are not public : disclosure to company employees does not constitute public disclosure. U.S. ex. rel. Schumer v. Hughes Aircraft Co., 63 F.3d 1512, 1519 (9 Cir. 1995), vacated on oer grounds, 520 U.S. 939 (1997). Under a practical, 3 The audit eventually yielded an audit report in November Defendants have not contended at is report was made public. As e district court noted, Defendants do not rely on e report as e public disclosure. They rely on e January alerting Planned Parenood CEO s to e existence of e audit. Doc. 43 at 5 (EOR 8). In any event, e audit report would not qualify as a public disclosure for e additional reason at it is not an enumerated source under e FCA. See infra I(A)(2).

35 28 commonsense interpretation of e jurisdictional provision, information at was disclosed in private has not been publicly disclosed. Id. at 1518 (internal quotation marks and citation omitted). Accord Meyer, 565 F.3d at 1200 ( information at was disclosed in private is not a public disclosure under e [FCA] ) (internal quotation marks, footnote, and citations omitted). The PP defendants argue at a different result should obtain where e circle of affiliated staffers are technically employed by different entities, citing e Seal 1 case. But Seal 1 helps Gonzalez, not defendants. Seal 1 addressed an entirely different situation, namely, where a whistleblower at one company learns, from e federal government investigators, about a fraud at a different, competitor company. See Seal 1, 255 F.3d at The facts in Seal 1 erefore triggered precisely e concern, motivating e 1943 amendments to e FCA, to curtail parasitical suits in which e informer rendered no service to e government, Zaretsky, 457 F.3d at 1017 n.5 (internal quotation marks and citations omitted). Here, by contrast, e federal government apparently had no inkling of PP s frauds against it until Gonzalez blew e whistle.

36 29 The Seal 1 case did address, however, e rationale for holding at intramural communications are not public. Because e employee has a strong economic incentive to protect e information from outsiders, revelation of information to an employee does not trigger e potential for corrective action presented by oer forms of disclosure. 255 F.3d at The same rationale applies here, as e district court noted: Alough e Planned Parenood affiliates are incorporated as separate entities, each affiliate had interests identical to ose of e San Diego-Riverside affiliate at were reatened by e DHS audit. The very purpose of e was to alert oer Planned Parenood affiliates to e common reat at ey all faced and to initiate a coordinated response. The even alluded to e protection of internal information concerning e alleged fraud.... Indeed, instead of triggering corrective action, e alert set off a coordinated defense against e audit under e leadership of PPAC, e affiliates political action committee in Sacramento. Doc. 43 at 11 (EOR 14). As e Seal 1 court noted, a rule at deemed public e government s merely advising employees at eir corporation was being investigated would run contrary to e purpose of e FCA, for it drastically curtails e ability of insiders to bring suit once e government becomes involved in e matter. 255 F.3d at 1161 (internal quotation marks, editing marks, and citation omitted).

37 30 The rule e PP defendants propose would yield absurd results and bizarre incentives. Any conspiracy to defraud would be deemed publicly disclosed whenever it involved more an one technically distinct corporation or at least one technically separately employed person. Contractors would have an incentive to create multiple internal corporations or affiliates -- e.g., Acme Bolts, Acme Widgets, Acme Support Staff, etc. -- so at any fraudulent operation would likely be publicly disclosed, for purposes of defeating whistleblower suits, by mere internal communications or operations. This would make no sense, and noing in e FCA calls for such a counterproductive rule. The district court correctly held at e internal s regarding e DHS audit were not public disclosures. 2. A state administrative audit is not an enumerated source under e FCA. As discussed in e preceding section, e DHS audit was not publicly disclosed for purposes of e FCA. But even if it were, e audit still would not qualify as a jurisdictional bar under e FCA because a state audit, as opposed to a federal audit, is not one of e enumerated sources under e FCA.

38 31 Relator Gonzalez acknowledges at is particular argument is currently foreclosed by a prior Nin Circuit panel decision. See U.S. ex rel. Bly-Magee v. Premo, 470 F.3d 914 (9 Cir. 2006), cert. denied, 128 S. Ct (2008). However, e Bly-Magee holding is e subject of a circuit split, and e Supreme Court has granted review in a case presenting precisely at question. See Graham County Soil & Water Conservation Dist. v. U.S. ex rel. Wilson, No (U.S. cert. granted June 22, 2009). The single Question Presented in e Graham petition is: Wheer an audit and investigation performed by a State or its political subdivision constitutes an administrative... report... audit, or investigation wiin e meaning of e public disclosure jurisdictional bar of e False Claims Act, 31 U.S.C. 3730(e)(4)(A). Gonzalez erefore presses is additional argument in e event e Supreme Court embraces it in e forcoming Graham decision (which would supersede Bly-Magee) or, if for some reason e Supreme Court does not reach e question in Graham, to highlight it for possible en banc consideration in e Nin Circuit or for Supreme Court review in e present case. Importantly, e federal government is on record, now across two separate Administrations, taking e position at Bly-Magee was

39 32 incorrect on is issue, and at e sources enumerated under e public disclosure bar of e FCA, wi e sole exception of e news media, must all be federal sources. The government s arguments are set for in its amicus brief at e petition stage in Bly-Magee, available at and in its amicus brief at e petition stage in Graham, available at i. Statutory structure and context At e simplest level, e federal nature of e reference to an administrative... audit in 3730(d)(4)(A) appears from its placement. The term administrative is sandwiched between two exclusively federal terms: in a congressional, administrative, or Government Accounting Office report, hearing audit, or investigation, 3730(d)(4)(A) (emphasis added). See Bly-Magee, 470 F.3d at 917 (acknowledging at congressional and GAO refer exclusively to federal materials) (emphasis in original). Statutory language must be read in context and a phrase gaers meaning from e words around it. Jones v. United States, 527 U.S. 373, 389 (1999) (internal quotation marks and citation omitted). Thus, is

40 33 placement strongly suggests at e term administrative refers to federal administrative agencies. At least two oer federal circuits have so concluded. See U.S. ex rel. Dunleavy v. County of Delaware, 123 F.3d 734, (3d Cir. 1997); U.S. ex rel. Wilson v. Graham County Soil & Water Conservation Dist., 528 F.3d 292, , 305 (4 Cir. 2008), cert. granted, No (U.S. June 22, 2009). But e argument from statutory context goes beyond e words immediately adjacent to e term administrative. The FCA is a statutory whole, and viewed in its entirety, e logic for an exclusively federal meaning to administrative -- indeed, to all of e non-media disclosure sources -- is compelling. 4 Section 3729, which immediately precedes 3730 (e qui tam section), sets for civil penalty provisions under e FCA. This section spells out e circumstances under which an offender who cooperates wi e government faces reduced liability. The offender, for example, must furnish all information about e violation to e government wiin 30 4 The 2009 amendments to e FCA, see supra note 1, did not change e language quoted herein. This brief cites to e pre-amendment version.

41 34 days of obtaining at information. 3729(a)(A). Hence, such an offender is a species of whistleblower. Importantly, is section adds e following condition. 3729(a)(C). At e time such person furnished e United States wi e information about e violation, no criminal prosecution, civil action, or administrative action had commenced under is title wi respect to such violation, and e person did not have actual knowledge of e existence of an investigation into such violation.... The phrase, criminal prosecution, civil action, or administrative action... commenced under is title wi respect to such violation in 3729(a)(C) parallels e phrase criminal, civil, or administrative hearing in e jurisdictional section, 3730(e)(4)(A), and was presumably included for similar reasons, namely, to discount e value of a whistleblower who tells e federal government what it already knows and is pursuing. Notably, e text in 3729 does not include e modifier federal before criminal prosecution, civil action, or administrative action, yet clearly is provision only applies to actions involving e United States, eier directly or rough a private relator ( under is title ). This language from 3729 is en carried forward into ree separate subsections of

42 First, e FCA in 3730(c) auorizes a stay of certain discovery in a qui tam case where such discovery would interfere wi e Government s investigation or prosecution of a criminal or civil matter arising out of e same facts, 3730(c)(4). This same subsection en employs e phrases e criminal or civil investigation or proceedings and e ongoing criminal or civil investigation or proceedings as synonyms for e e Government s investigation or prosecution of a criminal or civil matter already referred to in is subsection. Id. The references are us all exclusively federal. Next, e FCA in 3730(d) sets e parameters of an award to a qui tam relator in cases where e Government proceeds wi e relator s suit. The statute caps e relator s share at 10% of e proceeds where e action is based primarily on disclosures of specific information (oer an information provided by e person bringing e action) relating to 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 e news media, 3730(d)(1). This subsection closely tracks -- in large part, word-for-word

43 36 -- e language in e subsequent jurisdictional provisions. As in e jurisdictional provisions, e text in 3730(d)(1) does not use e express modifier federal, but in context e meaning is clear: where e federal government was already aware of and pursuing e matter, and e relator was not an independent source of e information, e reward to e relator should be discounted. Finally, e FCA includes virtually identical language in its jurisdictional subsection, 3730(e)(4), set for supra pp This phrasing, en, is not a collection of isolated words bereft of context, but raer a continuation of phraseology employed (wi minor wording differences) over e FCA as a statutory whole. This statutory context points strongly to an interpretation of e enumerated sources in 3730(e)(4) as referring to exclusively federal sources (wi e exception of e news media ). ii. Legislative history The legislative history matches is understanding. On Aug. 11, 1996, Senator Grassley, e lead Senate sponsor of e 1986 FCA amendments, offered a substitute amendment to S (e bill at would ultimately pass). 132 Cong. Rec This substitute, while not identical to e

44 37 version finally adopted, was nearly identical in its jurisdictional subsection. One difference was at e definition of original source linked e timing of e public disclosures to e Government filing an FCA action, raer an e relator. Thus, is near-final version provided: (5)(A) No court shall have jurisdiction over an action under is section based upon e public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, a congressional, administrative, or Government Accounting Office report, hearing, audit or investigation, or from e news media, unless e action is brought by e Attorney General or e person bringing e action is an original source of e information. (B) For purposes of is paragraph, original source means an individual who has direct and independent knowledge of e information on which e allegations are based and has voluntarily informed e Government or e news media prior to an action filed by e Government. 132 Cong. Rec (proposed 3730(e)(5)). Addressing is provision, Sen. Grassley explained: The use of e term Government in e definition of original source is meant to include any Government source of disclosures cited in subsection (5)(A); at is, Government includes Congress, e General Accounting Office, any executive or independent agency as well as all oer governmental bodies at may have publicly disclosed e allegations. 132 Cong. Rec The Senate sponsor s comments plainly identify e term administrative, in e phrase congressional, administrative, or

45 38 Government Accounting Office, as meaning any executive or independent agency of e capital G, i.e., federal, Government. In addition, ese comments identify all oer governmental bodies involved in any hearing at produces a public disclosure as a Government -- i.e., federal -- source of disclosure. When e bill (S. 1562), now in its final form, came to e House floor, 132 Cong. Rec , Rep. Berman of California included legislative history for e Record, id. at That legislative history contained e following explanation of e jurisdictional provisions: The final bill has adopted e Senate version of who may file an action under e False Claims Act. Before e relevant information regarding fraud is publicly disclosed rough various government hearings, reports and investigations which are specifically identified in e legislation or rough e news media, any person may file such an action as long as it is filed before e government filed an action based upon e same information. Once e public disclosure of e information occurs rough one of e meods referred to above, en only a person who qualifies as an original source may bring e action. A person is an original source if he had some of e information related to e claim which he made available to e government or e news media in advance of e false claims being publicly disclosed. This person has e right to bring an action after ese disclosures are made public as long as it is filed before an action is commenced by e Government. Id. at (emphases added). While e capitalization is inconsistent, it

46 39 is clear at all references to e government are to e federal, capital G government, and at e various government hearings, reports and investigations which are specifically identified in e legislation are exclusively federal in nature. iii. Statutory purpose Reading e enumerated sources in 3730(e)(4)(A) as exclusively federal furers e purposes of e 1986 FCA amendments, while construing e sources to include state and local bodies would undermine ose purposes. [T]he jurisdictional bar provisions must be analyzed in e context of e[] twin goals of rejecting suits which e government is capable of pursuing itself, while promoting ose which e government is not equipped to bring on its own. Haight, 445 F.3d at 1154 (internal quotation marks and citation omitted). This Court should erefore hesitate to read e FCA in a way at does not advance e object and policy of e statute as a whole, or of e public disclosure provision in particular. Zaretsky, 457 F.3d at As noted earlier, e 1943 amendments to e FCA barred actions where e federal government was already in possession of e pertinent