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United States ex rel. Shepard v. Grand Junction Regional Airport Authority

United States District Court, D. Colorado

February 27, 2017

UNITED STATES OF AMERICA, ex rel, DAVID H. SHEPARD, and WILLIAM M. MARVEL, appearing qui tam, Plaintiffs/Relators,


          CHRISTINE M. ARGUELLO, United States District Judge

         This matter is before the Court on the Government's Motion for Order to Approve Settlement Notwithstanding Relators' Objections. (Doc. # 32.) For the following reasons, the Court grants the motion and approves the settlement.

         I. BACKGROUND

         This case arises from a dispute over a fence project at the Grand Junction Airport funded by the Federal Aviation Administration (FAA). On March 20, 2013, David H. Shepard and William M. Marvel (Relators), both owners of hangers at the subject airport, filed this qui tam action on behalf of the Government alleging, as pertinent here, that payment for the fence was the product of false claims made to the FAA by the Grand Junction Regional Airport Authority (Airport Authority) in violation of the False Claims Act (FCA), as amended in 1986. As pertinent here, the FCA provides that any person who

knowingly presents, or causes to be presented, a false or fraudulent claim to the United States for payment or approval . . . is liable to the United States Government for a civil penalty.

31 U.S.C. § 3729(a)(1)(A). “[K]nowing” and “knowingly” means that the person has actual knowledge, 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)(1).

         The Office of the Inspector General for the United States Department of Transportation, with help from the FBI and IRS, conducted a two-year investigation into the Relators' allegations. At first, the investigation included consideration of criminal liability, but ultimately, the Government declined to pursue criminal charges. In regard to this civil proceeding, the investigation revealed that some of the Relators' claims were actionable under the FCA, but others were not.

         On March 21, 2016, the Government intervened[1], and on June 8, 2016, the Government filed a motion requesting that this Court approve a proposed settlement between it and the Airport Authority. (Doc. # 32.) The Relators object to the settlement (Doc. # 38) and, in light of their objections, the Court held a fairness hearing on February 16, 2017, following which this Court took the matter under advisement.


         The Court first addresses the parties' disagreement about the appropriate standard for reviewing a qui tam settlement.

         Title 31, § 3730(c)(2)(B), of the United States Code provides, “The Government may settle a [qui tam] action with the defendant notwithstanding the objections of the person initiating the action if the court determines, after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances.” The Tenth Circuit has not clarified what this statute means by “fair, adequate, and reasonable under all circumstances.” Id.

         The Government argues that the Court should apply the highly deferential standard adopted in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Com., 151 F.3d 1139, 1145 (9th Cir. 1998). Under Sequoia:

A two-step analysis applies . . . to test the justification for dismissal: [the government must identify] (1) identification of a valid government purpose; and (2) a rational relation between dismissal and accomplishment of the purpose. If the government satisfies the two-step test, the burden switches to the relator to demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal.

Id. This standard, however, was set forth for review of qui tam dismissals under 31 U.S.C. § 3730(c)(2)(A), not qui tam settlements under 31 U.S.C. § 3730(c)(2)(B). See Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 931 (10th Cir. 2005) (adopting the Sequoia Orange standard for qui tam dismissals).

         The Relators, on the other hand, request that this Court apply the standards governing judicial review of class action settlements under Federal Rule of Civil Procedure 23(e)(2), which, like 31 U.S.C. § 3730(c)(2)(B), requires a finding that the settlement is “fair, reasonable, and adequate.” The Tenth Circuit considers the following factors when reviewing Rule 23 settlements:

(1) whether the proposed settlement was fairly and honestly negotiated; (2) whether serious questions of law and fact exist, placing the ultimate outcome of the litigation in doubt;(3) whether the value of an immediate recovery outweighs the mere possibility of future relief after protracted and expensive litigation; and (4) the judgment of the parties that the settlement is fair and reasonable.

Rutter & Wilbanks Corp. v. Shell Oil Co., 314 F.3d 1180, 1188 (10th Cir. 2002).

         The Court recognizes the split of authority on this issue. Compare U.S. ex rel. Souza v. Am. Access Care Miami, LLC, Case No. 11-22686-CIV-Lenard, slip op. (D.E. 53) (extending Sequoia Orange to judicial review of settlement in a qui tam action and citing three other unpublished district court cases that have done so), with U.S. ex rel. Schweizer v. Oce N. Am., 956 F.Supp.2d 1, 10-11 (D.D.C. 2013) and U.S. ex rel. Nudelman v. Int'l Rehab. Associates, Inc., 00-cv-1837, 2004 WL 1091032, at *1 n. 1 (E.D.Pa. May 14, 2004) (finding, as a matter of first impression, that since Congress borrowed the key language of § 3730(c)(2)(B) from the rule governing judicial review of class action settlements, courts evaluating proposed FCA settlements should apply the same factors used in evaluating proposed class action settlements).

         After reviewing the relevant legal principles and applicable case law, the Court finds the Sequoia Orange standard more appropriate for reviewing a qui tam settlement under § 3730(c)(2)(B). In Sequoia Orange, the Ninth Circuit panel discussed the purpose of the FCA, as it was amended in 1986. 151 F.3d at 1144. Before 1986, if the government elected to intervene in a qui tam action, the suit was conducted solely by the government. Id. The 1986 amendments increased a relator's role in the action but maintained that the government has “primary responsibility” for the case, with supervisory powers over the relator. See 31 U.S.C. § 3730(c)(1). Among other things, the FCA allows the government to limit the relator's witnesses and the length of their testimony; stay the relator's discovery requests; and outright dismiss an action as long as the relators are afforded notice and a hearing. 31 U.S.C. § 3730(c)(2), (4). The Sequoia Orange panel explained that the 1986 Amendments “actually increased, rather than decreased, executive control over qui tam lawsuits.” 151 F.3d at 1144; see Ridenour, 397 F.3d at 931 (“Through the 1986 amendments, Congress granted the Government additional opportunities to intervene and increased its power to control qui tam actions.”); United States ex rel. Stillwell v. Hughes Helicopters, Inc., 714 F.Supp. 1084, 1090 (C.D. Cal. 1989) (“The 1986 version of the False Claims Act continues the evolution of greater executive control over qui tam lawsuits.”); see also United States ex rel. Killingsworth v. Northrop Corp., 25 F.3d 715, 724 (9th Cir.1994) (“The Court will not assume that the qui tam provisions of the False Claims Act were intended to curtail the prosecutorial discretion of the Attorney General.”). The panel added that the congressional intent behind the FCA was to “create only a limited check on ...

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