United States District Court, D. Colorado
UNITED STATES OF AMERICA, ex rel, DAVID H. SHEPARD, and WILLIAM M. MARVEL, appearing qui tam, Plaintiffs/Relators,
GRAND JUNCTION REGIONAL AIRPORT AUTHORITY, REX TIPPETTS, individually, EDDIE STORER, individually, JVIATION, INC., JASON VIRZI, individually, and MORGAN EINSPAHR, individually, Defendants.
ORDER GRANTING THE GOVERNMENT'S MOTION FOR ORDER
TO APPROVE SETTLEMENT NOTWITHSTANDING THE RELATORS'
CHRISTINE M. ARGUELLO, United States District Judge
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.
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
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).
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.
March 21, 2016, the Government intervened, 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.
STANDARD OF REVIEW
Court first addresses the parties' disagreement about the
appropriate standard for reviewing a qui tam settlement.
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
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).
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).
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
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 ...