        RECOMMENDED FOR FULL-TEXT PUBLICATION
             Pursuant to Sixth Circuit Rule 206             2    Brooks v. United States                      No. 03-5610
    ELECTRONIC CITATION: 2004 FED App. 0307P (6th Cir.)
                File Name: 04a0307p.06                      UNITED STATES DEPARTMENT                     OF    JUSTICE,
                                                            Washington, D.C., for Appellee.
UNITED STATES COURT OF APPEALS                                                  _________________
               FOR THE SIXTH CIRCUIT                                                OPINION
                 _________________                                              _________________

 J. HILTON BROOKS , III, M.D.,    X                           KENNEDY, Circuit Judge. The taxpayer, Dr. Hilton
                                   -                        Brooks, appeals the district court’s order granting summary
           Plaintiff-Appellant,                             judgment to the United States, holding that no part of a qui
                                   -
                                   -   No. 03-5610          tam relator’s award granted under Section 3730(d) of the
            v.                     -                        False Claims Act is excludable from gross income under
                                    >                       Internal Revenue Code § 104(a)(2) because the award does
                                   ,                        not constitute “damages received ... on account of personal
 UNITED STATES OF AMERICA , -
          Defendant-Appellee. -                             injuries” as § 104(a)(2) requires. We agree with the district
                                                            court, and AFFIRM.
                                  N
      Appeal from the United States District Court                               BACKGROUND
     for the Eastern District of Kentucky at London.
    No. 01-00452—J. B. Johnson, Magistrate Judge.             The taxpayer, Dr. Hilton Brooks, was a physician on the
                                                            medical staff at Pineville Community Hospital, Pineville,
                 Argued: August 5, 2004                     Kentucky, and was a member of the hospital’s quality
                                                            assurance committee. While carrying out his committee
        Decided and Filed: September 10, 2004               duties, Dr. Brooks discovered what he determined to be
                                                            numerous billing improprieties by Pineville Community
   Before: KENNEDY, SUTTON, and COOK, Circuit               Hospital and two physicians. Rather than correcting the
                    Judges.                                 improprieties, the hospital rebuffed Dr. Brook’s efforts and
                                                            subjected him to a variety of retaliatory abuses. For instance,
                  _________________                         he was pressured to cease investigating the fraudulent billing
                                                            practices and to relocate his practice elsewhere; he was
                       COUNSEL                              threatened with loss of clinical privileges; he was reviewed
                                                            “unfavorably” and advised that he would not be reappointed
ARGUED: Philip E. Wilson, WILSON LAW OFFICE,                to the medical staff; and he was criticized in the hospital
Lexington, Kentucky, for Appellant. Kenneth W. Rosenberg,   newsletter for having a “disruptive attitude.”
UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Appellee. ON BRIEF: Philip E.            Pursuant to the qui tam provisions of the False Claims Act
Wilson, WILSON LAW OFFICE, Lexington, Kentucky, for         (FCA), 31 U.S.C. § 3729 et seq., which allows individual
Appellant. Kenneth W. Rosenberg, Kenneth L. Greene,         citizens to sue for fraud on behalf of the government and to

                            1
No. 03-5610                      Brooks v. United States       3    4    Brooks v. United States                      No. 03-5610

receive part of the government’s recovery, Dr. Brooks filed an      injuries. The IRS disallowed his claim for refund, and Dr.
FCA claim asserting that the hospital and two of its doctors        Brooks filed suit in the district court seeking a refund of the
had submitted fraudulent Medicare and Medicaid bills to the         income tax he had paid on the qui tam relator award. After
government for payment. Although the United States is               the district court ruled in favor of the government, this appeal
entitled to intervene in such a case, it initially declined to do   followed.
so here. Dr. Brooks litigated the action through discovery,
and trial was scheduled. At that point, the United States                                    ANALYSIS
opted to intervene.
                                                                      We review a grant of summary judgment de novo. Farhat
  Rather than proceed to trial, the defendants agreed to pay a      v. Jopke, 370 F.3d 580, 587 (6th Cir. 2004). Summary
total of $2.5 million dollars to the United States to settle the    judgment is appropriate when “the pleadings, depositions,
FCA action for fraudulent billing. In the settlement                answers to interrogatories, and admissions on file, together
agreement the defendants admitted that they had violated            with the affidavits, if any, show that there is no genuine issue
numerous regulations governing various health care programs         as to any material fact and that the moving party is entitled to
relating to payments for medical procedures. The district           judgment as a matter of law.” Fed. R. Civ. P. 56(c). Both
court approved this settlement agreement and granted Dr.            parties agree that this case presents no issue of material fact
Brooks a relator’s award of 25% of the net settlement amount        with respect to the issue of law presented.
remaining after payment of attorney fees and reimbursable
costs. The net dollar amount of the qui tam award was                 The Internal Revenue Code broadly defines gross income
$210,067, which resulted in income tax of $78,607.                  as “all income from whatever source derived.” 26 U.S.C.
                                                                    § 61(a). The Supreme Court has broadly construed and
  In addition, a separate settlement agreement was entered          repeatedly emphasized the sweeping scope of this section.
into between Dr. Brooks, the hospital, and four doctors at the      See Commissioner v. Schleier, 515 U.S. 323, 327 (1995); See
hospital, to release them from any personal injury claims,          also Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429
including claims for retaliation and defamation, that might         (1955). The corollary to § 61(a)’s broad construction, the
exist against them. The hospital paid Dr. Brooks the sum of         Court has noted, is “that exclusions from income must be
$300,000, which was expressly stated to be “damages                 narrowly construed.” Schleier, 515 U.S. at 328 (quoting
received on account of personal injuries within the meaning         United States v. Burke, 504 U.S. 229, 248 (Souter, J.,
of Section 104(a)(2).”                                              concurring in judgment)). The taxpayer’s qui tam relator’s
                                                                    award, therefore, must constitute gross income unless the
  Dr. Brooks included the $210,067 relator’s award in his           taxpayer is able to show that it is “expressly excepted by
gross income and timely paid $78,607 in income taxes on that        another provision in the Tax Code.” Id.
amount. He excluded from income the separate settlement of
$300,000 in compensatory damages for “personal injuries,”             The taxpayer relies upon § 104(a)(2) (1995) in arguing that
with full disclosure to the IRS, and the IRS approved the           his award, or at least part of it, should be exempted from
exclusion. He thereafter claimed a refund of the $78,607 tax        gross income. Section 104(a)(2) provides that gross income
he paid on the relator’s award, asserting that at least part of     does not include “the amount of any damages received
the award can be excludable from income under 26 U.S.C.             (whether by suit or agreement and whether as lump sums or
§ 104(a)(2) as damages received on account of personal              as periodic payments) on account of personal injuries or
No. 03-5610                          Brooks v. United States          5    6     Brooks v. United States                      No. 03-5610

sickness.”1 The implementing treasury regulation, 26 C.F.R.                to his recovery is based upon tort or tort type rights. The fact
§ 1.104-1(c) (1994), defines “damages received” as “an                     that a qui tam plaintiff may suffer personal injuries while
amount received ... through prosecution of a legal suit or                 prosecuting an FCA claim does not transform the FCA claim
action based upon tort or tort type rights, or through a                   into one based upon tort or tort type rights. The primary
settlement agreement entered into in lieu of such                          purpose of the FCA claim is to ensure that the United States
prosecution.” Thus, under the statute and regulation, for                  gains restitution of money fraudulently obtained from it.
income to be excluded under § 104(a)(2), the taxpayer must                 Thus, the underlying cause of action that gives rise to the
1) “demonstrate that the underlying cause of action giving rise            taxpayer’s relator’s award is based upon contract fraud, not a
to the recovery is based upon tort or tort type rights;” and               tort.
2) “show that the damages were received on account of
personal injuries or sickness.” Schleier, 515 U.S. at 337                     Not only is the underlying cause of action not based upon
(1995) (internal quotation marks omitted).                                 tort or tort type rights, but it also does not compensate the
                                                                           taxpayer for an injury inflicted upon him. Rather, the FCA
  In attempting to establish that at least part of his relator’s           permits a qui tam plaintiff to bring a suit in the name of the
award may be excluded from gross income pursuant to                        United States for contract fraud committed against it.
§ 104(a)(2), the taxpayer presents the following argument.                 31 U.S.C. § 3730(b)(1). The Supreme Court’s decision in
He first notes that a relator’s qui tam award is limited to a              Vermont Agency of Natural Resources v. United States ex rel.
percentage. Since the government intervened here, his                      Stevens, 529 U.S. 765 (2000), highlights the fact that the
potential award ranged from fifteen to twenty-five percent of              injury that is redressed in a qui tam action under the FCA is
the net amount received by the government. § 3730(d)(1).                   an injury to the government. The issue in Vermont Agency of
He argues that the percentage to be used in determining the                Natural Resources was whether a qui tam plaintiff had
amount of a relator’s qui tam award is influenced by whether               standing to bring an FCA claim on behalf of the United States
the relator suffered personal injuries or sickness. Since the              against a State. Id. at 768. The Court noted that an interest
amount of a relator’s qui tam award is influenced by whether               sufficient to confer standing to maintain the suit “must consist
he suffered personal injuries in prosecuting the FCA action,               of obtaining compensation for, or preventing, the violation of
he concludes, the award thus compensates him for the                       a legally protected right.” Id. at 772. A qui tam plaintiff, the
personal injuries he received while prosecuting the action.                Court noted, “has suffered no such invasion [of a legally
                                                                           protected right].” Id. at 773. Although the Court found that
   Rather than immediately address the taxpayer’s argument,                a qui tam plaintiff suffers no invasion of a legally protected
we first consider the requirements for exclusion under                     right, it nonetheless found that a qui tam plaintiff has standing
§ 104(a)(2) as enunciated by the Schleier Court. The taxpayer              to assert a claim based on “the doctrine that the assignee of a
runs into immediate difficulty with the first prong, as he fails           claim has standing to assert the injury in fact suffered by the
to demonstrate that the underlying cause of action giving rise             assignor. [Therefore, the False Claims Act] can reasonably be
                                                                           regarded as effecting a partial assignment of the
                                                                           Government’s damages claim” to the qui tam plaintiff. Id.
    1
      Congress amended § 104 (a)(2) in 1996 to read, gross income does
not include “the amount of any damages received ... on account of             The structure of the act further supports the conclusion that
personal physical injuries or physical sickness.” (emphasis added). This   the qui tam relator’s award is not based upon tort or tort type
amended version does not apply to the present case as the district court
granted the taxpayer his award in 1 995 , prior to the 1996 amendm ent.
                                                                           rights. As the district court observed, any tort that could be
No. 03-5610                     Brooks v. United States       7    8     Brooks v. United States                      No. 03-5610

considered to have been committed against the taxpayer             concluding that the statute does not redress solely general
would be one for retaliation by the defendants. This wrong is      wrongs to the public, but rather also redresses individual
separately compensated for under the FCA’s “whistleblower”         wrongs suffered by a qui tam relator, the court opined that a
provision, 31 U.S.C. § 3730(h). Section 3730(h) provides           qui tam relator may endure emotional strain when he
that an “employee who is discharged, demoted, ... harassed,        discovers fraud as he is faced with the choice “of keeping
or in any other manner discriminated against ... by his or her     silent about the fraud, and suffering potential liability ..., or
employer because of lawful acts done by the employee on            reporting the fraud and suffering repercussions, [such] ... as
behalf of the employee or others in furtherance of a [FCA          dismissal.” Id. at 138. Even if we were to agree with the
claim] ... shall be entitled to all relief necessary to make the   NEC court that a qui tam action is remedial with respect to the
employee whole.” Thus, this section, § 3730(h), not                qui tam plaintiff, that would nonetheless not compel the
§ 3730(d), provides compensation for injuries suffered by the      conclusion that a qui tam relator’s award is received on
qui tam plaintiff. Although § 3730(h) only applies to              account of personal injuries within the meaning of § 104(a)(2)
employees (rather than independent contractors, for instance),     of the Tax Code.
this does not militate against our conclusion that Congress did
not intend § 3730(d) to compensate qui tam plaintiff’s for            The FCA provides that the percentage of the award that the
personal injuries. The fact that Congress, in enacting             qui tam plaintiff will receive depends upon “the extent to
§ 3730(h), not only considered allowing personal injury            which the [qui tam plaintiff] substantially contributed to the
damages, but in fact actually provided a cause of action for       prosecution of the action.” § 3130(d)(1). Even if the
their recovery, supports our conclusion that Congress did not      percentage that a qui tam plaintiff receives in prosecuting a
intend § 3730(d) to compensate qui tam plaintiffs for personal     FCA claim were influenced by whether he received personal
injuries.                                                          injuries in prosecuting the action, that fact would still not
                                                                   transform the qui tam plaintiff’s recovery into one “on
  The taxpayer has also failed to establish that his award was     account of personal injuries.” It is the nature of the
received on account of personal injuries or sickness. In           underlying claim itself that determines whether the plaintiff
arguing that his relator’s award was received, at least in part,   has received compensation on account of personal injuries
on account of personal injuries or sickness, the taxpayer          within the meaning of § 104(a)(2). Regardless of whether a
principally relies upon United States v. NEC Corp., 11 F.3d        qui tam plaintiff received fifteen percent or twenty-five
136 (11th Cir. 1994). In NEC, the plaintiff brought a qui tam      percent of the proceeds recovered by the government, the fact
action against the United States to recover a portion of a         that he receives anything at all is on account of his decision
settlement procured by the government as a result of               to bring the lawsuit on behalf of the government, and not on
information provided by the plaintiff. 11 F.3d at 137.             account of any personal injuries inflicted upon him.
Subsequently, however, the plaintiff died. Id. The issue in
NEC was whether the plaintiff-relator’s qui tam action                Since we conclude 1) that the underlying cause of action
survived his death. Id. To determine whether the cause of          (the FCA claim) is based upon contract fraud inflicted upon
action survived the qui tam plaintiff’s death, the court needed    the government, not a tort inflicted upon the relator, and
to consider whether the action was remedial or penal with          2) that the relator received his award on account of initiating
respect to the qui tam plaintiff. Id. In considering this issue,   the prosecution of the FCA claim on behalf of the
the court first asked whether the statute redressed individual     government, not on account of personal injuries inflicted
wrongs or more general wrongs to the public. Id. In                upon himself, we therefore AFFIRM the district court’s
No. 03-5610                    Brooks v. United States     9

holding that a qui tam relator’s award is not excludable from
gross income under § 104(a)(2).
