                                   PUBLISH

                   UNITED STATES COURT OF APPEALS
Filed 11/6/96
                                 TENTH CIRCUIT




UNITED STATES OF AMERICA,
ex rel., HAROLD R. FINE,

            Plaintiff-Appellant/
                 Cross-Appellee,

v.

MK- FERGUSON COMPANY, a                                No. 95-2011
Morrison Knudsen Company;                              No. 95-2021
INDUSTRIAL CONRACTORS;
MORRISON KNUDSEN
CORPORATION, doing business as
MK-Corporation Operations,

            Defendants-Appellees/
                 Cross-Appellants.


UNITED STATES OF AMERICA,

                Amicus Curiae.


                   Appeal from the United States District Court
                         for the District of New Mexico
                       (D.C. No. CIV-91-1122 JB/LFG)


Duff H. Westbrook of Duff H. Westbrook, P.C., Albuquerque, New Mexico,
(Maureen A. Sanders, Albuquerque, New Mexico, with him on the brief) for
Plaintiff-Appellant/Cross-Appellee.
Paul Bardacke (Kerry C. Kiernan and Peter S. Kierst with him on the briefs) of
Eaves, Bardacke & Baugh, P.A., Albuquerque, New Mexico, for Defendant-
Appellee/Cross-Appellant Industrial Contractors Corporation.

William P. Snyder (John C. Burgin, Jr., with him on the brief) of Kramer, Rayson,
Leake, Rodgers & Morgan, Knoxville, Tennessee, for Defendant-Appellee/Cross-
Appellant MK-Ferguson Company.

Michael F. Hertz (Barbara C. Biddle, Joan E. Hartman, and Dara A. Corrigan with
him on the brief), Attorneys, Civil Division, U.S. Department of Justice,
Washington, D.C., for Amicus Curiae.


Before HENRY, HOLLOWAY, and MURPHY, Circuit Judges.


MURPHY, Circuit Judge.


      This case arises under the False Claims Act, 31 U.S.C. §§ 3729-33, and

specifically the qui tam provisions that allow individuals to sue on behalf of the

government to recover federal monies lost as a result of false claims and

fraudulent charges. The individual bringing the qui tam suit, called a relator,

shares a percentage of any proceeds recovered. Id. § 3730(d).

      The False Claims Act contains jurisdictional limits on those who may bring

qui tam actions. It bars all qui tam suits that are based upon publicly disclosed

information unless the person bringing the action is an original source of the

information. Id. § 3730(e)(4)(A). The primary questions presented in this appeal

are whether the relator’s suit is based upon a “public disclosure” under section



                                         -2-
3730(e)(4)(A) and, if so, whether the relator qualifies as an “original source”

under section 3730(e)(4)(B).

      Harold R. Fine is a former employee of the Office of the Inspector General,

U.S. Department of Energy. He brought suit as the relator under the qui tam

provisions of the False Claims Act against defendants MK-Ferguson Company

(“MK-Ferguson”) and Industrial Contractors Corporation (“Industrial

Contractors”). Fine’s Complaint alleges that these firms submitted false and

fraudulent claims with respect to six matters involved in the remediation of

residual mill tailings at a uranium mining site in Lakeview, Oregon.

      The district court granted in part MK-Ferguson’s motion to dismiss on the

ground it lacked subject matter jurisdiction. The district court held that Fine’s

Complaint was based upon publicly disclosed allegations and that Fine was not an

original source of these allegations. 1 United States ex rel. Fine v. MK-Ferguson

Co., 861 F. Supp. 1544, 1552, 1554 (D.N.M 1994). This appeal followed the

district court’s dismissal and its denial of the defendants’ motions for attorneys’


      1
        The district court also denied Industrial Contractors’ motion for summary
judgment against Fine. The motion was premised on an implied jurisdictional bar
to qui tam suits by employees of the Office of the Inspector General. Industrial
Contractors appeals the denial of its motion and is joined by amicus curiae, the
United States of America. Because Fine’s suit is barred under the jurisdictional
requirements of the False Claims Act, 31 U.S.C. § 3730(e)(4), this court
specifically does not address the district court’s ruling that there is no implied
jurisdictional bar to employees of the Office of the Inspector General filing suit
under the qui tam provisions of the False Claims Act.

                                         -3-
fees. Appellate jurisdiction exists pursuant to 28 U.S.C. § 1291. For the reasons

set forth below, this court affirms the district court’s rulings that Fine’s suit is

based on a public disclosure, that he does not qualify as an original source, and

that an award of attorneys’ fees to MK-Ferguson and Industrial Contractors is not

appropriate.

                                            I.

      Fine alleges false claims and fraudulent charges in the construction of

facilities for the remediation of residual mill tailings at a uranium mining site in

Lakeview, Oregon. In 1978, Congress enacted the Uranium Mill Tailings

Radiation Control Act (the “Uranium Tailings Act”), Pub. L. No. 95-604, 92 Stat.

3021 (codified as amended at 42 U.S.C. §§ 7901-42), to stabilize and control mill

tailings from uranium mining operations in several western states. 42 U.S.C. §

7901. The Uranium Tailings Act directs the United States Department of Energy

to enter into cooperative remediation agreements with states which have

designated cleanup sites. Id. § 7913. Under these agreements, the Department of

Energy is responsible for 90% of the costs of the remediation, while the state is

responsible for the remaining 10%. Id. §§ 7913, 7917.

      The State of Oregon and the Department of Energy entered into a

cooperative agreement concerning the Lakeview, Oregon, site. The Department

of Energy then entered into a contract with MK-Ferguson as the prime contractor


                                           -4-
for all engineering and construction work at the Lakeview site. MK-Ferguson in

turn entered into a subcontract with Industrial Contractors for all the construction

work at the site. Oregon is not a party to either the prime contract between the

Department of Energy and MK-Ferguson or the subcontract between MK-

Ferguson and Industrial Contractors.

      After commencing work at the site in June 1986, MK-Ferguson and

Industrial Contractors claimed additional construction costs, explaining that site

conditions were not as anticipated. Oregon, however, questioned whether some

of these new costs were allowable under the contract between the Department of

Energy and MK-Ferguson and the subcontract between MK-Ferguson and

Industrial Contractors. Oregon conducted three separate audits on the Lakeview

site and sent an audit report on the contested costs to the Department of Energy.

The Oregon report focused on four cost areas: (1) unabsorbed overhead paid to

Industrial Contractors when a wood-chip encapsulation cell for contaminated

organic material was deleted from the project; (2) costs for work on a waste-water

retention pond; (3) costs for reconstructing pads used to decontaminate trucks

operated on the site and on public roads; and (4) costs associated with winter

shutdowns.

      As a result of the Oregon audit report, the Department of Energy undertook

an investigation into the questioned costs and activities. Following a lengthy


                                         -5-
investigation by the Department of Energy, Oregon requested that an audit be

performed by the Department of Energy’s Office of the Inspector General. The

Office of the Inspector General subcontracted the audit to ADC, Ltd., an

independent firm. ADC performed the audit, wrote a draft report, and submitted

it to the Office of the Inspector General.

      On April 30, 1991, the Office of the Inspector General then issued a final

report and audit based on ADC’s audit. The final report and audit was intended

to determine whether the costs of the questioned activities were: (1) allowable

under the contract between the Department of Energy and MK-Ferguson, the

subcontract between MK-Ferguson and Industrial Contractors, or the Uranium

Tailings Act cooperative agreement between the Department of Energy and

Oregon; and (2)incurred under generally accepted business practices.

      The final report and audit concluded as follows: (1) that $40,168 of

unearned overhead for the wood-chip encapsulation cell was unallowable under

the cooperative agreement; (2) that the entire cost of the decontamination pad,

$86,009, was unallowable under the subcontract between MK-Ferguson and

Industrial Contractors; (3) that Oregon had a valid claim for its share of the costs

of equipment standby during the winter shutdowns; and (4) that part of the cost of

constructing the third waste-water retention pond, $14,690, was unreasonable.




                                             -6-
      The Department of Energy sent this final report and audit to both Oregon

and MK-Ferguson officials under cover of a letter dated May 3, 1991. The cover

page of the final report and audit contained no special restrictions on its

availability, referring only to the general procedure for determining the release of

audit reports pursuant to requests under the Freedom of Information Act. In

addition, the cover letter neither imposed limitations on the public availability of

the report nor restrained in any way its dissemination by Oregon.

      At the time of these events, Fine was an Assistant Regional Manager,

Western Region, in the Office of the Inspector General for the U.S. Department of

Energy. Fine had held this position since August 1984 and was in charge of

financial-related audits. Fine performed no audit work himself; rather, he

supervised audit directors who in turn supervised auditors performing the actual,

on-site audit work.

      Fine had no involvement in the Department of Energy’s initial investigation

of the questioned costs at the Lakeview site and was only marginally involved in

the audit ordered by the Office of the Inspector General and performed by ADC.

Fine’s involvement was limited to: (1) attending a preaudit conference; (2)

authorizing the original direction to ADC; and (3) later helping to draft the final

report and audit based on the ADC audit. Fine described his involvement at the




                                          -7-
drafting stage as converting the ADC audit into layman’s language. In addition,

Fine later solicited information about the alleged fraud through newspaper ads.

      Fine left the Office of the Inspector General and government service on

July 18, 1991. Four months later, he filed this suit in the United States District

Court for the District of New Mexico under the qui tam provisions of the False

Claims Act, 31 U.S.C. §§ 3729-33. In his Complaint, Fine alleges that MK-

Ferguson and Industrial Contractors submitted false and fraudulent claims for cost

reimbursement relating to work performed at the Lakeview site. Fine alleges

wrongdoing in six different matters: (1) alleged excess costs relating to the waste-

water retention pond liner, totaling $14,690; (2) costs associated with winter

shutdowns for idle equipment allegedly used at other sites, totaling $127,110; (3)

overhead costs for the deleted wood-chip cell, totaling $40,168; (4) reconstruction

costs for the decontamination pad, totaling $86,009; (5) use of estimated rather

than actual costs for equipment associated with the winter shutdowns; and (6) use

of estimated rather than actual overhead rates for contract modifications. With

the exception of item (6), which was ultimately dismissed with prejudice at Fine’s

request, each of Fine’s claims of wrongdoing was addressed in the April 30, 1991,

Inspector General’s final report and audit.

      As required by the False Claims Act, Fine filed his Complaint under seal.

31 U.S.C. § 3730(b)(2). The Complaint remained under seal while the U.S.


                                          -8-
Department of Justice considered its option to intervene. See id. The Department

of Justice declined to intervene and the litigation proceeded with Fine the sole

protagonist.

      MK-Ferguson filed a motion to dismiss which the district court granted in

part. MK-Ferguson, 861 F. Supp. at 1554. The district court resolved that counts

1-18 of Fine’s Complaint, which encompass all allegations of wrongdoing

excepting only that concerning the use of estimated overhead rates for contract

modifications, were based upon the Inspector General’s final report and audit. Id.

at 1552-53. The court then concluded that the final report and audit was a public

disclosure under the False Claims Act upon its referral to the State of Oregon. Id.

at 1552. The district court rejected MK-Ferguson’s claims that any of the three

Oregon audits, the Oregon audit report issued to the Department of Energy, or the

Department of Energy investigation constituted a public disclosure under the

False Claims Act. Id. at 1550-52.

      Continuing its analysis, the district court also held that Fine was not an

original source under 31 U.S.C. § 3730(e)(4)(B). MK-Ferguson, 861 F. Supp. at

1553-54. Because Fine did not conduct any of his own investigations and his

knowledge was based upon the audit prepared by ADC for the Inspector General,

the district court concluded that Fine could not be considered to have “direct and




                                         -9-
independent knowledge” of the information upon which his Complaint was based.

MK-Ferguson, 861 F. Supp. at 1554.

      At Fine’s request, the district court dismissed with prejudice his remaining

claim regarding the use of estimates on contract modifications. Fine filed this

appeal presenting the following issues: (1) whether the Inspector General’s

release of the final report and audit to Oregon is a public disclosure under the

False Claims Act; (2) whether his Complaint is “based upon any public

disclosure”; (3) whether the allegations regarding specific transactions not

contained in the Inspector General final report and audit can be dismissed; and, if

this court concludes that a public disclosure has occurred, (4) whether Fine

qualifies as an original source under the False Claims Act. MK-Ferguson and

Industrial Contractors cross-appeal the district court’s denial of their motions for

attorneys’ fees.

                                          II.

      The statutory provisions of 31 U.S.C. § 3730(e)(4) address the court’s

subject matter jurisdiction. When a court’s subject matter jurisdiction depends

upon the same statute that creates the substantive claims, the jurisdictional inquiry

is necessarily intertwined with the merits. Holt v. United States, 46 F.3d 1000,

1003 (10th Cir. 1995). In a qui tam action under the False Claims Act, the

jurisdictional question of whether a “public disclosure” has occurred arises out of


                                         -10-
the same statute that creates the cause of action. United States ex rel. Ramseyer

v. Century Healthcare Corp., No. 94-6299, 1996 WL 412819, at *2 (10th Cir.

July 24, 1996). This court has determined that these “intertwined” jurisdictional

inquiries should be resolved under Federal Rule of Civil Procedure 12(b)(6) or,

after proper conversion into a motion for summary judgment, under Rule 56. Id.

The district court here resolved MK-Ferguson’s motion to dismiss under Rule

12(b)(1). The district court should have treated MK-Ferguson’s attack on the

court’s subject matter jurisdiction as a motion for summary judgment under Rule

56. Id. Accordingly, we exercise our plenary power and consider the motion as a

motion for summary judgment. Id.

      We review the grant of summary judgment de novo, applying the same legal

standard that would be used by the district court pursuant to Rule 56(c).

Universal Money Ctrs., Inc. v. AT&T, 22 F.3d 1527, 1529 (10th Cir.), cert.

denied, — U.S. —, 115 S. Ct. 655 (1994). This court reviews the district court’s

dismissal for lack of subject matter jurisdiction de novo. United States ex rel.

Precision Co. v. Koch Indus., Inc., 971 F.2d 548, 551 (10th Cir. 1992), cert.

denied, 507 U.S. 951 (1993).

      Federal courts are courts of limited jurisdiction. A court’s jurisdiction is

therefore presumed not to exist absent a showing by the party invoking federal

jurisdiction. Precision, 971 F.2d at 551; Penteco Corp. v. Union Gas Sys. Inc.,


                                         -11-
929 F.2d 1519, 1521 (10th Cir. 1991). Moreover, “statutes conferring jurisdiction

on federal courts are to be strictly construed, and doubts resolved against federal

jurisdiction.” F&S Constr. Co. v. Jensen, 337 F.2d 160, 161 (10th Cir. 1964).

As this court noted in Precision, the False Claims Act should not be read in a

manner that impermissibly expands federal jurisdiction. 971 F.2d at 552. Fine

thus bears the burden of alleging facts essential to jurisdiction and supporting

those facts by competent proof. Id. at 551.

      The False Claims Act imposes the following jurisdictional requirements at

issue here:

              (e) Certain actions barred.—

              ....

              (4)(A) No court shall have jurisdiction over an action
              under this section based upon the 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 the news media,
              unless the action is brought by the Attorney General or
              the person bringing the action is an original source of
              the information.

              (B) For purposes of this paragraph, “original source”
              means an individual who has direct and independent
              knowledge of the information on which the allegations
              are based and has voluntarily provided the information
              to the Government before filing an action under this
              section which is based on the information.

31 U.S.C. § 3730.

                                         -12-
      Given the posture of this case, the jurisdictional inquiry under 31 U.S.C. §

3730(e)(4)(A) involves four questions: (1) whether the alleged “public

disclosure” contains allegations or transactions from one of the listed sources; (2)

whether the alleged disclosure has been made “public” within the meaning of the

False Claims Act; (3) whether the relator’s complaint is “based upon” this “public

disclosure”; and, if so, (4) whether the relator qualifies as an “original source”

under section 3730(e)(4)(B). If the court were to answer “no” to any of the first

three questions, its inquiry ends at that point and the qui tam action proceeds.

The last inquiry, whether the relator is an original source, is necessary only if the

answers to each of the first three questions is “yes,” indicating the relator’s

complaint is based upon a specified public disclosure. See Precision, 971 F.2d at

552 & n.2.

      Here, as MK-Ferguson argues, the alleged public disclosure is the final

report and audit of the Office of the Inspector General, which is an administrative

report specifically referenced in 31 U.S.C. § 3730(e)(4)(A). The first of the

threshold inquiries thus commands an affirmative response. As a consequence,

the court must address the next inquiry.

                               A. “Public Disclosure”

      The district court concluded that a public disclosure occurred when the

Department of Energy sent the final report and audit of the Office of the Inspector


                                           -13-
General to the State of Oregon. MK-Ferguson, 861 F. Supp. at 1552. But, as the

district court noted, when the form of disclosure at issue is an administrative

report, the question of whether the report has been publicly disclosed is not as

clear as the instance when the government holds a public hearing and airs the

allegations or transactions at issue. Id. at 1550-51. The district court concluded

the False Claims Act contained an affirmative disclosure requirement—the

allegations or transactions must somehow be made known to the public. Id. at

1551.

        In Ramseyer, this court reasoned as the district court below. Plaintiff

Ramseyer alleged she became aware of the defendants’ submission of false claims

for Medicaid reimbursement while employed at defendants’ mental health facility.

United States ex rel. Ramseyer v.Century Healthcare Corp., No. 94-6299, 1996

WL 412819, at *1 (10th Cir. July 24, 1996). Independent of the plaintiff, the

Oklahoma Department of Human Services conducted an inspection and audit of

the defendants’ facilities. Id. A subsequent report detailed the same Medicaid

compliance problems discovered by the plaintiff. Id. Three copies of the report

were made: two remained within the government agency’s files and the third was

sent to the defendants. Id. From these facts, this court determined that public

disclosure had not occurred. Id. at *6.




                                          -14-
      En route to reaching its decision, the court interpreted the False Claims Act

to contain an “affirmative disclosure” requirement. Id. at *4. On the basis of this

actual disclosure rule, the court rejected the argument that the existence of the

report in the files of the Oklahoma government agency constituted public

disclosure. Id. at *5. The court reasoned that to bar qui tam suits because of

mere potential public disclosure was contrary to the purposes of the False Claims

Act. Id. at *4. Furthermore, the court rejected arguments that actions taken by

Oklahoma personnel were public disclosures. It determined that any disclosure of

the report from one employee of the Oklahoma Department of Human Services to

another employee did not constitute public disclosure. Id. at *5 n.4. The court

also concluded that disclosure of the report to the defendants in the qui tam suit

was not public disclosure. Id. Rather, public disclosure occurs when the

allegations or fraudulent transactions upon which the qui tam suit is based are

affirmatively disclosed to members of the public who are otherwise strangers to

the fraud. Id. at *5.

      Here, the Department of Energy sent the final report and audit of the Office

of the Inspector General to the State of Oregon. When the Department of Energy

sent this final report and audit to Oregon, it placed no restrictions on its

dissemination after Oregon’s receipt. As a consequence, this disclosure is distinct

from what might otherwise be deemed a private disclosure. See id. at *5 n.4.


                                          -15-
       Fine nevertheless argues that the final report and audit in the hands of

Oregon constituted mere potential availability, not public disclosure. In so

arguing, Fine seeks to soften his own deposition testimony and to rely upon a

purported designation by the Office of the Inspector General of the final report

and audit as a document not to be released to the public. These points miss the

real target.

       Regardless of any purported internal limitation on circulation, the Office of

the Inspector General indisputably circulated the final report and audit to Oregon.

Oregon was not a party to the questioned contracts and projects. Oregon was thus

a stranger to the fraud like any other member of the public, with no disincentive

to making the information public. See id. Fine himself testified that to the extent

of his knowledge, the final report and audit was available to the public once it

was sent to Oregon. Moreover, he has come forward with no evidence to indicate

there was any limitation on Oregon’s releasing the final report and audit to the

public.

       Any internal limitation on dissemination within the Office of the Inspector

General or external limitation under the Freedom of Information Act are

inapplicable to the State of Oregon. The cover letter sent to Oregon enclosing the

final report and audit contained no limitations or conditions on Oregon’s power to

release it. Once the Department of Energy sent the final report and audit to


                                         -16-
Oregon without restrictions on its public availability, the government caused the

final report and audit to be actually, as opposed to potentially, available to the

public. This was an affirmative disclosure constituting public disclosure within

the meaning of the False Claims Act. Consequently, Fine’s Complaint mandates

further inquiry.

                                  B. “Based Upon”

      The next required inquiry is whether Fine’s Complaint is “based upon” the

publicly disclosed “allegations or transactions”: the final report and audit sent to

Oregon. Precision, 971 F.2d at 552-54. “Based upon,” in 31 U.S.C. §

3730(e)(4)(A), means “supported by.” Precision, 971 F.2d at 552. The test is

whether “substantial identity” exists between the publicly disclosed allegations

and the qui tam complaint. Id. at 553-54. The False Claims Act can thus bar a

qui tam action that is only partly based upon publicly disclosed allegations or

transactions. Id. at 552. Moreover, this “based upon” analysis is a threshold

inquiry “intended as a quick trigger” to reach the “original source” analysis. Id.

      This analysis requires comparison of the publicly disclosed final report and

audit with the allegations contained in Fine’s Complaint. The final report and

audit disclosed to Oregon by the Department of Energy questioned costs relating

to four different construction activities at the Lakeview site: the deleted wood-

chip encapsulation cell, the reconstructed decontamination pad, the equipment


                                          -17-
standby costs during the winter shutdowns, and the construction of the third

waste-water retention pond. The final report and audit concluded that costs for

the wood-chip cell, the decontamination pad, and waste-water pond were

unallowable and that Oregon had a valid claim for reimbursement of the winter

standby costs.

      The parts of Fine’s Complaint at issue here concern five cost areas: the

waste-water retention pond liner, the deleted wood-chip encapsulation cell, the

reconstruction of the decontamination pad, the use of equipment at other job sites

claimed to be idle during the winter standby, and the use of estimates, rather than

actual costs, for winter standby equipment rentals.

      The first three referenced allegations in Fine’s Complaint are substantially

identical to the costs relating to these projects questioned and found to be

unallowable in the final report and audit. In fact, Fine’s allegations concerning

these specific items are for the exact dollar amounts found to be unallowable in

the final report and audit sent to Oregon. As a result, these three allegations are

“based upon” the publicly disclosed final report and audit and are thus subject to

the jurisdictional bar.

      The other two areas where Fine alleges fraud, both relating to specific

winter standby costs, are also based upon the publicly disclosed final report and

audit. Nevertheless, Fine makes three arguments why his Complaint is not based


                                         -18-
upon the public disclosure: (1) he became aware of the alleged fraud prior to the

public disclosure; (2) his Complaint contains more specific allegations than the

public disclosure; and (3) his Complaint is the first time “allegations” of fraud are

made. As a result, Fine maintains his Complaint is not subject to the

jurisdictional bar. These arguments are unpersuasive.

      Fine’s first contention seeks adoption of the “derived from” standard

applied by the Fourth Circuit in United States ex rel. Siller v. Becton Dickinson &

Co., 21 F.3d 1339, 1349 (4th Cir.), cert. denied, — U.S. —, 115 S. Ct. 316

(1994). He premises his argument on his involvement in the Lakeview site audit

prior to the public disclosure: his Complaint was based on that prior involvement

and thus could not be “derived from” the public disclosure.

      Fine fundamentally misconstrues the nature of the “based upon” analysis

laid out in Precision: “based upon” means “supported by.” Precision, 971 F.2d

at 552. The inquiry is whether the relator’s complaint is “substantially identical”

to the allegations contained in the public disclosure. Id. at 553-54. This

approach is consistent with the goal of Congress in the False Claims Act to

encourage those with knowledge of fraud to come forward. See S. Rep. No. 345,

99th Cong., 2d Sess. 2, reprinted in 1986 U.S.C.C.A.N. 5266, 5266. But where

public disclosure of the fraud has already occurred, no incentive for a private qui

tam suit is needed. See United States ex rel. Stinson, Lyons, Gerlin &


                                         -19-
Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1155-56 (3d Cir. 1991)

(holding that section 3730(e)(4) prevents qui tam suits based upon information

that would have been equally available to others had they chosen to look for it);

see also United States ex rel. Doe v. John Doe Corp., 960 F.2d 318, 324 (2d Cir.

1992) (holding that where public disclosure has occurred, the district court is

stripped of jurisdiction over the suit, regardless of where the relator obtained the

information, unless the relator qualifies as an original source).

      Fine’s second argument concerns the specificity of his Complaint compared

to the specificity of the public disclosure. His contention is really twofold: (1)

the Complaint contains allegations of fraud in specific transactions not mentioned

in the public disclosure; and (2) the Complaint alleges fraud concerning only part

of the winter standby costs questioned and found to be unallowable in the final

report and audit.

      In Precision, this court rejected the argument that the jurisdictional bar

applies only to those suits based “solely” upon the public disclosure. 971 F.2d at

552. This court concluded that the addition of the word “solely” to section

3730(e)(4)(A) would dramatically alter the plain meaning of the False Claims Act

by greatly expanding federal jurisdiction. Id. This court reasoned that such a

judicial gloss would only encourage artful pleading by relators, who would add

extra claims not supported by the public disclosure to avoid the jurisdictional bar.


                                         -20-
Id. The resultant pleading niceties would allow relators to benefit from publicly

disclosed allegations or transactions for which they were not the original source.

      Regarding the winter shutdown costs, Fine attempts to escape the operation

of the jurisdictional bar by alleging fraud concerning less than all the amounts

found to be unallowable in the publicly disclosed final report and audit. Although

his allegations are more narrow and specific in scope, they are substantially

identical to and supported by the publicly disclosed allegations and transactions.

As a consequence, the winter shutdown cost allegations are factually, legally, and

truly based upon the publicly disclosed final report and audit.

      Lastly, Fine argues that his Complaint is not “based upon” the publicly

disclosed final report and audit because it does not contain allegations of fraud or

fraudulent transactions. Fine focuses on the conclusions of the final report and

audit, which are worded in terms of “unallowable” or “unreasonable” costs, and

contends these conclusions do not constitute allegations of fraud. He maintains

his Complaint constitutes the first allegations of fraud.

      Comparing the conclusions of the final report and audit concerning

unreasonable and unallowable costs with the allegations in Fine’s Complaint, we

hold that the two are substantially identical. See Precision, 971 F.2d at 553-54.

The final report and audit concludes that certain cost items exceeded reasonable

amounts by specific dollar amounts. Fine’s Complaint does the same, with the


                                         -21-
semantic difference that he calls these amounts false claims. That Fine first used

the label “false claims” is immaterial. The district court was thus correct in its

conclusion that Fine’s Complaint was based upon publicly disclosed allegations

and that Fine was then subject to the original source inquiry.

                                C. “Original Source”

       Even though a qui tam filing may be based upon a statutorily defined public

disclosure, it is not jurisdictionally barred if the relator is an original source. The

requirements for original sources are set out in 31 U.S.C. § 3730(e)(4)(B). The

False Claims Act provides that an original source is an individual who has direct

and independent knowledge of the information on which the allegations are based

and has voluntarily provided the information to the Government before filing a

qui tam action based on the information. Id. This court in Precision determined

that two jurisdictional requirements are evident in this language. First, the qui

tam relator must have “direct and independent knowledge of the information on

which the allegations are based.” Precision, 971 F.2d at 553. Second, the qui

tam relator must have “voluntarily provided” the information to the government

prior to filing suit. Id.

       Other courts have held that direct and independent knowledge is “‘marked

by [the] absence of an intervening agency.’” United States ex rel. Stinson, Lyons,

Gerlin & Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1160 (3d Cir.


                                          -22-
1991) (quoting Webster’s Third New Int’l Dictionary 640 (1976)). Furthermore,

the Ninth Circuit characterizes direct and independent knowledge as “unmediated

by anything but [the relator’s] own labor.” United States ex rel. Wang v. FMC

Corp., 975 F.2d 1412, 1417 (9th Cir. 1992). Moreover, independent knowledge is

knowledge which is not secondhand knowledge. See Prudential, 944 F.2d at 1154

(holding Congress intended “to encourage persons with first-hand knowledge of

fraudulent misconduct to report fraud”).

      Fine argues that his participation in the audit of the Lakeview site qualifies

him as an original source under section 3730(e)(4)(B). Fine contends that he was

the individual who directed the scope of the audit conducted by ADC, Ltd.; that

he was the individual who identified the use of equipment rental cost estimates as

a false claim, rather than merely an unallowable cost; and that he was the

individual responsible for referring reports of MK-Ferguson’s and Industrial

Contractors’ activities to the Investigations Division at the Office of the Inspector

General. 2


      2
        Fine also argues that he is an original source because of his participation
in making the public disclosure. The Second Circuit requires the original source
to be involved in the public disclosure. See United States ex rel. Dick v. Long
Island Lighting Co., 912 F.2d 13, 16 (2d Cir. 1990). Fine maintains that the
Ninth Circuit has gone a step further and held that participation in the public
disclosure is itself solely sufficient to establish that the individual is an original
source. We, however, are skeptical of Fine’s reading of Ninth Circuit precedent.
See United States ex rel. Wang v. FMC Corp., 975 F.2d 1412, 1419 (9th Cir.
1992) (holding that an individual who is involved in disclosing an allegation

                                         -23-
      But Fine also admits that he was not the individual actually performing the

investigations on the Lakeview site. The audit was instead carried out by field

investigators at ADC, which was retained by the Office of the Inspector General.

Fine himself had no contact with Oregon personnel involved in the Lakeview

project and little with MK-Ferguson employees. Fine acknowledges that all the

factual information in his Complaint came from ADC personnel and materials.

He concedes that his contribution to the final report and audit produced by the

Office of the Inspector General was limited to taking the facts presented by ADC

and writing the report in layman’s language. Finally, Fine admits that his

independent investigations consisted solely of placing ads in newspapers

soliciting information from those with knowledge of fraud.

      Fine’s allegations are derivative of the facts uncovered by the field

auditors. He did not himself discover the allegedly fraudulent practices at the

Lakeview site and was not an observer of the purported fraud. Fine has merely

changed the labels “unreasonable” and “unallowable” costs from the final report




“might qualify as its original source”). More importantly, this court in Precision
declined to adopt the Second Circuit’s additional requirement that the original
source be a source to the entity making the public disclosure. United States ex
rel. Precision Co. v. Koch Indus, Inc., 971 F.2d 548, 553 n.4 (10th Cir. 1992),
cert. denied, 507 U.S. 951 (1993). Even acknowledging Fine’s role in making the
public disclosure, because this court concludes below that Fine’s knowledge is
not direct and independent, he cannot be an original source under the False
Claims Act.

                                        -24-
and audit to “false” and “fraudulent” claims in his Complaint. Moreover, his own

investigations are only a continuation of the audit conducted by ADC and cannot

be considered independent under section 3730(e)(4)(B). See Precision, 971 F.2d

at 554 (holding that an investigation which was merely a continuation of, or

derived from, a previous investigation was not sufficiently independent).

      That Fine had some involvement in preparing the final report and audit of

the Office of the Inspector General does not necessarily qualify him as an original

source. Fine’s secondhand knowledge of the alleged fraud at the Lakeview site is

not “direct and independent,” based as it is on the work of others. Fine’s suit is

the type of opportunistic suit, where the relator contributes no significant

information of his own, that Congress sought to discourage in the 1986

Amendments to the False Claims Act. United States ex rel. Fine v. Sandia Corp.,

70 F.3d 568, 571 (10th Cir. 1995). For these reasons, Fine does not have “direct

and independent knowledge” of the publicly disclosed allegations and transactions

upon which his Complaint is based and he cannot be an original source. 3 The

district court thus lacked subject matter jurisdiction under section 3730(e)(4) and

the Complaint was properly dismissed.



      3
       Because Fine fails to satisfy the “direct and independent knowledge”
element of the “original source” analysis, this court need not consider whether
Fine “voluntarily provided” this information to the government as required under
section 3730(e)(4)(B). See Precision, 971 F.2d at 554.

                                         -25-
                                          III.

      Both MK-Ferguson and Industrial Contractors cross-appeal the district

court’s denial of their motions for attorneys’ fees. See MK-Ferguson, 861 F.

Supp. at 1554. This court reviews the entitlement to attorneys’ fees subject to an

abuse of discretion standard. Supre v. Ricketts, 792 F.2d 958, 961 (10th Cir.

1986). Under the abuse of discretion standard, the decision of a trial court will

not be disturbed unless the appellate court “has a definite and firm conviction that

the lower court made a clear error of judgment or exceeded the bounds of

permissible choice in the circumstances.” Moothart v. Bell, 21 F.3d 1499, 1504

(10th Cir. 1994) (citation and internal quotation marks omitted).

      The False Claims Act provides for the award of attorneys’ fees where the

claim was “clearly frivolous, clearly vexatious, or brought primarily for purposes

of harassment.” 31 U.S.C. § 3730(d)(4). MK-Ferguson and Industrial

Contractors advance two main reasons for assessing their attorneys’ fees against

Fine. First, they argue that the district court so clearly lacked subject matter

jurisdiction that Fine’s suit constitutes frivolous and vexatious litigation. Second,

they argue that Fine has engaged in a pattern of vexatious litigation against a

number of government contractors.

      Although they are accumulating in number, decisions construing the False

Claims Act in the Tenth Circuit are not legion. That the district court lacked


                                         -26-
subject matter jurisdiction in this case was not clearly apparent under the holding

in Precision or the decisions of other circuits at the time. The district court

determined that an award of attorneys’ fees was not appropriate. This court

cannot conclude that the district court’s denial of attorneys’ fees constituted a

clear error of judgment or exceeded the bounds of permissible choice. As a

consequence, the district court did not abuse its discretion and this court will not

disturb the denial of attorneys’s fees. See Moothart, 21 F.3d at 1504.

                                          IV.

      The district court correctly dismissed Fine’s Complaint for lack of subject

matter jurisdiction under 31 U.S.C. § 3730(e)(4). It did not abuse its discretion in

denying an award of attorneys’ fees to the cross-appellants. The judgment of the

district court is therefore AFFIRMED in all respects.




                                          -27-
Nos. 95-2011 & 95-2021, United States ex rel. Fine v. MK- Ferguson Co.

HENRY, Circuit Judge, dissenting.



      I respectfully dissent.

      Qui tam actions have been described by some not generally favorable to

them as follows:

      The term [“qui tam”] derives from the Latin phrase “qui tam pro
      domino rege quam pro se imposo sequitur,” meaning “he who brings
      the action as well for the king as himself.” The original idea was
      simple: where an entity has defrauded the federal government, a
      private party should be able to bring suit against the malefactor and
      share in the government’s recovery . . . .

James T. Blanch et al., Citizen Suits and Qui Tam Actions 4 (Roger Clegg &

James L.J. Nuzzo eds., 1996).

      It is not surprising that qui tam suits would develop nor is it surprising that

they may work. A society such as ours surely understands market motivations.

When the government--through inattention or because of overtaxed investigative

and prosecutorial resources--cannot or does not attempt to recover for fraud, qui

tam actions allow private citizens to bring claims on behalf of the government and

share in any bounty recovered.

      But what the Congress giveth, some of the courts seem to taketh away. The

various circuits have adopted different rules covering the four-part test which

must be met to provide federal qui tam jurisdiction. The test, as related by the

majority, is as follows:
      (1) whether the alleged “public disclosure” contains allegations or
      transactions from one of the listed sources; (2) whether the alleged
      disclosure has been made “public” within the meaning of the False
      Claims Act; (3) whether the relator’s complaint is “based upon” this
      “public disclosure”; and, if so, (4) whether the relator qualifies as an
      “original source” under section 3730(e)(4)(B).

Slip op. at 13.

      My difference with the majority results from its application of United

States ex rel. Ramseyer v. Century Healthcare Corp., 90 F.3d 1514 (10th

Cir.1996), to the facts at hand. Ramseyer takes a practical approach that

recognizes Congress’s intent to create a workable system to uncover fraud against

the government. The qui tam provisions of the False Claims Act must both

“‘encourage private citizens with first-hand knowledge [of fraud] to expose [it]’”

while at the same time “‘avoid civil actions by opportunists attempting to

capitalize on public information without seriously contributing to the disclosure

of the fraud.’” Ramseyer, 90 F.3d at 1519-20 (quoting United States ex rel.

Precision Co. v. Koch Indus., 971 F.2d 548, 552 (10th Cir. 1992), cert. denied,

507 U.S. 951 (1993)). The dual purposes of qui tam noted in Ramseyer, 90 F.3d

at 1519-20, and Precision, 971 F.2d at 552, must be balanced against each other.

I believe Ramseyer struck the proper balance in the following passage:

      As to the second of these purposes, we do not believe that an actual
      disclosure rule will encourage parasitic lawsuits. Information to
      which the public has potential access, but which has not actually
      been released to the public, cannot be the basis of a parasitic lawsuit
      because the relator must base the qui tam suit on information

                                         -2-
      gathered from his or her own investigation. If a specific report
      detailing instances of fraud is not affirmatively disclosed, but rather
      is simply ensconced in an obscure government file, an opportunist
      qui tam plaintiff first would have to know of the report’s existence in
      order to request access to it. With regard to such materials, which
      are at best “only potentially in the public eye,” we agree with the
      District of Columbia Circuit that “no rational purpose is served--and
      no ‘parasitism’ deterred--by preventing a qui tam plaintiff from
      bringing suit based on their contents.”

Ramseyer, 90 F.3d at 1520 (quoting United States ex rel. Springfield Terminal

Ry. v. Quinn, 14 F.3d 645, 653 (D.C. Cir. 1994) (emphasis added)).

      In striving to reach the proper balance, the majority concludes that the

disclosure of the audit report to the state of Oregon amounts to a “public

disclosure” under 31 U.S.C. § 3730(e)(4)(A). I believe this result is in error for

two reasons: first, I believe Ramseyer’s logic suggests that the mere disclosure

from a federal agency to a state government may not always amount to a public

disclosure; and second, though the state of Oregon was not a party to the contract

between the Department of Energy and MK-Ferguson Company, it had prior

knowledge of the fraud and was liable for ten percent of the ultimate cost of the

fraud, and hence was not, in Ramseyer’s terms, “‘a stranger to the fraud.’” See

Ramseyer, 90 F.3d at 1520 (quoting United States ex rel. Doe v. John Doe Corp.,

960 F.2d 318, 322-23 (2d Cir. 1992)).

      My first point, that the Department of Energy’s providing the audit report

to the state of Oregon is not a public disclosure follows directly from Ramseyer:


                                         -3-
“Only when there is a positive act of disclosure to the public can the government

‘no longer throw a cloak of secrecy’ around the allegations, for at that point the

information has been ‘irretrievably released into the public domain.’” 90 F.3d at

1520 (quoting John Doe Corp., 960 F.2d at 322). As Ramseyer noted, not

requiring a positive act of disclosure would reinstate the pre-1986 jurisdictional

bar of qui tam actions “‘based on evidence or information the Government had

when the action was brought.’” Id. (quoting 39 U.S.C. § 3730(b)(4) (1982)

(superseded)). “Congress sought to replace this restrictive jurisdictional

prerequisite in part because of its concern that the government was not pursuing

known instances of fraud.” Id. (quoting United States ex rel. Fine v. MK-

Ferguson Co., 861 F. Supp. 1544, 1551 (D. N.M. 1994)). Thus, Ramseyer

concluded that the mere accessibility to a report in government files by the

general public via a Freedom of Information Act request does not constitute a

public disclosure for the purposes of federal qui tam jurisdiction.

      Merely, providing the state of Oregon with a lengthy audit report is

likewise not a public disclosure. In this matter, the state of Oregon has entered

into an agreement with the United States government through the Department of

Energy to clean up the Lakeview site. Although the audit did not state any

restrictions on its dissemination, there is no evidence that the state of Oregon took

positive steps to release it to the public nor is there any reason to believe that


                                           -4-
other correspondence between the federal agency and the state government

concerning their partnership was actively made public. The mere fact that the

state of Oregon has the audit report in a file cabinet somewhere subject to public

disclosure under the state “Public Records Act,” see Org. Rev. Stat. § 192.410-

.505, does not constitute an affirmative disclosure to the public. These materials

are “at best ‘only potentially in the public eye.’” See Ramseyer, 90 F.3d at 1520

(quoting Springfield Terminal Ry., 14 F.3d at 653).

      Finally, the second point: Ramseyer suggests the disclosure must be to

some member of the public with no prior knowledge of the fraud. The majority

characterizes Oregon as “a stranger to the fraud.” Slip. op. at 16 (citing

Ramseyer, 90 F.3d at 1520 (quoting John Doe Corp., 960 F.2d at 322-23)). I

believe that the facts suggest that the state of Oregon had prior knowledge of the

alleged fraud and moreover, is no stranger thereto. Oregon conducted three

separate audits of its own after questioning some of the additional costs claimed

by MK-Ferguson under its contract with the Department of Energy. It was

Oregon’s audits that instigated the Department of Energy investigation resulting

in the federal audit report, which the majority holds was “publicly disclosed”

through its transfer to the state of Oregon. Furthermore, Oregon has entered into

a agreement as prescribed by the Uranium Mill Tailings Radiation Control Act,

Pub. L. No. 95-604, 92 Stat. 3021 (1978) (codified as amended at 42 U.S.C. §§


                                         -5-
7901-42 (1995)), whereby it is responsible for ten percent of the costs of

remediation at designated cites, including the Lakeview site that MK-Ferguson

was hired to cleanup. Although MK-Ferguson’s contract was with the

Department of Energy and the state of Oregon was not a party thereto, to the

extent MK-Ferguson has defrauded the Department of Energy through false

claims under the contract, the state of Oregon is ultimately responsible for ten

percent of the additional costs. Thus, to my mind, Oregon had prior knowledge of

the fraud and was not a stranger to the effects of the fraud.

      Although scholars have challenged the constitutionality of qui tam actions,

that question is not presented in this case. Though the statute may need to be

revised, see Blanch et al., supra, at 5 (noting “that a more straightforward

‘bounty’ system, without a role for the whistleblower in actually conducting a

lawsuit, would address these constitutional concerns [arising from qui tam

suits]”), qui tam actions now exist as a sometimes effective tool aimed at

diminishing fraud against the federal government and its taxpayers. Judicial

constructions should not overly limit this Congressionally provided tool. As I

believe Ramseyer supports the conclusion that the mere providing of an audit

report to a state government, which has instigated the audit, does not constitute a

public disclosure, I would allow Mr. Fine’s qui tam suit to proceed.




                                          -6-
