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United States v. L-3 Communications Eotech, Inc.

United States Court of Appeals, Second Circuit

April 4, 2019

UNITED STATES OF AMERICA, Plaintiff-Appellee,
v.
L-3 COMMUNICATIONS EOTECH, INC., L-3 COMMUNICATIONS CORPORATION, PAUL MANGANO, Defendants. MILTON DaSILVA, Movant-Appellant.

          Argued: January 18, 2018

         Appeal from an order of the United States District Court for the Southern District of New York, Richard J. Sullivan, then-District Judge, denying nonparty-movant's motion for a declaration that he is entitled to a share of the $25.6 million received by the United States in the settlement of its action against the defendants under the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., brought after movant's voluntary dismissal of a qui tam action, see id. § 3730(b), he had filed against two of the defendants. The district court denied the motion on the ground that the FCA does not entitle a private person to share in a recovery obtained by the government through its pursuit of an "alternate remedy," see id. § 3730(c)(5), in the absence of an existing qui tam action. On appeal, movant argues principally that the court's ruling conflicts with the language, purpose, and legislative history of the FCA. He also contends that the dismissal of his qui tam action was in fact not voluntary but rather was coerced by the government. We conclude that movant presented no viable basis for claiming coercion and that the district court correctly ruled that he was not entitled to share in the government's recovery in light of his prior voluntary dismissal of his qui tam action. See United States v. L-3 Communications EOTech, Inc., 232 F.Supp.3d 583 (2017).

         Affirmed.

          JOSEPH N. CORDARO, Assistant United States Attorney, New York, New York (Joon H. Kim, Acting United States Attorney for the Southern District of New York, Christopher Connolly, Assistant United States Attorney, New York, New York, on the brief), for Plaintiff-Appellee.

          DANIEL W. WEININGER, Southfield, Michigan, (Keith L. Altman, Excolo Law, Southfield, Michigan, on the brief), for Movant-Appellant.

          Before: KATZMANN, Chief Judge, KEARSE and POOLER, Circuit Judges.

          KEARSE, CIRCUIT JUDGE

         Movant Milton DaSilva appeals from an order of the United States District Court for the Southern District of New York, Richard J. Sullivan, then-District Judge, denying his motion for a declaration that, under the False Claims Act (or "FCA"), 31 U.S.C. § 3729 et seq.--and in particular under § 3730(c)(5)--he is entitled to a share of the $25.6 million received by the United States in settlement of the present action brought by the government under the FCA against defendants L-3 Communications EOTech, Inc., L-3 Communications Corporation (collectively "EOTech"), and Paul Mangano. The district court denied the motion on the ground that, although DaSilva had brought a qui tam action against EOTech, he voluntarily dismissed that action long prior to the government's initiation of its own suit, and that given the absence of an ongoing qui tam action he had no entitlement under § 3730(c)(5) to a share of the government's recovery. On appeal, DaSilva contends principally that the court's ruling conflicts with the language, purpose, and legislative history of the FCA. He also argues that the court should not have viewed his dismissal of the qui tam action as voluntary because his attorneys contended that the dismissal was coerced by the government. We conclude for the reasons that follow that DaSilva presented no viable basis for claiming coercion and that the district court correctly ruled that he was not entitled to share in the government's recovery in light of his voluntary dismissal of his qui tam action.

         I. BACKGROUND

         The False Claims Act, the most relevant provisions of which are set out in greater detail in Part II below,

establishes a scheme that permits either the Attorney General, § 3730(a), or a private party, § 3730(b), to initiate a civil action alleging fraud on the Government. A private enforcement action under the FCA is called a qui tam action, with the private party referred to as the "relator." . . . . When a relator initiates such an action, the United States is given 60 days to review the claim and decide whether it will "elect to intervene and proceed with the action," §§ 3730(b)(2), (b)(4) . . . .
If the United States intervenes, the relator has "the right to continue as a party to the action," but the United States acquires the "primary responsibility for prosecuting the action." § 3730(c)(1). If the United States declines to intervene, the relator retains "the right to conduct the action." § 3730(c)(3).

United States ex rel. Eisenstein v. City of New York, 556 U.S. 928, 932 (2009); see also Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 768 n.1 (2000) ("Qui tam is short for the Latin phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur, which means 'who pursues this action on our Lord the King's behalf as well as his own.'").

         To incentivize private persons to uncover, report, and prosecute FCA claims for the benefit of the United States, see, e.g., United States ex rel. Ladas v. Exelis, Inc., 824 F.3d 16, 23 (2d Cir. 2016); United States ex rel. Dick v. Long Island Lighting Co., 912 F.2d 13, 18 (2d Cir. 1990), the FCA provides that if a qui tam action is successful, the relator will generally be entitled to receive a portion of the amount recovered from the defendants, see 31 U.S.C. §§ 3730(d)(1)-(2) (typically 15-30% of the proceeds, depending in part on whether the government has intervened and taken over prosecution of the action, or instead has declined to intervene and left prosecution to the relator).

         The record as to the events leading to this appeal shows the following.

         A. Events Surrounding DaSilva's 2014 Qui Tam Action

         DaSilva was employed at EOTech as a quality control engineer from mid-May to late June 2013. On August 13, 2013, through attorneys then representing him in anticipation of filing a qui tam action against EOTech, DaSilva submitted to the United States Attorney's Office for the Southern District of New York information alleging EOTech's manufacture and knowing sale to the government of defective holographic firearm sights, in violation of the FCA.

         On August 22, 2013, DaSilva was convicted in a Michigan state court of criminal conduct that both sides agree was unrelated to the alleged FCA violations by EOTech. DaSilva was scheduled to be sentenced on September 25, 2013; however, he did not appear for sentencing, having fled to Brazil.

         Beginning in mid-January 2014, Solomon M. Radner, a Michigan attorney representing DaSilva in his criminal proceeding, had ongoing communications with an Assistant United States Attorney ("AUSA") with regard to DaSilva's allegations against EOTech. Radner disclosed DaSilva's fugitive status to the AUSA, who "responded that she had to first seek permission from her supervisors before speaking to DaSilva because of his fugitive status." (Affidavit of Solomon M. Radner dated April 14, 2016 ("Radner Aff."), ¶ 9.) After the AUSA received such permission, Radner sent DaSilva's materials to the AUSA, and facilitated, inter alia, telephone conferences between or among DaSilva, the AUSA, and other government officials.

         In April 2014, DaSilva filed a qui tam complaint--under seal and in camera, as required by 31 U.S.C. § 3730(b)(2)--in the United States District Court for the Southern District of New York, represented by attorneys in New York and Florida ("qui tam counsel"). The complaint alleged, inter alia, that DaSilva was a resident of Michigan; it made no mention of his fugitive status. The next business day, the government sent Radner an email requesting a conference to discuss, inter alia, the reason for characterizing DaSilva as a resident of Michigan, when he was known to have fled the United States, and the propriety of having claims on behalf of the United States prosecuted by a fugitive. (See Radner Aff. ¶ 28.)

         DaSilva's qui tam action was assigned to District Judge Alison Nathan. On July 8, 2014, the court issued an order stating principally as follows:

[T]he Government represents (among other things) that relator plaintiff Milton DaSilva is currently wanted by Michigan authorities after fleeing to Brazil prior to sentencing for certain crimes he was convicted of in 2013. The Government indicates that counsel for Mr. DaSilva have stated their intention to withdraw and voluntarily dismiss this action if Mr. DaSilva did not surrender by June 23, 2014.
Given that that date has now passed, counsel for Mr. DaSilva are hereby instructed to submit a status letter by July 18, 2014 indicating whether Mr. DaSilva remains a fugitive and, if so, whether and when they plan to withdraw and dismiss this action. If counsel do not submit a letter by July 18, the Court will dismiss this case.

         District Court Order dated July 8, 2014 ("July 2014 Order") (emphasis added).

         Following entry of this order, both DaSilva's qui tam counsel and the government made submissions to the district court. DaSilva's attorneys

requested that the Court not dismiss this case on the basis of DaSilva's fugitive status despite their earlier representation to the Government that they would voluntarily withdraw the complaint if DaSilva did not surrender to Michigan authorities by June 23, 2014.

         District Court Order dated August 14, 2014 ("August 2014 Order"). The government responded and reiterated its concern as to the propriety of having the rights of the United States represented by a fugitive. It had cited to DaSilva's attorneys a Michigan bar governance principle that stated, "[a] lawyer may not aid or abet a client who has chosen independently to become a fugitive from justice. The lawyer may not represent the client in collateral or unrelated matters while the lawyer knows the client remains a fugitive," Mich. Ethics Op. RI-160 (Apr. 14, 1993) ("Mich. Ethics Op. RI-160" or "Michigan Ethics Opinion") (emphasis added). The government indicated to the court "that it would move to dismiss if qui tam counsel refused to dismiss their complaint voluntarily." August 2014 Order.

         The court ordered that, "[s]ince qui tam counsel have neither withdrawn their complaint nor indicated that DaSilva has surrendered, . . . the Government may move to dismiss the complaint by August 31, 2014." Id. Before the government could so move, however, DaSilva's qui tam counsel made a motion on August 19, 2014, "request[ing] that th[e] action be voluntarily dismissed without prejudice . . . . pursuant to Rule 41(a)(1)(A)(i) of the Federal Rules of Civil Procedure." (Relator's Request For Voluntary Dismissal Without Prejudice Pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i) ("DaSilva Voluntary Dismissal Request") at 1.)

         DaSilva's attorneys represented that the government had stated it would inform the court of its consent to the voluntary dismissal, and the government promptly so notified the court. On September 3, the court granted DaSilva's request:

In light of Relator Milton DaSilva's request on August 19, 2014 that this action be voluntarily dismissed, and the United States's consent to voluntary dismissal on August 20, 2014, this case is dismissed without prejudice. The case shall remain under seal.

         District Court Order dated September 3, 2014 ("September 2014 Order").

         There were no further qui tam proceedings by DaSilva.

         B. The Government's FCA Action

         More than 14 months after DaSilva's voluntary dismissal, the government on November 24, 2015, commenced its own False Claims Act lawsuit pursuant to 31 U.S.C. § 3730(a)--the present action--against EOTech and Mangano. This action was assigned to then-District Judge Sullivan. On the following day, with the approval of the court, the parties settled the action, with defendants agreeing, inter alia, that EOTech would pay the government $25.6 million.

         On April 14, 2016, DaSilva filed--in the present action, i.e., the government's § 3730(a) action that had been settled on November 25, 2015--the motion giving rise to this appeal. He stated that he had "unquestionably filed a valid qui tam lawsuit that was . . . dismissed without prejudice" "only after intense pressure from the government." (DaSilva's Motion To Be Declared Eligible for Share of Government's Recovery Under the False Claims Act ("DaSilva Eligibility Motion") at 1; see, e.g., id. at 4 (after "immense pressure").) He cited the FCA provision which states, inter alia, that "[n]otwithstanding subsection (b)"--the section that authorizes a qui tam action--if the government pursues an "alternate remedy available to [it]," the person who initiated the qui tam action "shall have the same rights in such proceeding as such person would have had if the action had continued under this section," 31 U.S.C. § 3730(c)(5) (emphasis added). DaSilva argued that the FCA "contains no requirement that a relator's original claim continue or succeed in order for the relator to share in fruits of the alternate remedy pursued by the Government" (DaSilva Eligibility Motion at 2) and that he is thus entitled to a relator's share of the government's settlement proceeds.

         The government opposed the motion, disputing, inter alia, DaSilva's interpretation of § 3730(c)(5). It argued that "section 3730(c)(5) unambiguously requires a pending qui tam complaint in order for the government to elect an 'alternate remedy,' and for the 'alternate remedy' provision to be triggered." (United States Memorandum of Law in Opposition to DaSilva's Motion To Be Declared Eligible for a Share of the Government's Recovery Under the False Claims Act at 10.)

         The government cited authorities stating that an action that was voluntarily dismissed without prejudice is treated as never having been brought, and it denied that any undue pressure had been applied to cause DaSilva to dismiss the 2014 qui tam action. Given that such an action is brought in the name of the United States, to remedy wrongs to the United States, DaSilva's fugitive status--undisclosed in his qui tam complaint, which called him a resident of Michigan--caused the government concern for whether its interests would be represented properly, and warranted "inquir[y as to] whether the applicable rules of professional responsibility permitted counsel to represent DaSilva in his qui tam action" (id. at 16). The government stated that DaSilva's motion had not described--and could not point to--any impropriety on the part of the government in raising its concerns.

         C. The District Court's Denial of DaSilva's Motion for a Share

         In an opinion dated February 3, 2017, reported at 232 F.Supp.3d 583, the district court denied DaSilva's motion to be declared eligible to share in the government's recovery from EOTech. The court stated that although the FCA "generally entitles a relator to a share of a recovery obtained by the government through an 'alternate remedy' to the action initiated by the relator," 232 F.Supp.3d at 584, "the terms of Section 3730(c)(5) unambiguously preclude" the award of such a share to DaSilva, because prior to the government's bringing suit he had voluntarily dismissed his qui tam action, id. at 587. The court reasoned as follows:

By beginning with the phrase "[n]otwithstanding subsection (b)," Section 3730(c)(5) makes clear that the "alternate remedy" described in that section is an "alternate" to the government's options listed in Section 3730(b). Specifically, Section 3730(c)(5) governs the relator's rights when the government "elect[s] to pursue its claim through any alternate remedy," 31 U.S.C. § 3730(c)(5)--that is, an "alternate" to the remedies set forth in Section 3730(b)(4), which are limited to (a) intervening and "proceed[ing] with the [qui tam] action" or (b) "declin[ing] to take over the action" and providing the relator with "the right to conduct the action," 31 U.S.C. § 3730(b)(4). The implication of this framework is clear: when there is no qui tam action for the government to "take over," the government's filing of its own action is not an "alternate" to taking over (or not taking over) a qui tam action.

232 F.Supp.3d at 587 (emphases ours).

         The court noted that the effect of a voluntary dismissal without prejudice, such as DaSilva's, is to

"le[ave] the situation as if the action never had been filed," 9 Charles Alan Wright & Arthur R. Miller et al., Federal Practice and Procedure § 2367 (3d ed. 2016), and "render[] the proceedings a nullity," 8 Moore's Federal ...

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