Rockwell International Corp. v. United States (05-1272), Limtiaco v. Camacho (06-116) and order list

April 4, 2007 Supreme Court Update

Greetings, Court Fans!

We're back with two summaries that we owe you from last week. The first decision, Rockwell International Corp. v. United States (05-1272), involved the "original source" exception to the bar on qui tam claims based on allegations that are already public. The facts are complicated, but here goes: Rockwell developed a method to turn "toxic pond sludge" into "pondcrete blocks" by adding concrete to the sludge to make the sludge safe for disposal. Some of the pondcrete blocks unfortunately became "insolid" and contaminated the environment (bringing to mind visions of three-eyed fish leaping through the opening credits of "The Simpsons"). James Stone, an engineer at Rockwell when the bright idea for pondcrete arose, opined in a 1982 report that the blocks were likely to fail based on a faulty design in the pumping system. After Stone was laid off in 1986 he gave his report and thousands of pages of other documents to the FBI relating to alleged environmental crimes by Rockwell. In 1988, the media reported the existence of thousands of insolid pondcrete blocks. In 1989, the FBI raided Rockwell based, in part, on information provided by Stone; the warrant included the allegation that the blocks were insolid "due to an inadequate waste-concrete mixture."

In 1989, Stone filed a qui tam suit alleging numerous false claims for payment made by Rockwell to the United States. The qui tam statute authorizes suits by the Attorney General or by a private individual in the government's name, but provides that there is no jurisdiction over such a case "based upon the public disclosure of the allegations or transactions . . . 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." An original source must have "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." Stone claimed that he met the original source exception. After the AG joined the case and the complaint was amended, the case ultimately was tried on the theory (among numerous other claims) that the pondcrete blocks disintegrated because a foreman overseeing the process altered the ratio of concrete to sludge to increase production capacity. On appeal, the Tenth Circuit found that Stone was an "original source" of the allegations and, thus, entitled to sue even though the pondcrete problem was publicly disclosed in numerous media reports before he filed suit.

The Court, in a 6-2 decision (in which Justice Breyer did not participate), disagreed. For the majority, Justice Scalia first explained that the public disclosure bar is jurisdictional, not just mandatory. Therefore, if the case is not brought by a true "original source" or by the AG, a court has no jurisdiction to decide the case. And jurisdiction is not based merely upon the allegations at the time of filing the case – to the extent those allegations change in such a way that the private person filing the case is no longer an original source of the allegations in the complaint, the court lacks jurisdiction to consider the case. Turning to Stone, the majority found he could not be an original source because, although he predicted the failure of the pondcrete, given that he had left Rockwell by the time the blocks began disintegrating he could not have known that the blocks had failed or that Rockwell made false statements to the Government about pondcrete storage. (In fact, even Stone's prediction was flawed in that it was the shop foreman, not the pumping system, that caused the blocks to fail.) The Court took pains to point out that an original source would not normally need to know why a concealed defect occurred as long as he knew the defect actually existed – here, Stone did not. (The Government objected to the Court's interpretation, concerned that this stringent view of "original sources" would lead to disputes between the Government and the qui tam relator over how to frame the complaint as the relator would not want the Government to alter the complaint in a way that could remove the relator's original source status.) Finally, the Court explained that because Stone was not an original source, the trial court had no jurisdiction to consider the case when filed. However, it would be nonsensical to make the Government go back for a redo – thus, once Stone was removed from the case, it became an action "brought by the Attorney General" and thus permissible under the public disclosure bar.

Justices Stevens and Ginsburg dissented, arguing that an individual should not be required to have "knowledge of the actual facts underlying the allegations on which he may ultimately prevail" to constitute an original source. Stone's information about the pondcrete blocks clearly was based on his work on the engineering report. And it was his report, at least in part, that led to the FBI raid. If an original source learns additional information in discovery that alters the factual basis for his claims, that should not alter the court's jurisdiction to hear the case. Such an approach is practically problematic and likely to create fissures between the relator and Government over how to pursue the case.

The other opinion from last week, Limtiaco v. Camacho (06-116), concerned our favorite organized unincorporated territory, Guam, where the AG and the Governor were suing each other. (In case you're wondering, an unincorporated territory is one for which Congress has determined that only parts of the Constitution apply to its government, and is more a possession than an integral part of the United States – ah, the spoils of empire). That made it odd enough, but the result was a decision that was both 5-4 and 9-0. Here are the details: The Guam legislature authorized the governor to issue bonds, but the AG refused to authorize them because he thought they violated the debt limits in Guam's organizing statute, which caps its debt at 10 percent of its "aggregate tax valuation." The AG thought that phrase meant Guam's total assessed property value, while the governor thought it meant its higher appraised or market value. The Guam Supreme Court sided with the governor. Here's the 9-0 part: After he lost in Guam, the AG appealed to the Ninth Circuit, but then Congress took away the Circuit's jurisdiction over Guam and the appeal was dismissed. The AG then filed for cert, but by then it was more than 90 days after the Guam ruling. All the Justices agreed, however, that the Guam judgment did not become final for the purposes of a cert petition until the Ninth Circuit dismissed the appeal. The 5-4 split came on the merits: Justice Thomas wrote for the majority, which included the Chief and Justices Scalia, Kennedy and Breyer – yes, Breyer. In essence, the opinion holds that "tax valuation" means the traditional understanding used by most states of assessed value for property tax purposes, rather than market value. The four dissenters (Justice Souter, with Justices Stevens, Ginsburg and Alito – yes, Alito) thought that Guam's statute was unique and offered no real guidance (Souter said it was a "coin flip"). So they would take a practical approach and go with real-world market value – otherwise, the Guam legislature could double its assessments, and its debt limit, whenever if it wanted to.

Finally, there were two cert grants last week. United States v. Williams (06-694) will address whether Section 2252A(a)(3)(B) of Title 18, which prohibits knowingly advertising, promoting, presenting, distributing, or soliciting any material "in a manner that reflects the belief, or that is intended to cause another to believe," that the material is illegal child pornography, is facially unconstitutional because it is overly broad and impermissibly vague.

Stoneridge Investment v. Scientific-Atlanta Inc. (06-43) asks whether the Court's decision in Central Bank, N.A. v. First Interstate Bank, N.A., 511 U.S. 164 (1994), forecloses claims for deceptive conduct under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5(a) and (c), 17 C.F.R. 240.10b-5(a) and (c), where Respondents engaged in transactions with a public corporation with no legitimate business or economic purpose except to inflate artificially the public corporation's financial statements, but where Respondents themselves made no public statements concerning those transactions.

We don't expect any additional decisions until April 16th or so. Until then, thank you for reading!

Kim & Ken
From the Appellate Practice Group at Wiggin and Dana
For more information, contact Kim Rinehart, Ken Heath, Aaron Bayer, or Jeff Babbin at 203-498-4400