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SCt Today
March 27, 2007
Greetings, sportsfans! Just two opinions today, as the Court's glacial opinion-writing pace continues. In one, the Court restricted qui tam suits under the False Claims Act; in the other, it resolved an intramural squabble between Guam's elected officials. Needless to say, we're still waiting for the good stuff. Given the Court's backlog, the 3-argument-a-day April schedule, and the Gitmo residents seeking an expedited hearing this Term, the Justices will have to do one heckuva job to get all of their opinions out by July 4. Let's recap the action.
Rockwell International Corp. v. United States, 05-1272
Rockwell's engineers came up with a creative way to dispose of toxic runoff from the nuclear weapons plant it operated for the U.S. government. They just mixed the toxic pond sludge with concrete, and voila, you have "pondcrete"—the low-cost building material for the 21st century. One of Rockwell's engineers, James Stone, predicted that the mutant blocks would disintegrate, causing massive contamination. After Stone was fired, he leaked information to the press, and an FBI investigation and public outcry ensued. He later filed suit under the False Claims Act, alleging that Rockwell committed 26 environmental frauds on the government, only one of which involved the concrete from the black lagoon.
The False Claims Act allows such qui tam suits, whereby an individual (the relator) sues a fraudulent government contractor, and then gets to split the damages with the feds. But the FCA eliminates jurisdiction over qui tam actions that are based upon "publicly disclosed allegations or transactions" of fraud, unless the relator was the "original source"—i.e., he had "independent knowledge of the information on which the allegations were based." 31 U.S.C. § 3730(e)(4)(A)-(B). Stone claimed that he was an original source of the pondcrete claim and that this created jurisdiction over all of his claims.
Justice Scalia (writing for JGR, AMK, DHS, CT, and SAA) found no jurisdiction. First, interpreting "allegations" in § 3730(e)(4)(B), Scalia held that an original source must have direct knowledge of the information underlying the allegations in his own complaint, not the allegations that were publicly disclosed. The Court then held that the relevant complaint is the most recent amended complaint (or pretrial order), not the initial complaint. In other words, a relator cannot bootstrap jurisdiction by initially pleading one claim of which he had direct knowledge, and then later adding other claims culled from newspaper clippings. Judged by these standards, Stone was only arguably an original source for his pondcrete claim, not the other 25 claims. Justice Scalia concluded that Stone didn't even have direct knowledge of that claim because the pondcrete didn't begin disintegrating until after Stone left Rockwell. And Stone's prediction was insufficient to give him direct knowledge because the pondcrete dissolved for reasons he did not anticipate.
Justice Stevens, joined by RBG, dissented. He would have held that "allegations" means the publicly disclosed allegations of fraud, and he accused the majority of ignoring the most natural meaning of the term. Stone would have been an original source under JPS's test due to his press leak shortly after his firing. JPS also would have based FCA jurisdiction on the original complaint, citing the general rule that jurisdiction is ordinarily determined then, and chastising the majority for forcing courts to reassess their jurisdiction with every amended complaint.
Justice Breyer was recused, being too busy preparing for his game show appearance.
Limtiaco v. Camacho, 06-116
Justice Thomas (+JGR, AS, AMK, SGB) wrote the Court's 5-4 opinion, siding with Guam's attorney general over its governor, the pugilist-turned-politician Felix "Macho" Camacho. The question was whether Guam's debt limitation is linked to the appraised valuation of property in Guam or the assessed valuation, a much lower number. The Guam Organic Act, 48 U.S.C. § 1423a, states that Guam may not incur debt in excess of 10 percent of the "aggregate tax valuation" of the property in Guam. CT held that this phrase naturally refers to assessed value, as that is the value typically used for tax purposes. He noted that most U.S. states tie debt limitations to assessed value, and their statutes use similar wording. If Congress wanted Guam to use appraised value, it would have said "appraised valuation" or just "valuation."
DHS dissented. He saw the statutory language as indeterminate. Or in Souter-speak, "the congressional mind does not emerge from the words 'tax valuation.'" Looking to the organic acts of other territories, he divined a congressional purpose to tie a territory's ability to borrow to its ability to tax. Because market value is the only fixed measure of taxing ability, whereas assessed value can be easily manipulated, DHS would have held that appraised value was the proper interpretation. Justice Alito, showing dangerous ideological drift after just one year on the bench, sided with the Court's tax-and-spend liberals in allowing Guam to run up its debt.
Grants
Stoneridge Investment v. Scientific Atlanta 06-43
A potential securities law blockbuster. The Court held in Central Interstate Bank v. First Interstate Bank (1994), that the 1934 Securities Exchange Act does not create liability against aiders and abettors of securities fraud. Liability was limited to "primary" actors—the corporations that make the fraudulent statements—or secondary actors (banks, lawyers, etc.) that meet all of the requirements of primary actors. But might a company that engages in a sham transaction with a primary actor, knowing that the primary actor will use the transaction to fraudulently inflate revenues, be a primary actor itself, even if it does not make misstatements of its own? That's the question in Stoneridge. There's a very similar question in the massive Enron class action just decertified by the 5th Circuit and on its way up to the Court. There, the CA5 held that the investment banks that papered Enron's infamous limited partnerships were not liable under the '34 Act. Look for the Court to either consolidate the Enron case with Stoneridge for next Term, or at least hold Enron pending the decision in Stoneridge.
U.S. v. Williams, 06-694
This case involves the "pandering" provision of the Protect Act of 2003, which prohibits the promotion of child pornography on the Internet. The CA11 struck it down as vague and overbroad, claiming that it unconstitutionally criminalizes much noncommercial and noninciteful speech about child pornography. For example, the court of appeals opined, a grandfather's innocent email entitled "Good pics of kids in bed," could be covered by the law.
Until next time (opinions tomorrow??), that's today's baseball.
Aaron M. Streett is an associate in the Houston office of Baker Botts L.L.P., and a member of the firm's Appellate and Supreme Court Practice. The statements, opinions, and subtle emotions expressed herein do not necessarily represent those of Baker Botts L.L.P.; to the extent they are correct, insightful, and not offensive, they most definitely represent the views of the author. Any resemblance to actual persons, living or dead, is unintentional and purely coincidental.
If you would like to subscribe to these updates, or, more to the point, unsubscribe, please send an e-mail to aaron.m.streett@bakerbotts.com
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