U.S. Supreme Court Holds False Claims Act “Original Source” Rule Is Jurisdictional

In Rockwell Int’l Corp. v. United States, 127 S. Ct. 1397 (U.S. Mar. 27, 2007), the Supreme Court noted that the False Claims Act, 31 U.S.C. §§ 3729, et seq., eliminated federal court jurisdiction over qui tam actions brought by a private party “relator” based upon the public disclosure of allegations reported in the news media unless such party is “an original source of the information.” In this case, a former Rockwell engineer named James Stone brought a qui tam action alleging that Rockwell knowingly employed a defective system for disposing of toxic waste, and the Government intervened. Ultimately the case proceeded to trial and the jury found in part for Stone, and the lower courts affirmed.

The Supreme Court reversed for lack of jurisdiction, finding that Stone was not the “original source” of the information upon which the claims were based. The Court held that where claims are brought based on publicly disclosed information, a relator’s status as the original source of that information is jurisdictional and must be considered de novo even where, as argued here, the defendant conceded the issue. Here, Stone had informed Rockwell that its system was faulty due to a defective piping system, but the final pretrial order (which superseded the pleadings), and all the proofs at trial, concerned an entirely different defect. Because Stone had no independent knowledge of the defect that actually was at stake, the district court lacked jurisdiction over the matter.

California’s Unfair Competition Law Now Requires Representative Claimant To Have Injury And Meet Class Action Prerequisites

In 2004, the voters of California approved Proposition 64 to amend the Unfair Competition Law (Bus. & Prof. Code §§ 17200, et al.) (“UCL”). Until that time, the statute permitted individuals to act as private attorneys general to bring lawsuits for alleged unfair competition on behalf of others even if the plaintiffs themselves had not suffered loss of money or property. Because the traditional requirements for class actions and individual standing did not have to be met, the UCL had been the subject of controversy. Proposition 64 added the requirements that the representative have suffered injury in fact, and that the action “complies with Code of Civil Procedure Section 382.”

In Amalgamated Transit Union, Local 1756 v. Superior Court, 55 Cal. Rptr. 3d 585 (Cal. App. (2d Dist.) Feb. 28, 2007, modified Mar. 22, 2007), the court held that that despite the lack of any express language in proposition 64 concerning class actions, the reference to § 382 was meant to engraft onto the Unfair Competition Law the requirement that any representative action proceed as a class action and satisfy traditional certification requirements.

[Note that on June 20, 2007, the California Supreme Court granted review, superceding this opinion. Amalgamated Transit Union, Local 1756 v. Superior Court, 161 P.3d 1, 61 Cal.Rptr.3d 459 (Cal. June 20, 2007).]

U.S. Supreme Court Rejects Ninth Circuit Rule Against Attorney’s Fees In Bankruptcy

In 1991, the Ninth Circuit held that an unsecured creditor is precluded from recovering attorney’s fees authorized by a prepetition contract if such fees were incurred in postpetition litigation involving issues peculiar to bankruptcy law rather than basic contract enforcement questions. In re Fobian, 951 F.2d 1149 (9th Cir. 1991).

Resolving a split in the circuits, the Supreme Court held in Travelers Cas. & Surety Co. of America v. Pacific Gas & Elec. Co., 127 S. Ct. 1199 (U.S. Mar. 20, 2007), that the Fobian rule was not supported by the Bankruptcy Code. Finding that “claims enforceable under applicable state law will be allowed in bankruptcy unless they are expressly disallowed, the Court held that the absence of textual support for the Ninth Circuit’s rule was “fatal,” and it rejected the applicable lower court precedents.

Punitive Damages Limited To Compensatory Award Where Plaintiff Not Vulnerable

In Jet Source Charter, Inc. v. Doherty, 148 Cal. App. 4th 1, 55 Cal. Rptr. 3d 176 (4th Dist. Jan. 30, 2007, modified Feb. 28, 2007), the plaintiffs successfully sued aircraft brokers for breach of fiduciary duty in selling them aircraft while willfully deceiving them concerning the price the brokers had negotiated with the sellers (and thereby making additional money on the side). The jury awarded approximately $5 million in compensatory damages, and more than $25 million in punitive damages against various defendants.

On appeal, the court held, “Where, as here, substantial compensatory damages have been awarded, and the conduct in question only involves economic damage to a single plaintiff who is not particularly vulnerable, an award which exceeds the compensatory damages awarded is not consistent with due process” under State Farm Mut. Auto Ins. Co. v. Campbell, 538 U.S. 408 (2003).

Plaintiff May Dismiss Without Prejudice On Eve Of Mandatory Settlement Conference

In Franklin Capital Corp. v. Wilson, 148 Cal. App. 4th 187, 55 Cal. Rptr. 3d 424 (4th Dist. Feb. 28, 2007), the plaintiff attempted to take a voluntary dismissal without prejudice on the eve of a mandatory settlement conference with the court. Nevertheless, the court held the conference, vacated the voluntary dismissal and entered dismissal with prejudice. By that time, plaintiff’s counsel already had a long record of missed court hearings and had been ordered to pay sanctions.

Nevertheless, the appellate court found that a plaintiff has an absolute right pursuant to statute to take a voluntary dismissal without prejudice at any time prior to commencement of “trial” or the pendency of an impending dispositive procedure, and that the mandatory settlement conference did not fall under any of those categories. Thus, the trial court had no authority to convert the voluntary dismissal to one with prejudice.