United States of America ex rel. Kenneth J. Conner, Plaintiff-Appellant,
Amrish K. Mahajan, et al., Defendants-Appellees.
July 6, 2017
from the United States District Court for the Northern
District of Illinois, Eastern Division. No. 11-CV-4458 -
Sharon Johnson Coleman, Judge.
Posner, Kanne, and Sykes, Circuit Judges [*]
losing his job at Mutual Bank, Kenneth Conner brought this
qui tarn action claiming that the defendants, most of them
directors or officers of the bank, had defrauded the
government in violation of the False Claims Act, 31 U.S.C.
§§ 3729-3733. The United States declined to take
over the qui tarn action, which Conner eventually settled.
But the Federal Deposit Insurance Corporation filed its own
lawsuit against many of the same defendants. That case also
settled, and Conner thinks he is entitled to a share of the
settlement proceeds the FDIC received from the defendants. To
that end Conner tried to intervene in the FDIC's case,
and after being rebuffed he filed a motion in this action
demanding part of the FDIC's recovery. The district court
denied that request on the ground that, because Conner's
attempt to intervene in the FDIC's case was rejected, he
is barred by the doctrine of issue preclusion from litigating
in this suit the question whether he has a cognizable
interest in the settlement proceeds. Conner challenges that
ruling in this appeal. We agree with the district court's
bottom line but conclude that claim preclusion, rather than
issue preclusion, explains this outcome.
False Claims Act imposes civil liability on individuals who
knowingly defraud the United States. Universal Health
Servs., Inc. v. United States ex rel. Escobar, 136 S.Ct.
1989, 1995 (2016). The Act may be enforced either by the
government or, under its qui tarn provision, by a private
person acting as a "relator" on the
government's behalf. 31 U.S.C. § 3730(b)(1);
State Farm Fire & Cas. Co. v. United States ex rel.
Rigsby, 137 S.Ct. 436, 440 (2016). When a private party
brings a qui tarn suit, the complaint is sealed (and thus
unknown to the defendant) but served on the government with a
summary of all material evidence. 31 U.S.C. §
3730(b)(2); Kellogg Brown & Root Servs., Inc. v.
United States ex rel. Carter, 135 S.Ct. 1970, 1973
learning of a qui tarn action, the government has multiple
options for action. One of those options is taking over the
lawsuit, and, if the government does take control, the
relator will receive 15% to 25% of any recovery. 31 U.S.C.
§ 3730(d)(1). The government also can decline to
participate directly, and, if it chooses that option, the
relator can continue prosecuting the case on the
government's behalf. See 31 U.S.C. §
3730(b)(4)(B), (c)(3); Kellogg Brown & Root Sews.,
Inc., 135 S.Ct. at 1973; Stoner v. Santa Clara Cty.
Office of Educ, 502 F.3d 1116, 1126-27 (9th Cir. 2007).
A relator who successfully prosecutes a qui tarn action
without government involvement will receive 25% to 30% of the
recovery. 31 U.S.C. § 3730(d)(2). A third option
available to the government is seeking recovery for fraud
through an "alternate remedy, " including "any
administrative proceeding to determine a civil money
penalty." 31 U.S.C. § 3730(c)(5). When the
government pursues an "alternate remedy, " the
relator has the same rights in that proceeding as if the qui
tarn action had continued, including the right to recover a
percentage of any recovery. 31 U.S.C. § 3730(c)(5);
United States v. Sprint Commc'ns, Inc., 855 F.3d
985, 990 (9th Cir. 2017); United States ex rel. Rille v.
PricewaterhouseCoopers LLP, 803 F.3d 368, 373 (8th Cir.
worked at Mutual Bank (or its predecessor) from 2000 to 2007
and had transferred to the bank's headquarters in Harvey,
Illinois, in 2005. At headquarters he reviewed appraisals for
commercial real estate loans. In that role he noticed that
Adams Value Corporation (a property appraisal company) had
completed more than half of Mutual's appraisals. Conner
concluded that Adams regularly had inflated values by 20% to
30%. He identified about 75 appraisals he thought were
inflated, all but one of which Mutual Bank had accepted. In
October 2007 Conner refused to approve an Adams appraisal
that he deemed incomplete and significantly overvalued. The
bank fired him a week later. Eventually he brought this qui
tarn action under the False Claims Act. In addition to naming
as defendants the directors and several officers of Mutual
Bank, Conner sued Adams Value Corporation and its president.
Bank failed less than two years after Conner was fired. In
his lawsuit he alleged that the defendants had intentionally
overvalued properties serving as collateral for commercial
real estate loans. By doing so they understated loan-to-value
ratios reported to the FDIC and thus benefitted from a lower
risk category and commensurately lower FDIC insurance
premiums. Conner added that most of the loans could not have
been approved if the collateral was valued accurately. He
estimated that the FDIC had lost approximately $656 million
from Mutual Bank's demise, including $300 to $400 million
resulting from "commercial real estate loans with
deliberately faulty appraisals." But Conner's qui
tarn action aimed only to recoup the deposit insurance
premiums that should have been paid to the FDIC. In August
2012 the United States declined to take over the case (the
reason is not disclosed in the record) but asked the district
judge to require the government's written consent before
allowing Conner to settle or dismiss the action.
then went forward in the qui tarn action by himself. But the
FDIC, as receiver for the failed Mutual Bank, initiated its
own action against many of the same defendants-though not
against Adams or its president, Douglas Adams. See
F.D.I.C. v. Mahajan, No. 11 C 7590, 2012 WL 3061852, at
*1 (N.D. 111. July 26, 2012). The FDIC alleged that directors
and officers of the bank had acted with gross negligence and
breached their fiduciary duties. It asserted that in just
four years Mutual Bank had nearly doubled its loan portfolio
by giving a few overextended or nearly insolvent borrowers a
dozen risky commercial loans to acquire or develop real
estate. Then, as the bank grew, it neglected to hire or train
enough staff to minimize the risk from those loans. The FDIC
further alleged that the defendants had looted bank funds for
personal bills (wedding expenses of one defendant and legal
bills incurred by another's spouse in defending criminal
charges), conducted a board meeting in Monte Carlo at the
bank's expense, paid excessive amounts to contractors
with personal connections to board members, and approved
unlawful dividend payments. The FDIC also sued the bank's
attorney and his law firm claiming malpractice, breach of
fiduciary duty, and aiding and abetting breaches of fiduciary
duty by the other defendants.
than three years after the FDIC brought its case, Conner
moved in his qui tarn action to consolidate the FDIC's
case with his. Conner argued that both lawsuits centered on
the same transactions and occurrences because both involved
bank directors overvaluing property and extending risky
loans. The FDIC and many of the defendants in Conner's
case opposed his motion. The FDIC disputed Conner's
contention that the two cases overlapped factually, and it
also noted that the defendants did not overlap entirely and
that it had sued on behalf of the bank (as its receiver), not
on behalf of the United States as Conner had done. The FDIC
also disputed Conner's assertion that both suits focused
on the same overarching fraud scheme, since just one of the
loans underlying its suit was among those identified by
Conner in his suit. And each case involved different legal
issues, the FDIC contended, since Conner's suit alleged
violations of the False Claims Act, while the FDIC's
claims concerned breaches of prudent banking practices,
corporate waste, and legal malpractice. Many of the
defendants made similar arguments, and two of the qui tarn
defendants added that consolidation would unduly prejudice
them because they weren't defendants in the FDIC's
case. Faced with this opposition, Conner withdrew his motion.
was in February 2015. A month later Conner settled with four
defendants who agreed to pay a lump sum, mostly to the
government, but with a percentage to Conner. In June 2015
Conner hired new counsel and tried to renege, but the
affected defendants moved to enforce the agreement. The
government gave its approval after modest revisions requiring
the defendants to immediately pay Conner's attorneys'
fees while leaving for future negotiation the percentage of
the recovery to be shared with him by the government. The
district court enforced the revised agreement.
through his new counsel, then moved to intervene in the
FDIC's case. By this point, according to Conner, the FDIC
had informed him that it was settling with the defendants
and, as relates to its lawsuit, would not give him a
whistleblower award under the False Claims Act. Conner
asserted that the Act entitled him to a share of the
FDIC's recovery since, he contended, the FDIC's suit
constituted a choice by the ...