Colorado District Court enters judgment for whistleblower, against Kerr-McGee in oil royalties qui tam

by Ben Vernia | September 21st, 2010

On September 16, District of Colorado Judge Marcia Krieger entered judgment in U.S. ex rel. Maxwell v. Kerr-McGee. The qui tam, in which the government declined to intervene, alleged that Kerr-McGee had filed false royalty reports with the Mineral Management Service, where the whistleblower worked. MMS refused to take any action against the company, disagreeing with the relator’s conclusions reached during a routine audit of the company’s filings. In 2007, a jury found approximately $7.5 million in damages.

After post-trial motions, Judge Krieger addressed several issues relating to the judgment:

  • Multiplier – The company argued that because it had communicated information concerning its claims to the MMS, it had complied with 31 USC 3729(a)(2), and deserved a reduction from treble to double damages. The court disagreed, however, finding that the FCA requires the Attorney General, and not the affected agency, to be informed. After noting that the Act places responsibility for investigating and litigating cases on the Attorney General, she further noted:

    If the violator could take advantage of the reduced multiplier simply by showing that it supplied all of the relevant information about the false claim to the agency upon which the claim was made, the reduced multiplier would be available in a large number of cases – arguably, including this one – where paperwork filed with the agency could, if scrutinized sufficiently, have revealed the existence of the false claim.

    She therefore imposed treble damages (bringing the total to approximately $22.7 million).

  • Amount and number of penaltiesKerr-McGee filed a consolidated report each month (for 48 months) for each of their 57 oil and gas leases. The whistleblower argued that one penalty should be assessed for each lease, each month – a total of 1403 false claims. The court rejected this argument and instead found that each consolidated report constituted a false claims.
    Addressing the amount of penalty, the court stated that evidence of the company’s culpability was not overwhelming, as evidenced by the MMS’s refusal to take action against it after the whistleblower brought the irregularities to its attention, and that the agency had gone “so far as to post a statement on its website expressing its disagreement with the jury’s verdict”. Judge Krieger also inferred from the government’s declination that it did not share the relator’s belief that the evidence was “overwhelming.”
  • Prejudgment interest – The court rejected the whistleblower’s argument that prejudgment interest was an element of damages in the case because it was a remedy available to the MMS, and instead followed other courts in concluding that prejudgment interest is unavailable in an FCA case.
  • Relator’s share – In the absence of an argument why a higher share should be awarded, the court granted the relator a 25% share of the recovery (approx. $5.7 million).
  • Excessive fines – The court rejected the company’s Excessive Fines Clause argument, finding that the award was only slightly higher than the 3:1 ratio set by the FCA, which she said had been “implicitly approved” by the Supreme Court in Cook County v. U.S. ex rel. Chandler, 538 U.S. 119, 130 (2003).

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