Malhotra v. Steinberg

Summarized by:

  • Court: 9th Circuit Court of Appeals Archives
  • Area(s) of Law: Civil Procedure
  • Date Filed: 10-29-2014
  • Case #: 13-35165
  • Judge(s)/Court Below: Circuit Judge Watford for the Court; Circuit Judges McKeown and Goodwin
  • Full Text Opinion

In a False Claims Act case, publicly disclosed information must be brought by a party that was the original source of the information.

The Malhotra couple filed for bankruptcy in 2006. The couple was assigned a trustee through the bankruptcy court to administer the estate, named Robert Steinberg. The couple was immediately suspicious of Steinberg and his real estate “partner,” James Grace. The Malhotras investigated Steinberg and found that he and Grace were involved in a kickback scheme where Grace would sell the properties at below-market prices to his associates, who would then resell the property for a large profit. The Office of the United States Trustee conducted an administrative investigation where they deposed Grace, who admitted to the kickback scheme. The Malhotras filed an action under the False Claims Act, which authorizes individuals to bring a civil action in the name of the United States, against a wrongdoer who presents a fraudulent claim for payment to the government. The couple claimed that Steinberg acted fraudulently by asserting that he had performed his duties of trustee (to countless families in similar situations) in good faith, when he was actually making a profit on the side. The district court ruled that the Malhotras were not the original sources of the kickback scheme information because they had no actual knowledge of the scheme until after Grace’s deposition. Therefore, the district court dismissed the case for lack of subject matter jurisdiction. On appeal, the Ninth Circuit explained that because the couple’s claim is based on a “public disclosure” of the kickback scheme, subject matter jurisdiction will only exist if they were the original sources of the information. The panel held that the couple was not an independent source, as they did not have “direct and independent knowledge” of the scheme initially. The panel explained that the Malhotras’ suspicion of the scheme does not constitute knowledge. Therefore, the False Claims Act’s public disclosure bar applies. AFFIRMED.

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