M ORE L AW
LEXAPEDIA
Salus Populi Suprema Lex Esto

Information
About MoreLaw
Contact MoreLaw

Please E-mail suggested additions, comments and/or corrections to Kent@MoreLaw.Com.

Help support the publication of case reports on MoreLaw

Date: 12-05-2017

Case Style:

United States of America, ex rel. Kenneth J. Conner v. Amrish K. Mahajan

Seventh Circuit Court of Appeals Courthouse - Chicago, Illinois

Case Number: 17-1162

Judge: Per Curiam

Court: United States Court of Appeals for the Seventh Circuit on appeal from the Northern District of Illinois (Cook County)

Plaintiff's Attorney: Kenneth Conner, pro se

Defendant's Attorney: Tom V. Mathai

Description: After losing his job at Mutual Bank, Kenneth
Conner brought this qui tam action claiming that the defendants,
most of them directors or officers of the bank, had
defrauded the government in violation of the False Claims
2 No. 17‐1162
Act, 31 U.S.C. §§ 3729–3733. The United States declined to
take over the qui tam 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.
I. BACKGROUND
The 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 tam 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 tam
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
(2015).
No. 17‐1162 3
Upon learning of a qui tam 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 Servs., 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 tam 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 tam action had continued, including the
right to recover a percentage of any recovery. 31 U.S.C.
§ 3730(c)(5); United States v. Sprint Commcʹns, Inc., 855 F.3d
985, 990 (9th Cir. 2017); United States ex rel. Rille v. PricewaterhouseCoopers
LLP, 803 F.3d 368, 373 (8th Cir. 2015).
Conner 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
4 No. 17‐1162
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 tam 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.
Mutual 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 loanto‐
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 tam 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.
Conner then went forward in the qui tam 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. Ill. July 26, 2012). The FDIC alleged that
No. 17‐1162 5
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.
More than three years after the FDIC brought its case, Conner
moved in his qui tam 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,
6 No. 17‐1162
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 tam 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.
That 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.
Conner, 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 government to pursue an “alternate remedy” to address
the violations he had uncovered, see 31 U.S.C. § 3730(c)(5).
A magistrate judge overseeing the FDIC’s lawsuit recommended
denying Conner’s motion as untimely, since Conner
had conceded knowing for years about the FDIC’s case yet
had waited until the eve of settlement to seek intervention.
No. 17‐1162 7
Although this ground would have sufficed to deny Conner’s
motion, the magistrate judge further evaluated whether Conner
had a legally protectable interest in the outcome of the
FDIC’s case. The answer was no, the magistrate judge reasoned,
because when acting as a receiver the FDIC is not “the
government” pursuing a civil penalty for fraud but instead is
discharging its “responsibilities to pursue the Bank’s litigation
assets for an orderly liquidation and distribution among the
Bank’s creditors.” Conner did not protest this decision, and
the district court accepted it, denying Conner’s motion. Conner
did not appeal.
Meanwhile, a few days before the magistrate judge recommended
denying Conner’s motion to intervene, Conner had
moved in this action for a determination of his share of any
recovery by the FDIC, again asserting that the FDIC’s proposed
settlement constituted an alternate remedy to his False
Claims Act case. Conner’s motion was still pending when the
district judge in the FDIC’s lawsuit adopted the magistrate
judge’s report and recommendation and refused to permit
Conner to intervene in that litigation.
The district court in this qui tam action then denied Conner’s
motion for a share of the FDIC’s settlement on the
ground that the issue presented—whether the FDIC had pursued
an alternate remedy to Conner’s case—already had been
decided by the decision in the FDIC’s case denying intervention.
The court reasoned that both motions were based on
Conner’s alleged right to a portion of the proceeds in the
FDIC’s case. And, the court continued, the magistrate judge in
the FDIC’s lawsuit had concluded that the FDIC was not seeking
an “alternate remedy” under the False Claims Act because
it was acting as a receiver, not as “the government.” Implicit
8 No. 17‐1162
in that conclusion, the district court continued, is a determination
that Conner did not have a legally protectable interest
in the FDIC’s settlement in its lawsuit. In light of that adverse
ruling, the court reasoned, Connor is barred by the doctrine
of issue preclusion from relitigating the same question in this
suit.
Six defendants in Conner’s qui tam suit then moved for
summary judgment. (Two of the named defendants had been
dismissed previously for lack of service.) The district court
granted their motion, reasoning that Conner had failed to submit
evidence substantiating his accusation that Mutual Bank
gave inflated appraisals to the FDIC. After that Conner voluntarily
dismissed the remaining defendants and filed a notice
of appeal. Later he struck a bargain with the six defendants
who had prevailed at summary judgment, promising not to
challenge that adverse ruling in exchange for their promise
not to seek costs under Federal Rule of Civil Procedure 54(d).
II. ANALYSIS
On appeal Conner presents a single argument: that the
district court erred in applying the doctrine of issue preclusion
to deny his motion demanding a share of the FDIC’s recovery
in its separate case. None of the named defendants has
a stake in the resolution of that issue, so none of them has filed
a brief in this appeal. Only the FDIC is interested in defending
the order denying Conner’s demand for a cut of its recovery
in the other case, and in this appeal the FDIC has submitted a
brief as amicus curiae, purportedly in support of the named
defendants.
To begin, because the decision sought to be given preclusive
effect was rendered by a federal court, federal preclusion
No. 17‐1162 9
law applies. Bernstein v. Bankert, 733 F.3d 190, 225 (7th Cir.
2013); Ross ex rel. Ross v. Bd. of Educ. of Twp. High Sch. Dist. 211,
486 F.3d 279, 283 (7th Cir. 2007). Under federal law, the doctrine
of issue preclusion bars relitigating factual or legal issues
if “(1) the issue sought to be precluded is the same as that involved
in the prior action; (2) the issue was actually litigated;
(3) the determination of the issue was essential to the final
judgment; and (4) the party against whom estoppel is invoked
was fully represented in the prior action [i.e., their interests
were represented even if they were not a party in the prior
suit].” Dexia Credit Local v. Rogan, 629 F.3d 612, 628 (7th Cir.
2010). Conner does not contest the second or fourth elements.
But he argues that there is no overlapping issue because, he
says, the district court in his case needed to decide only
whether the FDIC was acting as the government when it initiated
its separate lawsuit, whereas the order denying his attempt
to intervene decided that the FDIC had acted as a receiver
“after it initiated the Related Action.” Conner also insists
that the third element is not met because, in his view, the district
court denied his motion to intervene as untimely, not because
of its belief that he is unentitled to a share of the FDIC’s
settlement proceed.
We conclude, however, that Conner misses the mark by
focusing on issues instead of claims, since it’s the doctrine of
claim preclusion that bars his renewed effort to obtain a share
of the FDIC’s settlement proceeds. That doctrine bars litigating
claims which were, or could have been, decided in a prior
suit, even if the fresh attempt relies on “marginally different
theories,” Maher v. F.D.I.C., 441 F.3d 522, 527 (7th Cir. 2006), so
long as there is “(1) an identity of the parties or their privies;
(2) [an] identity of the cause of action; and (3) a final judgment
on the merits,” Matrix IV, Inc. v. Am. Nat’l. Bank & Tr. Co. of
10 No. 17‐1162
Chicago, 649 F.3d 539, 547 (7th Cir. 2011) (quoting Alvear‐Velez
v. Mukasey, 540 F.3d 672, 677 (7th Cir. 2008)). In analyzing this
doctrine, we need not decide whether the district court’s conclusion
in the FDIC’s suit that Conner lacked a legally cognizable
interest in the settlement proceeds was essential to the
denial of his claim for a share of those proceeds.
For purposes of the third element of claim preclusion, the
basis of the earlier decision is unimportant so long as the claim
was decided on the merits. Thus a dismissal of a suit may have
preclusive effect even if it did not resolve the central controversy,
see, e.g., Am. Nat. Bank & Tr. Co. v. City of Chicago, 826
F.2d 1547, 1552–53 (7th Cir. 1987), or even regarding issues not
raised in the initial suit, see, e.g., Matrix IV, Inc. 649 F.3d at 547;
Aaron v. Mahl, 550 F.3d 659, 664 (7th Cir. 2008). Conner and the
FDIC have invested considerable energy debating whether
both reasons given for denying Conner’s motion to intervene
would support application of issue preclusion, but the answer
makes no difference. Conner insists that only the question of
its timeliness was decided by the denial of his motion to intervene,
but a denial of relief on the ground that the request came
too late is still a decision on the merits. See Arrigo v. Link, 836
F.3d 787, 799 (7th Cir. 2016) (applying claim preclusion to bar
lawsuit asserting claims for relief that, in previous suit, plaintiff
had included in motion to amend complaint which was
denied as untimely); Kratville v. Runyon, 90 F.3d 195, 198
(7th Cir. 1996) (noting that a dismissal based on statute of limitations
or administrative deadline constitutes a decision on
the merits for purposes of claim preclusion).
Of the two remaining elements of claim preclusion, the
first—an identity of parties—is not disputed. Both times
No. 17‐1162 11
when Conner took action aimed at sharing in the FDIC’s settlement,
he and the FDIC were the only parties of concern.
Although in both lawsuits Conner and the FDIC might appear
to be aligned against the named defendants, Conner’s motion
to intervene in the FDIC’s case and his motion in this qui tam
action pitted him against the FDIC as he tried to recover a
whistleblower reward.
The only significant question, then, is whether both of
Conner’s motions present the same cause of action, or claim.
On this question, we agree with the FDIC. Two causes of action
are identical if each claim is supported by the same factual
allegations, Andersen v. Chrysler Corp., 99 F.3d 846, 852–55
(7th Cir. 1996); Colonial Penn Life Ins. Co. v. Hallmark Ins. Adm
ʹrs, Inc., 31 F.3d 445, 447 (7th Cir. 1994), and the judgment in
each case would be based on the same evidence, see Manicki v.
Zeilmann, 443 F.3d 922, 925–26 (7th Cir. 2006); Himel v. Contʹl
Ill. Nat. Bank & Tr. Co. of Chi., 596 F.2d 205, 209 (7th Cir. 1979).
Conner alleged both in his motion to intervene and his motion
in this case that the FDIC had violated the relator’s‐share provision
of the False Claims Act by not paying him a portion of
its settlement proceeds. Both motions sought to establish that
the FDIC’s case constituted an “alternate remedy” under the
False Claims Act and that the FDIC had refused to pay Conner
a portion. That Conner’s motions sought the same compensation
in different ways—the first time as part of a motion
to intervene—is irrelevant; causes of action may be identical
even if the litigant attempts different substantive or procedural
strategies to pursue the same underlying claim. Ross,
486 F.3d at 283; Okoro v. Bohman, 164 F.3d 1059, 1062 (7th Cir.
1999); Cheyenne River Sioux Tribe of Indians v. United States,
338 F.2d 906, 908–09, 911 (8th Cir. 1964) (applying doctrine of
12 No. 17‐1162
claim preclusion to bar relitigation of claim previously asserted
in unsuccessful motion to intervene); Bhd. of Locomotive
Firemen & Enginemen v. Seaboard Coast Line R. Co., 413 F.2d 19,
23–24 (5th Cir. 1969) (same). Moreover, Conner requested the
same relief under the same statutory provision in both motions,
which is another consideration in deciding whether two
causes of action are identical. See Highway J Citizens Grp. v.
U.S. Depʹt of Transp., 456 F.3d 734, 742 (7th Cir. 2006). Finally,
a common‐sense comparison of the request Conner made in
each suit similarly supports the conclusion that he should not
be permitted to repeat his demand for a share of the FDIC’s
settlement proceeds. See Ross, 486 F.3d at 282 (noting that the
“common‐sense question” of “why a second lawsuit should
be permitted after the first one apparently resolved the dispute
between the parties” is resolved by applying doctrine of
claim preclusion).
Accordingly, each element of claim preclusion is satisfied.
For that reason, we uphold the district court’s denial of Conner’s
motion in the qui tam action seeking a share of the settlement
proceeds in the FDIC’s separate lawsuit.

Outcome: For the foregoing reasons we affirm the judgment.

Plaintiff's Experts:

Defendant's Experts:

Comments:



 
 
Home | Add Attorney | Add Expert | Add Court Reporter | Sign In
Find-A-Lawyer By City | Find-A-Lawyer By State and City | Articles | Recent Lawyer Listings
Verdict Corrections | Link Errors | Advertising | Editor | Privacy Statement
© 1996-2018 MoreLaw, Inc. - All rights reserved.