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United States ex rel Mergent Services v. Flaherty

April 6, 2006


The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge *fn1


Pro se plaintiff John Bal ("Bal") brings this action on behalf of the United States, himself, and his company, Mergent Services ("Mergent"), under the qui tam provisions of the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq.*fn2 Plaintiff alleges, inter alia, that defendant Marie Flaherty ("Flaherty") defrauded the Federal Emergency Management Agency ("FEMA") by submitting two false receipts for reimbursement to the Individual and Family Grant program ("IFG"). IFG was a state program implemented after September 11, 2001 and designed to assist New York residents with "serious disaster-related needs not covered by insurance or other assistance programs," including the purchase of air purifying equipment. (Compl., Ex. A). The IFG program was funded in part by FEMA.

In addition to the FCA claim, plaintiff asserts the following additional causes of action: defamation; a claim for "unconstitutional retaliation for filing a court action in small claims court"; and a claim based on the "defendant's deceitfulness in court proceedings [that] resulted in a decision unfavorable to [plaintiff] and caused an unconstitutional impediment to [plaintiff's] access to court." (Compl. ¶¶ 31-63.)

Defendant moves to dismiss*fn3 the FCA claim on, inter alia, the ground that plaintiff lacks standing, as a non-attorney, to bring a qui tam action on behalf of the United States. For the reasons set forth below, plaintiff's motion to dismiss is GRANTED.*fn4


On May 23, 2005, plaintiff filed this complaint against defendant Flaherty under the qui tam provisions of the FCA. Plaintiff alleges that the defendant submitted false receipts to the IFG for the purchase of certain air purifying equipment from Mergent. (Compl. ¶¶ 18-22). Plaintiff alleges that Flaherty obtained the receipts by representing to him that she would pay for the equipment later. (Id.) Plaintiff further asserts that Flaherty never paid for the equipment, but rather fraudulently submitted the receipts to the IFG for reimbursement. (Id.) Plaintiff claims that he marked the receipts "paid," (see Compl., Ex. B), because Flaherty promised to "mail Mergent Services a check for her purchase." (Compl. ¶ 8). Plaintiff alleges that FEMA ultimately reimbursed defendant $1,750. (Compl. ¶¶ 18-22).

Prior to filing this action, plaintiff filed an action against Flaherty in the Small Claims Part of the Civil Court for New York County, alleging, inter alia, breach of contract and seeking damages stemming from this same transaction. See John Bal v. Marie Flaherty, No. 5599/03, 2004 N.Y. Misc. LEXIS 3090, *5 (Civ. Ct. N.Y. Cty July 16, 2004) aff'd 2005 N.Y. Misc. LEXIS 2602 (App. Term Nov. 21, 2005). After Bal failed to oppose Flaherty's motion to dismiss, the Small Claims court entered a default. Id. at *2-3. Bal moved to vacate the default, and the Small Claims Judge refused, finding that Bal's claims lacked merit because he was unable to show any damages stemming from defendant's conduct. Id. at * 5. In addition, based on Bal's history of filing multiple meritless actions in Small Claims court, the Small Claims Judge entered an Order requiring Bal to apply to the Special Term for permission before bringing any other Small Claims proceedings. Id. at * 6.*fn5 Before the Small Claims Part issued its decision, plaintiff filed another action against Flaherty in the Civil Court for breach of the same purported contract. The Civil Court action was also dismissed. See John Bal v. Marie Flaherty, No. 13547 CVN 2004 (Civ. Ct. N.Y. Cty Sept. 21, 2004). In addition to these related cases, Flaherty cites scores of other pro se actions that Bal has filed in state and federal courts. (Def.'s Mem. at 3 n.3).*fn6

While, as set forth below, I decline to enter an Order prohibiting Bal from filing any additional pro se claims in this Court, I am sorely tempted to do so. Furthermore, it is apparent that relations between Bal and this defendant have reached a level of extreme hostility. At oral argument on this motion, the defendant requested leave to appear by telephone, professing fear and discomfort at the prospect of appearing in person with the plaintiff. Bal, on the other hand, referred to the defendant as "delusional." Certainly, what began as a dispute over an air purifier has devolved amidst insults and personal attacks.


A. The QuiTam Claim

Qui tam actions allow private individuals, or relators, to bring suit to recover funds due the United States. In return for bringing the claim, if there is a recovery the relator receives a share of the funds. See United States ex rel. Doe v. John Doe Corp., 960 F.2d 318, 319 (2d Cir. 1992). Although the relator is entitled to a share of the recovery, the United States remains at all times the "'real party in interest[,]' whether it [chooses to] interevene[] or not. . ." Rockefeller v. Westinghouse Elec. Co., 274 F. Supp. 2d 10, 16 (D.D.C. 2003) (quoting United States ex rel. Zissler v. Regents of Univ. of Minn., 154 F.3d 870, 872 (8th Cir. 1998)). "Because the outcome of [a qui tam action] could have claim or issue-preclusive effect on the United States, 'the need for adequate legal representation on behalf of the United States is obviously essential.'" United States ex rel. v. Fisher v. Network Software Assocs., 377 F. Supp. 2d 195, 197 (D.D.C. 2005) (quoting Rockefeller, 274 F.Supp. 2d at 16) (finding that pro se relator could not pursue qui tam action without counsel). In this sense, qui tam suits are analogous to class actions and shareholder derivative suits in that courts have required named plaintiffs suing on behalf of others to retain counsel. See Phillips v. Tobin, 548 F.2d 408, 411 (2d Cir. 1976) (holding that pro se plaintiff cannot bring shareholder derivative suit).

In United States v. Onan, 190 F.2d 1 (8th Cir. 1951), the Eighth Circuit stated that "Congress could [not] have intended to authorize a lay[person] to carry on [a qui tam] suit [on behalf of] the United States but[instead] must have [intended] that such a suit would be carried on in accordance with . . . established procedure[,] which requires that only one licensed to practice law may conduct proceedings in court for anyone other than himself." Onan, 190 F.2d at 6. More recently, in United States ex rel. Lu v. Ou, 368 F.3d 773, 775 (7th Cir. 2004), the Seventh Circuit concluded that "[a] rule that limits legal representation [in a qui tam action] . . . to lawyers operates to filter out frivolous litigation that can redound to the harm of the represented party. . ." See also Safir v. Blackwell, 579 F.2d 742, 745 n.4 (2d Cir. 1978) (noting in dicta Onan's requirement that a pro se litigant may not pursue a qui tam action without counsel).*fn7

Plaintiff argues that, because the Government has declined to intervene in this action, he is not representing the interests of the United States. However, the United States remains the real party in interest in a qui tam action, with the very real prospect of issue preclusion, even after it has declined to intervene. United States ex rel. Kreindler & Kreindler v. United Techs. Corp., 985 F.2d 1148, 1154 (2d Cir. 1993).*fn8 Indeed, the need for adequate legal representation on behalf of the United States is most pronounced when, as here, a private relator is pursing a qui tam action in the Government's stead. Nor may Bal "bifurcate" the qui tam claim and pursue only his share of the recovery. See Rockefeller, 274 F. Supp. at 18 ("The idea that a relator can independently pursue what would amount to his or her personal part of a FCA lawsuit without affecting the United States' rights in the action ...

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