US ex rel. CHARTE v. AMERICAN TUTOR, INC.

US ex rel. CHARTE v. AMERICAN TUTOR, INC., 3rd Circuit, Filed August 12, 2019

https://bit.ly/2KAT5vW

      American Tutor sued Jean Charte and alleged three tort claims, including defamation, in New Jersey state court. In 2009, Charte answered the complaint and asserted counterclaims. More than three and a half years later, the parties signed an agreement to dismiss the lawsuit.

      Before the state court had dismissed the lawsuit, Charte filed a qua tam action in federal court against the plaintiffs in the state suit. In the federal suit, Charte alleged that the defendants violated both the New Jersey and federal False Claims Acts. In accordance with the requirements of the Acts, the qui tam action was filed under seal and remained sealed while the Government investigated Charte’s claims. As a result, Charte’s former employers were unaware that they held two simultaneous roles in different forums: they were plaintiffs in state court and defendants in federal court. It was during this mandatory seal period that the state court action was settled and dismissed. The qui tam action stayed under seal for over seven years—until October 2017, when the District Court unsealed the complaint after being notified by the Government of its decision not to intervene. As a result, Charte proceeded as the qui tam relator and served the complaint on American Tutor. In February 2018, the district court granted American Tutor’s motion for summary judgment, applying the entire controversy doctrine, which is NJ’s application of res judicata principles.

      The Third Circuit reversed the district court’s order. The Court found that for three reasons—1. The qua tam suit belonged to the government; 2. Charte had clean hands; she followed every statutory requirement that applied to qui tam relators; and 3. Application of the entire controversy doctrine in this case would create disfavored incentives—preclusion would be unfair to both Charte as the named-party-relator and the Government as the real party in interest.