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Paul Houck, on Behalf of the United States of America v. Folding Carton Administration Committee, in Re Folding Carton Antitrust Litigation. Appeal of United States of America

Citation: 881 F.2d 494Docket: 88-1314

Court: Court of Appeals for the Seventh Circuit; September 15, 1989; Federal Appellate Court

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Two related cases with different issues were consolidated for appeal and heard by the United States Court of Appeals for the Seventh Circuit. A motion was filed by the Folding Carton Administration Committee to change the title and designation of the case to reflect a mandamus proceeding against Judge Hubert L. Will, seeking to vacate a settlement agreement approved in 1985 and recover distributed funds. The District Court had directed the Administration Committee to appoint members to assist in the case. However, the title and designation remained unchanged while the case was in the district court. The United States contended that mandamus could be a means to enforce a prior mandate from 1984 and requested Judge Will be allowed to respond if the case was treated as mandamus. Despite these considerations, the court determined that the fundamental issues remained unchanged, having been thoroughly briefed and argued twice, resulting in the denial of the motion.

The appeal originates from a settlement related to a significant civil antitrust case concerning a price-fixing conspiracy among folding carton manufacturers, violating the Sherman Act. The settlement of approximately $200 million resulted in a Reserve Fund of about $6 million, intended for late claims and contingencies, as per a district court order from March 6, 1980. The Administration Committee was tasked with managing claims and proposed using the Reserve Fund to create an "Antitrust Development and Research Foundation" to study antitrust law. This proposal faced objections from class members and defendants, leading to a first appeal (In Re Folding Carton Antitrust Litigation, 744 F.2d 1252, 7th Cir. 1984). The appellate court affirmed that neither the plaintiff class nor defendants had further claims to the Reserve Fund and supported the district court’s consideration of the cy pres doctrine for the fund's distribution. However, it explicitly rejected the establishment of the proposed foundation, labeling it unnecessary and an abuse of discretion, ultimately directing that the remaining funds escheat to the United States under 28 U.S.C. §§ 2041 and 2042, while allowing late claimants to recover from the U.S. Judge Flaum concurred in part but dissented regarding the escheatment to the United States, arguing it should go to the states instead. An order was issued reaffirming the direction for escheatment to the U.S.

The issue of whether title to the Reserve Fund would vest in the United States due to escheat was noted as unresolved to avoid an advisory opinion. In a supplemental order, the court clarified that "escheat" in this context differed from its application to states. There was no remand, and Judge Flaum, while denying a petition for rehearing, did not agree with the supplemental order's reasoning. The court showed no interest in an en banc petition and denied a motion to stay its mandate. Subsequently, some parties, including district judges Robson and Will, filed certiorari and mandamus petitions in the Supreme Court, arguing that the appellate court improperly substituted its discretion for that of the district court and misinterpreted escheat law, marking the beginning of new litigation.

While these petitions were pending, parties negotiated a settlement regarding excess funds not compliant with the court's mandate. This settlement proposed that remaining funds, after accounting for late claims, be divided equally between (1) a pro rata distribution to previously compensated class members, and (2) funding for Chicago-area law schools for antitrust research and support for needy students. The proposal included soliciting applications from law schools for fund distribution.

Before finalizing the settlement, the Administration Committee sought the position of the U.S. Attorney's office in Chicago regarding the statutory escheat interest, initiating contact in December 1984. Following discussions and correspondence, it was confirmed in February 1985 that a stipulated settlement was being considered. At a March 1985 hearing, the government did not appear, leading to a continuance by Judge Will. Subsequently, a class attorney met with the Chief of the Civil Division of the U.S. Attorney's office, who indicated no objection to the settlement. The settlement was approved on March 18, 1985, and the pending Supreme Court petitions were voluntarily dismissed thereafter, with Judges Robson and Will withdrawing their petitions.

Approximately $3.6 million remained in the Reserve Fund after the payment of costs and expenses related to late claims. Per the settlement agreement, half of these funds were distributed pro rata to around 2,700 class members who had previously received compensation. Six Chicago law schools applied for grants from the Reserve Fund, leading the district court, with input from the Administration Committee, to approve a $1.2 million grant to Loyola University for a Center for Antitrust Law in the Public Interest and a $156,000 grant to the University of Chicago for a study on jury performance in complex litigation, specifically antitrust cases. Although the grant to Loyola was disbursed, the implementation of both grants was stayed due to a qui tam complaint filed by Paul Houck under the False Claims Act, which the government initially chose not to intervene in.

Two months later, the government sought to intervene and vacate the settlement agreement, claiming it was contrary to the law of the case and that it had not consented to the settlement. The motion was joined by the United States Attorney's office and the Civil Division of the Department of Justice, asserting that the intervention was timely as it occurred upon realization that fund distribution had begun. Judge Will denied the government's motion, noting that the government had received multiple notices about the settlement and had indicated no objection through its representatives. The court weighed the potential prejudice to existing parties and concluded that it would be challenging to recover amounts already distributed to class members, thus favoring denial of the intervention. The court also stated that the previous opinion was not final due to pending appeals and affirmed that the Chief of the Civil Division had the authority to act on behalf of the government. The government subsequently appealed the decision. The situation raises concerns about the court's authority and the enforcement of its judgments, emphasizing that parties should regard the court's mandates seriously to avoid repercussions.

Certain cases can be settled differently by the parties even after a court resolution. For instance, in ordinary damage suits, parties can settle around court-awarded money judgments to avoid risks and expenses associated with further appeals or trials. However, the court's opinions are not merely advisory. In this case, the distribution of funds was not executed by the prevailing parties but by the Commission and the district court, both lacking rights to the funds. Importantly, the court had previously directed against a specific use of the funds, which must be honored in any settlement. 

The United States Attorney's office failed to protect the federal interest outlined by the court and consented to a settlement that undermined that interest, an action deemed an "error" by the Department of Justice. The Civil Division responded adequately but too late to support the court's judgment. The key issue is whether the United States Attorney’s handling of the matter aligns with government regulations regarding settlement authority. Notably, no representative from the United States appeared or authorized the settlement in question, which involved a significant amount exceeding the $750,000 settlement authority limit established by federal regulations. Proper procedure would have required the United States Attorney to appear for approval of any settlement conflicting with court directives and involving government interest. The regulations and escheat statutes must be examined to understand the implications of this situation better. At the time of the settlement, the potential amount at stake was around six to seven million dollars, well beyond the settlement authority limits.

At the time of the settlement, the Assistant Attorney General had delegated settlement authority to U.S. Attorneys for claims not exceeding $100,000, now increased to $200,000, which was still below the claim amount in question. The district court did not consider relevant government regulations, leading to ambiguities regarding whether the court's actions constituted an acceptance of a compromise offer on behalf of the United States. The court purported to create an interest in the Reserve Fund for the U.S., which was rejected by the U.S. Attorney's office, raising questions about whether the claim was for or against the United States.

Judge Will criticized the district court's "escheat" ruling, stating it was neither requested nor desired by the parties, and noted it lacked proper hearings, causing confusion. He deemed the court's opinion as "silly" and clarified that the interest given to the government was not a "true escheat." He, along with dissenting Judge Flaum, concluded that the arrangement could not be a true escheat if it remained available in the U.S. Treasury for late claimants. The majority opinion in Folding Carton I acknowledged that claimants could still receive shares even post-escheat, and the unclaimed five-year period before escheat had nearly expired.

Overall, the ruling indicated that the transfer of the Reserve Fund to the U.S. was not unconditional ownership, as the U.S. was merely a stakeholder, and the escheat statute intended to consolidate unclaimed funds for potential claimants. Hence, the settlement likely did not represent a standard claim on behalf of the U.S., making government regulations potentially inapplicable. The document suggests invoking an estoppel against the U.S. despite reluctance, noting that under Rule 24(a), the U.S. must claim an interest in a timely manner, which it failed to do. Any unusual circumstances to excuse this delay did not outweigh the factors considered in the estoppel assessment.

The United States Attorney's office's lack of response significantly contributed to complications regarding a settlement, leading to an additional distribution to 2,700 individual claimants and the involvement of law schools. The doctrine of equitable estoppel, as discussed in *Portmann v. United States*, applies here, emphasizing that the United States Attorney acts as the government's legal representative. Their conduct prejudiced various parties and the court's original mandate. The court confirmed that the United States has no remaining interest in the Reserve Fund under 28 U.S.C. Sec. 2042, affirming the denial of its motion to intervene, thus excluding it from the case.

In *Folding Carton I*, the court ruled that the plaintiff class had no further claims on the Reserve Fund, although the district court later approved an additional distribution to claimants, which the court now considers settled. The claimants, being victims of the conspiracy, retain some entitlement to additional shares of the Reserve Fund. However, the status of the other half of the Reserve Fund differs; the proposed creation of an antitrust foundation was deemed inappropriate and an abuse of discretion. The settlement's provision for payments to two law schools for research projects violated the court's mandate and is therefore voided. Any funds allocated to these schools must be returned to the district court, although they may claim reasonable attorneys' fees from the Reserve Fund for their involvement.

Upon remand, the cy pres doctrine will be employed at the discretion of the district court, which must adhere to the prohibition established in Folding Carton I against using funds for antitrust purposes. The law schools, Loyola and the University of Chicago, remain eligible beneficiaries under the cy pres doctrine but the district court's discretion is independent of previous proceedings. The court may explore new uses for the funds nationwide, while any determination made remains solely within its discretion, irrespective of prior unsuccessful attempts. 

No distributions to the plaintiff class or settling defendants are permitted, nor will late claimants be recognized, as all settlement options have been exhausted. The district court is tasked with verifying compliance with the directive from Folding Carton I regarding fees for the Foundation's establishment; any non-compliance requires retrieval of those fees to the Reserve Fund. 

Legal fees related to the now-voided effort for antitrust use are not allowed, though fees for the U.S. motion to intervene and other non-voided matters may be permitted. Fees for the appeal will also be limited similarly, prohibiting those associated with the failed antitrust initiatives. 

The court affirms the denial of the U.S. intervention petition and remands the case for further proceedings, allowing the district court to decide on the appointment of an Administration Committee. The district court’s final decision must be filed with the Clerk of the court for review by the current panel, which retains jurisdiction to address related issues. The parties will bear their respective costs. The ruling is affirmed in part, reversed in part, and remanded. Separately, Paul Houck's appeal regarding the dismissal of his qui tam action for lack of jurisdiction is affirmed.

Factual background outlines the litigation's basis, referencing the prior settlement agreement from Folding Carton I, which mandated the Reserve Fund's distribution to late claimants and the Administration Committee for administrative costs and attorneys' fees. Remaining funds were to be split equally between class member claimants and Chicago-area law schools. Houck, assisting late claimants, filed a qui tam action in 1987, claiming that the Administration Committee and related parties knowingly violated the court's mandate by misappropriating funds. In his amended complaint, Houck alleged that the claims submitted were false under the False Claims Act, that committee members breached fiduciary duties, and that a constructive trust should be established, asserting fraud upon the court under Rule 60(b) of the Federal Rules of Civil Procedure. The district court dismissed Houck's complaint due to lack of subject matter jurisdiction, and he appealed.

The analysis segment states that the court reviews the dismissal de novo, accepting well-pleaded allegations as true. The district court correctly dismissed Houck's qui tam claim under the False Claims Act, which aims to recover fraudulently taken government funds. The Act allows private citizens to bring actions on behalf of the government under certain conditions. The district court applied the amended provisions of the Act, effective October 27, 1986, rejecting the Administration Committee's argument for applying the pre-amendment version. The court noted that Houck's claims were submitted for distribution after the amendments took effect, thereby making them relevant for the current interpretation. The dismissal was also based on section 3730(e)(4)(A) of the Act, which limits jurisdiction over actions based on publicly disclosed allegations unless brought by the Attorney General or if the relator is the original source of the information.

Under 31 U.S.C. § 3730(e)(4)(A), a qui tam plaintiff cannot initiate an action based on publicly disclosed allegations unless they qualify as an "original source." The previous provision allowing such actions if the government did not act within six months of disclosure was removed. Consequently, current law prohibits qui tam actions based solely on publicly disclosed transactions. In this case, the information Houck relied on was publicly disclosed in folding Carton I, 744 F.2d 1252 (7th Cir. 1984), which precludes him from proceeding unless he is deemed an "original source." An "original source" is defined as someone with direct and independent knowledge of the information who has voluntarily provided it to the government before filing the action. Although the district court recognized Houck's knowledge as "direct" due to his involvement in assisting claimants, it ruled that his knowledge was not "independent," as he did not demonstrate that he would have known the claims without prior public disclosure. Therefore, the court concluded it lacked subject matter jurisdiction over Houck's claim. 

Additionally, Houck attempted to seek relief via an independent action under Rule 60(b) of the Federal Rules of Civil Procedure, alleging the settlement order was obtained through fraud. However, the court found he lacked standing to pursue this action, as he did not personally suffer injury and could not represent the United States as a qui tam plaintiff. Cases cited by Houck regarding standing were deemed irrelevant, as they involved parties with direct legal interests affected by the judgments in question.

A movant seeking to invalidate a fraudulent judgment must demonstrate that their legal interests are affected, as established in several cases including Hazel-Atlas Glass Co. v. Hartford-Empire Co. and Martina Theatre Corp. v. Schine Chain Theatres, Inc. Even if fraud upon the court is alleged, a nonparty must still possess standing under Rule 60(b) to initiate such an action, as indicated in Kem Mfg. Corp. v. Wilder. In the current case, Houck, acting on behalf of the United States, was deemed to lack standing for an independent action under Rule 60(b). Additionally, claims related to breach of fiduciary duty and constructive trust were dismissed due to lack of subject matter jurisdiction, highlighting that state law claims cannot be heard in federal court without a compelling federal issue. The court affirmed that no interest in the Reserve Fund remains for the United States, and the Administration Committee is entitled to reasonable attorney's fees from that fund. The U.S. was properly denied intervention, and the qui tam plaintiff's claim was dismissed for lack of jurisdiction. The court's mandate will proceed as outlined, with each party bearing their own costs. The underlying litigation is detailed in a previous opinion by District Judges Robson and Will. Relevant statutes regarding funds deposited in U.S. courts are cited, emphasizing the court's authority over such funds.

In cases where money deposited in court under section 2041 remains unclaimed for five years, the court must deposit the funds in the Treasury for the United States. Claimants can petition the court to retrieve these funds, provided they notify the U.S. attorney and prove their entitlement. Reference is made to the In Re Folding Carton Antitrust Litigation case regarding interactions with the U.S. Attorney's office. The Assistant Attorneys General are authorized to accept settlement offers up to a certain limit without needing further approval, but any unresolved settlement disputes must be escalated for approval. 

Intervention in legal actions is permitted if a U.S. statute grants the right or if the applicant has a significant interest in the matter that could be impaired by its outcome, unless adequately represented by current parties. Additionally, the Federal Judicial Center Foundation has been established to manage gifts aimed at enhancing the Judicial Center's educational and research missions. The Board of the Foundation is appointed by key government officials, and all gifts must be deposited in a Treasury fund for future use.

The document does not address the issue of the Administration Committee's immunity due to a lack of subject matter jurisdiction, and the denial of attorneys' fees was not contested on appeal. Legal precedents are also cited for reference.