J. Hilton Brooks, Iii, M.d. v. United States of America

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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2004 FED App. 0307P (6th Cir.)
File Name: 04a0307p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
J. HILTON BROOKS, III, M.D.,
Plaintiff-Appellant,
v.
UNITED STATES OF AMERICA,
Defendant-Appellee.
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No. 03-5610
Appeal from the United States District Court
for the Eastern District of Kentucky at London.
No. 01-00452—J. B. Johnson, Magistrate Judge.
Argued: August 5, 2004
Decided and Filed: September 10, 2004
Before: KENNEDY, SUTTON, and COOK, Circuit
Judges.
_________________
COUNSEL
ARGUED: Philip E. Wilson, WILSON LAW OFFICE,
Lexington, Kentucky, for Appellant. Kenneth W. Rosenberg,
UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Appellee. ON BRIEF: Philip E.
Wilson, WILSON LAW OFFICE, Lexington, Kentucky, for
Appellant. Kenneth W. Rosenberg, Kenneth L. Greene,
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UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Appellee.
_________________
OPINION
_________________
KENNEDY, Circuit Judge. The taxpayer, Dr. Hilton
Brooks, appeals the district court’s order granting summary
judgment to the United States, holding that no part of a qui
tam relator’s award granted under Section 3730(d) of the
False Claims Act is excludable from gross income under
Internal Revenue Code § 104(a)(2) because the award does
not constitute “damages received ... on account of personal
injuries” as § 104(a)(2) requires. We agree with the district
court, and AFFIRM.
BACKGROUND
The taxpayer, Dr. Hilton Brooks, was a physician on the
medical staff at Pineville Community Hospital, Pineville,
Kentucky, and was a member of the hospital’s quality
assurance committee. While carrying out his committee
duties, Dr. Brooks discovered what he determined to be
numerous billing improprieties by Pineville Community
Hospital and two physicians. Rather than correcting the
improprieties, the hospital rebuffed Dr. Brook’s efforts and
subjected him to a variety of retaliatory abuses. For instance,
he was pressured to cease investigating the fraudulent billing
practices and to relocate his practice elsewhere; he was
threatened with loss of clinical privileges; he was reviewed
“unfavorably” and advised that he would not be reappointed
to the medical staff; and he was criticized in the hospital
newsletter for having a “disruptive attitude.”
Pursuant to the qui tam provisions of the False Claims Act
(FCA), 31 U.S.C. § 3729 et seq., which allows individual
citizens to sue for fraud on behalf of the government and to

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No. 03-5610 Brooks v. United States 3
receive part of the government’s recovery, Dr. Brooks filed an
FCA claim asserting that the hospital and two of its doctors
had submitted fraudulent Medicare and Medicaid bills to the
government for payment. Although the United States is
entitled to intervene in such a case, it initially declined to do
so here. Dr. Brooks litigated the action through discovery,
and trial was scheduled. At that point, the United States
opted to intervene.
Rather than proceed to trial, the defendants agreed to pay a
total of $2.5 million dollars to the United States to settle the
FCA action for fraudulent billing. In the settlement
agreement the defendants admitted that they had violated
numerous regulations governing various health care programs
relating to payments for medical procedures. The district
court approved this settlement agreement and granted Dr.
Brooks a relator’s award of 25% of the net settlement amount
remaining after payment of attorney fees and reimbursable
costs. The net dollar amount of the qui tam award was
$210,067, which resulted in income tax of $78,607.
In addition, a separate settlement agreement was entered
into between Dr. Brooks, the hospital, and four doctors at the
hospital, to release them from any personal injury claims,
including claims for retaliation and defamation, that might
exist against them. The hospital paid Dr. Brooks the sum of
$300,000, which was expressly stated to be “damages
received on account of personal injuries within the meaning
of Section 104(a)(2).”
Dr. Brooks included the $210,067 relator’s award in his
gross income and timely paid $78,607 in income taxes on that
amount. He excluded from income the separate settlement of
$300,000 in compensatory damages for “personal injuries,”
with full disclosure to the IRS, and the IRS approved the
exclusion. He thereafter claimed a refund of the $78,607 tax
he paid on the relator’s award, asserting that at least part of
the award can be excludable from income under 26 U.S.C.
§ 104(a)(2) as damages received on account of personal
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injuries. The IRS disallowed his claim for refund, and Dr.
Brooks filed suit in the district court seeking a refund of the
income tax he had paid on the qui tam relator award. After
the district court ruled in favor of the government, this appeal
followed.
ANALYSIS
We review a grant of summary judgment de novo. Farhat
v. Jopke, 370 F.3d 580, 587 (6th Cir. 2004). Summary
judgment is appropriate when “the pleadings, depositions,
answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine issue
as to any material fact and that the moving party is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(c). Both
parties agree that this case presents no issue of material fact
with respect to the issue of law presented.
The Internal Revenue Code broadly defines gross income
as “all income from whatever source derived.” 26 U.S.C.
§ 61(a). The Supreme Court has broadly construed and
repeatedly emphasized the sweeping scope of this section.
See Commissioner v. Schleier, 515 U.S. 323, 327 (1995); See
also Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429
(1955). The corollary to § 61(a)’s broad construction, the
Court has noted, is “that exclusions from income must be
narrowly construed.” Schleier, 515 U.S. at 328 (quoting
United States v. Burke, 504 U.S. 229, 248 (Souter, J.,
concurring in judgment)). The taxpayer’s qui tam relator’s
award, therefore, must constitute gross income unless the
taxpayer is able to show that it is “expressly excepted by
another provision in the Tax Code.” Id.
The taxpayer relies upon § 104(a)(2) (1995) in arguing that
his award, or at least part of it, should be exempted from
gross income. Section 104(a)(2) provides that gross income
does not include “the amount of any damages received
(whether by suit or agreement and whether as lump sums or
as periodic payments) on account of personal injuries or

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No. 03-5610 Brooks v. United States 5
1Congress amended § 104 (a)(2) in 1996 to read, gross income does
not include “the amount of any damages received ... on account of
personal physical injuries or physical sickness.” (emphasis added). This
amended version does not apply to the present case as the district court
granted the taxpayer his award in 1 995 , prior to the 1996 amendment.
sickness.”1 The implementing treasury regulation, 26 C.F.R.
§ 1.104-1(c) (1994), defines “damages received” as “an
amount received ... through prosecution of a legal suit or
action based upon tort or tort type rights, or through a
settlement agreement entered into in lieu of such
prosecution.” Thus, under the statute and regulation, for
income to be excluded under § 104(a)(2), the taxpayer must
1) “demonstrate that the underlying cause of action giving rise
to the recovery is based upon tort or tort type rights;” and
2) “show that the damages were received on account of
personal injuries or sickness.” Schleier, 515 U.S. at 337
(1995) (internal quotation marks omitted).
In attempting to establish that at least part of his relator’s
award may be excluded from gross income pursuant to
§ 104(a)(2), the taxpayer presents the following argument.
He first notes that a relator’s qui tam award is limited to a
percentage. Since the government intervened here, his
potential award ranged from fifteen to twenty-five percent of
the net amount received by the government. § 3730(d)(1).
He argues that the percentage to be used in determining the
amount of a relator’s qui tam award is influenced by whether
the relator suffered personal injuries or sickness. Since the
amount of a relator’s qui tam award is influenced by whether
he suffered personal injuries in prosecuting the FCA action,
he concludes, the award thus compensates him for the
personal injuries he received while prosecuting the action.
Rather than immediately address the taxpayer’s argument,
we first consider the requirements for exclusion under
§ 104(a)(2) as enunciated by the Schleier Court. The taxpayer
runs into immediate difficulty with the first prong, as he fails
to demonstrate that the underlying cause of action giving rise
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to his recovery is based upon tort or tort type rights. The fact
that a qui tam plaintiff may suffer personal injuries while
prosecuting an FCA claim does not transform the FCA claim
into one based upon tort or tort type rights. The primary
purpose of the FCA claim is to ensure that the United States
gains restitution of money fraudulently obtained from it.
Thus, the underlying cause of action that gives rise to the
taxpayer’s relator’s award is based upon contract fraud, not a
tort.
Not only is the underlying cause of action not based upon
tort or tort type rights, but it also does not compensate the
taxpayer for an injury inflicted upon him. Rather, the FCA
permits a qui tam plaintiff to bring a suit in the name of the
United States for contract fraud committed against it.
31 U.S.C. § 3730(b)(1). The Supreme Court’s decision in
Vermont Agency of Natural Resources v. United States ex rel.
Stevens, 529 U.S. 765 (2000), highlights the fact that the
injury that is redressed in a qui tam action under the FCA is
an injury to the government. The issue in Vermont Agency of
Natural Resources was whether a qui tam plaintiff had
standing to bring an FCA claim on behalf of the United States
against a State. Id. at 768. The Court noted that an interest
sufficient to confer standing to maintain the suit “must consist
of obtaining compensation for, or preventing, the violation of
a legally protected right.” Id. at 772. A qui tam plaintiff, the
Court noted, “has suffered no such invasion [of a legally
protected right].” Id. at 773. Although the Court found that
a qui tam plaintiff suffers no invasion of a legally protected
right, it nonetheless found that a qui tam plaintiff has standing
to assert a claim based on “the doctrine that the assignee of a
claim has standing to assert the injury in fact suffered by the
assignor. [Therefore, the False Claims Act] can reasonably be
regarded as effecting a partial assignment of the
Government’s damages claim” to the qui tam plaintiff. Id.
The structure of the act further supports the conclusion that
the qui tam relator’s award is not based upon tort or tort type
rights. As the district court observed, any tort that could be

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No. 03-5610 Brooks v. United States 7
considered to have been committed against the taxpayer
would be one for retaliation by the defendants. This wrong is
separately compensated for under the FCA’s “whistleblower”
provision, 31 U.S.C. § 3730(h). Section 3730(h) provides
that an “employee who is discharged, demoted, ... harassed,
or in any other manner discriminated against ... by his or her
employer because of lawful acts done by the employee on
behalf of the employee or others in furtherance of a [FCA
claim] ... shall be entitled to all relief necessary to make the
employee whole.” Thus, this section, § 3730(h), not
§ 3730(d), provides compensation for injuries suffered by the
qui tam plaintiff. Although § 3730(h) only applies to
employees (rather than independent contractors, for instance),
this does not militate against our conclusion that Congress did
not intend § 3730(d) to compensate qui tam plaintiff’s for
personal injuries. The fact that Congress, in enacting
§ 3730(h), not only considered allowing personal injury
damages, but in fact actually provided a cause of action for
their recovery, supports our conclusion that Congress did not
intend § 3730(d) to compensate qui tam plaintiffs for personal
injuries.
The taxpayer has also failed to establish that his award was
received on account of personal injuries or sickness. In
arguing that his relator’s award was received, at least in part,
on account of personal injuries or sickness, the taxpayer
principally relies upon United States v. NEC Corp., 11 F.3d
136 (11th Cir. 1994). In NEC, the plaintiff brought a qui tam
action against the United States to recover a portion of a
settlement procured by the government as a result of
information provided by the plaintiff. 11 F.3d at 137.
Subsequently, however, the plaintiff died. Id. The issue in
NEC was whether the plaintiff-relator’s qui tam action
survived his death. Id. To determine whether the cause of
action survived the qui tam plaintiff’s death, the court needed
to consider whether the action was remedial or penal with
respect to the qui tam plaintiff. Id. In considering this issue,
the court first asked whether the statute redressed individual
wrongs or more general wrongs to the public. Id. In
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concluding that the statute does not redress solely general
wrongs to the public, but rather also redresses individual
wrongs suffered by a qui tam relator, the court opined that a
qui tam relator may endure emotional strain when he
discovers fraud as he is faced with the choice “of keeping
silent about the fraud, and suffering potential liability ..., or
reporting the fraud and suffering repercussions, [such] ... as
dismissal.” Id. at 138. Even if we were to agree with the
NEC court that a qui tam action is remedial with respect to the
qui tam plaintiff, that would nonetheless not compel the
conclusion that a qui tam relator’s award is received on
account of personal injuries within the meaning of § 104(a)(2)
of the Tax Code.
The FCA provides that the percentage of the award that the
qui tam plaintiff will receive depends upon “the extent to
which the [qui tam plaintiff] substantially contributed to the
prosecution of the action.” § 3130(d)(1). Even if the
percentage that a qui tam plaintiff receives in prosecuting a
FCA claim were influenced by whether he received personal
injuries in prosecuting the action, that fact would still not
transform the qui tam plaintiff’s recovery into one “on
account of personal injuries.” It is the nature of the
underlying claim itself that determines whether the plaintiff
has received compensation on account of personal injuries
within the meaning of § 104(a)(2). Regardless of whether a
qui tam plaintiff received fifteen percent or twenty-five
percent of the proceeds recovered by the government, the fact
that he receives anything at all is on account of his decision
to bring the lawsuit on behalf of the government, and not on
account of any personal injuries inflicted upon him.
Since we conclude 1) that the underlying cause of action
(the FCA claim) is based upon contract fraud inflicted upon
the government, not a tort inflicted upon the relator, and
2) that the relator received his award on account of initiating
the prosecution of the FCA claim on behalf of the
government, not on account of personal injuries inflicted
upon himself, we therefore AFFIRM the district court’s

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No. 03-5610 Brooks v. United States 9
holding that a qui tam relator’s award is not excludable from
gross income under § 104(a)(2).

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