NASHVILLE, Tenn. (Legal Newsline) - The Tennessee Supreme Court ruled last week that a termite control company is eligible to receive a portion of the proceeds from a county's settlement with a competing vendor.

Environmental Termite & Pest Control Inc., a vendor of termite control services, had become suspicious that two of its competitors overbilled Knox County for services provided to the county's public schools.

After confirming its suspicions by obtaining and reviewing public records and by hiring an attorney and private investigator, Environmental presented a detailed report of its findings to county officials who were unaware that the overbilling had occurred.

When the county delayed taking remedial action, Environmental filed a qui tam lawsuit in the Chancery Court for Knox County. The county joined the Environmental's lawsuit and eventually settled with two other companies named as defendants in Environmental's lawsuit.

When Environmental sought a share of the county's settlement with one of the defendants, the county asserted that the company was not eligible to receive any of the proceeds.

The trial court heard the matter without a jury and held that Environmental was an "original source" and was entitled to receive 28 percent of the settlement proceeds, or $71,546.46.

The Court of Appeals affirmed the trial court's conclusion that Environmental was entitled to recover 28 percent of the value of the settlement proceeds but remanded the case for the purpose of redetermining the value of the proceeds.

The county then filed an appeal on the sole issue of whether Environmental is eligible to recover a portion of the settlement proceeds.

The Court, in its July 20 opinion, affirmed the decisions of both the trial court and the appeals court.

Justice William C. Koch Jr. authored the Court's 20-page opinion.

Koch explained that to be an "original source," a qui tam plaintiff must have direct and independent knowledge of the information on which the allegations referenced in state code are based; voluntarily provide this information to the state or political subdivision before filing an action based on that information; and the information provided by the qui tam plaintiff must have provided the basis or catalyst for the investigation, hearing, audit or report that led to the public disclosure as described in state code.

"After becoming suspicious of the billing practices of both Arrow (Exterminators Inc.) and Allied (Pest Control), Mr. (Edward) Howard (Environmental's president) hired an attorney and a private investigator, at considerable expense, to follow up on his suspicions. In addition to these expenditures, Environmental employees dedicated a considerable amount of staff time and other resources to review public records, notably invoices, payment records and building diagrams," the Court wrote.

"Environmental's initial examination of the public records, which no County employee had undertaken, uncovered a consistent pattern of overbilling beginning in 1997. When Environmental's initial investigation was underway, there had been no public disclosure of the overbilling problem, nor had any administrative, civil or criminal investigation or proceedings been commenced. It is undisputed that prior to receiving Environmental's February 2001 report, the overbilling uncovered by Environmental had gone entirely undetected by County employees."

While both Environmental and Knox County relied on public records in their investigations into the overbilling, none of those public documents turned over to Environmental during its investigation addressed overbilling, the Court said.

"Instead, it was Environmental's diligent and thorough review of the seemingly innocuous public purchasing records that uncovered Arrow's and Allied's overbilling practices," it wrote.

As such, Environmental qualifies as an "original source," the Court concluded.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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