R. Scott Oswald Managing Principal The Employment Law Group, P.C.

Recent amendments to the False Claims Act (“FCA”), 31 U.S.C. § 3729, et seq., and new case law have substantially changed the face of the public disclosure doctrine and original source exception under the Act.  For over 100 years, the FCA imposed no limits as to who could serve as a qui tam relator.  This changed in 1986, when Congress amended the FCA to include what is now known as the “public disclosure bar.”  Nevertheless, as with most rules, there are exceptions.  In the case of the public disclosure bar, individuals who were the original source of the publicized information could still retain their relator status.  From the 1986 amendments to today, numerous courts have espoused their interpretations of the public disclosure bar and original source exception.  Congress itself amended these two doctrines in 2010 with the Patient Protection and Affordable Care Act (“PPACA”), Pub. L. No. 111-148.  In the over 25 years since the 1986 amendments, Congress has continued to narrow the public disclosure bar and broaden incentives for true whistleblowers, while federal courts continue to struggle with interpreting the language of the FCA. 

In order to punish war profiteering during the Reconstruction following the Civil War, Congress passed and President Abraham Lincoln signed the FCA in 1863, Act of Mar. 2, 1863, ch. 67, 12 Stat. 696.  That enactment made it a criminal offense for any person, to “present or cause to be presented for payment or approval to or by any person or officer in the civil or military service of the United States, any claim upon or against the Government of the United States, or any department or officer thereof, knowing such claim to be false, fictitious, or fraudulent.”  Hubbard v. United States, 514 U.S. 695, 704 (1995).  The 1863 Act prohibited only those false statements made “for the purpose of obtaining, or aiding in obtaining, the approval or payment of [a false] claim.” Id. at 705 (citing 12 Stat. 696).  Civilian offenders faced civil liability in the amount of $2,000, double the amount of damage sustained by the United States, and costs.  Any person could sue in the name of the United States to recover the civil penalties.  The private parties, known as relators, were entitled to half of the penalty recovered and costs, if successful.  See Charles Doyle, Cong. Research Serv., RL 40785, Qui Tam: The False Claims Act and Related Federal Statutes 5-6 (2009).

There were no public disclosure limitations in the 1863 Act.  In United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943), a qui tam relator made a direct copy of a criminal indictment, incorporated those allegations in a civil action under the FCA, and requested his statutory share of any subsequent civil judgment.  The relator ultimately prevailed.  In response to the Marcus case, as well as a request from Attorney General Biddle to repeal the qui tam provisions of the FCA altogether, Congress passed Public Law 78-213, 57 Stat. 608 (1943), which curtailed some of the qui tam provisions.  See RL 40785 6-7.  Specifically, Congress amended the FCA to bar qui tam actions “based on evidence or information the Government had when the action was brought.”  Pub. L. No. 78-213, ch. 377, 57 Stat. 608.  The 1943 amendments also reduced the relator’s share to a maximum of 25%.

Almost 40 years later, in United States ex rel. State of Wisconsin v. Dean, 729 F.2d 1100 (7th Cir. 1984), the Seventh Circuit court of appeals held that the State of Wisconsin could not serve as a qui tam relator in a suit based upon evidence or information in possession of the United States at the time the suit was brought, notwithstanding the fact Wisconsin was the source of the information.  In response to this change in FCA interpretation, Congress passed additional amendments in 1986, Pub. L. No. 99-562, 100 Stat 3153 (1986).  These amendments created the meat of what is now the public disclosure bar and original source exception:

(A)  No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.

(B)  For purposes of this paragraph, “original source” means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information.

Pub. L. No. 99–562, §3 (codified at 31 U.S.C. § 3730(e)(4) (1986)).  According to the Third Circuit, the 1986 amendments demonstrated Congress's “principal intent…to have the qui tam suit provision operate somewhere between the almost unrestrained permissiveness represented by the Marcus decision…and the restrictiveness of the post-1943 cases, which precluded suit even by original sources.”  United States ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1154 (3d Cir. 1991).  The 1986 amendments also increased the relator’s share to a maximum of 30%.

Since the 1986 amendments, federal courts have issued numerous, often conflicting, decisions interpreting the public disclosure bar and original source exception.  One of the earlier issues to arise was the question of what constitutes a “public disclosure.”  Some circuits, such as the Third Circuit in Prudential, held that theoretical or potential availability was sufficient to qualify as a public disclosure that could bar a qui tam relator suit.  See 944 F.2d 1149, 1158 (information exchanged between private parties through discovery but not filed with the court is “potentially accessible to the public” and thus is publicly disclosed).  Other circuits, including the Ninth, Tenth, and D.C. Circuit, held that “public disclosure” means actual “affirmative” disclosure rather than potential availability.  See United States ex rel. Schumer v. Hughes Aircraft Co., 63 F.3d 1512, 1519-20 (9th Cir.1995); U.S. ex rel. Ramseyer v. Century Healthcare Corp., 90 F.3d 1514, 1519 (10th Cir. 1996); United States ex rel. Springfield Terminal Ry. v. Quinn, 14 F.3d 645, 652-53 (D.C.Cir.1994). 

There has also been some contention as to the definition of “based upon.”  In U.S. ex rel. McKenzie v. BellSouth Telecommunications, Inc., 123 F.3d 935 (6th Cir. 1997), the Sixth Circuit held that a qui tam action is precluded if it is “supported by” publicly disclosed information.  Citing United States ex rel. Fine v. Sandia Corp., 70 F.3d 568 (10th Cir.1995) (concluding that the district court lacked subject matter jurisdiction because previous disclosures had “sufficiently alerted the government to the likelihood that Sandia” would be engaged in fraudulent behavior); see also United States ex rel. Precision Co. v. Koch Indus., 971 F.2d 548 (10th Cir.1992) (interpreting “based upon” to mean “supported by,” which includes any action based even partly upon public disclosures). This has become the position of the majority of circuits.  See Minnesota Ass'n of Nurse Anesthetists v. Allina Health Sys. Corp., 276 F.3d 1032, 1044-7 (8th Cir. 2002).  The Fourth Circuit, and temporarily the Seventh Circuit, established the stricter “derived from” minority standard.  In United States ex rel. Siller v. Becton Dickinson & Co., the Fourth Circuit concluded that “based upon” means “derived from” and, therefore, “a relator's action is ‘based upon’ a public disclosure of allegations only where the relator has actually derived from that disclosure the allegations upon which his qui tam action is based.”  21 F.3d 1339, 1348 (4th Cir. 1994); see also United States v. Bank of Farmington, 166 F.3d 853, 863 (7th Cir. 1999), overruled by Glaser v. Wound Care Consultants, Inc., 570 F.3d 907 (7th Cir. 2009).

The Eleventh Circuit espoused a three-part inquiry to determine jurisdiction over an FCA claim based on publicly disclosed information: “(1) have the allegations made by the plaintiff been publicly disclosed; (2) if so, is the disclosed information the basis of the plaintiff's suit; (3) if yes, is the plaintiff an ‘original source’ of that information.”  Battle v. Bd. of Regents for Georgia, 468 F.3d 755, 762 (11th Cir. 2006) (citing Cooper v. Blue Cross and Blue Shield of Florida, Inc., 19 F.3d 562, 565 n. 4 (11th Cir. 1994)).  In 2007, the Supreme Court confirmed that the original source exception to the public disclosure bar on federal court jurisdiction is jurisdictional, and the Government cannot cure a lack of jurisdiction by intervening.  See Rockwell Int'l Corp. v. United States, 549 U.S. 457, 467-70, 476-78 (2007).  Consequently, if the qui tam relator cannot pass the three-part test, then the court cannot review his action, even if the U.S. intervenes.

Though it did not address the difference in interpretation of the term “based upon” related to the public disclosure bar, the Rockwell Court clarified the definition of the phrase “information on which the allegations are based” found in the original source exception.  The Court held that “information” refers to the information on which the qui tam relator's allegations are based, not the information on which the publicly-disclosed allegations that triggered the public-disclosure bar are based.  See id. at 470-72.  In other words, so long as the relator has direct and independent knowledge of the allegations he asserts in his own complaint, his claim is not barred if similar information has already been publicly disclosed. 

Another circuit split the Supreme Court intended to remedy was the question of whether state and local administrative reports, hearings, audits or investigations qualify as public disclosures under the public disclosure bar.  The Third and Fourth Circuits concluded that the public disclosure of state administrative actions did not amount to a public disclosure within the meaning of § 3730(e)(4)(A).  See United States ex rel. Dunleavy v. County of Del., 123 F.3d 734, 745 (3d Cir. 1997); U.S. ex rel. Wilson v. Graham County Soil & Water Conservation Dist., 528 F.3d 292, 301 (4th Cir. 2008) rev'd and remanded, 130 S. Ct. 1396 (U.S. 2010).  The Ninth and Eleventh Circuits, on the other hand, held that § 3730(e)(4)(A) encompassed state as well as federal administrative actions.  See United States ex rel. Bly-Magee v. Premo, 470 F.3d 914, 918-19 (9th Cir. 2006); Battle v. Board of Regents, 468 F.3d 755, 762 (11th Cir.2006).  On March 30, 2010, the Supreme Court upheld the latter view, siding with the Ninth and Eleventh Circuits.  See Graham County Soil & Water Conservation Dist. v. U.S. ex rel. Wilson, 130 S. Ct. 1396 (2010).

However, on March 23, 2010, seven days before the Supreme Court’s decision in Wilson, President Barack Obama signed into law the PPACA, which included several important amendments to the FCA and abrogated two Supreme Court decisions.  The PPACA amended § 3730(e)(4)(A) by confirming the public disclosure bar only applies to federal criminal, civil, or administrative hearings and federal reports, thus excluding state and local administrative actions.  See Pub.L. 111-148, Title X, § 10104(j)(2).  Consequently, Congress rendered the Wilson decision moot before it was announced.

The 2010 amendments also overturned the ruling of Rockwell as it related to the jurisdictional nature of the public disclosure bar and original source exception.  The PPACA removed the federal courts’ ability to use the public disclosure bar to dismiss a qui tam relator’s action if the Government opposes such dismissal.  See Pub.L. 111-148, Title X, § 10104(j)(2).  Because the Government, not the courts, has the ultimate say in whether the public disclosure of information can bar a qui tam suit, the issue is no longer jurisdictional.

Congress also ended the debate as to the definition of “based on” by removing the phrase from the section and expanding the definition of “original source.”  The original source exception now includes anyone who has “knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.”  See Pub.L. 111-148, Title X, § 10104(j)(2).  In sum, after the 2010 amendments, the public disclosure bar and original source exception now read:

(A) The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed--

(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party;

(ii) in a congressional, Government2 Accountability Office, or other Federal report, hearing, audit, or investigation; or

(iii) from the news media,

unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.

(B) For purposes of this paragraph, “original source” means an individual who either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section. 

31 U.S.C. § 3730(e)(4) (2010).

Recently, in May 2011, the Supreme Court, again, increased the scope of the public disclosure bar.  In Schindler Elevator Corp. v. U.S. ex rel. Kirk, 131 S. Ct. 1885 (2011), the Court held that federal Government responses to Freedom of Information Act (“FOIA”) requests constitute public disclosures and bar qui tam suits.  According to the 5-3 majority decision, a written agency response to a FOIA request falls within the ordinary meaning of “report.”  Id. at 1893.  “If an allegation or transaction is disclosed in a record attached to a FOIA response, it is disclosed ‘in’ that FOIA response and, therefore, disclosed ‘in’ a report for the purposes of the public disclosure bar.”   Id.  Because the Schindler Elevator case was pending when Congress passed the 2010 PPACA amendments, the Supreme Court did not apply those changes when issuing its decision.  See id. at 1889 n. 1.   

Various federal courts have discussed the holding of Schindler Elevator, narrowing its potentially broad application.  Four months before the Supreme Court decision, the Eastern District of Virginia ruled that to constitute public disclosure, a public disclosure must either reveal a fraud itself, or both a false statement and true statement of facts from which fraud could be inferred.  See U.S. ex rel. Davis v. Prince, 753 F. Supp. 2d 569 (E.D. Va. 2011); see also United States ex rel. Foundation Aiding the Elderly v. Horizon West, Inc., 265 F.3d 1011, 1015 (9th Cir.2001) (holding that to bar a relator’s claim, prior public disclosures must have revealed both a misrepresented state of facts and a true state of facts from which readers may infer that a fraud has been committed).  Since Schindler Elevator, other federal courts have applied the same rule in Davis to FOIA response.  The District Court for the District of Columbia, in U.S. ex rel. Purcell v. MWI Corp., 824 F. Supp. 2d 12, 21 (D.D.C. 2011), confirmed that the public disclosure bar prohibits qui tam actions only when enough information exists in the public domain to expose fraudulent transaction in its entirety.  See also U.S. ex rel. McLean v. County of Santa Clara, C05-01962 HRL, 2011 WL 5223076 *7 (N.D. Cal. Oct. 31, 2011) (ruling there was no public disclosure because Defendants did not point to anything in the public documents showing that both the alleged misstatements and the alleged true statements were publicly disclosed); U.S. ex rel. Colquitt v. Abbott Laboratories, 3:06-CV-1769-M, 2012 WL 1081453 *23 (N.D. Tex. Mar. 30, 2012) (confirming that all the information necessary to support the relator’s fraudulent inducement claim were available to any member of the public); U.S. ex rel. Lewis v. Walker, 3:06-CV-16 CDL, 2012 WL 1672992 (M.D. Ga. May 14, 2012) (confirming an award of costs to Defendants because the relator “did not have or provide any original information beyond what was publicly disclosed”).

Other courts have limited the application of Schindler Elevator by means of the original source exception.  In U.S. ex rel. Assoc. Against Outlier Fraud v. Huron, 09-CV-1800, 2012 U.S. Dist. LEXIS 19858 (S.D.N.Y. Feb. 16, 2012), the court held that though the relator utilized information he received pursuant to a FOIA request, he was still an original source of the information because the relator had “direct and independent knowledge” of the false claims he asserted in his complaint.  The FOIA response simply confirmed his assertions.  See also U.S. ex rel. Lewis v. Walker, 438 F. App'x 885, 888 (11th Cir. 2011) (confirming the dismissal of relators’ claims because they could not point to any additional information which they held directly or independently of the public disclosures they cited); Colquitt, 2012 WL 1081453 *23 (holding that the relator was an original source of the information underlying his off-label promotion allegations because he had direct and independent knowledge of the information on which his allegations were based).

Both the Supreme Court and Congress have shaped and amended the public disclosure bar and original source exception since their creation 25 year ago.  Congress’s original passing of the public disclosure bar intended to prevent opportunistic relators.  With few exceptions, Supreme Court decisions over the years have strengthened the hurdles qui tam relators must pass in order to maintain their claims.  In response to restrictive court decisions, however, Congress now moves to narrow the bar and broaden incentives for true whistleblowers.