District Court Rejects the Industry-Wide Public Disclosure Bar, Part I

The False Claims Act (“FCA”) permits private individuals, known as relators, to sue on the Government’s behalf to recover funds that were fraudulently or falsely obtained from the Government.  If a relator successfully recovers money for the Government, the FCA provides that the relator is entitled to a substantial percentage of the recovery, known as a relator’s share.[1]

In Part I of this two-part blog series, we will discuss a section of the FCA called the public disclosure bar and generally discuss the so-called industry-wide public disclosure bar. In Part II, we will discuss a recent case in which a district court rejected a defendant’s attempt to apply the industry-wide public disclosure bar.

The Public Disclosure Bar

Given this economic incentive to pursue FCA claims, the FCA has a few mechanisms to discourage unworthy individuals from serving as relators.  One of these is the public disclosure bar, under which a person cannot pursue FCA claims if the claims are substantially similar to information that is already publicly available through a list of public sources such as government reports and media stories.[2]  In this way, the public disclosure bar “is designed to strike a balance between empowering the public to expose fraud on the one hand, and preventing parasitic actions on the other.”[3]

Specifically, the public disclosure bar provides:

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.[4]

Under this framework, the prototypical public disclosure is a newspaper article saying that a specific company defrauded the Government.  Under these circumstances, a relator would not be permitted to pursue FCA claims against the company that are substantially similar to the fraud disclosed in the newspaper article.

False Claims Act Defendants Pushing for an Industry-Wide Public Disclosure Bar

Defendants in FCA cases are increasingly attempting to expand the scope of the public disclosure bar.  One example of this is the so-called industry-wide public disclosure bar, under which defendants contend that public disclosure of industry-wide fraud implicates the public disclosure against specific companies in the industry even when those companies are not mentioned in the disclosures.[5]

As a general rule, “[i]n order to bar claims against a particular defendant, the public disclosures relating to the fraud must either explicitly identify that defendant as a participant in the alleged scheme, or provide enough information about the participants in the scheme such that the defendant is identifiable.” [6]  Put differently, even if a public disclosure does not mention a specific company, it may implicate the public disclosure bar if the company can be readily identified from the disclosure.  For example, if a public document disclosed fraud in an extremely consolidated industry, it is more likely that courts will find the fraud has been publicly disclosed than if it disclosed fraud in a large industry with lots of companies in the industry.[7]

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[1] 31 U.S.C. § 3730(d).

[2] 31 U.S.C. § 3730(e)(4).

[3] U.S. ex rel. Wilson v. Graham Cty. Soil & Water Conservation Dist., 777 F.3d 691, 695 (4th Cir. 2015) (internal quotation marks omitted).

[4] 31 U.S.C. § 3730(e)(4).

[5] See United States v. CSL Behring, L.L.C., 855 F.3d 935, 941 (8th Cir. 2017) (describing the industry-wide public disclosure bar and describing several cases interpreting and applying it).

[6] U.S. ex rel. Kester v. Novartis Pharm. Corp., 2015 WL 109934, at *8 (S.D.N.Y. Jan. 6, 2015).

[7] U.S. ex rel. Zizic v. Q2Administrators, LLC, 728 F.3d 228, 238 (3d Cir. 2013) (describing “an industry of one”).