The False Claims Act’s Public Disclosure Bar Routinely Results in Windfalls to Fraudsters

By Daniel Miller

In 1986, in an effort “to strike a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits,” United States ex rel. Zizic v. Q2Administrators, LLC, 728 F.3d 228, 235 (3d Cir. 2013), Congress narrowed the the public disclosure bar so that more whistleblowers would file cases.

Despite this significant amendment, many courts throughout the country have continued to dismiss qui tam False Claims Act cases under the public disclosure bar.

Part of the problem is an expansive reading of what constitutes a public disclosure.  The second part of the problem is a narrow reading of the so-called “original source exception” to the public disclosure bar.

Under the original source exception, even if a fraud has been publicly disclosed, a whistleblower can avoid dismissal on public disclosure grounds if he/she has knowledge “that is independent of and materially adds to the publicly disclosed allegations.”  31 U.S.C. § 3730(e)(4)(B).

The contours of the original source exception and the errors made by various courts are discussed below.

Courts Narrowly Define the Original Source Exception to the Public Disclosure Bar

If a public disclosure of a transaction of fraud has occurred, and the complaint is “substantially similar” to information publicly available, the case may nevertheless go forward if the whistleblower is an “original source” of information underlying the action.  31 U.S.C. § 3730(e)(4)(B).

The Pre-2010 Definition of “Original Source”

Under the FCA as it existed prior to being amended on March 23, 2010, a whistleblower is an original source if he “has direct and independent knowledge of the information on which the allegations are based.”  31 U.S.C. § 3730(e)(4) (2009).

The analysis of the “independent” requirement involves a comparison of the whistleblower’s knowledge with “the information readily available in the public domain.” United States ex rel. Moore & Company, P.A. v. Majestic Blue Fisheries, LLC et al., 812 F.3d 294, 305 (3d Cir. 2016).

Regarding the “direct” requirement, the Third Circuit Court of Appeals recently outlined the meaning of direct knowledge:

‘Direct knowledge’ is knowledge obtained without any ‘intervening agency, instrumentality, or influence: immediate. Such knowledge has also been described as “first-hand, seen with the whistleblower’s own eyes, unmediated by anything but [the whistleblower’s] own labor, and by the whistleblower’s own efforts, and not by the labors of others, and … not derivative of the information of others.” Paranich, 396 F.3d at 336 & n. 11 (internal quotation marks and citations omitted); see also Stinson, 944 F.2d at 1161 (citing with approval cases finding information is not direct if learned from “a whistleblowing insider” or by “stumbl[ing] across an interesting court file”).

United States ex rel. Schumann v AstraZeneca Pharmaceuticals, LP, 769 F.3d 837, 845 (3rd Cir. 2014) (internal quotation marks and citations omitted).

This overly narrow reading conflicts with the intent of the 1986 amendments—in  order to have “direct” knowledge of the fraud, the Relator must almost literally witness the fraud occurring.  Fraud is by definition a secretive act.  Shielding fraudsters by allowing secrecy to not only hide the fraud but also to avoid prosecution is inconsistent with the purpose of the qui tam provisions of the False Claims Act.

The Post-2010 Definition of “Original Source”

The FCA was amended on March 23, 2010 as part of the Affordable Care Act.  The amendment removed the “direct” knowledge requirement and  replaced it with a less demanding one, namely, that the whistleblower’s information must “materially add” to any publicly disclosed information.[1]  Hopefully, this amendment will encourage more whistleblowers to come forward and will guide courts toward a more sensible interpretation of the original source exception.

[1] The independent requirement was left largely intact by the ACA.  The only difference is that under the previous version, the comparison was between all information in the public domain and the whistleblower’s evidence, Moore, 812 F.3d at 305, whereas under the current version, the comparison is between all information disclosed through the statutorily enumerated sources and the whistleblower’s evidence.  Id.

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By | 2018-03-27T01:59:19+00:00 July 5th, 2017|False Claims Act Information|