Category: Public Disclosure Bar

Fourth Circuit Addresses Expanded Definition of “Original Source”

In 2010, the False Claims Act (“FCA”) was extensively amended to limit the public disclosure bar and to expand the ability of whistleblowers to qualify as “original sources” in qui tam litigation. This month, the Fourth Circuit Court of Appeals took an in-depth look at both provisions, in the case US ex rel. Moore & Co. v Majestic Blue Fisheries…. Continue Reading →


New 7th Circuit FCA Case Is a Primer in Whistleblower Cases

The Seventh Circuit Court of Appeals just issued its decision in US ex rel. Nelson v. Sanford-Brown, Ltd.. This decision is sure to find its way into briefs and arguments for years to come in False Claims Act (“FCA”) cases. It touched upon many of the different ways a qui tam relator can fail to bring an adequate FCA claim.

Public Disclosure Bar

First, the court noted that the actions alleged to be false began in 2006 and ran through 2012. During that time, the FCA was amended. The court ruled that, for the purpose of the “public disclosure bar,” the 2010 version of the statute controlled. Of particular interest, the court also stated the “public disclosure bar” was a jurisdictional bar. In 2010, the statute was amended to change the language from “No court shall have jurisdiction over an action under this section …” to “The court shall dismiss an action or claim under this section, unless opposed by the Government ….” Nonetheless, the Seventh Circuit applied the “public disclosure bar” as a jurisdictional bar rather than merely a discretionary basis for dismissal.

Many of the problems with Nelson’s case were of his own making. In responses to the Defendants’ motions, Nelson conceded “that his allegations have been ‘publicly disclosed'” and “he does not have direct and independent knowledge of the allegations pled upon information and belief.” The court, relying upon “the well-settled rule that a party is bound by what it states in its pleadings,”¹ rejected his attempts to retreat from those admissions in his briefs.

The court found that jurisdiction existed only for claims based upon events occurring during the few months of his employment, as that would be the only opportunity for him to be an original source of information.

Fraud with Particularity

Nelson’s next failure was his attempt to lump all Defendants together in his Complaint, rather than to provide specific allegations against each. The court affirmed dismissal for failure to plead fraud with particularity.² It also affirmed the trial court’s denial of his motion to file a second amended complaint based upon his 42-day delay in requesting such relief.

Conditions of Participation or Payment

It is well established that regulatory violations only constitute FCA violations of they are conditions of payment, not merely conditions of participation. Nelson, and the Government in an amicus brief, invited the court to do away with this distinction, arguing “under the FCA, payment as participation are one and the same, as a claimant is not entitled to payment unless eligible to participate.” The court flatly rejected the invitation: “Distilled to its core, Nelson and the government’s theory of liability lacks a discerning limiting principle.” Referencing an earlier case in which the Court described such an argument as “absurd,”³ the court said “we conclude that it would be equally unreasonable for us to hold that an institution’s continued compliance with the thousands of pages of federal statutes and regulations incorporated by reference into the PPA are conditions of payment for purposes of liability under the FCA.”

The court again reiterated its rejection of the “so-called doctrine of implied false certification,” stating “The FCA is simply not the proper mechanism for government to enforce violations of conditions of participation” and “evidence that an entity has violated conditions of participation after good‐faith entry into its agreement with the agency is for the agency—not a court—to evaluate and adjudicate.”

Practical  Takeaway

The Seventh Circuit Court of Appeals will continue to enforce the public disclosure bar as a jurisdictional bar unless the whistle blower is also an original source of the information. Government contractors who identify errors should take advantage of self-reporting opportunities and should also consider additional steps to make sure that such disclosure trigger the self-disclosure bar. For more on this issue, please read  Self-Disclosure, the Public Disclosure Bar and the FCA – Uncertainty, Circuit by Circuit.

The Seventh Circuit continues to reject the “implied false certification” theory of falsity for FCA cases. Government contractors operating in the Seventh (and Fifth) Circuit may continue to expect the protection offered by Courts that require actual falsity or knowing violations of conditions of payment to state a False Claims Act violation.

¹ Soo Line R. Co. v. St. Louis Southwestern Ry Co., 125 F.3d 481, 483 (7th Cir. 1997)

² Fed.R.Civ.P. 9(b)

³ 9. U.S. ex rel. Absher v. Momence Meadows Nursing Ctr., Inc., 764 F.3d 699, 706 (7th Cir. 2014)


FCA Cases Just Got Harder to Settle

On May 26, 2015, the United States Supreme Court issued its decision in Kellog Brown & Root Service, Inv. et al. v. United States ex rel. Carter, 575 U.S. ____ (2015), Case No. 12-1497. Most of the commentary on the case centers around the Court’s decision on the Wartime Suspension of Limitations Act, but the Court also issued a crucial decision on the False Claims Act’s “first-to-file bar,” one that will reverberate through FCA settlement discussions for years to come.

The Case

The FCA’s first-to-file bar states:

When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.[1]

At issue in Kellog Brown & Root was the meaning of “pending action.” The government and the qui tam relator argued that it applied only to cases pending at the time a new complaint was filed, and that, after dismissal, a new complaint would not be barred. The defendant argued that the filing of a qui tam case barred all future cases related to the same set of facts. The Court, applying the plain language of the word “pending,” ruled for the government and the relator. It did note, however, that its ruling could chill settlement prospects:

If the first-to-file bar is lifted once the first-filed action ends, defendants may be reluctant to settle such actions for the full amount that they would accept if there were no prospect of subsequent suits asserting the same claims. [2]

This issue arose during oral argument. At that time, the government argued that a case resolved on its merits would be barred, as a second qui tam relator would be acting on behalf of the government, which already had its claims resolved. However, a case settled and dismissed without prejudice “would not be barred by the first­-to­-file provision.” (Transcript, p. 57, ll. 8-9). Justice Alito, writing the opinion for the Court, agreed that the decision could cause problems in future FCA cases, particularly settlement discussions but stated:

That issue is not before us in this case. The False Claims Act’s qui tam provisions present many interpretive challenges, and it is beyond our ability in this case to make them operate together smoothly like a finely tuned machine. [3]

Practical Takeaway

The United States often refuses to dismiss FCA whistleblower cases with prejudice as part of a settlement. This refusal is a precautionary measure by the government, which is obligated to protect its ability to take further civil or even criminal action should additional improper acts come to light. The ruling in Kellogg Brown & Root will, as predicted, make it very difficult for a defendant to accept such a settlement, as another qui tam relator could file the day after a case is dismissed, and the defendant would have to litigate, and perhaps even settle and pay for, the same actions a second time. The defendant might even have to settle a third and fourth time if there is still life in the FCA’s six-year statute of limitations. The FCA’s separate public disclosure limitation might offer some protection to defendants, but that was significantly watered down in the 2010 amendments to the FCA. Prior to 2010, the bar stated:

“[n]o 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.[4]

As amended, the statute reads:

(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, Government 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.[5]

Under the amended statute, public disclosures are limited to federal hearings, and the government can conclusively contest dismissal. Under the earlier version, a public disclosure deprived the Court of jurisdiction without consideration of the government’s position. A defendant attempting to settle an FCA case in which the government refuses to dismiss with prejudice must now consider the effect of the Kellog Brown & Root decision in light of the 2010 amendments to the Act and take into consideration the risks a second whistleblower might be waiting in the wings. Defendants’ only choices in such a situation will be to wait out settlement until the statute of limitations would bar a new lawsuit or to accept whatever additional conditions the government might demand in exchange for dismissal with prejudice. Such conditions can include higher settlement amounts and imposition of onerous and expensive corporate integrity agreements.

Should you have any questions regarding the False Claims Act or defense against whistleblower actions, please contact:


Third Circuit: Pharmacist’s Claims Do Not Survive Public Disclosure Bar

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The Third Circuit Court of Appeals¹ became the third federal appeals court in one week to issue an opinion regarding the False Claims Act’s Public Disclosure Bar.²… Continue Reading →


Another Circuit Rules on the Public Disclosure Bar

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Today the Sixth Circuit Court of Appeals joined several other Circuit Courts in finding that an administrative review, and even a repayment to the appropriate government oversight entity, did not qualify as a “public disclosure” under the False Claims Act’s public disclosure bar…. Continue Reading →


The Fifth Circuit Draws a Public-Disclosure Roadmap

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A clearly irate Fifth Circuit Court of Appeals reversed summary judgment granted on behalf of Shell Exploration and Development Company, for the second time, and remanded with an order that the case be assigned to a new judge…. Continue Reading →


Self-Disclosure, the Public Disclosure Bar and the FCA – Uncertainty, Circuit by Circuit

Written by David B. Honig and Ritu Kaur Cooper.

On February 3, 2015, the Fourth Circuit Court of Appeals ruled that disclosures to the public officials responsible for managing the subject of a False Claims Act lawsuit did not qualify as “public disclosures” for the purpose of the FCA’s public disclosure bar. US ex rel. Wilson v. Graham County Soil And Water Conservation Dist. In so ruling, the Fourth Circuit expressly rejected the Seventh Circuit’s ruling that such disclosures meet the bar as defined in the statute. This means that whether a report to a government oversight official is a public disclosure depends, for the time being at least, upon the location of the events in question.

The defendants, soil and water conservation districts in North Carolina’s Graham and Cherokee counties, entered into Cooperative Agreements with the National Resources Conservation Service for participation in the Emergency Watershed Protection Program for storm relief. The NRCS is a subdivision of the U.S. Department of Agriculture.

Graham County Soil & Water Conservation District was audited by county auditors, who reported program violations to several entities, including the USDA. The relator, unsatisfied with the audit results, made a written statement to a USDA Special Agent, who completed a Report of Investigation concluding additional program violations. That report was distributed to certain state and federal law enforcement agencies but was not to be further distributed “without prior clearance from the Office of Inspector General, USDA.”

The relator filed a qui tam lawsuit. The Defendants moved to dismiss the action, arguing the relator’s claim was based upon a “public disclosure,” the county audit report and the USDA Report of Investigation.[1]

At the time the action was filed, the FCA stated:

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.[2]

The court found that both the county audit report and the USDA Report of Investigation qualified as audits or investigations under the controlling law. The only question, therefore, was whether they were publicly disclosed.

The Seventh Circuit considered the same question in US v Bank of Farmington (1999). In that case, the defendant bank, which learned of an error during unrelated litigation with the woman who would become the relator, disclosed that error to the federal Farmers’ Home Administration (“FmHA”). The bank separately negotiated and settled with the FmHA for the loss due to its error.

The relator filed a qui tam lawsuit under the FCA, and the bank moved to dismiss, arguing that the report to the FmHA was a qualifying public disclosure under the statute. The Court of Appeals agreed, reasoning that the purpose of a public disclosure is to bring an action to the attention of the government, “not merely to educate and enlighten the public at large about the dangers of misappropriation of tax money.”[3] It determined that a disclosure to a public official with the appropriate managerial responsibility over the issue at hand qualifies as a public disclosure, as that official is authorized to act on behalf of the public.

The Fourth Circuit Court of Appeals refused to follow the reasoning in Bank of Farmington. It focused not upon the public nature of the official but upon the public nature of the disclosure. That public nature, the court determined, required that the disclosure is something in the public domain and available outside the government. Otherwise, it said, the words “public disclosure” would be superfluous to the language in the statute related to reports to the government. In ruling this way, the court joined the First, Ninth, Tenth, Eleventh and D.C. Circuits. The Second, Third, Fifth, Sixth and Eighth Circuits have yet to rule on the issue.

Self-Disclosures and the Public Disclosure Bar

The government encourages its contractors to self-report when it discovers errors or overpayments. Such self-disclosures often include an audit by a government agency as part of the reporting process. As the law now stands, such a self-disclosure could also protect a contractor from a parasitic lawsuit filed by a person with knowledge about it but only in the Seventh Circuit and perhaps in the Second, Third, Fifth, Sixth and Eighth Circuits. In the other Circuits such a self-disclosure may satisfy the government oversight agency but would not bar an opportunistic whistleblower from bringing an action even if he or she only learned about it as a result of that disclosure.

Contractors, such as health care providers and suppliers, routinely make their self-disclosures to such government oversight agencies as the Office of Inspector General, the Centers for Medicare & Medicaid Services, U.S. Attorney’s office or the federal government contractor, depending on the circumstances involved in the alleged violation of the fraud and abuse laws.  According to the Fourth Circuit, none of these agencies are considered to be the public.  It is not common practice for contractors to publish press releases or the like to inform the public domain of their voluntary disclosure submission.

When determining whether to make a voluntary disclosure, contractors weigh the risks versus the benefits of disclosing.  In addition to the opportunity to avoid the costs and disruptions associated with a government-directed investigation and civil or administrative litigation, self-disclosures are motivated by the possibility of reducing FCA exposure by relying on the public disclosure bar as a potential defense.  The Fourth Circuit’s decision reiterates that contractors cannot rely on self-reporting as protection against whistleblower suits.  Protection will only be afforded if the contractor also issues some type of notice to the public domain of the self-disclosure.

One of the purposes of making a self-disclosure is to quietly resolve alleged errors, overpayments or other violations without drawing broad attention to the entity.  Now, contractors will have to reevaluate their policies and procedures related to conducting internal investigations and self-reporting.  Certainly their cost/benefit analysis will change.  Whereas in the last five years since the enactment of the Patient Protection and Affordable Care Act of 2010, many more health care providers have been making voluntary disclosure submissions, that trend may change if more Circuits adopt the holding of the Fourth Circuit.

We close with one final note of caution. Given the split between the Circuits, as well as the lack of decision in several Circuits, the law remains fluid. What appears to be permissible today in one Circuit could change before the actions get challenged by the government or a qui tam whistleblower. It could change because a Circuit Court is persuaded by a new decision or what comes to be a clear majority view, or it could change if the Supreme Court accepts a case to resolve the conflict. Therefore, it is important to have up-to-the-minute advice about what the law is, and what it might be in the future, when making these important decisions.

Should you have any questions regarding the False Claims Act or defense against whistleblower actions, please contact:

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First Circuit: A More Detailed Complaint Fails to Pass First-to-File Bar

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On December 1, the First Circuit Court of Appeals released a decision denying two Relators’ appeal of their False Claims Act action due to its failure to satisfy the Act’s first-to-file bar. Though the procedural path of the case is convoluted, the result is clear and the decision sound.

Continue Reading →


False Claims Act Update – Public Disclosure and Original Source

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Several FCA opinions have been issued since the last FCA Update. The most interesting is a District of Nevada case, US ex rel Guardiola v Renown Health. Renown Health was the parent company for two other corporate defendants that provided acute health care services. The relator was Renown’s Director of Clinical Compliance. She alleged Renown improperly billed “zero-day stays” and “one-day stays” as inpatient encounters. These stays were also reported in a Recovery Audit Contractors (“RAC”) audit. Renown shared the RAC audit results both internally and with non-employee Renown physicians and their staff.

The defendants moved to dismiss for lack of jurisdiction, arguing that the RAC audit and their disclosure of that audit outside the company constituted public disclosures and that the relator was not an original source.

The court first determined that, while the claims at issue pre-dated the 2010 amendments to the FCA, the case was filed after those amendments; therefore, the 2010 version of the public disclosure bar applied to the motion. The statute, as amended, states that:

The court shall dismiss an action or claim . . . if substantially the same allegations or transactions as alleged in the 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, Government 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.

31 U.S.C. § 3730(e)(4)(A). There was no question that the RAC audit constituted an “other Federal … audit.” The question was whether the audit was publicly disclosed. Renown argued that it was, as the results of the audit were shared with individuals outside the company, specifically including over 500 doctors connected to, but not employed by, Renown. The court based its rejection of Renown’s argument upon a prior ruling by 9th Circuit in US ex rel. Schumer v. Hughes Aircraft Co., 63 F.3d 1512, 1518 (9th Cir. 1995), overruled on other grounds by Hughes, 520 U.S. 939). In Schumer, the circuit court found that “[u]nder a ‘practical, commonsense interpretation’ of the jurisdictional provisions, information that was ‘disclosed in private’ has not been publicly disclosed.” Id. at 1518 (citations omitted). The trial court found that the the doctors told about the RAC audit were “economically linked” to Renown and had an economic incentive to keep the information confidential; therefore, they were not outsiders and there was no public disclosure.

As a result of the Guardiola case, which is not binding but may be considered persuasive by other courts, providers in receipt of negative RAC audit results may wish to consult with counsel to determine if and how those results might be made public in a way that will prevent parasitic lawsuits.

The only recent circuit court case was also a public disclosure/original source case, US ex rel Schumann v Astrazeneca, ___ F.3d ___, Oct. 20, 2014 (3d Cir. 2014). Schumann was a former executive with Medco, a pharmacy benefit manager. He alleged that the defendants, AstraZeneca and Bristol-Myers Squibb, gave Medco rebates and educational funds in exchange for favorable treatment of their pharmaceuticals but failed to include those payments in its required best prices report to the government.

Schumann did not challenge the defendants’ claim that the claims against Bristol-Myers Squibb were based on publicly disclosed information, but as to both defendants, he claimed he was an original source of the information. An original source must have direct and independent knowledge of the underlying allegations. 31 USC . § 3730(e)(4)(b)(1986). (The court applied the pre-2010 version of the statute, as the case was originally filed prior to the amendment.) Schumann argued that he had direct knowledge because he learned the information by reviewing existing agreements and internal documents, discussing those documents with colleagues and by comparing the terms of agreements to those he had previously seen. He argued he had independent knowledge because he concluded, based upon his own experience and expertise, as well as the information he learned both from his own investigation and other publicly disclosed information, that kickbacks had been paid and best price statutes ignored.

The court began its analysis by noting that direct and independent knowledge are two distinct requirements. The first, direct knowledge, must be obtained “without any ‘intervening agency, instrumentality, or influence.'” Id. at p. 16, citation omitted. The second, independent knowledge, “cannot be merely dependent on a public disclosure.” Id. (citation omitted).

The court found, first, that Schumann did not have direct knowledge when it was gained “by reviewing files and discussing the documents therein with individuals who actually participated in the memorialized events.” Id. at 20. It then rejected the argument that independent knowledge could be demonstrated by the application of expertise to publicly disclosed information. Id. at 21.

In summary, the 3rd Circuit found that a relator could not make himself an original source by conducting his own internal investigation and reaching his own conclusions. Rather, he had to be an actual participant in, or observer of, the underlying acts themselves.

It is important to note that the FCA, as amended in 2010, no longer includes the direct knowledge requirement. The amended version of the statute defines an original source,  in relevant part, as one “who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.” It is not clear whether an investigation, such as that performed by Schumann, would be barred as indirect; however, his conclusions would still not qualify as independent knowledge.

Should you have any questions regarding the False Claims Act or defense against whistleblower actions, please contact:


Last Week in the FCA

From October 1 through October 12, 2014, there were 14 federal cases reported that mentioned the False Claims Act. One was previously discussed in the September 2014 FCA Update. Eight more only tangentially discussed the False Claims Act.

Five cases might be of interest to parties and counsel in a False Claims Act suit. US ex rel. May v. Purdue Pharma L.P. was the most interesting case. Defendants were permitted to depose relators’ attorneys, who represented an earlier relator in a dismissed FCA case on the same issues, to explore relators knowledge in a public disclosure challenge.

In US ex rel. Cestra v. Cephalon, Inc., a jurisdiction challenge based upon the first-to-file bar, the court stated that the complaint to be used for comparison was the second relator’s original complaint, not any subsequently amended complaints.

Two cases, US ex rel. Kelly v. Serco, Inc. and US ex rel. Smith v. Boeing Co., reiterated the oft-stated rule that the FCA is not to be used for regulatory compliance. In Boeing, the court went a step further, noting that the FAA had expertise, remedial powers and congressional oversight, and where it had opined on the regulatory question, the court could consider same in ruling on a motion for summary judgment.

In the final case, U.S. ex rel. Graves v. Plaza Medical Centers Corp., the court dismissed claims that failed to plead specific claims against all individual defendants without prejudice and dismissed a conspiracy allegation that failed to allege an agreement among defendants with prejudice.

If you have any questions or would like more information on this topic, please contact David B. Honig at (317) 977-1447 or dhonig@hallrender.com or your regular Hall Render attorney.