The US Court of Appeals for the Ninth Circuit, in a case likely heralding an increase in the number of qui tam False Claims Act lawsuits, has abrogated prior precedent and lowered the jurisdictional bar for whistleblowers in FCA cases.  

Repudiating 23 years of precedent, the Ninth Circuit ruled en banc in United States ex rel. Hartpence v. Kinetic Concepts, Inc. to reverse a dismissal of two qui tam FCA suits.

Conforming to the unambiguous statutory language of the FCA, the Ninth Circuit clarified the requirements for a private party, known as a “relator,” to meet the “original source” of the information exception to the public disclosure jurisdictional bar. The “public disclosure” bar precludes qui tam suits where there has been a public disclosure of the fraud, unless the whistleblower qualifies as an “original source” of the information.

Although the Ninth Circuit’s decision concerned the pre-2010 version of that bar, its reasoning will also apply to the post-2010 version because the issue before the court did not pivot on the 2010 amendments.

Hartpence involved two consolidated FCA complaints brought by former employees of Kinetic Concepts. The complaints alleged that the plaintiffs’ former employer, Kinetic, fraudulently claimed reimbursements from Medicare by using an automatic payment modifier code for medical devices that improve wound healing, even though the claims required individual review. The alleged fraud had already been publicly disclosed. Accordingly, the FCA’s public disclosure bar precluded the suits unlessthe relators qualified as original sources of the information.

The pre-2010 FCA statutory language included two requirements for a relator to qualify as an original source: (1) that the relator have direct and independent knowledge of the publicly-disclosed information, and (2) that the relator provide that information to the government before filing suit. Since its 1992 decision in Wang ex rel. U.S. v. FMC Corp., however, the Ninth Circuit had imposed a third requirement: that the whistleblower plaintiff must have “had a hand in the public disclosure of allegations that are part of [her] suit.” While the first two requirements match the statutory language, the Ninth Circuit in Wang had inferred the “hand in the public disclosure” doctrine from the FCA’s legislative history, which suggested to the court that the information underlying the publicly disclosed allegations “meant the information underlying the publicly disclosed information that triggered the public disclosure bar, rather than the information which underlay the plaintiff’s complaint.”   

The trial court in Hartpence, following Wang and its progeny, dismissed the qui tam claims on jurisdictional grounds because the whistleblowers had not satisfied the third requirement. In other words, because the whistleblowers did not have a hand in the actual public disclosure of the allegations upon which they based their claims, they could not pursue their claims.

On appeal, the relators argued that the language of the FCA does not impose the third requirement on its face. Indeed, they argued that the statute imposes only the first two requirements for a whistleblower to qualify as an original source, and that its language is not ambiguous. Kinetic, however, contended that removal of the judicially fashioned third requirement would be inconsistent with the overarching goal of the FCA, which is to encourage private citizens to uncover fraud, not simply to report it.

The Ninth Circuit agreed with the whistleblowers when it observed that “it [is] entirely reasonable that Congress sought to reward those who assume responsibility for prosecuting, on the government’s behalf, fraud claims about which they have direct and independent knowledge, even if they were not in the chain that caused the public disclosure of the fraud.” (emphasis added.) 

In disavowing Wang as wrongly decided, the Ninth Circuit relied on the United States Supreme Court’s decision in Rockwell International Corp. v. United States, 549 U.S. 457 (2007), which had clarified that the word “information” in the FCA referred to the information on which the whistleblower’s allegations are based, not the information underlying the publicly disclosed information that triggered the public disclosure bar. This holding exenterated the Ninth Circuit’s reasoning in Wang, forcing it to overrule the decision as wrongly decided.

To close, the Ninth Circuit joins a majority of other circuits in holding that, to qualify as a relator in a circumstance where an FCA claim has been publicly disclosed before the whistleblower has filed a complaint, the whistleblower does not need to allege let alone meet and overcome the “hand in the public disclosure” requirement. Stated differently, the Hartpence decision allows a whistleblower, who is the first to file a FCA claim regarding a violation that has been publicly disclosed, to pursue claims in federal court without having to grapple with the judicially-imposed “hand in the public disclosure” doctrine.

Removing this requirement removes a key barrier to qui tam claimants in the Ninth Circuit, and it likely presages an increase in the number of successful suits.

Companies are well-advised to implement strategies that encourage internal reporting of potential violations so as to avoid the potentially drastic consequences associated with meritorious FCA claims, the barriers to the pursuit of which have just been lowered.