Here at the Monitor, we keep a close eye on the evolution and enforcement of the False Claims Act (“FCA”). See here. In that vein, two recent circuit court of appeals cases limiting the interpretation of the Act’s “public disclosure bar” are worth examining.
The FCA imposes civil liability on defendants where false or fraudulent claims for payment are presented to the government. 31 U.S.C. § 3729(a)(1). The FCA authorizes relators—private party whistleblowers—to bring civil qui tam actions in the government’s name and collect a share of the judgment if successful. Id. at § 3730(b)(1). As a preliminary matter, a relator seeking to bring a qui tam action must first disclose her claims to the government, offering an opportunity to intervene. Thus, a relator may proceed in litigating the action independently only if the government chooses not to intervene.
Under the FCA, section 3730(e)(4) removes non-intervened qui tam suits from the court’s jurisdiction where the allegations or transactions described in the complaint were previously publicly disclosed. However, two recent decisions from the Fourth and Sixth Circuits have narrowed the scope of what constitutes “public disclosure.”
The Fourth Circuit introduced the procedural history of U.S. ex rel Wilson v. Graham County Soil & Water Conservation District—a case alleging FCA violations brought by a former employee against county soil and water conservation district—as a “long and winding road” that involved “two trips to the Supreme Court.” 777 F.3d 691, 693 (4th Cir. 2015). That road ended when the Fourth Circuit rejected the Seventh Circuit’s interpretation and instead held that a “public disclosure requires that there be some act of disclosure outside of the government.” Id. at 697 (emphasis in original) (internal citation omitted). In Wilson, defendants argued that a prior Audit Report and USDA Report were disclosed to state and local government agencies as well as federal agencies. Id. at 696-98. Nevertheless, invoking the Tenth Circuit’s reasoning, the Fourth Circuit agreed that “the Government is not the equivalent of the public” and no evidence existed in the record to suggest “that either report actually reached the public domain.” Id.
A Sixth Circuit iteration of Wilson resulted in a similar holding and rejection of Seventh Circuit precedent. The relator in Whipple v. Chattanooga-Hamilton County Hospital Authority alleged that the defendant hospital knowingly submitted false claims for reimbursement to federally funded healthcare programs, which he identified by “analyzing past billing data, reviewing patient records, and observing operations in each of the revenue cycle departments.” 2015 WL 774887, at *1 (6th Cir. Feb. 25, 2015). Prior to this time, the government had conducted an audit and investigation into concerns of improper billing and that investigation was resolved without a hearing in September 2009. Id. Relator disclosed his qui tam claims to the United States a year later in October 2010. The district court held that there was public disclosure of fraud through this prior administrative audit and investigation of the improper inpatient billing practices. See Whipple v. Chattanooga-Hamilton Cnty. Hosp. Auth., 2013 WL 4510801, at *5 (M.D. Tenn. Aug. 26, 2013). The Sixth Circuit reversed, concluding that disclosure of information to the government in the administrative audit and investigation did not constitute a public disclosure triggering the public disclosure bar. Whipple, 2015 WL 774887, at *6. In addition, the Court further restricted its interpretation of “public” in a footnote holding that “[Freedom of Information Act] documents do not constitute public disclosures under the FCA until they are requestedand received by someone.” Id. at n. 8 (emphasis added).
The Wilson and Whipple decisions will likely expand the number of FCA qui tam actions that may be maintained, despite prior government audits and investigations. Furthermore, they appear to support the trend of growing FCA cases that we have noted over the past several years. See article.
Lastly, these recent circuit court of appeals decisions present an interesting risk assessment question: is it worthwhile to advise a client to disclose publicly recent internal audits and investigations to shield against later qui tam suits, or instead should clients keep such matters private to avoid any potential public relations backlash?