The FCA continues to be the federal government’s primary civil enforcement tool for investigating allegations that healthcare providers or government contractors defrauded the federal government. In the coming weeks, we continue to take a closer look at recent legal developments involving the FCA. This week, we examine the FCA’s public disclosure bar and recent cases considering whether disclosures are sufficient to bar FCA claims.
The FCA’s public disclosure bar prevents a relator from filing a qui tam complaint based on information previously disclosed to the public, thereby dissuading parasitic lawsuits based on publicly available information. In cases considering the scope of the public disclosure bar, courts have continued to examine the issue of how or to whom information must be disseminated in order to constitute a “public disclosure,” which often has resulted in a narrowing of the public disclosure bar’s scope in a given case. Such cases marked a shift away from decisions favorable to FCA defendants toward a more nuanced and specific application of the public disclosure bar.
Courts recently have provided some additional guidance in determining whether generalized public allegations of fraud are substantially similar enough to bar subsequent suits, how the source and accessibility of the relevant disclosures affects the public disclosure analysis, and how to apply the so-called last pleading rule to the public disclosure bar.
To determine whether previous public disclosures are sufficiently similar to allegations of fraud to trigger the public disclosure bar, both the Seventh and Ninth Circuits have now adopted what they call a “level of generality” test, determining that they must compare similar allegations at a “low” level of generality. Under that test, a court must compare the granular, specific allegations and schemes in the qui tam suit to the broader allegations in the public domain to see if the suit is different “in kind or degree” before barring the subsequent suit.
In U.S. ex rel. Mateski v. Raytheon, 816 F.3d 565, 568 (9th Cir. 2016), the relator alleged that Raytheon violated the FCA by failing to comply with numerous contractual requirements in the development of a satellite system for the government. Before the complaint was filed, several government agencies issued reports that generally claimed mismanagement, inadequate oversight and technical challenges by Raytheon. The Ninth Circuit found that while the government reports and accompanying news coverage described a “transaction” of fraud, or facts from which fraud could be inferred, the relator’s complaint was not “substantially similar” to those publicly disclosed facts. In reaching that conclusion, the Ninth Circuit adopted the Seventh Circuit’s “level of generality” test, which allows FCA suits to continue where they rest on “genuinely new and material information.” According to the Ninth Circuit, holding otherwise would allow a public document describing “problems” or even some generalized reference to or allegations of fraud to bar all FCA suits identifying specific instances of fraud. The Ninth Circuit held that the relator’s allegations were different “in kind and in degree” from previously disclosed facts and, therefore, must be allowed to move forward.
Where a relator merely adds additional parties or locations to previously disclosed fraudulent schemes, however, the public disclosure bar likely applies. In U.S. ex rel. Winkelman v. CVS, 827 F.3d 201 (1st Cir. 2016), the First Circuit affirmed dismissal of claims where the fraudulent practice alleged had been the subject of significant media coverage and was investigated specifically by the Attorney General of Connecticut. The First Circuit held that, while the previous investigation related substantially to the Connecticut Medicaid program, the related disclosures contained the “essential elements” of the fraud, and mere application of those elements to similar programs across the United States in the complaint was insufficient to avoid the public disclosure bar.
Other courts similarly have found that adding details that could be derived from, but did not actually appear in, publicly disclosed allegations is insufficient to avoid the bar, including allegations that previously disclosed fraud simply was ongoing or continued into the present. In U.S. ex rel. Lager v. CSL Behring, 158 F. Supp. 3d 782, 791 (E.D. Mo. 2016), the district court held that the addition of the actual sales price of certain drugs that the relator argued was being artificially inflated by the manufacturer was insufficient to overcome the bar when the government could have deduced that information from the publicly available facts. And, in U.S. ex rel. Hirt v. Walgreens, 2016 WL 1367182 (M.D. Tenn. Apr. 5, 2016), the district court barred a jurisdictional suit that was “essentially identical” to a previous qui tam suit and DOJ press release, but alleged that the practice continued after these settlements. A suit is barred where it is, even in part, based on the allegations in the publicly disclosed allegations.
The source of publicly disclosed information continues to remain significant to the public disclosure analysis. In U.S. ex rel. May v. Purdue Pharma, 811 F.3d 636, 641 (4th Cir. 2016), the Fourth Circuit held that the relators could not use facts learned by their attorney in a previous case to defeat the public disclosure bar. The Fourth Circuit held that a complaint is barred where it is “based upon” the previous work done by the relators’ attorney relating to a previously dismissed and publicly disclosed qui tam suit involving the same underlying alleged fraud. The Fourth Circuit held that the relators did not learn of the alleged fraud independently from the prior lawsuit; their knowledge stemmed from their attorney’s involvement in the prior action, and his knowledge was imputed to them.
Similarly, the U.S. District Court of New Jersey dismissed another “second-hand” lawsuit in U.S. ex rel. Silver v. Omnicare, 2016 WL 6997010 (D.N.J. Nov. 28, 2016), where the relator was the former owner of a nursing home and a pharmacy but never had worked for or done any business with the defendant. The relator derived his allegations almost entirely from HHS-OIG reports, financial statements of the company and interviews with several individuals. The district court held that even if the relator had discovered some non-public information relating to allegedly fraudulent activities, that could not save the complaint, as the public disclosure bar applies to actions even partly based on public disclosures.
Courts last year also analyzed the degree of “publicity” that is required for information to constitute a “public” disclosure for purposes of the bar. In U.S. ex rel. Oliver v. Philip Morris, 826 F.3d 466, 475 (D.C. Cir. 2016), the D.C. Circuit held that a memorandum and some contracts clauses that were among almost five million other documents published by Philip Morris on a court-mandated website were sufficient. The D.C. Circuit held that the standard for disclosure is whether the document is “actually available” as opposed to “reasonably likely to be discovered.” Similarly, the Third Circuit held that information disclosed through a Freedom of Information Act (FOIA) request is considered a “report” sufficient to trigger the public disclosure bar. In U.S. ex rel. Moore v. Majestic Blue, 812 F.3d 294 (3d Cir. 2016). The relators alleged that the defendants had falsely certified that certain fishing vessels were managed and commanded by United States citizens when they were actually controlled and commanded by non-citizens. The Third Circuit found that the public disclosure bar applied where these facts were disclosed through news media articles in conjunction with emails and certifications of compliance obtained through FOIA requests. The Third Circuit held that FOIA responses, and the accompanying documents, are “reports” both before and after the amendments to the FCA.
Finally, the Fourth Circuit applied a more nuanced version of the Supreme Court’s last pleading rule to a third amended complaint in U.S. ex rel. Beauchamp v. Academi Training Center, 816 F.3d 37, 44 (4th Cir. 2016) (citing Rockwell International Corp. v. United States, 549 U.S. 457 (2007) (holding that the public disclosure bar applies to “the allegations in the original complaint as amended”). The Fourth Circuit held that only public disclosures that exist when the relator initially pleads the alleged fraudulent scheme are relevant to the public disclosure analysis; later disclosures that exist when a subsequent amended complaint is filed are not relevant. In Beauchamp, one year after the relators filed their qui tam complaint, a public retaliation lawsuit filed against the same defendant and an article published on the internet disclosed facts related to some of the allegations in the relators’ FCA suit. The relators subsequently amended their qui tam complaint with information from that article and the retaliation lawsuit. The Fourth Circuit held that the relators had “particularly alleged” the fraudulent scheme in their original complaint before the retaliation suit was filed and the article was published. Although the relators added significant detail to the amended complaint, the operative date for the purposes of the public disclosure bar analysis was the date on which the scheme originally was pleaded.
Applying this same test a few months later, but not citing to any precedent, the U.S. District Court for the Eastern District of New York held that claims against two individually named defendants were barred where they were added in an amended complaint following their criminal indictments for the alleged conduct. See U.S. ex rel. Keshner v. Immediate Home Care, 2016 WL 354599 (E.D.N.Y. June 24, 2016). The district court allowed allegations against the corporate defendant to continue where those allegations were pleaded in the original complaint, prior to the public disclosures.