This is Part II of our post on Schindler Elevator Corp. v. United States ex rel. Kirk, No. 10-1888, a case in which the U.S. Supreme Court heard oral argument last week. At issue in Schindler is whether a federal agency’s response to a Freedom of Information Act request (“FOIA request”) is a “report . . . or investigation” within the meaning of the False Claims Act’s public disclosure bar, 31 U.S.C. § 3730(e)(4).

Part I of our post provided factual background about the FOIA request at issue in Schindler, the Second Circuit’s decision in the case, and the circuit court split on the issue. Today, we discuss some of the key arguments made in the amicus brief submitted jointly by the American Hospital Association (“AHA”) and Pharmaceutical Research and Manufacturers of America (“PhRMA”) and highlights of the oral argument before the Supreme Court.

Brief of Amici Curiae AHA & PhRMA

Since the late 1990s, AHA, a national interest organization for hospitals, with over 42,000 institutional and individual members, has advocated for limitations to the False Claims Act. For the past several months, AHA has been pursuing discussions with the U.S. Attorney General and the Secretary of Health & Human Services and their representatives requesting that the government reconsider certain enforcement initiatives being pursued against hospitals pursuant to the False Claims Act. For more information about this issue, see our posts here and here.

In the Schindler case, AHA and PhRMA submitted an amicus brief in support of Petitioner Schindler Elevator Corp., the FCA defendant in the case. They argue that maintaining a strong public disclosure bar is of vital importance to the amici, their members, and all of the other companies, contractors, grant recipients, health care providers, universities, and others that receive – directly or indirectly – funds from the federal government. The amici further contend that upholding the Second’s Circuit’s decision – which significantly limits the scope of the public disclosure bar – would be harmful to millions of federal contractors, grantees, and program participants. They also argue that it would encourage citizens with no knowledge of or connection to an industry – not to mention the relators’ bar – to rummage through the government’s own files and use the threat of the FCA’s punitive damages to privately enforce any sort of minor violation that can be alleged, regardless of administrative remedies.

AHA and PhRMA provide statistics about the explosion of qui tam lawsuits in the past two decades in support of their argument:

  • While 30 qui tam lawsuits were filed in 1987, nearly 600 were filed in 2010.
  • Nearly 75% of the active qui tam cases are cases in which the government has declined to intervene after investigating the relator’s allegations of wrongdoing. Yet, relators regularly press on in these declined actions, motivated by the FCA’s bounty provision.
  • Defending declined qui tam lawsuits exposes defendants to immense costs and burdens, even when those cases are ultimately found to lack merit. The vast majority of declined cases fall into this category: Over the past 23 years, only 3% of the amount recovered for the United States has come through cases that the government declined to pursue.

AHA and PhRMA further contend that the potential for lucrative awards has resulted not only in a cottage industry of relators; it has also produced a de facto “relators’ bar” of attorneys in regular pursuit of qui tam plaintiffs. Allowing FCA actions based on information obtained from the government through FOIA would be a gift to that bar. Qui tam plaintiffs’ lawyers would no longer need to limit themselves to trolling for unhappy company employees to serve as whistleblowing relators; they could expand their search to include anyone willing to submit a single FOIA request.

Oral Argument Before the Supreme Court

The Third Circuit – in an opinion drafted by then-Judge Alito – was the first appellate court to address the issue of whether an agency’s response to a FOIA request constitutes a “report” or “investigation” under the public disclosure bar of the FCA. In Mistick v. Housing Auth. of the City of Pittsburgh, 186 F.3d 376, 383-84 (3d Cir. 1999), Judge Alito looked at the plain meaning of the terms “report” and “investigation” and concluded that an agency’s response to a FOIA request is a “report” and its search for documents responsive to such a request is an “investigation” sufficient to trigger the FCA’s public disclosure bar. In Schindler, the Second Circuit took a contrary view and held that whether an agency’s response to a FOIA request is deemed a “report” or “investigation” under the FCA depends on the nature of the information provided and must be considered on a case-by-case basis.

During oral argument, the Justices tested vigorously Schindler’s position that every FOIA response is itself an administrative report. Justice Kennedy asked whether making files available in a reading room constitutes a report by an agency. Justice Sotomayor asked if an agency makes a report if it tells a person making a FOIA request to look on the agency’s website for the requested information. Justice Ginsburg inquired whether there was a difference between reports prepared by agencies commissioned to conduct investigations as opposed to reports from agencies that function merely as document repositories. Justice Alito asked whether documents that are turned over by an agency are themselves reports or whether they are simply “included in a report.” Schindler maintained that the hypothetical FOIA responses posed by the Justices were all “reports” for purposes of the FCA’s public disclosure bar.

When it was the relator’s turn to argue, the Justices had a number of questions about the test proposed by the relator to determine whether a FOIA response constitutes a “report” or “investigation.” At argument, the relator had difficulty articulating what the appropriate test should be – i.e., the test proposed by the Second Circuit or a dictionary definition of “report” or “investigation,” but maintained its position that the test should be done on a case-by case basis. The primary difficulty the Justices appeared to have with the relator’s test was that it was difficult to apply in contrast to the bright-line test proposed by Schindler pursuant to which all FOIA responses constitute “reports” under the FCA’s public disclosure bar. As Justice Scalia stated during relator’s argument:

“I don’t want to have to play these games every time there’s one of these qui tam actions. I mean, the advantage of [Schindler’s] solution is that it’s easy to apply. I don’t find yours easy to apply at all.”

If the Supreme Court adopts the Second Circuit’s test, it will likely encourage more potential relators to file qui tam suits. If the Supreme Court adopts the bright-line test proposed by Schindler, and accepted in a majority of circuit courts, it will prevent qui tam relators with no real insider information from maintaining a suit and will operate as a reasonable limitation on FCA actions.