Late last month, the Fourth Circuit ruled that federal courts cannot consider whistleblower suits brought under the False Claims Act (FCA) where those allegations are publicly available and did not originate from the purported whistleblower, cementing a significant defense for employers facing FCA suits.
In United States Ex Rel. Ahumada et al. v. Nish et al., No. 13-1672, a former executive for the National Center for Employment of the Disabled (“NCED”) brought a qui tam action against his former employer and several NCED suppliers alleging that the NCED defrauded the government under a contracting program that promotes employment for blind and other severely disabled people. The fraud allegations in this case were publicly reported in October 2005 through news reports and articles in Washington and Texas, which disclosed the potential lack of required quotas of disabled workers on staff to qualify for the government contracts.
The Fourth Circuit found that the former exec was not an “original source” for the information under Fourth Circuit precedent, because his knowledge was not direct and independent where it is based on public disclosure. The intervening news reports defeated his claims that such allegations could form the basis for an FCA claim. The Court found that his allegations were too similar to some of the earliest news reports to constitute an “independent source,” and tossed his claims against his former employer’s suppliers.
Employers facing FCA claims should keep this case in mind as they weigh their options in settling with an FCA relator to avoid costly litigation – the former exec’s employer settled with him in the infancy of the action.