Nearly eight months after key amendments to the False Claims Act (FCA) became law, qui tam relators continue to test the boundaries of the whistleblower statute. If recent cases offer any measure, relators have grown more aggressive in pursuing their own actions when the Government declines to intervene. A corresponding rise in FCA appellate litigation may foreshadow an enduring trend, as relators take it upon themselves to press courts for expansive interpretations of the act. The following cases illustrate that trend.
Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson, cert. granted, 129 S. Ct. 2824 (2009). This case—the second case the Supreme Court has considered in three Terms on the scope of the FCA’s jurisdictional public disclosure bar—challenges whether state and local administrative audits and reports fall within the FCA’s jurisdictional public disclosure bar. In Graham County, Karen Wilson complained about fraud in the administration of federal disaster relief funds provided to two North Carolina counties (Graham and Cherokee). The counties subsequently commissioned an audit, which raised similar fraud concerns, as did a report prepared by the North Carolina Department of Environment, Health, and Natural Resources. After these reports issued, Ms. Wilson sued the local counties and district officials under the FCA based on the administration of the federal disaster funds. The United States investigated and declined to intervene. Ms. Wilson pursued the claim herself. The district court concluded that it lacked subject matter jurisdiction over relator’s claims because the claims were based on public disclosures in the audit report.
On appeal, the threshold question for the Fourth Circuit was whether the FCA barred relators from pursuing qui tam actions that were based on information disclosed in a state administrative report or audit. The court held that it did not. The court held that the jurisdictional bar—which bars federal courts from exercising jurisdiction over actions based on disclosures in an “administrative . . . report, . . . audit, or investigation,” see 31 U.S.C. § 3730(e)(4)(A)—applies only to federal administrative reports and audits. It rejected the defendants’ stark warning that such a reading would unduly narrow the public disclosure bar and expose state and local governments to parasitic suits. The Supreme Court granted cert and held oral argument on November 30, 2009. A decision is pending.
Apparently concerned that the Supreme Court decision might go against them, the relators bar was able, late in the health care reform debate, to convince the Senate to add an amendment of the public disclosure bar to the Senate package. If that amendment is enacted, it would effect a significant change to the law so that, among other things, reports like those at issue in Graham County likely would never amount to public disclosures barring federal court jurisdiction.
United States ex rel. Duxbury v. Ortho Biotech Products, LP, 579 F.3d 13 (1st Cir. 2009), petition for cert. filed, 78 U.S.L.W. 3361 (U.S. Dec. 03, 2009) (No. 09-654)1. This case involves another facet of the public disclosure bar—the scope of the bar’s “original source” exception—and how the particularized pleading standard of Rule 9(b) applies to FCA qui tam actions. In Duxbury, a relator sued a biotech company for off-label promotion, inflating the average wholesale price of its drugs, and engaging in a kickback scheme that induced health care providers to file false claims. The United States investigated and declined to intervene. The district court held that it lacked jurisdiction over the relator’s FCA claims because those claims were based on public disclosures, and that in addition, the relator had failed to plead with particularity because he alleged no details of a single allegedly false claim.
On appeal, the First Circuit sided with the minority view of when a relator qualifies as an original source—that a relator can be an “original source” even if he provides his information to the government after others have done so, as long as he provides the information before filing suit. The Government, in its amicus brief, had argued against this interpretation as one that permits needless qui tam litigation and fails to result in the disclosure of new fraud schemes to the Government. The First Circuit nevertheless held that a relator can be an original source even if he provides information to the government after public disclosures have occurred. The court then addressed the Rule 9(b) pleading standard and espoused a “more flexible” pleading standard for qui tam relators who lack knowledge of the details of any false claim—a standard that appears no higher than plain notice pleading. The defendant has petitioned for certiorari review, and the petition remains pending. Hogan & Hartson submitted an amicus curiae brief in support of the petition on behalf of the American Hospital Association.
Allison Engine Co. v. United States ex rel. Sanders, 2009 WL 3626773 (S.D. Ohio Oct. 27, 2009). After remand from the Supreme Court in 2008, this case stands poised for a second round of appellate litigation. It captures the growing tug-of-war between relators, the courts, and the legislature over the scope of the FCA. In Allison Engine, relators sued subcontractors for submitting false invoices to private shipyards hired by the Navy to build destroyers. The district court granted defendants a directed verdict, holding that plaintiffs offered no evidence that any false or fraudulent claim had been presented to the Government itself. The Sixth Circuit reversed, holding the that the FCA included no such “presentment” requirement and that liability attached “so long as the claim was paid with government funds.”
On June 9, 2008, the Supreme Court reversed the Sixth Circuit and remanded the case to the district court. 128 S. Ct. 2123 (2008). Writing for the Court, Justice Alito held that under § 3729(a)(2), plaintiffs must do more than demonstrate that government money was used to pay a false claim; they must prove that defendants intended their false statements “to get a false or fraudulent claim paid or approved by the Government.”
In May 2009, Congress reacted, passing the Fraud Enforcement Recovery Act of 2009 (FERA), which expressly eliminated the “to get . . . paid or approved by the Government” language from § 3729(a). Congress then went one step further and made this amendment retroactive to “all claims” pending as of June 7, 2008—two days before the Supreme Court’s ruling.
FERA added a new wrinkle to existing FCA litigation, including the Allison Engine case itself. On remand, the district court in Allison Engine held that: (1) FERA’s retroactive provision was inapplicable to the case because it pertained to “claims,” not “cases,” and the allegedly false claims submitted in Allison Engine long pre-dated June 2008, and (2) in any event, given its punitive nature, retroactive application of the amendment would violate the ex post facto clause of the Constitution.
On December 28, 2009, the Department of Justice intervened in the case (nearly five years after the case went to trial), and, along with the relators, moved for permission to take an interlocutory appeal of the district court’s ruling. That request for interlocutory appeal remains pending.
As the complicated twists and turns of Graham County, Duxbury, and Allison Engine demonstrate, relators—sometimes with the support of the Government and sometimes contrary to the Government’s view—continue to test the boundaries of this unique whistleblower statute. As the FERA amendments come into effect, and as Congress contemplates further narrowing the public disclosure bar in the health care reform litigation, it is clear that relator-driven litigation—motivated by the financially lucrative rewards of settlements under the FCA—has only intensified. Indications are strong that that trend will continue.