A federal district court in California has denied a qui tam relator’s attempt to share in the proceeds of a $323 million FCA settlement, holding that he was not the “original source” of the information that led to the settlement because he learned most of it secondhand from a former co-worker.
In 2009, relator James Snowben filed a qui tam complaint against his former employer, SCAN Health Plan, a Los Angeles-based health maintenance organization, alleging that SCAN received duplicative or overlapping payments from Medicare and Medi-Cal and concealed those overpayments from Medi-Cal. Three years later, in 2012, SCAN entered into a settlement with the United States and the State of California to resolve the allegations set forth in the relator’s complaint, along with allegations arising from a 2008 report issued by the State of California Controller’s Office (the “SCO Report”) that SCAN did not provide information to Medi-Cal that was necessary for setting SCAN’s reimbursement rates.
The relator moved for a share of the settlement proceeds. The United States and California opposed the motion on the grounds that his allegations had already been publicly disclosed before he filed his complaint. All parties agreed that the matter was governed by the public disclosure bar provisions in the pre-2010 versions of the federal and California FCAs. In June 2015, the district court ruled that the allegations in the relator’s 2009 complaint were based on prior public disclosures in the 2008 SCO Report. Minute Order, United States v. SCAN Health Plan, No. 09-cv-5013 (June 1, 2015) (Dkt. No. 174). The court requested further briefing on whether the relator was exempt from the public disclosure bar because he was an “original source” of the information in that report. Id.
The district court ruled that the relator did not qualify as an original source. United States v. SCAN Health Plan, No. 09-cv-5013 (Aug. 28, 2015) (Dkt. No. 210). As the court explained, the relator left SCAN in 2006 and later had conversations with another former SCAN employee who shared information that allegedly demonstrated that SCAN had received overpayments from Medi-Cal. Id. at 3. The relator conveyed this information to a California state senator, who referred it to the SCO. The SCO then commenced an investigation, which resulted in the 2008 SCO Report. The relator filed suit only after that report was issued, but argued that he was the original source of the allegations that triggered the SCO investigation in the first place.
The district court disagreed. Applying the pre-2010 version of the FCA, the court explained that the relator could qualify as an original source only if he had “‘direct and independent knowledge’” of the alleged fraud. Id. at 7 (quoting 31 U.S.C. § 3730(e)(4)(B)). As the court noted, direct knowledge must be “obtained firsthand, by the relator’s own efforts rather than by the labor of others.” Id. at 8 (citing Alcan Elec. & Eng’g, Inc., 197 F.3d 1014, 1018 (9th Cir. 1999)). The court concluded that the relator failed this test because many of the allegations in his complaint were too “conclusory,” and the remainder were based on “secondhand” information he learned from the other former SCAN employee. Id. at 9 & n.7. As the record indicated, the relator “never” had personal access to “SCAN’s financial accounting systems,” which would have been “necessary to detect the fraud.” Id. at 12.
The court’s ruling is an important illustration of the principle that firsthand knowledge of the alleged fraud should be an essential pre-requisite for any relator seeking to qualify as an “original source” under the pre-2010 version of the FCA or its state analogs. See, e.g., Alcan, 197 F.3d at 1021; United State ex rel. Grynberg v. Praxair, Inc., 389 F.3d 1038, 1052–54 (10th Cir. 2004).