On March 1, 2011, the United States Supreme Court heard oral argument in Schindler Elevator Corp. v. United States ex rel. Kirk, No. 10-1888. The Schindler case is the third time since 2007 that the Supreme Court has addressed the scope of the False Claims Act’s public disclosure bar. See Graham County Soil & Water Conservation Dist. v. United States ex. rel. Wilson, 130 S. Ct. 1396 (2010); Rockwell Int’l Corp. v. United States, 549 U.S. 457 (2007). 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).

The Facts

Schindler manufacturers, installs and maintains elevators and escalators in buildings throughout the world, including some buildings owned and operated by the federal government. The relator, a former Schindler employee, alleges that Schindler falsely certified compliance with regulatory reporting requirements imposed by a rarely cited statute known as the Vietnam Era Veterans Readjustment Assistance Act (“VEVRAA”), 38 U.S.C. § 4212. VEVRAA and its implementing regulations require federal contractors to submit a report to the Secretary of Labor (a “VETS-100 report”), at least annually, stating the number of “qualified covered veterans” they employ. A government agency may not, with certain exceptions, enter into contracts with a contractor that has not filed a VETS-100 report for the previous fiscal year, if the contractor was required to do so.

The relator alleges that between 1998 and 2006, Schindler entered into hundreds of contracts with the federal government that were subject to VEVRAA while failing to comply with certain VEVRAA requirements. Specifically, the relator alleged that for several years during the period, Schindler failed to file any VETS-100 reports, and that, in other years, Schindler filed false VETS-100 reports. According to Schindler, the relator had no personal knowledge of Schindler’s VETS-100 filings through his prior employment at the company. Rather, his allegations are based on responses by the Department of Labor to several FOIA requests that his wife submitted seeking Schindler’s VETS-100 reports for various years. In response to these FOIA requests, a Department of Labor official reported that the Department was unable to locate any VETS-100 reports filed by Schindler for the years 1998 to 2003 and provided Schindler’s VETS-100 reports for 2004 to 2006.

The relator’s complaint alleges that Schindler failed to file VETS-100 reports from 1998 to 2003. It further alleges that VETS-100 reports filed by Schindler after 2003 contained false information in that they purportedly undercounted the number of covered veterans that Schindler employed. The relator’s complaint alleges damages to the federal government in excess of $100 million. If such damages were proved, the FCA’s treble damages provision would increase Schindler’s potential liability to more than $300 million, in addition to statutory civil penalties ranging from $5,500 to $11,000 for each violation. The United States did not intervene in the case.

The Public Disclosure Bar

The FCA’s public disclosure bar, codified at 31 U.S.C. § 3730(e)(4)(A), provides:

No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.

Section 3730(e)(4) was amended, effective March 23, 2010, by PPACA. However, that revision is not retroactive and therefore does not apply to the issue in this case. See Graham County Soil & Water Conservation Dist. v. United States ex. rel. Wilson, 130 S. Ct. 1396 (2010).

The Second Circuit’s Decision

The Second Circuit held that FOIA disclosures do not necessarily trigger the public disclosure bar – whether a particular disclosure triggers the bar depends on whether the particular document disclosed is one of the specific sources enumerated by § 3730(e)(4), such as a government report or investigation. The Second Circuit further held that whether the documents disclosed in response to FOIA requests constitute “reports” or “investigations” depends on the nature of the documents. Specifically, the Second Circuit held that the word “report” as used in § 3730(e)(4) “connotes the compilation of analysis of information in order to serve some end of government.” The Second Circuit further held that the word “investigation” as used in § 3730(e)(4) must be construed more “narrowly than simply a ‘detailed examination’ or ‘search.’ Instead, an ‘investigation’ here implies a more focused and sustained inquiry directed toward a government end, for example, uncovering possible noncompliance or assembling information relevant to a problem of particular concern to the government.” Because it determined that the documents turned over in response to the relator’s FOIA requests in this instance were not “reports” or “investigations” under these narrow definitions, the Second Circuit concluded that the public disclosure bar did not apply to the relator’s claims.

The Circuit Split

The Second Circuit’s decision conflicts with decisions by the First, Third, and Fifth Circuits which have held 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. See United States ex rel. Mistick v. Housing Auth. of the City of Pittsburgh, 186 F.3d 376, 383-84 (3d Cir. 1999); United States ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 56 (1st Cir. 2009); United States ex rel. Reagan v. E. Tex. Med. Ctr. Reg’l Healthcare Sys., 384 F.3d 168, 176 (5th Cir. 2004). The Tenth Circuit has likewise held, without extensive analysis, that a FOIA response triggered the public disclosure bar. See United States ex rel. Grynberg v. Praxair, Inc. 389 F.3d 1038, 1049 (10th Cir. 2004). In an unpublished decision, the Fourth Circuit also concluded, without analysis, that “FOIA information . . . does not operate as a jurisdictional bar.” See United States ex rel. Bondy v. Consumer Health Found., 28 F. App’x 178, 181 n. 2 (4th Cir. 2001).

The Second Circuit’s decision is in accord with the Ninth Circuit which has held that “a response to a FOIA request is not necessarily a report or investigation, although it can be, if it is from one of the sources enumerated in the statute.” See United States ex rel. Haight v. Catholic Healthcare West, 445 F.3d 1147, 1153-56 (9th Cir. 2006). According to the Ninth Circuit, “responding to a FOIA request requires little more than duplication,” and thus does not “involve extensive governmental work product” necessary to trigger the public disclosure bar.

The Sixth Circuit has noted the FOIA disclosure issue without fully resolving it. See United States ex rel. Burns v. A.D. Roe Co., 186 F.3d 717, 725.

To Be Continued…

Our next post will discuss the highlights from the oral argument in the matter and the amicus brief submitted by the AHA and PhRMA seeking reversal of the Second Circuit’s decision.