Earlier this week, the Supreme Court granted a petition for a writ of certiorari to decide whether whistleblowers can rely on documents obtained through the Freedom of Information Act (FOIA) when bringing qui tam actions under the False Claims Act (FCA). The Court decision in Schindler Elevator Corp. v. United States ex rel. Kirk will resolve the circuit split over whether FOIA documents are government "report[s], audit[s], or investigation[s]" that are considered "public disclosures" under 31 U.S.C. § 3730(e)(4)(A) and therefore not a proper basis for a whistleblower's claim. Hearings for the case will likely be scheduled for January 2011, and a decision will come by the end of June.
Depending on the outcome of Schindler Elevator, companies doing business with the government might find that their government-held information is requested more frequently. Employees and other individuals with only limited knowledge or partial understanding of company practices could start requesting documents through FOIA to confirm their suspicions and bolster their allegations, going on "fishing expeditions" in an attempt to access incriminating information. In addition, even frivolous whistleblower cases could get past the motion to dismiss phase of court proceedings, as whistleblowers with only limited knowledge would be able to make more detailed allegations of the "who, what, when, and where" of fraud based on information culled from government documents, even if the allegations were entirely wrong.
As a proactive measure, companies should ensure that documents sent to the government, where appropriate, are sufficiently marked with relevant confidentiality protections. Companies should be prepared to assert all protections available to them, including FOIA protections, business and proprietary protections, and other possible evidentiary protections, if a third-party request for their materials is made to the government. Companies receiving notice that the government has received a third-party FOIA request need to evaluate the materials being requested, and where appropriate file an objection to the release of the documents, potentially even filing a "reverse" FOIA suit to prevent government disclosure of their information.
The Second Circuit Decision
In Schindler Elevator, whistleblower Kirk was a Vietnam veteran who alleged that his former employer obtained government contracts by submitting false reports pursuant to the Vietnam Era Veterans Readjustment Assistance Act (VEVRAA). 601 F.3d 94, 99-100. Kirk brought his qui tam claim after receiving information pursuant to a FOIA request, through which he learned that defendant had disclosed inaccurate information about the veterans on its staff when such disclosures were a prerequisite to defendant's eligibility for various government contracts. Id. at 101-102. Based on his personal knowledge that he had not been asked about his veteran status, that many of his former co-workers who were veterans were not mentioned in defendant's disclosures and that defendant did not make the requisite disclosures for all of its company locations, Kirk concluded his former employer had violated the FCA and filed suit. Id.
The Second Circuit decided that whether documents produced pursuant to a FOIA request constitute reports, audits, or investigations triggering the jurisdictional bar "depends on the nature of the document itself." Id. at 107. Not all circuits agree with this view, however. In fact, in United States ex rel. Ondis v. City of Woonsocket late last year, the First Circuit determined that all responses to FOIA requests constitute reports generated by federal agencies, making them public disclosures subject to the jurisdictional bar. See 587 F.3d 49 (1st Cir. 2009).
Noting a circuit split on the issue, the Second Circuit rejected the reasoning set forth in Ondis and held that the FCA public disclosure bar applies to a FOIA document only when the document involves "the synthesis of information in an investigatory context." 601 F.3d 94 at 107. Concluding that a response to a FOIA request can be a mere "mechanistic reproduction of documents," the Second Circuit held that Kirk's reliance on FOIA documents to advance his claim was not grounds for dismissal. Id. at 111.
The Potential Impact of the Supreme Court Ruling
Following the Second Circuit decision, there is a 4-3 circuit split among courts that have examined the issue, with the First, Third, Fifth and Tenth Circuits agreeing that all FOIA responses constitute public disclosures and the Second, Fourth and Ninth Circuits taking a narrower view. The Supreme Court is set to determine whether FOIA responses constitute reports or investigations under the meaning of the FCA public disclosure bar, thus resolving this disagreement.
Schindler Elevator presents another opportunity for the Supreme Court to limit qui tam suits based on secondhand information, a position that has been at odds with Congress' recent action to expand whistleblowers' opportunities to bring suit. Congress recently amended the FCA to allow suits to proceed if a whistleblower has "independent" knowledge that "materially adds to" publicly disclosed allegations or transactions, whereas a whistleblower previously needed to meet the higher standard of "direct and independent knowledge" of the alleged fraud. In addition, before the recent amendment to the FCA, courts were required to dismiss whistleblowers whose allegations triggered the public disclosure bar. Now, if the government opposes dismissing a whistleblower in such a situation, the whistleblower may continue to participate in the case, and there are no criteria on which the government must base its decision.
Recent Supreme Court decisions have not been as favorable to whistleblowers. In Graham County Soil and Water Conservation District v. United States ex rel. Wilson earlier this year, the Court ruled that disclosures made in a state or local report, audit, or investigation were "public disclosures" under the FCA, meaning they could not be the basis of a qui tam action. See 130 S.Ct. 1396 (2010). Yet, Congress passed its FCA amendment only days before this decision, thereby limiting Graham County's applicability. Thus, it is not clear whether the Supreme Court in Schindler Elevator will find that all FOIA disclosures trigger the public disclosure bar. But if the Court finds that FOIA disclosures do not automatically trigger the bar, it must try to strike a balance to ensure that parasitic claims, which could have been brought by the government without assistance from a whistleblower, do not advance. It is difficult to predict how the Court will meet that end.
Regardless of the contours of the Court's decision, those doing business with the government that face an allegation of fraud should make determining the source of any potential whistleblowers' allegations a first step in defending themselves. If the Supreme Court limits the protections afforded defendants via narrowing the public disclosure bar, parties will need to give even greater consideration to the disclosures they have made to the government in searching for the root of the FCA allegations against them. In the first instance, of course, a company needs to ensure that it is appropriately marking documents submitted to the government, and take very seriously any notice from the government of a third-party FOIA request