Close upon the heels of its landmark decision this term in United States ex rel. Stone v. Rockwell International Corp., 127 S. Ct. 1397 (U.S. 2007), where the Supreme Court discussed the limits of the "original source” exception to the public disclosure bar (see FraudMail Alert Nos. 07-03-27 and 07-04-11), the Court has indicated that it now may address another key term in this important jurisdictional issue: the proper definition of “public disclosure.” Yesterday, the Supreme Court invited the Solicitor General to file a brief expressing the views of the United States in a pending case on the public disclosure bar. See United States ex rel. Bly-Magee v. Premo, No. 06-1269 (U.S. May 29, 2007) (Order inviting the Solicitor General to submit a brief expressing the views of the United States). The petition for certiorari, filed by the relator in Bly- Magee, presents the following question:

Under the “public disclosure bar” of the False Claims Act, 31 U.S.C. § 3730(e)(4)(A), a court generally may not hear a qui tam action based on “the public disclosure of allegations or transactions . . . in a congressional, administrative, or [GAO] report, hearing, audit, or investigation.” Does the phrase “administrative . . . report, hearing, audit, or investigation” encompass disclosures by state and local governments, as determined by three federal courts of appeals, or does it refer to disclosures only by the federal government, as held by the Third Circuit?

While in no way dispositive of what the Court will finally do, the invitation to the Solicitor General certainly signals the Supreme Court’s interest in considering the “public disclosure” issue next term. If it decides to do so, the Court will, in successive terms, address both key parts of the public disclosure/original source jurisdictional bar presented in almost every FCA case brought by a qui tam relator

The Ninth Circuit's Decision in Bly-Magee

The petition for certiorari seeks to overturn the holding of the Ninth Circuit in United States ex rel. Bly-Magee v. Premo, 470 F.3d 914 (9th Cir. 2006) ("Bly-Magee III") interpreting the “public disclosure” provision of the FCA. Like the original source exception recently addressed by the Court in Rockwell, the public disclosure provision has been the subject of many conflicting interpretations by the circuits. The issue raised in Bly-Magee is whether, as the Ninth Circuit held, allegations disclosed in state reports are “publicly disclosed” within the meaning of Section 3730(e)(4) if they are disclosed in state or county (i.e., non-federal) government reports.

The key provision of the False Claims Act, added in 1986, provides:

(A) 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.

This litigation has a long history. For over a decade, the relator in the Bly-Magee litigation pursued three declined qui tam suits against the California Department of Rehabilitation and its employees, alleging that they misappropriated federal funds. In Bly-Magee III, the Ninth Circuit dismissed allegations holding that they had been publicly disclosed under Section 3730(e)(4)(A) because they had been disclosed in a state government report. The relator challenges the court's key ruling that disclosure of the allegations in a California State Auditor's report was a “public disclosure,” arguing that non-federal reports were not covered by this provision, despite the lack of rational basis for distinguishing federal reports from state reports under the statute.

The Ninth Circuit found that the sources of public disclosure listed in Section 3730(e)(4)(A) fell into three categories: (1) "a criminal, civil, or administrative hearing"; (2) "a congressional, administrative, or Government Accounting Office report, hearing, audit or investigation"; and (3) "the news media." It noted that the Ninth Circuit had previously ruled that allegations disclosed in the first category, through state and local hearings, were public disclosures. Id. at 918 n.3 (citing A-1 Ambulance Service, Inc. v. California, 202 F.3d 1238 (9th Cir. 2000)). Since the provision did not expressly limit disclosures to allegations contained in federal administrative reports, the Ninth Circuit reasoned that each type of "report" listed in the provision— "congressional, administrative, or Government Accounting Office"—was a "separate modifier" of the term "report." Given this interpretation, and the likelihood that the information in the California State Auditor's report would come to the attention of the federal government, the court found that an allegation in that report was “publicly disclosed” for purposes of Section 3730(e)(4)(A). Since the relator did not have direct knowledge of the scheme for the relevant time period, the Ninth Circuit found that she did not qualify as an original source of the allegations and dismissed her claims.

Conflicting Circuit Decisions

The Ninth Circuit's interpretation is consistent with similar interpretations of this provision by the Eighth and Eleventh Circuits. See, e.g., Hays v. Hoffman, 325 F.3d 982 (8th Cir. 2003) (holding that disclosure of allegations in Minnesota Department of Human Services audit report was a "public disclosure"); Battle v. Board of Regents, 468 F.3d 755 (11th Cir. 2006) (holding that FCA claims relying on information in state audits were barred as publicly disclosed unless relator was an "original source"). It conflicts, however, with the Third Circuit's decision in United States ex rel. Dunleavy v. County of Delaware, 123 F.3d 734,745-46 (3d Cir. 1997), where the court concluded that the terms modifying "report" were related and referred exclusively to federal reports.

Importance of Public Disclosure Bar Conflicts

The public disclosure/original source provisions were hastily substituted in 1986 for the stricter "government knowledge" bar. Although no conference report was issued to explain the substituted provisions, the Senate and House reports make it clear that the reason for the change was to discourage parasitic suits while encouraging individuals with direct and independent knowledge of the information underlying fraud against the government to bring it to the government's attention. In Rockwell, the Court clarified several key aspects of the "original source" exception, but did not address any of the public disclosure issues because public disclosure had been stipulated to by the parties in that case.

Due to the complementary relationship between the public disclosure and original source provisions, addressing the issue raised in Bly-Magee would continue the much needed guidance in this frequently disputed area which the Court began in Rockwell. The Court's interest in hearing from the government on the public disclosure issue seems to signal a further interest in clarifying another aspect of this commonly litigated provision of a law with which the Court is becoming very familiar.

When Chief Justice Roberts and Justice Alito were appointed to the Court, FraudMail Alert expressed its view that their familiarity with the False Claims Act as circuit judges and (at least with respect to Chief Justice Roberts) as a practitioner, would lead the Court to begin to resolve the very difficult interpretative issues in such a poorly drafted statute. See FraudMail Alert Nos. 05-09-22 and 06-01-31. If the recent Order in Bly- Magee is any indication, this trend will continue.