On July 28, 2014, the Seventh Circuit issued another decision in a string of recent decisions by that court restricting the scope of the public-disclosure bar.

In United States ex rel. Heath v. Wisconsin Bell, Inc., the relator, Todd Heath, alleged that Wisconsin Bell, Inc., was overcharging school districts, libraries, and the federal government for telecommunications services provided pursuant to the E-Rate Program. Telecommunications providers participating in the E-Rate Program are required to offer eligible school districts the lowest price that is charged to “similarly situated” non-residential customers. Heath was retained by several Wisconsin school districts to audit their telecommunications bills and determined that some school districts were paying higher rates than other school districts so that the government was providing greater subsidies. Heath further discovered that the school districts were not receiving the rates offered to the Wisconsin Department of Administration (the “DOA), which contained “similarly situated” government agencies, under Wisconsin Bell’s Voice Network Services Agreement (the “VNS Agreement”).

After Wisconsin Bell refused to provide the more-favorable pricing given to the DOA to the school districts, Heath discovered more pricing information, including the VNS Agreement itself, on the DOA’s website. Heath filed a qui tam complaint in 2008, and the United States declined to intervene. The district court granted Wisconsin Bell’s motion to dismiss for lack of subject-matter jurisdiction, finding Heath’s reliance on the pricing information available on the DOA’s website dispositive in applying the public-disclosure bar.

The Seventh Circuit reversed, holding that Heath’s allegations were not “based upon” a public disclosure. The court reasoned that, unlike cases in which a relator’s complaint “merely added specificity” to publically disclosed allegations, Heath’s allegations “required independent investigation and analysis to reveal any fraudulent behavior.” Although Heath’s allegations relied in part on the VNS Agreement, “[n]o one could view the agreement in a vacuum and realize that Wisconsin Bell was overcharging school districts.” Rather, Heath’s prior knowledge of the rates being charged to other “similarly situated” entities was necessary to understand the significance of the VNS Agreement. Accordingly, the court held that the public-disclosure bar does not apply because Heath’s prior knowledge brought “genuinely new and material information” to the government’s attention.

The Seventh Circuit’s opinion limits the potentially broad interpretation of “based upon” articulated in the Seventh Circuit’s decision in Glaser v. Wound Care Consultants, Inc., 570 F.3d 907 (7th Cir. 2009). While acknowledging that Glaser had stated that “based upon” does not mean “solely based upon” and that a “qui tam action even partly based upon” public information will fall within the public-disclosure bar, the court found that Heath’s allegations “required independent investigation and analysis to reveal any fraudulent behavior.” The court in Wisconsin Bell thus distinguished Heath’s claim from that of the relator in Glaser, which “merely added specificity (and maybe a few additional instances)” to the publicly available information. Accordingly, defendants in the Seventh Circuit should be aware that the public-disclosure bar may not apply if the relator relies on public information that “had to be supplemented with knowledge of other pricing . . . to establish fraud.”

A copy of the opinion can be found here.