First Circuit Rejects Potential for Manufactured Public Disclosure; Applies Public Disclosure Bar Based On Disclosures Made by Defendant in Prior Lawsuit

Posted by Gordon Todd and Loui Itoh

On April 12, 2013, the First Circuit in United States ex rel. Estate of Cunningham v. Millennium Labs., No. 12-1258 held that the FCA’s public disclosure bar applies even to disclosures made by the defendant in a prior lawsuit. The Court rejected relator’s contention that applying the bar under these circumstances would permit a defendant to manufacture a public disclosure defense by selectively placing a sanitized version of its story on a public docket.

Relator Estate of Robert Cunningham (“Relator”) filed an FCA suit against Millennium Laboratories of California (“Millennium”) and John Doe physicians (“physicians”) claiming that Millennium had engaged in a fraudulent scheme in which it encouraged physicians to (1) bill the government multiple times for single drug tests; (2) conduct excessive, medically unnecessary initial tests and (3) misrepresent the medical necessity of confirmation testing.

Five days prior to the filing of this suit, Millennium had filed its own complaint against Relator’s former employer, Calloway Laboratories (“Calloway”) in California state court, alleging, inter alia, defamation and intentional interference with contractual relations. Millennium asserted that Calloway employees had sent emails to third parties describing Millennium’s practice of billing insurance companies and the government twice for the same service, and attached these emails to its complaint. In defense of Cunningham’s subsequent suit, Millennium argued that the emails constituted a public disclosure under the FCA. The District Court agreed an dismissed Relator’s complaint for lack of subject matter jurisdiction.

The Court of Appeals reversed in part, remanding for a more parsed analysis of one of Relator’s claims. However, the Court of Appeals largely affirmed, concluding that Relator’s complaint and the disclosures made in the California suit were “substantially similar.” The court explained that, “[w]hile we share Relator’s concern that a person or entity committing fraud against the government could theoretically shield itself from a qui tam action through preemptively filing its own action, thus creating a sanitized public disclosure while barring a future whistleblower action, the Supreme Court has been clear that self-disclosure can bar such suit under the FCA, and it has further characterized concerns about insulation from FCA liability as unwarranted in most cases.” Cunningham at 26 (citing Schindler Elevator Corp. v. United States ex rel. Kirk, 131 S. Ct. 1885, 1895 (2011); Graham Cnty. Soil & Water Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280 (2010)).