Hitting Reset, District Court Raises the Bar for Public Disclosure Defense

On October 6, 2015, the U.S. District Court for the District of Columbia allowed relator Stephen Shea to refile his case against Verizon in order to avoid the False Claims Act’s first-to-file bar.  See U.S. ex rel. Shea v. Verizon Business Network Services et al., No. 09-1050-GK (D.D.C. Oct. 6, 2015).  By allowing Shea to refile, the District Court took an important stance on the FCA’s public disclosure bar that may make it more difficult for future defendants to advance the bar.

The opinion comes in Shea’s second qui tam action against Verizon for allegedly billing the United States improperly for telecommunications services.  Shea’s first case, which alleged unlawful surcharges under telecommunications contracts and was discussed previously on this blog, settled for $93.5 million after the Government intervened.  See U.S. ex rel. Shea v. Verizon Communications, Inc. [Verizon I], 844 F. Supp. 2d 78 (D.D.C. 2012).  Before settlement, Shea filed the current action – Verizon II – alleging unlawful surcharges under twenty additional contracts.

As we have previously discussed, the District Court originally dismissed Verizon II based on the first-to-file bar, and the D.C. Circuit affirmed the dismissal.  See U.S. ex rel. Shea v. Cellco Partnership, 748 F.3d 338 (D.C. Cir. 2015).  However, on June 1, 2015, the Supreme Court vacated the D.C. Circuit’s judgment and remanded the case for reconsideration in light of the Supreme Court’s decision in Kellogg Brown & Root, in which the Court held that a first-filed case ceases to be “pending” for purposes of the first-to-file bar upon dismissal.  See U.S. ex rel. Shea v. Cellco Partnership, 135 S. Ct. 2376 (2015).  Subsequently, on July 17, 2015, the D.C. Circuit “remanded [the case] for further proceedings consistent with the Supreme Court’s Opinion in Kellogg.”  Verizon II, No. 09-cv-01050-GK, at *29 (internal citation omitted).

Before granting leave to refile, the District Court considered whether Shea’s claims should be dismissed based on the public disclosure bar.  The Court first limited its analysis to Shea’s pleadings to accommodate the public disclosure bar’s change from a jurisdictional to non-jurisdictional provision under the Affordable Care Act.  Id. at *16.  The Court then examined whether, against the D.C. Circuit’s “X + Y = Z” public disclosure analysis, the essential elements of Shea’s claim were available to the public.  Id. at *17.  (We have previously discussed the D.C. Circuit’s algebraic analysis.)

Verizon argued that, even on the pleadings, the elements of Shea’s claim were publicly available: the names and the contents of the contracts that Shea identified have been posted online, and the laws that make those contracts illegal can be found in Federal Acquisition Regulations.  According to Verizon, this and other publicly-accessible information should have alerted the United States to a “likelihood of wrongdoing” and satisfied the requirements of the FCA’s public disclosure bar.

The Court disagreed, holding that the Government could not have stated a claim because there was no public evidence in the pleadings that Verizon actually invoiced the Government for unlawful charges.  Id. at *19–20.  Shea thus supplied the “Y” element of his claim in the complaint by claiming to have learned about Verizon’s invoices from his consulting work and conversations with a Verizon employee.  Id. at *22.  This information allowed Shea to satisfy the burden of proof that would have precluded the Government from stating a claim.

This case stands as an example of one district court applying an unreasonably high bar for the public disclosure defense, given that the allegedly “missing” information – invoices to the Government – is information that, by definition, the Government would have in its possession.  The holding appears to us to be inconsistent with the D.C. Circuit’s broad approach to the public disclosure bar, which has held that the bar is triggered so long as there is information in the public domain sufficient to “set government investigators on the trail of fraud” – a standard that would appear to be easily met here.

Copies of the Court’s order and opinion can be found here and here.  We will continue to cover the development of case law in this area, as well as subsequent actions in the Verizon II litigation.