Fourth Circuit Affirms Dismissal Under Public Disclosure Bar Where Relators’ Counsel Had Previously Represented Another Relator Whose Identical Qui Tam Claims Were Dismissed

Suppose you’re a relator who files a qui tam case against your former employer only to see your case dismissed on the grounds that you released the claims as part of accepting a severance package from your employer.  Can your wife or another former employee who didn’t sign the release subsequently retain the lawyer who represented you in your qui tam case and file her own lawsuit making identical claims against your former employer?  Not in the Fourth Circuit, as a result of a January 29, 2016 panel decision in U.S. ex rel. May v. Purdue Pharma L.P., No. 14-2299.

The allegations in issue in the May case were first made in an earlier qui tam case filed by one Mark Radcliffe.  He claimed, essentially, that Purdue Pharma, L.P. had misstated the potency of its painkiller OxyContin, vis-à-vis one of its older, less expensive painkillers, and had thereby induced physicians into prescribing, and the U.S. into paying for, OxyContin.  Unfortunately for Radcliffe, before leaving Purdue Pharma’s employ as part of a workforce restructuring, he had signed a release that precluded him from pursuing his qui tam case.  See U.S. ex rel. Radcliffe v. Purdue Pharma, L.P., 600 F.3d 319 (4th Cir. 2010).

Radcliffe’s roadblock, however, became an opportunity for others.  Shortly after the Supreme Court denied Radcliffe’s petition for certiorari regarding his dismissal, Radcliffe passed the baton to his wife and another former Purdue Pharma employee who had worked under Radcliffe, neither of whom was personally encumbered by Radcliffe’s release.  They then filed their own qui tam action against Purdue Pharma, making claims identical to Radcliffe’s dismissed claims.  And surely not coincidentally, they were represented by none other than Radcliffe’s former attorney.

The new case, captioned U.S. ex rel. May v. Purdue Pharma, L.P., proceeded through the Southern District of West Virginia.  (The proceedings there produced a notable opinion allowing Purdue Pharma to depose relators’ counsel, which opinion we reported on here.)  Ultimately, the district court dismissed the case, concluding that relators’ claims were barred by the FCA’s public disclosure bar, and that relators also had not met the pleading requirements of Rule 9(b).

On appeal, the Fourth Circuit reached only the public disclosure bar issue.  Because the conduct in issue all occurred before 2005, the panel applied the pre-2010 version of the public disclosure bar, which in relevant part provides that “[n]o court shall have jurisdiction over [a qui tam action] based upon the public disclosure of allegations or transactions in a criminal, civil or administrative hearing.”  31 U.S.C. § 3730(e)(4)(A) (2009).  The panel noted that the Fourth Circuit breaks from other circuits and applies a narrow reading of the statute’s use of term “based upon.”  According to the Fourth Circuit, an action is precluded under the public disclosure bar “only where the relator has actually derived from [a public] disclosure the allegations upon which his qui tam action is based.”  U.S. ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1348 (4th Cir. 1994).

Seizing on this narrow interpretation, the relators in May argued that, even though their allegations had been publicly disclosed in Radcliffe’s prior, dismissed lawsuit, they did not base their new lawsuit on his because they had not personally reviewed Radcliffe’s filings.  They also argued that even though their attorney’s knowledge is imputed to them, his knowledge did not come from reviewing Radcliffe’s prior pleadings because he had drafted them, and thus by definition had knowledge that preceded Radcliffe’s pleadings.

The panel in May disagreed and affirmed the district court’s dismissal.  First, the panel explained that in accordance with Siller (the Fourth Circuit precedent establishing a narrow application of the “based upon” standard), the inquiry should be whether the relator learns of an alleged fraud “independently” of a public disclosure.  In the May case, the panel concluded, that clearly was not the case since the relators’ knowledge came from their attorney who just happened to be the same attorney who made the filings in Radcliffe’s case that comprised the public disclosure.

The panel also stated that dismissing relators’ claims under the public disclosure bar is consistent with the bar’s purpose – “‘strik[ing] a balance between empowering the public to expose fraud on the one hand, and “preventing parasitic actions” on the other.’” May, slip op. at 13 (quoting U.S. ex rel. Wilson v. Graham Cty. Soil & Water Conservation Dist., 777 F.3d 691, 695 (4th Cir. 2015) (quoting Siller, 21 F.3d at 1348)).  The panel concluded:

Though the FCA is surely meant to incentivize people like Mr. Radcliffe to come forward, it is not designed to encourage lawsuits by individuals like the Relators who (1) know of no useful information about the scheme they allege, and (2) learned of the relevant facts through knowledge their attorney acquired when previously litigating the same fraud claim.

Id. at 15.

The panel’s decision in May is noteworthy in that, even while maintaining a very narrow, pro-relator interpretation of a provision of the public disclosure bar, it shows little tolerance for – and, indeed, maintains a strong firewall against – qui tam actions that are obviously opportunistic and parasitic.