Seventh Circuit Re-Affirms That Disclosure to Government Officials Constitutes Public Disclosure, But Suggests It May Be Open to Reconsidering That View

On February 26, 2016, the Seventh Circuit refused to revive a public interest group’s False Claims Act suit alleging that the Chicago Transit Authority (CTA) misreported transit data to gain additional federal grant allocations.  The three-judge panel upheld the district court’s dismissal of the suit, which accused the CTA of over-reporting bus mileage to secure up to $55 million in inflated grant allocations.  The district court found that the group’s accusations had already been publicized in a state performance audit report and federal agency letter, and the Seventh Circuit agreed that the relator, public interest group Cause of Action, failed to establish subject-matter jurisdiction under the FCA’s public-disclosure bar, which limits jurisdiction over qui tam actions based on allegations that already have been disclosed publicly through certain sources unless the relator is an “original source” of the information.  See Cause of Action v. Chicago Transit Authority, No. 15-1143 (7th Cir. Feb. 29, 2016).

In 2014, U.S. District Judge Robert M. Dow Jr. dismissed Cause of Action’s suit, finding that the misreporting allegations were made public in a March 2007 audit report by Illinois’s Auditor General.  The audit report concluded that, for many years, the CTA overstated vehicle revenue miles when making annual certifications to the National Transit Database.  As a result, the agency received grant disbursements that were higher than justified under a program administered by the Federal Transportation Administration (FTA).  The district court found that the allegations against the CTA entered the public domain when, in April 2012, the FTA informed the CTA that the CTA must revise its vehicle revenue miles data from 2011 and going forward.  Cause of Action originally filed its suit in May 2012, primarily alleging information that was previously disclosed in the audit report and including only two additional pieces of information.

The Seventh Circuit agreed with Judge Dow.  Rejecting the argument that the public disclosure bar requires a disclosure “to the public at large,” the panel re-affirmed that the bar can apply where the facts disclosing the fraud are in the government’s possession, regardless of whether they are available to the “public at large.”  The panel acknowledged that its view remains the minority view, though we believe that it appropriately reflects that the purpose of the public disclosure bar is to ensure that alleged frauds are brought to the attention of the authorities,” not merely to educate and enlighten the public at large about the dangers of misappropriation of their tax money.”  However, the panel noted that there is “significant force in the position of the other circuits,” and suggested that in a case with different facts, “respect for the position of the other circuits would warrant in-depth reconsideration of our precedent.”

The panel also rejected the argument that the public disclosure bar was inapplicable because the government agency did not act on the allegations.  “The FTA letter specifically references the agency’s ‘in-depth review’ of the CTA’s reporting practices, facilitated at least in part by the CTA’s cooperation, and describes in some detail the results of the inquiry.”  See id. at 4.  The court found “no support in either the FCA or our case law for attaching jurisdictional significance to the outcome of an administrative investigation beyond its undertaking” and that, under Seventh Circuit precedent, “the FTA letter was ‘placed in the public domain’ when it was sent to the CTA.”  See id. at 16.

Furthermore, the Seventh Circuit found that Cause of Action failed to establish itself as an “original source” of the allegations.  Cause of Action learned of the allegations after a subcontractor for the Illinois auditors released a 25-page technical page report that was subsequently included in the 2007 audit report.  The court found that, “[h]ad it not been for Mr. Rubin’s overture, there is no reason to believe that Cause of Action would have ever learned of the wrongdoing it now alleges.”  See id. at 31.  Finally, the Seventh Circuit concluded that, “because Cause of Action’s allegations are substantially similar to those contained in the audit report, its information has not ‘materially add[ed]’ to the public disclosure.”  See id.

Cause of Action is significant because it reflects that the Seventh Circuit continues to adhere to the view that disclosure to government officials can be sufficient to trigger the public disclosure bar.  However, the panel also suggests that the court may be open to reconsidering that position in the future.  Apparently hoping to spark such reconsideration sooner rather than later, the relator recently filed a petition for rehearing en banc.

A copy of the opinion is available here.  A copy of the petition for rehearing en banc is available here.