Paul Belonick

^{Posted by Carol Lynn Thompson and Paul Belonick}

On Tuesday, March 17, 2015, the Ninth Circuit Court of Appeals heard two consolidated False Claims Act cases en banc, US ex rel. Hartpence v. Kinetic Concepts, Inc. (12-55396) and US ex rel. Godecke v. Kinetic Concepts, Inc. (12-56117). As discussed here, the challenged district court ruling dismissed the Relators’ cases under the public disclosure bar. In Tuesday’s argument, the Relators urged the court to overturn its holding in U.S. ex rel. Wang v. FMC Corp., 975 F. 2d 1412 (9th Cir. 1992), upon which the district court relied in ruling that an original source must have “played a part in publicly disclosing the allegations and information on which their suits were based” to escape the FCA’s public disclosure bar. The Relators argued that the Supreme Court’s decision in Rockwell Int’l Corp., v. United States, 549 U.S. 457 (2007) abrogated Wang‘s “hand in the disclosure” requirement when it held that the “direct and independent knowledge” that a relator must have to qualify as an original source is the information upon which his or her complaint is based, not the information underlying the public disclosure. Defendant-Appellee countered that Rockwell did not disturb Wang‘s test, and asked the court not to upset its long-standing precedent.

The eleven-member court struggled at argument to align the procedural history of the suit, the Wang test, the text of the FCA, and Congress’ recent amendments and policy concerns. Almost immediately after Relators’ counsel began his argument, J. Kozinski pressed him on why precisely Wang and Rockwell were inconsistent. J. Kozinski seemed incredulous at Relators’ assertion that Rockwell defined an “original source” solely based on knowledge of the allegations in the complaint, and J. Berzon pointed out that under Relators’ proposed definition, any relator with direct knowledge could always bring a qui tam suit even if a public disclosure had already occurred. When Relators’ counsel suggested that Congress intended that result to prevent companies from inoculating themselves against FCA claims by strategically releasing information to the public, J. Kozinski seemed mystified, and asked whether voluntary disclosure of bad acts was a “bad thing” that Congress would seek to prevent. Chief Judge Thomas also pressed Relators’ counsel on whether any empirical evidence backed his claim that companies were engaging in such strategic releases. Relators’ counsel admitted not. J. Berzon, however, noted that Relators’ problem was perhaps not only with the Wang test, but also with the Ninth Circuit’s broad interpretations of “public disclosure.”

Defendant-Appellee’s counsel also faced tough questioning. The court quickly gained an admission from Appellee that Wang‘s “hand in the disclosure” prong did not appear in the FCA’s text. When J. Wardlaw asked Appellee’s counsel why the Wang test should survive, he replied that Wang‘s test created a policy “golden mean” between protecting whistleblowers and requiring their speedy action. But J. Berzon noted that under Appellee’s interpretation a whistleblower could give a great deal of accurate and timely inside information to the government, but could never become a relator if he or she did not directly aid in a later public disclosure. When Appellee’s counsel responded that the Wang test furthered Congress’ intent to prevent “parasite” cases, J. Smith and J. Berzon again observed that the Wang test’s “hand in the disclosure” policy solution to such a “parasite” problem appeared neither in the FCA’s text nor in its statutory history. J. Ikuta noted that Congress amended the FCA as of 2010 expressly to balance the policy considerations at play, and asked how many pre-2010 cases now were left to be decided. Appellee’s counsel could not answer; most such cases remain under seal. J. Callahan then asked Appellee’s counsel what would become of United States ex rel. Meyer v. Horizon Health Group, 565 F.3d 1195 (9th Cir. 2009), which relied on Wang to lay out other important requirements to define an original source, if the court overturned Wang. Appellee’s counsel replied that at least some of Meyer could survive, and J. Smith particularly seemed amenable to a ruling that could “surgically” separate Wang from Meyer.

Finally, J. Bea brought the argument back to procedural matters: had the Relator Godecke been correctly dismissed as second to file? Appellee argued that both Relators had related claims and both should be dismissed, but certainly Godecke remained always in second place. But J. Bea and J. Smith appeared unconvinced, and queried whether Godecke might have claims sufficiently separate and independent from Hartpence’s to move forward on remand.

In the end, although it was difficult to predict what form or reasoning the final decision might take, the court in general appeared open to the suggestion that, especially in light of Congress’ recent amendment to the FCA, the Wang test is due for an upgrade.

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