Public Disclosure

15 April 2015

District Court Refuses to Uphold Release of Liability or Apply Public Disclosure Bar Based on State-Law Employment Suit, Dismisses Off-Label Promotion Claims Under Rule 9(b)

Posted by Jaime L.M. Jones and Brenna Jenny

A court in the Eastern District of Pennsylvania recently ruled that, despite a relator’s publication during an employment retaliation suit of allegations relating to the defendant’s alleged off-label promotion and payment of kickbacks, such allegations were not publicly disclosed, nor was the relator’s execution of a release of liability effective. U.S. ex rel. Gohil v. Sanofi-Aventis U.S. Inc., No. 02-cv-02964 (E.D. Pa. Mar. 30, 2015). This case demonstrates the way policy arguments regarding a perceived congressional intent in favor of private enforcement of the FCA can impact legal arguments in FCA litigation.

The court first considered whether the relator’s claims had previously been publicly disclosed. The relator, a former sales representative employed by the defendant, filed a qui tam suit a month before resigning his position with the defendant in June 2002. Upon resigning, he filed a wrongful termination action pursuant to New Jersey’s Conscientious Employee Protection Act (“CEPA”). While the government weighed whether to intervene, the parties in the CEPA action engaged in discovery. They ultimately settled—with the relator signing a broad release of liability—and the qui tam suit was subsequently unsealed, with the government declining to intervene. The defendant argued that the relator’s Statement of Facts (“SoF”) in the CEPA action constituted disclosure through a “civil hearing,” thereby triggering application of the public disclosure bar. The court ruled that although the SoF “exhaustively details” the alleged off-label promotion of defendant’s cancer drug Taxotere, and corresponding payment of kickbacks, the SoF was not “substantially similar” to the relator’s complaint because the SoF did not state that any provider had submitted a claim to a federal healthcare program (“FHCP”). Accordingly, the court reasoned that the allegedly fraudulent transactions were not previously disclosed, and inferring the allegation of fraud “would impermissibly broaden the scope of the public disclosure bar and restrict private enforcement of the FCA.” The defendant has since filed a motion for reconsideration, arguing that where submission of false claims to the government is a “logical and obvious consequence” of an alleged scheme, all essential elements of the FCA claim are publicly disclosed.

The court next determined whether the relator had nonetheless waived his right to prosecute the qui tam suit through his settlement and release of liability in the CEPA action. Although the Third Circuit Court of Appeals has yet to rule on whether relators can unilaterally settle a qui tam suit post-filing, all of the courts of appeal to consider the issue have held that, based on the statutory language of the FCA, the government’s written consent is a prerequisite. In contrast, several courts of appeal have held that a pre-filing release can wipe out a would-be relator’s attempt to file a later qui tam suit, so long as the release covers the allegations in the suit and there are no countervailing public policy considerations. Consistent with the prevailing approach to post-filing releases, the Gohil court ruled that the relator’s release had no effect on the litigation. The defendant responded by suggesting that the release be effective as to the relator, but that the claims be dismissed without prejudice to the government’s ability to intervene. The court declined to adopt this approach, again invoking the “clear congressional intent of encouraging private enforcement of the FCA.”

As to the merits of the relator’s claims, the court first ruled that, even under the Third Circuit’s more lenient “reliable indicia” standard to the submission of false claims—in place of pleading the details of particular false claims submitted—the off-label promotion allegations did not meet Rule 9(b)’s requirements. This was so because all of the off-label uses related to medically accepted indications, which would have been eligible for government reimbursement. However, the court denied the defendant’s motion to dismiss the kickback allegations, holding that certifying compliance with the AKS is a precondition to payment by the FHCPs and that the relator had provided sufficient examples of kickbacks allegedly offered to providers. Finally, the court refused to dismiss the relator’s conspiracy count, ruling that a conspiracy between the defendant and providers could easily be inferred from examples of kickbacks supposedly paid by the defendant, followed by the recipient physician’s increase in Taxotere prescriptions.

A copy of the court’s opinion can be found here.

10 April 2015

Opinion Dismissing FCA Claims Based on Prior Disclosure to Government Officials Highlights Debate About What Constitutes A “Public Disclosure”

Posted by Scott Stein and Emily Van Wyck

In United States ex rel. Rockey v. Ear Inst. of Chicago, No. 11-cv-07258 (N.D. Ill. Mar. 25, 2015), the relator alleged that her former employer, the Ear Institute of Chicago, regularly submitted false claims to Medicare by submitting claims for services rendered by an audiologist under a physician’s name. Additionally, some of these claims were for services not covered by Medicare including therapeutic services performed by an audiologist or services performed without a physician order. In November 2010, the relator alerted the Ear Institute to this improper billing practice and shortly thereafter, the Ear Institute sent a letter identifying the issue to Wisconsin’s Medicare contractor and explaining that none of these claims resulted in overpayments. The letter did not address claims submitted for services not covered by Medicare. The relator filed suit in October 2011 against the Ear Institute, all of its doctors and audiologists, and its billing contractor. Defendants then moved to dismiss the complaint under the public disclosure bar.

The relator argued that the letter failed to sufficiently disclose all of her claims. The court disagreed with the relator explaining that the letter disclosed all elements necessary to show that defendants violated Medicare regulations and, as such, the letter alerted Medicare to “the likelihood of wrongdoing.” That disclosure, the court held, was sufficient to trigger the public disclosure bar.

The district court’s holding is consistent with Seventh Circuit precedent that disclosures to “a competent public official . . . who has managerial responsibility for the very claims being made” qualify as public disclosures. Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 909 (7th Cir. 2009). The Seventh Circuit’s view makes sense; there is little reason to reward whistleblowers when the defendant has self-disclosed to a responsible government official prior to the filing of a lawsuit. However, the Seventh Circuit standard does conflict with rulings from other circuits, which hold that a disclosure must be made to the public writ large to qualify under the public disclosure bar. We have written about some of these other decisions here and here.

The court then assessed whether the relator qualified as an original source. The original source provision requires that an individual have “knowledge that is independent of and materially adds to the publicly disclosed allegations.” The court noted that “materially adds” is not defined in the statute and no federal appeals court has interpreted the phrase. The district court therefore applied the “usual definition”—that the relator’s knowledge must have a “natural tendency to influence” or to be “capable of influencing” payment. In arguing that the original source provision applied, the relator claimed that while defendants identified their billing errors in the letter, they did not admit that they knowingly violated Medicare billing regulations. The court disagreed, stating that defendants admitted their billing practices were knowing and intentional. The relator also claimed that she provided detailed examples of fraudulent claims. The court rejected the relator’s proposition that these details materially added to defendants’ “comprehensive mea culpa.” Thus, the relator was not an original source and the public disclosure bar applied.

Even if these claims were not barred by public disclosure, the court found that the claims would still fail because the relator did not adequately allege knowledge, falsity, or materiality. With regard to the remaining claims relating to reimbursement for noncovered services (the claims that were not disclosed in the letter) and the conspiracy and retaliation claims, the court denied defendants’ motion to dismiss.

A copy of the district court’s opinion can be found here.

24 March 2015

Ninth Circuit Hears Argument En Banc in Hartpence and Godecke Appeals

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.

16 March 2015

U.S. Brief Argues For Expansive View of Public Disclosure Bar

Posted by Kristin Graham Koehler and Joshua Fougere

In a peculiar twist on a familiar issue, the United States recently filed a brief taking a broad view of the so-called “public disclosure” bar to argue that the U.S. District Court for the Central District of California lacked subject matter jurisdiction over a relator’s claims.

By way of background, relator James Swoben filed suit against SCAN Health Plan and, eventually, a number of other defendants. The United States and California settled with SCAN in 2012 and subsequently declined to intervene against the remaining defendants. When Swoben sought a relator’s share of the SCAN settlement, however, the government refused and took the position that the basis for Swoben’s claims against SCAN had been publicly disclosed in a 2008 report by California’s Controller’s Office. Swoben then moved for partial summary judgment, arguing that the report did not trigger the public disclosure bar because his claims were not “based upon the public disclosure of allegations or transactions in” the report, as required under the then-effective FCA provision. See 31 U.S.C. § 3730(e)(4)(A)(2008).

The government filed a motion in opposition. Swoben’s complaint alleged that SCAN had received duplicate payments from Medicare and Medi-Cal for some of the same services, and, according to the government, the Controller’s report also “allege[d] that SCAN appeared to be doing so.” U.S. Br. 3. That high-level assertion set the tone for the remainder of the brief. In it, the government argued in no uncertain terms that the statute’s “based upon” and “allegations or transactions” language must be read liberally: it “did not matter” if the Controller’s report failed to allege fraud, false claims, or “[f]acts [s]howing the [s]ame.” Id. at 12–18. To the government’s eye, the report contained enough to say that Swoben’s claims were “‘based,’ at least in part, ‘upon'” it and “stated the material transactions underlying” the purported fraud that was alleged expressly and in more detail in Swoben’s complaint. Id.

These arguments may prove useful to FCA defendants down the road: whether or not the government intervenes, defendants should consider ways to invoke the United States’ expansive and firmly articulated view of the applicable public disclosure bar to argue for the dismissal of FCA claims.

Click here to view a copy of the relator’s brief and here to view the government’s brief.

02 March 2015

Fifth Circuit Remands Public Disclosure Decision to New District Court Judge

Posted by Jaime L.M. Jones and Bevin Seifert

The Fifth Circuit recently sent a summary judgment ruling back to the Southern District of Texas for the second time for the lower court’s failure to apply the Circuit’s construction of the public disclosure bar. United States ex rel. Little v. Shell Exploration, No. 14-20156 (5th Cir. Feb. 23, 2015). Remarkably, the court also ordered that the case be assigned to a new judge because the lower court’s five-page “broad” and “conclusory” opinion failed to follow instructions for remand and was devoid of appropriate citations to the record or relevant law.

The relators, two auditors within a division of the United States Department of the Interior, filed the case in 2006, alleging that Shell Exploration and subsidiaries (“Shell”) defrauded the government of $19 million by improperly deducting expenses relating to offshore drilling. The government declined to intervene. In April 2011, the district court granted summary judgment for Shell finding, in part, that the allegations were barred under the public disclosure doctrine, U.S.C. § 3730(e)(4).

In 2012, the Fifth Circuit reversed and remanded for redetermination, concluding that the district court applied an “overly broad definition” of public disclosure to determine that the previous disclosures barred relators’ allegations. Specifically, the lower court held that the allegations need not be “identical” to the public disclosures, but rather “parallel,” i.e. that the “public disclosure must have been sufficient for the government to find related frauds, even though the circumstances of the transactions may differ.” The Fifth Circuit instructed the district court, to instead apply more narrow standards to determine whether the allegations had been publicly disclosed. Citing its decision in United States ex rel. Jamison v. McKesson Corp., 649 F.3d 322 (5th Cir. 2011), the court instructed that on summary judgment, the opposing party must (1) identify “public documents that could plausibly contain allegations or transactions upon which the relator’s action is based,” and then (2) if such disclosures are identified, the relator must put forth “evidence sufficient to show that there is a genuine issue of material fact as to whether his action was based on those disclosures.” The court further explained that publicly disclosed allegations need only be as broad or as detailed as those in the relator’s complaint, noting that “[w]here specifics are alleged, it is crucial to consider whether the disclosures correspond in scope and breadth.” Also prior disclosures need not name the defendant as long as the defendant’s misconduct would be readily identifiable from them. But, at a minimum, the court required that “disclosures [must] furnish evidence of the fraudulent scheme alleged.” The Fifth Circuit specifically instructed the lower court to determine if the public disclosures revealed either that (1) Shell was deducting expenses prohibited by program regulations; or (2) this type of fraud was so pervasive in the industry that the company’s scheme, as alleged, would have been easily identified.

On remand, Shell renewed its motion for summary judgment and, a year later, the Southern District of Texas again granted in favor of Shell, dismissing relators’ claims with prejudice. The relators’ subsequent appeal requested to have the case assigned to a new judge. In its de novo review, the Fifth Circuit reiterated its McKesson finding that public disclosure is “necessarily intertwined with the merits and is, therefore, properly treated as a motion for summary judgment” and concluded that had the lower court properly followed its instructions, it would have found no public disclosure and denied the motion.

As to whether a new judge should be assigned, the court recognized a circuit split on the test for this “rarely invoked” and “extraordinary power,” noting that the Fifth Circuit had not yet adopted either test (citing its decision in In re DaimlerChrysler Corp., 294 F.3d 1307, 1333 (5th Cir. 1997)), but concluding that, under either standard, reassignment was appropriate in this case when the lower court disregarded the Fifth Circuit’s “clear mandate” and “failed to apply the legal standards we established in our opinion for public disclosure and to address the specific questions that set out in that opinion.” Moreover, the Fifth Circuit criticized the short length of the opinion in contrast to the extensive summary judgment record, with few references to the record or relevant law. Finally, the court noted that the district court’s conclusion was the same as its prior opinion and followed the same “overly broad reasoning” that the Fifth Circuit already rejected. In its order to reassign the case, the court found that starting with a new judge would not “create waste or duplication” given that the case had been stuck for eight years on the public disclosure issue and that remaining with the same judge would likely result in further appeals.

A copy of the opinion can be found here.

27 February 2015

Sixth Circuit Holds that Disclosures Made Through a Government Investigation and Audit Do Not Trigger the Public Disclosure Bar

Posted by Jaime L.M. Jones and Catherine Starks

In a February 25, 2015 opinion, the Sixth Circuit became the fifth circuit court effectively to narrow the scope of the FCA’s public disclosure bar by holding that disclosures to the government do not trigger the protections of that provision. The Sixth Circuit also expanded upon prior rulings in this regard, clarifying that even disclosures to government contractors and private consultants during the course of an administrative audit and investigation will not lead to the application of the public disclosure bar to FCA liability.

The relator in Whipple v. Chattanooga-Hamilton County Hospital Authority alleged that the defendant hospital submitted false claims for reimbursement based on a variety of improper billing practices he observed during his employment with the hospital. After the relator left the hospital’s employ, a Medicare contractor acting on behalf of the Department of Health and Human Services Office of Inspector General (“OIG”) audited the hospital in response to an anonymous complaint regarding improper billing practices. OIG subsequently opened an administrative investigation into whether the errors and potential overpayments identified by the contractor’s review violated criminal law and consulted with the United States Attorney’s Office for the Eastern District of Tennessee before declining to pursue the matter further. To conduct its own internal investigation of the allegations, the hospital retained an outside billing consultant.

The district court dismissed relator’s qui tam claims for lack of jurisdiction, holding that the alleged fraud was publicly disclosed “through the investigations, oversights and audits conducted by the government, consultants, attorneys and contractors.” On review, the Sixth Circuit reversed, declining to follow Seventh Circuit precedent that interprets “public disclosure” to include disclosures of an alleged false claim to a “competent public official who has managerial responsibility for that claim.” The Sixth Circuit joined the Fourth Circuit, which recently observed in United States ex rel. Wilson v. Graham Cnty. Soil & Water Conservation Dist. that no other circuit court has followed the Seventh Circuit’s precedent. Instead, the Sixth Circuit held that disclosure outside the government is required to trigger the public disclosure bar. The court then clarified that non-government actors—specifically, the Medicare contractor and the hospital’s third party billing consultant—do not qualify as “outsiders” or “strangers” to the alleged fraud. As such, confidential disclosures to these parties in the context of an administrative audit and investigation are not “public disclosures” under the FCA. This decision thus continues the trend of narrowly interpreting the public disclosure bar, substantially curtailing a previously powerful limit to FCA liability.

A copy of the opinion can be found here.

25 February 2015

Third Circuit Deems Pharmacist’s Assessment Of Publicly Available Data Insufficient To Qualify Him As An Original Source

Posted by Jaime L.M. Jones and Jessica Rothenberg

In a recent decision, the Third Circuit provided additional guidance on the scope of the original source exception to the FCA’s public disclosure bar. In U.S. ex rel. Morgan v. Express Scripts, Inc., the court affirmed the dismissal of a qui tam suit based on allegations – widely covered in numerous lawsuits and media reports – that defendants artificially inflated Average Wholesale Prices (“AWPs”) for brand-name drugs. Relator David Morgan, a pharmacist, was never employed by any of the defendants and learned of the alleged scheme to inflate AWPs only through his review and comparison of two publicly available price listings. The court explained that knowledge gained through reviewing files—which was the full extent of Morgan’s “diligence” that led to his discovery of the price inflation—is not sufficient to demonstrate the “direct and independent knowledge” that is required to qualify as an original source. The court went on to note that Morgan’s general knowledge of the pharmaceutical industry, although it may have informed his review of the publicly available information, also was not enough to rescue his claims under the original source exception. The court then applied the familiar two step analysis under the public disclosure bar and found that Morgan’s allegations of a price inflation scheme were (1) disclosed in the news media, previously filed lawsuits, and a Congressional report, and (2) based on those public disclosures. In this connection, the court noted that the mere fact that Morgan calculated specific “markups” tied to the allegedly inflated AWPs was not sufficient to “remove his allegations from the public disclosure realm.” Thus, and since Morgan was not the original source of the allegations in his complaint, the court affirmed the district court’s dismissal of his claims for lack of subject matter jurisdiction under the pre-FERA version of the public disclosure bar.

A copy of the Third Circuit’s opinion in U.S. ex rel. Morgan v. Express Scripts, Inc., No. 14-1029 (3d Cir. 2015) can be found here.

05 February 2015

Fourth Circuit Holds That Disclosures Made Solely Within The Government Do Not Trigger The Public Disclosure Bar

Posted by Robert J. Conlan and Kristen A. Knapp

Earlier this week, the Fourth Circuit followed five other Circuits and held that a disclosure of information made solely within the government does not constitute a “public disclosure” under the FCA. While the decision – United States ex rel. Wilson v. Graham Cnty. Soil & Water Conservation Dist., No. 13-2345 (4th Cir. Feb. 3, 2015) – addresses the pre-Patient Protection and Affordable Care Act (PPACA) version of the public disclosure bar, the PPACA amendments did not alter the requirement that triggering disclosures be “public.” Thus, the Fourth Circuit’s decision will have ongoing significance.

The Wilson case has a long history, having been to both the Fourth Circuit and the Supreme Court twice before. The case comprises a qui tam action that the relator filed against a North Carolina county, various county entities and individuals related to disaster recovery work conducted under the Emergency Watershed Protection (EWP) Program. In 1995 and 1996, one of the named county entities was audited and an Audit Report was published that detailed various issues with the handling of the EWP Program. Subsequently, the U.S. Department of Agriculture Inspector General’s office issued a Report addressing other aspects of the handling of the EWP Program. Copies of the Audit Report and USDA Report were distributed only to certain state and federal agencies. Each report made clear on its face that it was intended for official use only, and the USDA Report included a warning that it was not to be distributed outside the receiving agency without prior consent from the USDA IG’s office.

The relator filed her qui tam action in 2001, alleging that fraudulent invoices had been submitted to the government under the EWP Program. After the relator made various amendments to the complaint and the case had taken two trips up and down the appellate ladder, the district court in 2013 dismissed the qui tam action for lack of jurisdiction. It concluded that the Audit Report and USDA Report constituted public disclosures under the FCA, that the relator had based her allegations on them, and that the relator was not an original source under the FCA.

On review, the Fourth Circuit reversed. The sole question that the panel considered was whether the reports were publicly disclosed for FCA purposes. The panel held that a public disclosure “‘requires that there be some act of disclosure outside of the government.'” Wilson, No. 13-2345, slip op. at 13 (quoting Rost v. Pfizer, Inc., 507 F.3d 720, 728 (1st Cir. 2007)). In so holding, the Fourth Circuit joined five other circuits to consider this question and rejected the Seventh Circuit’s reasoning in United States v. Bank of Farmington, 166 F.3d 853, 861 (7th Cir. 1999), which found disclosure to a “competent public” official sufficient to constitute public disclosure

The Fourth Circuit instead reasoned that public disclosure requires that the information reach the public domain. To hold otherwise, the Wilson panel concluded, would incorrectly equate the government with the public and render superfluous the “public” aspect of the public disclosure bar. The Fourth Circuit stated that its conclusion is bolstered by the history of the FCA, since Congress, in the 1986 amendments to the Act, replaced the so-called “government knowledge bar,” which barred qui tam actions based on information in the possession of the United States, with the public disclosure bar. Finally, the Fourth Circuit noted that the fact that the Audit Report and USDA Report were eligible for disclosure to the public through the use of a public records act request was not sufficient to constitute public disclosure because the talisman of the public disclosure bar is information that is “affirmatively provided to others.” Wilson, No. 13-2345, slip op. at 17 (citing United States ex rel. Ramseyer v. Century Healthcare Corp., 90 F.3d 1514, 1521 (10th Cir. 1996)).

A copy of the Fourth Circuit’s opinion can be found here.

22 January 2015

Eleventh Circuit Issues Important Ruling Regarding Post-PPACA Public Disclosure Bar

Posted by Jonathan Cohn and Annemarie Hillman

Last week, the Eleventh Circuit reached a decision in United States ex rel. Osheroff v. Humana, Inc., No. 13-15278 (11th Cir. 2015), which provides important guidance regarding the scope of the public disclosure bar following its amendment by the Patient Protection and Affordable Care Act (PPACA).

Humana arose from an action filed by a qui tam relator against several health clinics and health insurers in Miami. The complaint alleged that these clinics and insurers either provided, or knew others were providing, a variety of free services – including limo rides and salon services – that were used to incentivize potential clients to use the clinics. According to the relator, these actions violated both the Anti-Kickback Statute and the Civil Monetary Penalties Law, as well as the False Claims Act. After the government declined to intervene, the defendants moved to dismiss the case, and the district court granted the motion on public disclosure grounds.

On review, the Eleventh Circuit affirmed the district court’s decision to dismiss, and in doing so, addressed a number of important issues about the scope of the public disclosure bar following significant amendments made to the PPACA in 2010. First, the Eleventh Circuit held that the public disclosure bar is no longer jurisdictional due to these amendments. Instead, the Court held that the amended statute presents grounds for dismissal for failure to state a claim. This decision contradicts some earlier district court decisions, though it brings the Eleventh Circuit into agreement with the Fourth Circuit in United States ex rel. May v. Purdue Pharma L.P., 737 F.3d 908, 916-917 (4th Cir. 2013), petition for cert. filed, 82 U.S.L.W. 3586 (U.S. March 25, 2014) (No. 13-1162). The Eleventh Circuit based its decision on (among other considerations) the plain language of the amended statute and Congress’s explicit removal of jurisdictional language from the public disclosure bar section of the PPACA.

While it held that the public disclosure argument appropriately was considered under Rule 12(b)(6), the Eleventh Circuit dismissed the relator’s argument that the district court should not have considered documents extrinsic to the complaint. The Court explained that “a district court may consider an extrinsic document even on Rule 12(b)(6) review if it is (1) central to the plaintiff’s claim, and (2) its authenticity is not challenged.” The Eleventh Circuit also clarified that “a district court may consider judicially noticed documents” as well. The types of documents that the Eleventh Circuit held that the district court appropriately considered included newspaper articles, newspaper advertisements, the clinics’ own websites, and the transcript and Special Master’s Report from another case.

The Eleventh Circuit found that the district court had appropriately concluded that the post-PPACA public disclosure bar required dismissal of the relator’s claims. In so holding, the Eleventh Circuit held that “publicly available websites” qualify as “news media.” In making this decision, the Court noted that the Supreme Court had previously stated that the term had a “broad sweep” and that district courts in multiple circuits had found publicly available websites to be included in the category of “news media.” Such a decision may inform later cases about whether other documents commonly cited in public disclosure motions, such as SEC filings, can qualify as public disclosures.

The Eleventh Circuit also took the opportunity to walk back language in previous cases that relators had cited to suggest that prior disclosures do not satisfy the public disclosure bar unless they specifically disclose that the defendants engaged in wrongdoing. The public disclosure bar “itself requires only disclosures of ‘allegations or transactions,” the court explained, “suggesting that allegations of wrongdoing are not required.”

A copy of the Eleventh Circuit’s opinion can be found here.

10 December 2014

D.C. Circuit Affirms Dismissal Under Public Disclosure Bar

Posted by Nicole Ryan and Sarah Hemmendinger

In a December 2, 2014 opinion in United States ex rel. Doe v. Staples, Inc., No. 13-7071 (D.C. Cir. Dec. 2, 2014), the D.C. Circuit affirmed the dismissal of a relator’s FCA action under the public disclosure bar because the facts underlying the claim were already in the public domain through an online database and administrative reports.

This qui tam action arose out of the alleged importation of Chinese-made pencils to the United States. An anonymous relator, “a self-styled pencil-industry insider,” alleged that Staples, OfficeMax, Target, and Industries for the Blind made false statements to U.S. Customs in order to avoid paying antidumping duties imposed on Chinese-made pencils. The relator claimed that the defendants knowingly purchased Chinese-made pencils yet falsely declared to Customs that the pencils originated in countries other than China.

The government declined to intervene, and the defendants moved to dismiss for lack of subject matter jurisdiction and for failure to state a claim. The district court concluded that the relator’s FCA claim was based on publicly disclosed information and that he failed to show that he qualified as an original source of the information. Thus, it dismissed the case for lack of subject matter jurisdiction. The D.C. Circuit affirmed.

The court began by reviewing the principles it outlined in United States ex rel. Springfield Terminal Railway v. Quinn, 14 F.3d 645 (D.C. Cir. 1994). The court reiterated that where both elements of a fraudulent transaction – “the misrepresentation and the truth of the matter” – are already in the public domain, the public disclosure bar applies. This is the case even if a relator sets forth “additional evidence incriminating the defendant.” Here, both parties agreed that the Customs declarations were the alleged misrepresentations and that these statements were publicly disclosed in an online database. The appeal therefore turned on whether “the truth of the matter” – the question of whether the pencils “actually were made in China” – was also in the public domain. The D.C. Circuit agreed with the defendants on this point, finding that public reports by the International Trade Commission (“ITC”), which constituted administrative reports under the FCA, had already described many of the distinguishing physical characteristics of Chinese pencils (such as off-center leads and inferior finishing), which “form[ed] the basis of Relator’s charge that the pencils were made in China.”

The court rejected the relator’s argument that the public disclosure bar did not apply because his complaint identified distinctive features of Chinese-made pencils in addition to those listed by the ITC. The court explained that the information on the characteristics of Chinese-made pencils already in the public sphere was sufficient to “set government investigators on the trail of fraud.” Likewise, the court rejected the relator’s argument that his allegations concerning the pencils’ telltale characteristics were intended to show only the element of knowledge on the part of the defendants, not that the pencils were in fact made in China. The court held that if these publicly-known features of Chinese pencils were sufficient to put the defendants on notice of the pencils’ origins, they were also “sufficient to enable the government adequately to investigate the case and to make a decision whether to prosecute.” The court also emphasized that the ITC reports stated that U.S. pencil makers had identified three of the four defendants – Staples, Target, and OfficeMax – as “possible” importers of Chinese pencils, concluding that this information, combined with the defendants’ declarations that their pencils were made only in countries other than China, likewise could “have alerted law-enforcement authorities to the likelihood of wrongdoing.”

Therefore, the court held, the relator’s suit was “based upon” publicly disclosed “allegations or transactions” within the meaning of the FCA’s public disclosure bar. The court concluded that it did not matter whether the ITC had conducted a physical inspection of the defendants’ pencils: the relator’s allegations stemmed from a conclusion about the pencils’ origins “based on their physical characteristics,” which were already publicly described through the ITC reports.

Finally, the court held that the relator had waived the argument that he qualified as an original source of the information because he did not raise the argument below.

A copy of the court’s decision can be found here.

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