24 May 2012

D.C. Circuit Loosens the Court’s Interpretation of the Original Source Rule

Posted by Brent Wilner and Ellyce Cooper

On May 15, 2012, the United States Court of Appeals for the District of Columbia Circuit issued an opinion, which dramatically altered the Court’s precedent regarding the original source rule. United States ex rel. Davis v. District of Columbia, No. 11-7039, Slip Op., (D.C. Cir. May 15, 2012), available at http://www.cadc.uscourts.gov/internet/opinions.nsf/C7A5B64099D02F98852579FF004E73DC/$file/11-7039-1373743.pdf (“Davis”).

In Davis, the whistleblower raised allegations that the District of Columbia Public Schools (“DCPS”) improperly obtained Medicaid reimbursement for special education services through claim submissions lacking adequate documentation. At issue before the D.C. Circuit was when the whistleblower made the allegations to the government.

Until 1998, the whistleblower provided accounting services to DCPS including submitting DCPS’s claims for special education services. Davis Slip Op. at 3. While preparing the 1998 claim, DCPS replaced the whistleblower’s firm with another accounting firm. Id. DCPS proceeded to file a claim prepared by the new firm, even though the new firm never obtained proper documentation for the claim. Id.

In 2002, the District of Columbia Auditor released a report to the public finding that “for fiscal years 1996-1998, ‘$15 million of costs incurred for services referred to special education students [by DCPS] were disallowed for Medicaid reimbursement due to the absence or unavailability of supporting documentation.'” Davis Slip Op. at 4. Two years later, the whistleblower informed the Inspector General of the U.S. Department of Health and Human Services that DCPS “d[id] not have in their possession documentation to support a drawdown of federal [M]edicaid funds for [1996-1998].'” Id. at 8. Thereafter, in 2006, the whistleblower filed his qui tam action alleging, inter alia, that the District of Columbia violated the FCA by submitting the 1998 claim in the absence of documentation. Id. at 4.

The District Court granted the District of Columbia’s motion to dismiss the qui tam action for lack of subject matter jurisdiction. Id. at 6. Relying on an earlier D.C. Circuit opinion, United States ex rel. Findley v. FPC-Boron Employees’ Club, 105 F.3d 675 (D.C. Cir. 1997), the district court reasoned that the whistleblower could not have been the “original source” of the information “[b]ecause there was no evidence that Davis notified the federal government before the 2002 Auditor’s report.” Id. That is, the whistleblower’s action was premised on information that had already been publicly disclosed.

The D.C. Circuit rejected the lower court’s interpretation of the public disclosure bar. Instead, the Davis court relied on the Supreme Court’s opinion in Rockwell Int’l Corp. v. United States, 549 U.S. 457 (2007). The D.C. Circuit found that Rockwell stands for the proposition that “[t]he relator can be an ‘original source’ to the government of his information even if the publicly disclosed information came from someone else.” Davis Slip Op. at 10.

Of particular import, Davis rejected the defendant’s (and Findley’s) concern that “‘once the information has been publicly disclosed . . . there is little need for the incentive provided by a qui tam action.'” Ibid. (citing Findley, 105 F.3d at 691). Rather, the court indicated that there is a policy interest to qui tam actions that survives the public disclosure: “[T]he relator’s information can be different and more valuable to the government than the information underlying the public disclosure, which might be nothing more than speculation or rumors.” Id. at 10-11 (citing Rockwell, 549 U.S. at 472). The Davis court stated examples of this would arise where the whistleblower has “an eyewitness account” or “important documents” that might not have been contained in the public disclosure. Id. at 11. Ultimately, the court concluded that “we will no longer require that a relator provide information to the government prior to any public disclosure of allegations substantially similar to the relator’s and will instead enforce only the text’s deadline of ‘before filing an action.'” Id.

It is worth noting that much of the impact of Davis has already been foretold by recent Congressional amendments to the FCA. Davis was decided applying the 1986 version of the FCA, which barred suits “based upon the public disclosure of allegations or transaction . . . unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.” 31 U.S.C. § 3730(e)(4)(A) (2006) (amended 2010). As amended in 2010, the FCA now defines an “original source” as:

[A]n individual who either (i) prior to a public disclosure . . . has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.

31 U.S.C. § 3730(e)(4)(B) (Supp. 2010). As the Davis court noted, Congress mitigated one concern the defense bar might have had after Rockwell, namely, Congress precluded a whistleblower from bringing a qui tam action if he or she added nothing to publicly disclosed information “by amending the statute to provide incentives to only those relators whose information adds value.” Davis Slip Op. at 11 n.4.

The Davis opinion nevertheless provides a reminder to entities operating in the federal reimbursement space that whistleblower suits may remain a viable threat even after alleged misconduct is revealed through public disclosures.