20 May 2019

Tenth Circuit Offers New Guidance On “Original Source” Exception to the Public Disclosure Bar

The U.S. Court of Appeals for the Tenth Circuit weighed in on the “public disclosure bar” under the False Claims Act (“FCA”) that relators must pass for their qui tam suits to proceed. For the first time, the Court provided guidance on when a relator’s allegations can be deemed to “materially add” to public disclosures related to an alleged false claim, such that the original source exception to the public disclosure bar applies. United States ex rel. Reed v. KeyPoint Gov’t Solutions, No. 17-1379, (10th Cir. Apr. 30, 2019).

The FCA’s public disclosure bar bars whistleblowers from pursuing claims based on allegations that are already public, unless they can establish their allegations as an “original source” of the information. That bar compels courts to dismiss qui tam claims “if substantially the same allegations . . . as alleged in the action or claim were publicly disclosed,” unless the relator “is an original source of the information.” 31 U.S.C. § 3730(e)(4)(A). A relator with “knowledge that is independent of and materially adds to the publicly disclosed allegations,” and who gave the government this information before filing a qui tam claim, is considered an “original source.” 31 U.S.C. § 3730(e)(4)(B). Practically speaking, the public disclosure bar aims to strike “the golden mean between” encouraging “whistle-blowing insiders with genuinely valuable information” to come forward while discouraging “opportunistic plaintiffs who have no significant information to contribute of their own.” United States ex rel. Fine v. Sandia Corp., 70 F.3d 568, 571 (10th Cir. 1995); United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 649 (D.C. Cir. 1994).

In Reed, relator Julie Reed sued her former employer, KeyPoint Government Solutions, LLC (“KeyPoint”) under the FCA, alleging that KeyPoint violated the Act by knowingly and fraudulently billing the government for work that was inadequately or improperly completed. Ms. Reed also claimed that KeyPoint fired her in retaliation for her efforts to stop KeyPoint’s fraud.

Reed’s job at KeyPoint involved monitoring investigators’ work as they performed background checks on potential federal employees. This work included counting the number of interviews the investigators conducted by telephone since KeyPoint’s client, the Office of Personnel Management (“OPM”), set a limit on that number per investigator. While monitoring KeyPoint’s processes, Reed alleged that she found KeyPoint billing for background checks that falsely listed the applicant as “clean,” or did not involve the proper number of interviews. KeyPoint also allegedly regularly ignored OPM’s telephone interview rules, and would allegedly send in falsified “corrective action reports” that claimed the company had addressed the issue. Reed had consistently vocalized these problem. At some point in time after Reed made her concerns known, she was fired. Reed sued KeyPoint in 2014, the year after she was fired.

Notably, prior to Reed’s termination, there were news articles reporting criminal charges brought against a former KeyPoint employee over falsified reports sent to the OPM. There are also were many news articles reporting that federal background check vendors across the industry, including KeyPoint, were cutting corners and falsifying reports sent to the government.

The government declined to intervene in Reed’s suit, and KeyPoint moved for dismissal. On the motion to dismiss, the district court judge sided with KeyPoint on both Reed’s fraud and retaliation claims. Regarding Reed’s fraud claim, the district court said that the fraud Reed described was no secret and Reed did not qualify as an “original source” because she did not “materially add” anything significant to the prior public disclosures regarding KeyPoint.

On appeal, the Tenth Circuit affirmed the district court’s dismissal of Reed’s retaliation claim, but reversed and remanded Reed’s qui tam claim, adopting the First Circuit’s finding that a relator “materially adds” to public disclosures if her information “is sufficiently important to influence the behavior of the recipient.”  See, e.g., United States ex rel. Winkelman v. CVS Caremark Corp., 827 F.3d 201, 211 (1st Cir. 2016).

The Tenth Circuit found two categories of Reed’s allegations that materially added to the public disclosures—i.e., provided information that the government was learning for the first time and, according to the panel, involved evidence that would sufficiently influence the behavior of the government. First, Reed was able to provide specific, new evidence about KeyPoint’s alleged false reports of investigators’ use of the telephone. Second—and what the panel found most persuasive— was that Reed also alleged that KeyPoint had knowledge of the wrongdoing, and this was the first time direct evidence had been presented of KeyPoint’s scienter.

For these two reasons, the Tenth Circuit found that Reed’s allegations “blaze[d] a new trail” in this alleged fraud scheme. The Tenth Circuit remanded the case back to the district judge, ordering the district court to finish the original source analysis before Reed’s claims can continue, specifically whether her allegations are “independent of” publicly disclosed allegations.

The Tenth Circuit’s decision is significant in that it may demonstrate the early stages of an emerging circuit split on the “materiality adds” analysis under the FCA.  In adopting the First Circuit’s framework for assessing the “materially adds” language, the Tenth Circuit dismissed as unpersuasive the Seventh Circuit’s position, that if a relator’s “allegations are substantially similar to those contained in the” public disclosures, her allegations cannot “‘materially add[]’ to the public disclosure[s].” Cause of Action v. Chicago Transit Authority, 815 F.3d 267 (7th Cir. 2016).  The Tenth Circuit likewise rejected the standard adopted by the Third Circuit that “a relator materially adds to the publicly disclosed allegation or transaction of fraud when it contributes information…that adds in a significant way to the essential factual background: the who, what, when, where and how of the events at issue.”   The Tenth Circuit characterized this standard as unpersuasive as not firmly grounded the facts and circumstances of a particular case. United States ex rel. Moore & Co. v. Majestic Blue Fisheries, LLC, 812 F.3d 294 (3d Cir. 2016). We will continue to monitor this area.

The Tenth Circuit’s decision is available here.

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