The public disclosure bar is a statutorily created hurdle that plaintiffs must cross to successfully maintain a False Claims Act suit. The principle was originally enacted to prevent individuals from filing “parasitic” False Claims Act (FCA) lawsuits that were not based on their independent knowledge.
The public disclosure bar has undergone several statutory changes during the history of the FCA, including, most recently, as part of the Patient Protection and Affordable Care Act (“PPACA”) in 2010. The new public disclosure bar states:
The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action were publicly disclosed-
(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party;
(ii) in a congressional, Government Acccountability Office, or other Federal report, hearing, audit or investigation; or
(iii) from the news media,
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) (2012).
The PPACA amendments also expanded the definition of an original source:
For purposes of this paragraph, “original source” means an individual who either (i) prior to public disclosure under subsection (e)(4)(A), 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) (2012).
As demonstrated by a recent Third Circuit opinion, these amendments will have a profound effect on FCA litigants. U.S. ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC began as a wrongful death action that was brought against two defendants after a shipwreck resulted in the death of the ship’s captain. During discovery, Moore learned that the defendants may have defrauded the government by falsely certifying that they were LLCs controlled by U.S. citizens with fishing vessels commanded by U.S. captains; in reality, the vessels at issue were actually controlled by a South Korean tuna company and were under the command of Korean fishing masters.
The district court dismissed the FCA action under the public disclosure bar, noting that two different news articles, as well as information that the attorneys had obtained from the government through Freedom of Information Act (“FOIA”) requests, showed that the transaction setting forth the alleged fraud was publicly disclosed. Moreover, the district court held that Moore was not an original source “because the information that it had obtained through discovery in the wrongful death action did not constitute ‘independent knowledge’” because it was “in the ‘public domain’ and was not ‘obscure.’”
While the Third Circuit agreed that the pre-PPACA public disclosure bar would have barred Moore’s FCA action, it held that the PPACA’s new definition of “original source” did not preclude the lawsuit. First, while the pre-PPACA language defined an “original source” as having “direct and independent knowledge of the information on which the allegations are based,” the new language requires only “knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.” According to the Third Circuit:
This definition therefore states that a relator’s knowledge must be independent of, and materially add to, not all information readily available in the public domain, but, rather, only information revealed through a public disclosure source in § 3730(e)(4)(A). Indeed, the text plainly requires courts to compare the relator’s knowledge with the information that was disclosed through the public disclosure sources enumerated in § 3730(e)(4)(A).
Thus, the Third Circuit concluded, because Moore gained information “through discovery in the wrongful death action as to how [the defendants] established and controlled the LLCs,” Moore possessed knowledge that is “independent of…the publicly disclosed allegations or transactions.”
While the defendants contended that the information Moore obtained through the wrongful death action simply provided additional immaterial details to the publicly disclosed fraudulently scheme, the Third Circuit disagreed. Noting that Federal Rule of Civil Procedure 9(b) requires plaintiffs alleging fraud to provide the “who, what, when, where and how of the events at issue,” the Third Circuit held:
[A] relator materially adds to the publicly disclosed allegation or transaction of fraud when it contributes information – distinct from what was publicly disclosed – that adds in a significant way to the essential factual background: “the who, what, when, where and how of the events at issue.”
Under this framework, the Third Circuit concluded that the law firm was an “original source” because “the information that Moore acquired from discovery in the wrongful death action added significant details to the essential factual background of the fraud – the who, what, when, where, and how of the alleged fraud – that were not publicly disclosed.” Accordingly, the district court’s dismissal was reversed.
The Third Circuit’s ruling illustrates the new landscape under the post-PPACA public disclosure bar. Defendants in FCA actions will have to carefully assess the time period of the claims at issue to determine the applicable version of the public disclosure bar and will have to further tailor their public disclosure bar arguments to address the applicable factors.