Recent Appellate Decisions Highlight Narrowness of Public Disclosure Bar

avatar
  • LinkedIn

In recent months, both the Fifth and Sixth Circuits issued decisions interpreting the public disclosure bar (31 U.S.C. § 3730(e)(4)) to the False Claims Act narrowly. In United States ex rel Little v. Shell Exploration, two auditors from the Mineral Management Service, a federal agency that oversees the nation’s mineral assets, filed qui tam lawsuits over Shell’s allegedly unlawful royalty deductions for gathering and storing oil on offshore platforms. The Southern District of Texas originally granted summary judgment to Shell based, in part, on the public disclosure bar. The Fifth Circuit reversed that summary judgment ruling in a prior appeal in 2012 and sent the case back to the district court for further evaluation in light of the appellate court’s guidance on the public disclosure bar issue.

The Fifth Circuit explained the two-step process for assessing the public disclosure defense at the summary judgment stage: first, the court must assess whether the disclosure at issue qualifies as a “public disclosure” under the False Claims Act; and, second, the court must determine whether the claims at hand are based on those disclosures. The court cast the burden of establishing the first prong on the defendant asserting the defense, and it gave the burden of refuting the second prong to the relator.

On remand, the district court again granted summary judgment based on the public disclosure bar. The district court’s very short opinion failed to address any of the Fifth Circuit’s guidance from the earlier appeal. An exasperated Fifth Circuit had no trouble reversing the district court again, taking the extraordinary step of ordering the district court to assign the case to a different judge on the second remand.

The Fifth Circuit began by determining whether any of the alleged disclosures qualified as “public disclosures” under the statute. Since the statute narrowly defines what types of disclosures actually trigger the bar, it is important to make this determination at the outset. The court determined that a number of the disclosures relied upon by the district court did not satisfy the statutory requirements, including public discussions between Shell and the agency (MMS) about the legal standards governing the deduction of transportation costs. The court also determined that prior government audits of Shell did not qualify as public disclosures because they were never actually publicly disclosed–they remained within the government.

The Fifth Circuit also found that other disclosures, although qualifying as public disclosures, did not come close to revealing the fraud scheme outlined in the relators’ complaints. For example, the court determined that the administrative record contained vague references to similar issues but failed to disclose the specific acts of fraud detailed in the complaint. The court also found that three earlier lawsuits over similar, but materially different, issues did not trigger the public disclosure bar because they did not reveal the substance of the relators’ allegations in the present case.

In United States ex rel Whipple v. Chattanooga-Hamilton Hospital Authority, the relator alleged a variety of improper billing claims against the hospital defendant under the Medicaid, Medicare, and Tricare programs. The district court dismissed several of the claims under the public disclosure bar on summary judgment.

On appeal, the Sixth Circuit applied the same two-step analysis that the Little court discussed: (i) whether there had been a qualifying public disclosure, and (ii) if so, whether the claims in the present suit were based on those disclosures. As the Sixth Circuit noted, in order to qualify as a public disclosure, a revelation must not only fit within one of the defined categories, but it must also have been made public and disclosed the same type of fraud as alleged in the relator’s complaint.

In Whipple, the district court relied on certain administrative reports about the defendant’s billing practices by the government and others working for the government. However, there was no evidence that any such information had gone beyond the government and its contractor. The Sixth Circuit took the opportunity to eschew the Seventh Circuit’s broad interpretation of the public disclosure bar in United States ex rel. Mathews v. Bank of Farmington, 166 F.3d 853, 861 (7th Cir. 1999), and ruled that to trigger the bar, there must be ”some affirmative act of disclosure to the public outside the government.” The Sixth Circuit instead agreed with United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 728-30 (1st Cir. 2007), which held that the mere fact that information exists somewhere in government files or may be the subject of a confidential government investigation is not sufficient to trigger the public disclosure bar.

The Sixth Circuit also ruled that disclosures to the government’s contractor or to the defendant’s auditor of information about the administrative actions were not public. Since both of those entities had confidentiality obligations to their respective clients, the mere fact that third parties learned about the administrative actions was not sufficient to convert those disclosures into “public disclosures.”

In sum, these two appellate decisions highlight the narrowness of the public disclosure bar. Since the purpose of the bar is to prevent parasitic suits–that is, suits by those who are merely parroting information available through public sources–courts will carefully scrutinize alleged public disclosures to determine whether, in fact, they have been made public. And even if they have been made public, courts will further determine whether the claims brought by the relator are based on those public disclosures. Unless both of those two elements are satisfied, the public disclosure bar is being applied beyond its purpose and possibly deterring otherwise meritorious suits.