During 2010, the U.S. Supreme Court decided one False Claims Act case, and granted certiorari in another. Both cases involve the scope of the so-called “public disclosure bar.” Added in the 1986 amendments to the Act, the public disclosure bar was intended to curb “parasitic” lawsuits by relators who simply regurgitate fraud allegations that have already been publicly disclosed. Since its inception, courts around the country have analyzed the scope of the public disclosure bar, trying to determine what constitutes public disclosure. And the public disclosure bar has now caught the attention of the Supreme Court.
On March 30, 2010, the U.S. Supreme Court decided Graham County Soil and Water Conversation District v. U.S. ex rel. Wilson, 130 S. Ct. 1396, 176 L. Ed. 2d 225 (2010) reh’g denied, 130 S. Ct. 3351, 176 L. Ed. 2d 1241 (2010). In that case, the Court held for the first time that a private whistleblower could not bring suit on behalf of the government based on information she learned in an official report issue by a state or local administrative agency. Specifically, the Court examined the reference to “administrative” reports, audits, and investigations in Section 3730(e)(4)(A) of the False Claims Act, deciding whether the term encompassed reports by both federal and state/local agencies. Employing a strict textual analysis of the language of that section, the Court held that it did.
Relator Wilson, who was employed by a local government office tasked with remediating areas of North Carolina damaged by floods, notified local and federal officials about possible fraud in the administration of the federal contracts. Both the county and the state also issued reports detailing the possible fraud. Wilson brought suit under the False Claims Act, but her case was dismissed by the trial court on the grounds that it was merely based on publicly disclosed information in the reports.
On appeal, the U.S. Court of Appeals for the Fourth Circuit held that only federal administrative reports could trigger the public disclosure bar. But the Supreme Court disagreed. The Supreme Court focused on the public disclosure bar as a whole, and noted that the term “administrative” had been used in other instances to refer to state and county hearings. The Court also rejected Wilson’s attempts to rely on legislative history, stating that “the drafting history of the public disclosure bar raises more questions than it answers.” In short, the Court advanced a broad reading of the public disclosure bar and rejected any claim that it was exclusively federal.
The impact of the Court’s decision in Graham County on future cases is quite limited, however. New amendments to the False Claims Act-specifically, to the public disclosure bar-were included in the healthcare reform legislation passed in late March of 2010. Specifically, under the amended public disclosure bar, information is only considered publicly disclosed if it is disclosed in a federal criminal, civil, or administrative hearing, or a federal report, hearing, audit or investigation. The addition of the term “federal” in the amendment presumably excludes information that is disclosed in state and local hearings, reports, etc. and thus effectively overrules the Court’s holding in Graham County on a going-forward basis.
On September 28, 2010, the Supreme Court granted certiorari review of the decision in U.S. ex. rel. Kirk v. Schindler Elevator Company, 601 F.3d 94 (2d Cir. 2009), another case about the meaning and scope of the False Claims Act’s public disclosure bar. The core issue in Kirk is whether the “report…or investigation” language of the public disclosure bar includes a federal agency’s response to a Freedom of Information Act (FOIA) request. 31 U.S.C. § 3730(e)(4).
The relator, Daniel Kirk, is a Vietnam veteran and worked at Schindler Elevator for several years. In 2003, he was demoted and later resigned. The following year, Kirk complained to the Department of Labor, arguing that his demotion violated the Vietnam Era Veterans Readjustment Assistance Act (VEVRAA). His claim was denied by the Agency and he then brought a False Claims Act action in federal court.
In his lawsuit, Kirk alleged, inter alia, that Schindler did not comply with the provisions of VEVRAA that required it to file annual reports detailing its hiring and placement of veterans. According to Kirk, Schindler obtained federal contracts by falsely certifying that it had filed the reports or by filing false reports. Kirk’s complaint was supported by documents he obtained via FOIA requests submitted by his wife, as well as his own personal knowledge.
Kirk’s case was dismissed by the district court, which held that his claims fell within the public disclosure bar. See United States ex rel. Kirk v. Schindler Elevator Corp., 606 F. Supp. 2d 448 (S.D.N.Y. 2009). The Second Circuit disagreed, holding that basing a False Claims Act complaint on information obtained via FOIA requests did not constitute a “public disclosure” unless the FOIA material was itself an “administrative report or investigation.”
In granting certiorari, the Supreme Court presumably hopes to resolve a growing circuit split. In its opinion in Kirk, the Second Circuit noted that “[o]ur sister Circuits are divided on this issue.” Indeed, the Second Circuit’s decision in Kirk is in contrast to decisions by the First, Third, Fifth and Tenth Circuits, which have each held that FCA allegations based on information obtained via FOIA requests fall within the public disclosure bar. The Supreme Court’s decision is expected in 2011.