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Date Published
Oct 12, 2010

On September 28, 2010, the Supreme Court of the United States granted certiorari in Schindler Elevator Corp. v. United States, Dkt. No. 10-188.  The sole issue before the Court is “[w]hether a federal agency’s response to a Freedom of Information Act request is a ‘report . . . or investigation’ within the meaning of the False Claims Act public disclosure bar, 31 U.S.C. § 3730(e)(4).”

Plaintiff Daniel Kirk is a Vietnam War veteran and former employee of Defendant Schindler Elevator Corporation.  Schindler is an elevator and moving walkway manufacturer and servicer that entered into numerous contracts with the U.S. Government.  The Vietnam Era Veterans Readjustment Assistance Act (“VEVRAA”) is a federal statute that imposes several requirements on government contracts that exceed a certain monetary threshold.  Specifically, contracts subject to VEVRAA must contain provisions obligating contractors to 1) take affirmative action to employ and advance in employment qualified veterans; 2) invite eligible veterans to voluntarily identify themselves to their employer; and 3) submit annual reports to the Department of Labor (“VETS-100 reports”) providing data about the veterans in the contractor’s workforce, including the number of veterans, veterans in each job category, hiring location, and the number of new hires that are veterans.

Kirk had been employed with Schindler since 1989 and was eventually promoted Regional Modernization Manager for New York City and Long Island.  But in July 2003 he was demoted to the non-managerial position of Field Superintendent and later resigned from Schindler in August 2003.  In March 2005, Kirk filed the instant qui tam action on behalf of the Government in the U.S. District Court for the Southern District of New York alleging that Schindler entered into many contracts with the Government that were subject to the requirements of VEVRAA, but that the company failed to comply with the statute.   According to Kirk, during his time at Schindler he was never asked to voluntarily identify himself as a veteran and that there was no affirmative action program for aiding veterans, as required by VEVRAA.

Kirk also alleged that Schindler failed to submit all the VETS-100 reports it was required to submit under VEVRAA and that the reports that were submitted contained false representations.  Kirk, however, had little personal knowledge with respect to this failure.  Instead, the facts demonstrating this VEVRAA violation were gleaned largely from FOIA requests submitted by Kirk’s wife to the Department of Labor (“DOL”).  The DOL’s response to the FOIA requests allegedly revealed that from 1998 to 2003 Schindler failed to submit the VETS-100 reports.  This allegation was based on letters from the DOL in response to the FOIA requests that stated that the agency was unable to locate VETS-100 reports for these years.  The lawsuit also alleged that Schindler filed false reports in 2002, 2004, 2005, and 2006.   The DOL located and produced the VETS-100 reports for these four years in response to Mrs. Kirk’s FOIA requests.   According to Kirk, the statements in these reports were false based on his own personal knowledge of the company’s operations.

The Complaint came out from under seal in June 2007, after the Government decided not to intervene.  Schindler then filed its motion to dismiss the lawsuit in September 2007, which the district court granted on March 30, 2009.  The district court first found that Kirk had failed to state a claim with respect to Schindler’s alleged filing of false or inaccurate reports because Schindler never certified the accuracy of these reports.  With regard to Kirk’s remaining claims, the district court held that it lacked subject matter jurisdiction to consider them because they were based on FOIA reports that constituted a “public disclosure” under 31 U.S.C. § 3730(e)(4)(A), which provides that:

No court shall have jurisdiction over an action under [the FCA] based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or 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.[i]

Kirk appealed the district court’s decision to the U.S. Court of Appeals for the Second Circuit, which ultimately concluded that the lower court’s decision was erroneous.  Most of the appellate court’s opinion was devoted to the issue of whether it lacked subject matter jurisdiction over the claims due to the public disclosure bar.  The appellate court began its discussion by holding that information produced in response to a FOIA request becomes a “public disclosure” within the meaning of § 3730(e)(4)(A) once it is received by the requester.

But that did not end the inquiry.  The appellate court went on to explain that not only must the documents have been disclosed to the public, but that they must also qualify as one of the enumerated sources of information set forth in § 3730(e)(4)(A) .  The appellate court stated that the potentially applicable categories with respect to FOIA documents are “administrative,” “report,” or “investigation.”   The court acknowledged that the Second Circuit had not addressed this issue and that other circuits were split along two different lines.  The majority of circuits that had addressed the issue followed the Third Circuit’s opinion in United States ex rel. Mistick PBT v. Hous. Auth. Of Pittsburgh, 186 F.3d 376 (3d Cir. 1999), authored by now Justice Samuel Alito.  Relying primarily on dictionary definitions, the Third Circuit construed the terms of the statute broadly so that a response to a FOIA request is always a “report” or “investigation” under § 3730(e)(4)(A) .

A minority of circuits, however, agreed with the reasoning in United States ex. rel. Haight v. Catholic Healthcare West, 445 F.3f 1147 (9th Cir. 2006).  Instead of relying on dictionary definitions to construe the terms “report” and “investigation,” the Ninth Circuit looked at the words in the context of the statute as a whole and with reference to the legislative history of the statute.  Based on this review, the Ninth Circuit concluded that the terms refer to work product that represents governmental analysis or “leg-work”, rather than the “mechanistic production of documents that follows upon a FOIA request.”  Thus, determining whether documents obtained via a FOIA request fall within an enumerated source within the meaning of § 3730(e)(4)(A) requires a case-by-case analysis of the nature of the documents.

The Second Circuit agreed with the minority view expressed in Haight and concluded that if a document reflects the Government’s efforts to compile or synthesize information for its own investigative purposes, then it would constitute a “report” or “investigation” within the meaning of the public disclosure bar.  And “[t]he mere fact that a government agency has assembled and duplicated records, or noted the absence of records, in responding to a FOIA request does not itself render the material produced an ‘administrative . . . report . . . or investigation’ within the meaning of § 3730(e)(4)(A).”

The Second Circuit also held that the district court erred in finding that Kirk failed to state a claim with regard to Schindler’s filing of false or inaccurate reports.  The only issued appealed to the U.S. Supreme Court, however, was whether the district court lacked subject matter jurisdiction pursuant to the public disclosure bar since Kirk’s claims were based on documents produced in response to a FOIA request.

Because the language of § 3730(e)(4)(A) was amended in 2009, the impact of the Supreme Court’s decision is not likely to be significant on cases filed after the effective date of the changes.  But depending on how the Supreme Court rules, the Court could cause a number of meritorious FCA lawsuits filed prior to the amendments to the public disclosure bar to be dismissed on jurisdictional grounds.  For instance, in many cases the whistleblower may be an insider with actual knowledge of fraud perpetrated on the Government, but who sought documents via FOIA to obtain additional evidence in support of the whistleblower’s personal knowledge.   Kirk is a good example:  he was an employee with insider knowledge of his employer’s alleged deliberate failure to comply with applicable regulations covering government contracts, but used FOIA to gather additional documentary evidence to substantiate the fraud he observed.  Dismissal of cases like this is not consistent with the FCA’s intent to incentivize whistleblowers to come forward and disclose fraud on the Government.  Nor is it in keeping with the intent of the public disclosure bar itself, which was designed to prevent parasitic lawsuits based on public allegations of fraud that the Government already knew about.  FOIA is merely a mechanism for production of documents in the Government’s possession.  In responding to a FOIA request, Government officials review their files to see if the Government has the requested information, determine whether the documents are privileged, and photocopy the documents to be produced.  None of this means that the Government is aware of the fraud against it or that the documents produced in response to the FOIA request would even reveal the fraud to the Government.  Indeed, in Kirk’s case the Government could not have discovered Schindler’s alleged fraud by responding to the FOIA requests because it was Kirk’s own personal knowledge regarding Schindler’s failure to comply with VEVRAA that gave rise to the allegations of fraud.

The Second Circuit’s opinion strikes the right balance.  If the documents produced in response to FOIA reflect a Government investigation or analysis, then an FCA lawsuit based on such documents should be barred.  The mere fact that a document was obtained by a whistleblower through the mechanical process of responding to a FOIA request should not trigger the public disclosure bar.  The Supreme Court should affirm the Second Circuit’s decision.

[i] Section 3730(e)(4)(A) was recently amended by the Patient Protection and Affordable Care Act, Pub. L. 111-148 (2010).  But because the amendments were not retroactive, the court did not address the impact of the new language upon this case.

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