If Uncle Sam Knows, Doesn’t Everyone?
On Feb. 29, the Seventh Circuit affirmed the dismissal of a False Claims Act (FCA) suit, holding the relator, Cause of Action, failed to establish subject matter jurisdiction given the FCA’s public disclosure bar (Cause of Action v. Chicago Transit Authority, case number 15-1143). The Seventh Circuit ruled the government is equivalent to the public. The decision is in line with its prior rulings but is part of a circuit split regarding the term “public disclosure.” Notably, in its decision, the Court described the criticism it has received from other circuits on its reading of the term. The Court stated “[t]here is significant force in the position of the other circuits,” and indicated that if the facts were slightly different, “respect for the position of other circuits would warrant in-depth consideration” of its precedent. Over the past few years, a growing number of courts have expanded the scope of the public disclosure bar, and reconsideration of the term “public disclosure” could seriously impact defendants’ ability to achieve dismissal at an early stage of the litigation.
The three-judge panel held that the allegations fell within the public disclosure bar because the allegations of misreporting were made public in a March 2007 audit report released by the Illinois Auditor General, which concluded that defendant had been overstating its vehicle revenue miles data. In addition, the allegations also were made public in an April 2012 letter from the Federal Transit Authority to defendant stating that it conducted a review of defendant’s reports and defendant needed to revise its vehicle revenue miles data for reporting year 2011 and for future years.
The FCA’s public-disclosure bar, 31 U.S.C. § 3730(e)(4), withdraws jurisdiction over qui tam actions based on allegations that already have been disclosed publicly through certain enumerated sources unless the relator is an original source of the information.
The Court stated that when construing the phrase “in the public domain,” it has “recognized the uncontroversial proposition that material is in the public domain when the information is open or manifest to the public at large.” But, “[b]eyond revelation to the general public, . . . the phrase ‘in the public domain’ has an alternative meaning: where the ‘facts disclosing the fraud itself are in the government’s possession.’”
The Seventh Circuit has “embraced the proposition that because ‘the purpose of a public disclosure is to alert the responsible authority that fraud may be afoot,’ the Government’s possession of the information exposing a fraud is alone sufficient to trigger the public-disclosure bar.” Over the years, the Seventh Circuit has repeatedly ruled that administrative reports and investigations that contain the critical elements of the fraud, when generated by the responsible authority itself, “are publicly disclosed because, by their very nature, they establish the relevant agency’s awareness of the information in those reports.” The Court is careful to distinguish this from “mere governmental awareness of a wrongdoing.”
Other Circuit Courts require disclosure to the public outside of the government to constitute a “public disclosure” under the public disclosure bar. Those courts maintain that the government is not equivalent to the public and to hold otherwise is not in line with Congressional intent and makes the phrase “public disclosure bar” superfluous. While noting the merit of this position, the Seventh Circuit does not address it because Cause of Action conceded that at the time the complaint was filed, the March 2007 audit report was in the public domain.
Through this ruling, the Seventh Circuit opens the door to reconsidering whether, and under what circumstances, the government can be the equivalent of the public under the FCA’s public disclosure bar. This could affect significantly the ability of entities’ subject to governmental audits to achieve dismissal at an early stage of the litigation.
For more information about this update, or if you have any questions regarding the False Claims Act, please contact the authors of this alert or any other member of Bryan Cave Leighton Paisner’s White Collar Defense and Investigations Group.
This document provides a general summary and is for information/educational purposes only. It is not intended to be comprehensive, nor does it constitute legal advice. Specific legal advice should always be sought before taking or refraining from taking any action.