This blog post is a preview of a presentation Mr. Turetzky will be giving at the American Bar Association Public Contracts Law Section’s Fall Meeting in Miami, Florida on November 1, 2014.
The False Claims Act, 31 U.S.C. §§ 3729-3733, enables whistleblowers—also known as qui tam relators— to file fraud suits on behalf of the United States against private government contractors. With the assistance of qui tam relators, the United States government has recovered billions of dollars in False Claims Act settlements and judgments. Allowing private persons to litigate on the government’s behalf, however, often encourages parasitic, unmeritorious lawsuits. For this reason, Congress has limited the power of qui tam litigants in a number of ways.
Two of the limitations imposed on qui tam relators are found in the so-called “first-to-file” and “public disclosure” bars. The “first-to-file” bar is set forth in 31 U.S.C. § 3730(b)(5), which states “[w]hen a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” The “public disclosure” bar is set forth in 31 U.S.C. § 3730(e)(4), which states in part that “[t]he 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 or claim were publicly disclosed.” The public disclosure bar does not apply if the qui tam relator is the “original source” for the disclosed information.
There have been several new developments over the last few months in how federal courts’ are interpreting the False Claims Act’s “first-to-file” and “public disclosure” bars:
First, there remains a circuit split over how the “public disclosure” bar is applied. In the Fourth Circuit, the court uses an “actually derived from” test, which is a very permissive standard for qui tam relators. United States ex rel. Ahumada v. NISH, 756 F.3d 268 (4th Cir. 2014). Under this standard, only claims that were “actually derived from” publicly disclosed information will be barred, and relators are often able to shape their allegations to camouflage the origins of the allegation. Most other circuits use a “based upon,” “supported by,” or “substantially similar” test. These tests are broader, but still require the actual claim in the parasitic law suit to have been disclosed publicly. United States ex rel. Heath v. Wisconsin Bell, Inc., 760 F.3d 688 (7th Cir. 2014). In other words, under the “based upon” test, the public disclosure bar is not triggered if an independent investigation would be needed to connect the “public disclosure” to an actual fraud.
Second, it now appears settled that the “public disclosure” bar is not jurisdictional. The 2010 amendments to the False Claims Act added language permitting the United States government to waive the public disclosure bar at its discretion. Because subject-matter jurisdiction cannot be waived, recent cases and commentary have recognized that the public disclosure bar is no longer jurisdictional. The significance of this change is two-fold: (1) public disclosure must be pled from the outset as an affirmative defense, and (2) government contractor defendants may seek discovery to establish the public disclosure defense. See United States ex rel. May v. Purdue Pharma L.P., 737 F.3d 908 (4th Cir. 2013).
Third, a circuit split has developed over whether the “first-to-file” bar applies when the first-filed action is no longer pending. Recall that the first-to-file bar states “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). The debate here is over whether the word “pending” requires the first-filed action to be “pending” when the second action is filed in order to trigger the “first-to-file” bar. The D.C. Circuit has held that the “first-to-file” bar applies even when the first-filed action is no longer pending, United States ex rel. Shea v. Cellco Partnership, 748 F.3d 338, 343-44 (D.C. Cir. 2014). The Fourth Circuit, on the other hand, has held that the “first-to-file” bar applies only when the first-filed action is actually pending. United States ex rel. May v. Purdue Pharma L.P., 737 F.3d 908, 920 (4th Cir. 2013). The Supreme Court recently granted certiorari in a Fourth Circuit case that held the “first-to-file” bar does not apply to terminated actions. Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 134 S. Ct. 2899 (July 1, 2014) (granting certiorari).
Fourth, courts have held that whether the “first-to-file” bar applies is determined by comparing the complaints filed by the competing qui tam relators. United States v. Planned Parenthood of Houston, 570 Fed. Appx. 386, 387 (5th Cir. 2014) (holding that the relevant inquiry for “first-to-file” purposes is the content of the two competing complaints, not the scope of a settlement agreement); see United States ex rel. Wilson v. Bristol-Myers Squibb, Inc., 750 F.3d 111, 111 (1st Cir. 2014) (holding that a case must be dismissed under FCA’s “first-to-file” bar because complaints were filed against the same defendants regarding the same drugs with the same nationwide scope using the same mechanisms of off-label promotion to defraud Medicaid). As a result, discovery is not necessary to resolve the “first-to-file” issue. United States ex rel. Smart v. Health, 563 Fed. Appx. 314 (5th Cir. 2014).
Fifth, courts continue to hold that the “first-to-file” bar is jurisdictional. United States ex rel. Wilson v. Bristol-Myers Squibb, Inc., 750 F.3d 111, 111 (1st Cir. 2014). Judge Srinivasan, however, has suggested a contrary view in his concurring opinion in United States ex rel Shea v. Cellco Partnership. Judge Srinivasan went to great lengths to indicate that Shea did not decide whether the “first-to-file” bar is jurisdictional. Instead, Judge Srinivasan explained that “today’s decision leaves the provision’s jurisdictional or non-jurisdictional status unresolved.” Shea, 748 F.3d at 346 (Srinivasan, J., concurring in part, dissenting in part). Whether future courts find the “first-to-file” bar jurisdictional is significant because, as mentioned above, jurisdiction cannot be waived. Because the “first-to-file” bar is jurisdictional, recent courts have resolved the issue even at the post-judgment phase of a case. In re Pharmaceutical Indus. Ave. Wholesale Price Litig., Case No. 08-11200-PBS, 2013 WL 2420912 (D. Mass. May 31, 2013).
As can be seen from the discussion above, the proper application of the “public disclosure” and “first-to-file” bars remains a topic ripe for litigation. The recent developments show that—especially in the case of the “first-to-file” bar—contractors will need to pay close attention to emerging decisions from the courts. The developments show that, at least in regards to the False Claims Act, nothing is set in stone.