FCA Qui Tam Action Swept Aside by Public Disclosure Bar

Recently, the U.S. District Court for the Southern District of Texas dismissed a qui tam action under the False Claims Act with prejudice.  Accepting the Magistrate’s recommendation, the District Court found the relator could not overcome the FCA’s public disclosure bar.

Prior to the current action, the relator had brought a qui tam action against her former employer.  The relator alleged that the business was overcharging the Government for products and services.  When a larger business acquired the former employer, the relator brought allegations that the acquiring company intended to continue and expand the allegedly fraudulent actions of the former employer.  As the District Court noted, however, both qui tam actions involved the same base conduct.

The “public disclosure bar” prevents suits based on “substantially the same allegations or transactions” that have been publicly disclosed unless the government opposes dismissal of the action or the action is brought by an original source of the information.  The public disclosure bar is intended to stop repeated litigation based on the same factual circumstances resolved in a prior case.

In this case, a magistrate judge recommended dismissal of the action.  Noting that the Government did not object to dismissal of the action under the public disclosure bar, the District Court entered the Magistrate’s recommendation to dismiss the case and granted the defendant’s motion for summary judgment.  At the summary judgment stage, the defendant may invoke the public disclosure bar by showing public documents that disclose the relator’s allegations.  If shown, the relator is required to demonstrate evidence that creates a “genuine issue of material fact” on whether the relator’s action is based on those public documents.  Alternatively, the relator may overcome the public disclosure bar by showing she is an “original source” through evidence that the relator has material and independent knowledge of the allegations in the complaint.

Here, the relator argued that the current case was factually distinct for two reasons.  First, the action was against a new defendant.  Second, the action alleged the new defendant expanded the fraudulent scheme.  The court rejected both arguments.  The District Court held that the allegations of fraud had been publicly disclosed in the relator’s prior action against their former employer, the current action was based largely on those same allegations, and the relator could not show that she was an original source for the allegations in the current case.  The court explained that a mere change in corporate ownership does not overcome the public disclosure bar.  And, although the allegation that the defendant was expanding the fraudulent scheme could support an action, the relator did not produce sufficient admissible evidence to support that allegation.  Finally, the court announced that the mere fact the employee was a relator in a prior related case is not sufficient to meet the original source requirement under the public disclosure bar.  Thus, because the relator could not show the basis for any independent knowledge of the allegedly fraudulent activities, the court dismissed the qui tam action.