Judge Dismisses $400 Million False Claims Act Suit Based on Public Disclosure

Recently, a New York federal judge dismissed an FCA suit, filed by a private party on behalf of the FDIC through a civil qui tam action, alleging that $400 million had been defrauded from the FDIC.  The FCA “may be enforced not just through litigation brought by the U.S. Government itself, but also through civil qui tam actions that are filed by private parties” when federal prosecutors decline to pursue the matter, “in the name of the Government.”  However, to prevent opportunistic plaintiffs from litigating without significant contribution, the FCA provides that private litigants are barred from bringing suits for conduct that has already been publicly disclosed unless they are the “original source of the information.”  In this case, the judge reasoned that the claims brought by the private party arose from allegations or transactions that had already been publicly disclosed and the private litigant was not an “original source” of that information. 

In 2010, the FDIC was appointed to be the receiver of a failing Chicago-based bank in the business of providing construction and other loans secured by real property.  The FDIC solicited bids on the failing bank’s loans and ultimately accepted the proposal of the Defendant, a mid-western regional bank. The proposal included a discount for the failing bank’s assets under a shared loss arrangement in which the FDIC agreed to assume a percentage of future losses on the loans, and Defendant agreed to pay the FDIC a similar percentage of any recoveries.  

In this case, the private party’s complaint accused the Defendant of submitting false write-downs to the FDIC on loans that were already paid off, sold, or generally should not have been included in the portfolio.  The private litigant found the information alleged in his complaint from previous lawsuits, media reports, and a public database.  As such, the judge considered this information to qualify as public disclosures yielding no new evidence, and further found the private litigant was not an original source of these public disclosures.  The judge found that many of the public disclosures pre-dated the private litigant’s investigations, and therefore he could not be an original source, and precluded him from possessing knowledge “independent” of what was already publicly disclosed.  Without independent knowledge or any new information, the judge granted the Defendant’s motion to dismiss.