Monday, February 8, 2016

Fourth Circuit Holds that Facts Learned by Relators' Counsel in Previous Qui Tam Trigger Public Disclosure Bar

In United States ex rel. May v. Purdue Pharma L.P., the Fourth Circuit recently held that the pre-2010 public disclosure bar prohibits a subsequent relator from bringing a False Claims Act qui tam based upon “facts” that their counsel learned in representing a prior relator who brought a qui tam. No. 14-2299, 2016 WL 362250 (4th Cir. Jan. 29 2016). Stated simply, when one relator’s qui tam is dismissed, the public disclosure bar applies to subsequent efforts by relator’s counsel to get around that dismissal by bringing the same qui tam with new relators who are not original sources.  

In 2005, a former district sales manager (“Original Relator”) for Purdue Pharma (“Purdue”), brought a qui tam action in the U.S. District Court for the Southern District of West Virginia against Purdue. In 2010, the Court dismissed the Original Relator’s qui tam because he had signed a release when he accepted a severance package from Purdue.  

Subsequently, the Original Relator’s wife, along with a former Purdue employee that had worked with the Original Relator, filed a nearly identical qui tam against Purdue.  In doing so, they were represented by multiple attorneys, one of whom had represented the Original Relator in his qui tam against Purdue. The District Court dismissed the new qui tam, finding that it was based on claims that were publicly disclosed in the Original Relator’s suit.  In so doing, the Court applied the pre-2010 public disclosure bar. 31 U.S.C. § 3730(e)(4)(A)(2009) (“No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations in a . . . civil . . . hearing unless the . . . person bringing the action is an original source of the information.”)

On appeal to the Fourth Circuit, Relators made three arguments to avoid the public disclosure bar. First, they argued that their allegations were not “derived from” a public disclosure because they had not personally reviewed the Original Relator’s lawsuit prior to instituting their qui tam. Second, though the Relators acknowledged that their attorney had represented the Original Relator and that their attorney’s knowledge was imputed to them, they argued that their attorney’s knowledge was nevertheless derived from nonpublic sources. Finally, Relators argued that the False Claims Act (“FCA”) was intended to encourage relators to bring qui tams even if based upon "second hand" knowledge of a fraud against the government. 

Affirming the District Court, the Fourth Circuit rejected the Relators’ attempt to sidestep the public disclosure bar. The Court noted that (1) the allegations in Relators’ qui tam were publicly disclosed prior to the filing of their complaint, and (2) Relators did not independently discover the facts underpinning their allegations but instead based their claims on what their attorney learned while representing the Original Relator in the prior qui tam. Rejecting the argument that the FCA encouraged relators to bring claims even if based on second hand information, the Court stated that the FCA “is not designed to encourage lawsuits by individuals like the Relators who (1) know of no useful new information about the scheme they allege, and (2) learned of the relevant facts through knowledge their attorney acquired when previously litigating the same fraud claim.” Accordingly, the Court held that Relators’ complaint was subject to the public disclosure bar and must be dismissed due to a lack of subject matter jurisdiction.

Purdue Pharma’s holding reflects the Fourth Circuit’s narrow reading of the pre-2010 public disclosure bar which prohibits jurisdiction over subsequent qui tam suits that are “based upon” prior public disclosures. Unlike other circuits, however, the Fourth Circuit narrowly construes the phrase “based upon” to preclude actions “only where the relator has actually derived from [a public] disclosure the allegations upon which his qui tam action is based.” See United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1348 (4th Cir.1994).  

By contrast, had this case been brought in any other circuit, it would have been more easily disposed of:  the majority of circuit courts read the phrase “based upon” to mean “substantially similar to” or “ supported by” publicly disclosed information. United States ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 57 (1st Cir.2009) (“majority view [among circuits] holds that as long as the relator's allegations are substantially similar to information disclosed publicly, the relator’s claim is ‘based upon’ the public disclosure even if he actually obtained his information from a different source”). In these circuits, simply comparing the original qui tam with the subsequent qui tam would have sufficed to show that the second was “based upon” the initially filed case.

Author: Nathan Huff 
Editor: A. Brian Albritton
February 8, 2016

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