SCOTUS Thumbs Its Nose At Congress

Basically SCOTUS is thumbing its nose at Congress. 

Call to Action

Allowing disclosure to competent government officials to substitute for disclosure to the public at large is tantamount to reviving the government knowledge bar Congress removed in 1986

The Supreme Court's recent ruling in Kirk undermines Congress' overhaul of the FCA in 1986 and reverts the Act to its pre-1986 "government knowledge" state.

Below are some notable decisions from Circuit Courts holding that documents submitted to the Federal government does not bar a relator action as to hold as such is tantamount to reviving the government knowledge bar Congress removed in 1986.

Under the current Supreme Court ruling these cases may have well been dismissed.

Tennessee Court Holds Self-Reporting to Government Does Not Bar Relator Action

The federal court in the Western District of Tennessee, a court in the Sixth Circuit, held as a matter of first impression that self-reporting to the government of failures to comply with federal law does not constitute a “public disclosure” which could bar a lawsuit brought by a relator under the False Claims Act.  See United States ex rel. Cox v. Smith & Nephew, Inc., No. 08-2832, 2010 WL 4365467 (W.D. Tenn. Nov. 4, 2010).  In so holding, the Tennessee court rejected the Seventh Circuit rule and purportedly joined the First, Ninth, Tenth, and Eleventh Circuits.

The Public Disclosure Bar of the False Claims Act can preclude lawsuits where the allegations in the relator’s complaint had been publicly disclosed and where the relator is not an original source of information. 

In Cox, the defendant, Smith & Nephew disclosed to the federal government that it sold products to the VA and Department of Defense manufactured in Malaysia, China and Thailand without identifying these countries of manufacture; thus, Smith & Nephew failed to comply with the federal procurement law.  Smith & Nephew argued that these self-disclosures constituted public disclosures, thereby barring the lawsuit since the relator was admittedly not an original source.  The court disagreed, and instead found that allowing disclosure to competent government officials to substitute for disclosure to the public at large would be tantamount to reviving the government knowledge bar Congress removed in 1986. persuasive the First Circuit case, United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720 (1st Cir. 2007). 

History and Background of FCA And Amendments Thereto: The conflict between the Supreme Court'sKirk Decision and the 1986 Congressional FCA Amendments

In interpreting a statute, the court should look to the old law, the mischief and the remedy. A recognized rule of construction of statutes is to look to the law when the statute was enacted in order to see for what it was intended as a substitute, and the defects in the old law sought to be remedied by the new statute. 

The False Claims Act (“FCA”) is "the government’s primary litigative tool for the recovery of losses sustained as the result of fraud against the government.” Avco Corp. v. U.S. Dep’t of Justice, 884 F.2d 621, 622, (D.C. Cir. 1989) (citing S. Rep. at 5266).

The FCA’s modern incarnation resulted from amendments in 1986 and the clarifications and amendments enacted in 2009 as part of the Fraud Enforcement Recovery Act (“FERA”). When the 1986 amendments were enacted fraud against [the] government was so rampant and difficult to identify that the government needed all [the] help it could get from private citizens. Accordingly, in an attempt to encourage the filing of more qui tam suits and to make the FCA a ‘more useful tool against fraud in modern times, Congress extensively overhauled the statute.

            In particular, the 1986 amendments provided that if there had already been a "public disclosure" of the pertinent allegations or transactions -- i.e., the false claims -- from certain enumerated sources, then only an "original source" of the information regarding the alleged fraud could bring suit. If there was no "public disclosure," however, then anyone who became aware of the fraud could sue to recover the ill-gotten gains.

Kirk turns the "public disclosure" bar on its head holding that any document received by an administrative agency including those created by a third party and merely produced in response to a freedom of information act (FOIA) request, where the relator is the but for cause (i.e. but for the relator's FOIA request, the documents would not be made public) of the disclosure, could trigger the public disclosure bar. 

Under the recent Supreme Court ruling in Kirk, once false claims are submitted to the government for reimbursement, they are public documents and cannot be used to demonstrate the legitimacy of the fraud claims.We request clarification from Congress that production of a FOIA request does not transform a document into a "report".

As held by at least six Circuit Courts (first, second, sixth, ninth, tenth and eleventh) disclosure to competent government officials to substitute for disclosure to the public at large is tantamount to reviving the government knowledge bar Congress removed in 1986.

Allowing disclosure to competent government officials to substitute for disclosure to the public at large would be tantamount to reviving the government knowledge bar Congress removed in 1986

This release is a call to action for Congress to clarify what constitutes a "report" under FCA and reject the Supreme Court's attempt to revert the FCA back to the government knowledge test specifically overhauled by Congress in 1986.