February 22, 2016

Fourth Circuit Dismisses Lawsuit Based on Lawyer’s Knowledge Under the Public Disclosure Bar of the False Claims Act

By Jason Enzler

The Fourth Circuit ruled recently that a False Claims Act case must be dismissed because it was based on information that the attorney representing the qui tam plaintiff had learned during a prior litigation.  In doing so, the court applied what has become known as the “public disclosure bar” – a provision in the False Claims Act that strips a court of jurisdiction to hear cases based on information that has previously been made public.  Below is a more in-depth summary of the case, but it is interesting to note at the outset that the decision was based on the False Claims Act as it looked in 2009.  It does not reflect amendments made in 2010, including significant amendments to the public disclosure provision.

As the court noted in its opinion (United States ex rel. May v. Purdue Pharma), the allegations in the case had “enjoyed a long though not particularly fruitful life.”  The original case was filed a decade ago by Mark Radcliffe, a former sales manager for Purdue Pharma.  He alleged Purdue was falsely marketing its pain medication, OxyContin, as much more powerful than an older Pharma drug, MS Contin, to induce the government to purchase the more expensive OxyContin.  In 2010, the Fourth Circuit dismissed the case without reaching the merits, however, because Radcliffe had signed a release of claims against Pharma as part of a severance package with the company.

Radcliffe’s wife, Angela Radcliffe, and Steven May, a former Purdue employee, then filed a second False Claims Act lawsuit against Purdue.  Mark Radcliffe’s attorney, Mark Hurt, was one of the attorneys representing the new relators.  The district court dismissed this action, finding it was precluded by the ruling in the earlier case on res judicata grounds.  It specifically noted that the role of the new relators was “essentially to provide . . . names not associated with the release that barred Mr. Radcliffe’s suit” and that the “facts of the fraudulent scheme alleged . . . came from Mr. Hurt.”

In 2013, the Fourth Circuit vacated the lower court’s judgment, ruling that the release signed by Radcliffe “was personal to him,” and therefore the decision dismissing his case could not be a basis to preclude a subsequent action by different plaintiffs.  On remand, the district court again dismissed the case, this time under the public disclosure bar, finding that the allegations in the case were based on information Hurt had learned during his representation of Radcliffe in the first action.  In its third crack at the case, the Fourth Circuit affirmed the dismissal, finding that the facts of the case had been previously disclosed in the first litigation.

As mentioned above, this case was decided under an older version of the False Claims Act.   Two subsequent amendments allow for more wiggle room and could produce different outcomes in public disclosure cases going forward.  First, the public disclosure bar is not a strict jurisdictional provision anymore.  It has been amended so that the Department of Justice can essentially veto or preempt any dismissal by a court based on public disclosure grounds.  And second, the exception to the public disclosure bar, the “original source” exception, has been expanded.  Under the old version, a relator could save a case based on publically disclosed information if the relator had “direct and independent knowledge” of the information.  Now, a relator only needs to have some “knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.”

Cases like the Radcliffes’ could clearly be saved with the first amendment (though it is unclear how often the government would want to exercise its preemptive powers).  As for the second amendment and how it would affect lawsuits based on information learned by an attorney in a prior litigation?  A recent Third Circuit opinion illustrates that at least some of these cases can now survive the public disclosure bar as well.

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