February 5, 2015

Fourth Circuit Joins Other Circuits In Narrow Read of Public Disclosure Bar

By the C|C Whistleblower Lawyer Team

Under the False Claims Act, a whistleblower may be precluded from filing a qui tam lawsuit based on information that has already been publicly disclosed by another source.   This so-called “public disclosure bar” is designed to weed out “parasitic” actions from those brought by whistleblowers with true inside knowledge of fraud.  There has been some disagreement among the courts as to how “public” a disclosure must be to fall within the bar.  In Wilson v. Graham County Soil, the Fourth Circuit this week joined several other circuits in drawing a clear line as to how far the bar extends.  According to the Court, it applies only to disclosures made outside the government.

The Wilson case involves the alleged misuse of federal funds provided under the Emergency Watershed Protection Program to two counties in North Carolina for the cleanup and recovery following a major storm.  The whistleblower Karen Wilson worked at one of the county Soil and Water Conservation Districts tasked with overseeing the federally-funded cleanup and remediation.  She claims various acts of fraud in the implementation of the project by some of her colleagues at the Conservation District and certain officials of the National Resources Conservation Service, the federal agency overseeing the project.  Much of this alleged fraud was the subject of two government reports which preceded Wilson’s filing of her whistleblower complaint.

The district court dismissed the whistleblower action under the public disclosure bar, finding Wilson’s complaint was based on the two government reports which had been publicly disclosed.  The lower court’s public disclosure finding centered on the reports’ distribution to the public officials responsible for managing the allegedly defrauded government program.  The court reasoned, this disclosure put the government on notice of the possible fraud; that the whistleblower did not provide the government with any original information.

The Fourth Circuit disagreed and reversed the lower court’s decision.  It looked to the plain meaning of the phrase “public disclosure,” finding it only reaches “disclosures made to the public at large or to the public domain.”  Since neither of the government reports was actually distributed to the public (they were strictly limited to an internal government distribution), they did not fall within this strict reading of the statute.  To hold otherwise the Court ruled, “would wrongfully equate the government with the public, rendering superfluous the public disclosure bar’s namesake phrase.”

The Court also found the history of the False Claims Act “strongly bolsters” its decision.  When Congress enacted the original statute during the Civil War, there was no restriction on the sources from which a whistleblower could base a lawsuit.  To combat a growing problem of “parasitic” suits, Congress subsequently amended the statute to bar whistleblower complaints based on information in the government’s possession.  But in 1986, Congress amended the statute again replacing this so-called government knowledge bar with the public disclosure bar that remains today (though in slightly amended form by the 2010 Affordable Care Act).  From this history, the Fourth Circuit concluded the district court improperly “reinstated a jurisdictional bar Congress expressly eliminated.”

The Court also rejected as “meritless” the argument that the government reports entered the public domain because they would have been “available” through a public records request (such as FOIA).  “To equate eligibility for disclosure with disclosure itself does more than merely place the cart before the horse; it places the cart before a horse a horse that may never follow.”  According to the Court, Wilson — who received one of the government reports in the regular course of her duties at the Conservation District — “is precisely the sort of whistle-blowing insider the statute seeks to encourage.”

The Fourth Circuit’s plain reading of the public disclosure bar joins the decisions of five other circuit courts (First, Ninth, Tenth, Eleventh, DC) that have similarly found that government awareness of potential fraud does not trigger the bar.  There must be some act of disclosure outside the government.  It appears the Seventh Circuit, which the district court “quoted and almost exclusively relied on,” stands alone in its expansive view of the public disclosure bar.  Given the strength of the Fourth Circuit decision and the weight of authority behind it, it appears unlikely the Seventh Circuit will maintain (or other courts will follow) this overly-broad read.

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