October 30, 2014

Third Circuit Rejects Qui Tam Lawsuit On Original Source Requirement

By Jason Enzler

When a False Claims Act lawsuit is brought by a qui tam relator that alleges a fraudulent scheme, and those allegations have already been publicly disclosed, that is often the end of the matter.  Case dismissed.  Under some circumstances, however, the relator can keep his case alive by showing that he is the “original source” of the publicly disclosed information.  To do so, the relator must show he has “direct and independent knowledge of the information on which the allegations are based.”

The Court of Appeals for the Third Circuit issued an opinion last week on this very issue.  In U.S. ex rel. Schumann v. AstraZeneca Pharmaceuticals L.P., No. 13-1489 (3d Cir. Oct. 20, 2014), the Third Circuit affirmed the dismissal of a qui tam lawsuit because the relator did not qualify as an original source (on appeal, there was no dispute that the relator’s allegations were based upon publicly disclosed information).

The relator in that case, a vice president of a large pharmacy benefit manager, Medco, alleged drug makers AstraZeneca and Bristol-Myers Squibb violated the False Claims Act by overcharging the government for some of their drugs and improperly inducing health plans to offer those drugs.  The relator’s allegations were based upon information he learned from reviewing confidential and internal documents, and discussions about those documents with colleagues.  The court rejected the relator’s argument that this qualified him as an original source, holding that “reviewing documents and discussing them with colleagues who participated in the underlying events” did not qualify as “direct and independent knowledge.”

While the Third Circuit’s ruling is fairly straight-forward, a footnote in the opinion offers some hope for similarly-situated relators going forward.  This case was filed in 2003, before the False Claims Act was amended by the Patient Protection and Affordable Care Act of 2010 (a.k.a. “Obamacare”).  Accordingly, the court applied the pre-existing version of the False Claims Act.  But under the amended False Claims Act, two changes could produce a different outcome.  First, even if the information upon which a qui tam lawsuit is based has been publicly disclosed, the government may now intercede and require that the action go forward.  And second, the “original source” exception has been amended to require that a relator have “knowledge that is independent of and materially adds to the publicly disclosed allegations.”  How these changes play out, however, remains to be seen.

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