Third Circuit Opens Door Wider For Whistleblowers Under Original Source Exception To False Claims Act Public Disclosure Bar
Under the False Claims Act, the public disclosure bar prevents whistleblower suits challenging fraud already disclosed through certain public channels like the news media. The rule is designed to discourage whistleblower actions based on information already in the public domain, unless it was the whistleblower that actually put it there. It is supposed to neatly balance the twin-goals of discouraging so-called “parasitic” lawsuits and encouraging whistleblower suits based on true inside or independent knowledge. With last week’s United States ex rel. Moore & Company v. Majestic Blue Fisheries decision, the Third Circuit made a strong statement of the types of cases it sees on the right side of this sharp divide.
The case involves the South Pacific Tuna Treaty which affords a limited number of licenses to fish the tuna-rich waters of the Pacific Islands to vessels under the control and command of U.S. citizens. The law firm Moore & Company brought the action claiming the defendants obtained two of these licenses by falsely certifying to the U.S. Coast Guard that they complied with the license requirements. Moore learned of the alleged fraud through discovery in a wrongful death action it had previously litigated against two of the same defendants. The district court dismissed the whistleblower action, finding the underlying allegations of fraud had been publicly disclosed in the news media and through documents Moore obtained under the Freedom of Information Act.
The Third Circuit reversed, finding the lower court misapplied both the public disclosure bar and its original source exception as amended in 2010 by the Affordable Care Act. According to the Court, these amendments “radically changed the ‘hurdle’ for relators.” They did so in three key ways.
- First, the bar is no longer jurisdictional, making it more difficult to use as a basis for dismissal. Rule 12(b)(1) therefore no longer is an option.
- Second, information disclosed in a criminal, civil or administrative proceeding qualifies as a covered public disclosure only if it is both a federal proceeding and one in which the government is a party. So information disclosed in state proceedings or federal proceedings between private parties is no longer covered by the bar.
- Third, who qualifies as an original source has been broadened beyond just those with direct and independent knowledge to include those with “knowledge that is independent of and materially adds to” the publicly disclosed information. In other words, “[t]he focus now is on what independent knowledge the relator has added to what was publicly disclosed.”
The Third Circuit’s take on all this was a clear intent on the part of Congress “to lower the bar for relators.” And that is exactly what the Court did in reversing the district court’s ruling that Moore did not fall within the original source exception to the public disclosure bar.
The lower court found Moore was not an original source because the information Moore had obtained through discovery in the wrongful death action, and on which it based its whistleblower action, was readily available in the public domain. The problem with the court’s approach was it relied on the more stringent pre-amendment standard. Under the now more relaxed standard, an original source need only have information independent of and materially adding to that which was revealed through one of the enumerated public disclosure sources.
Applying the proper standard, the Third Circuit found the information Moore obtained from discovery in the prior case readily qualified him as an original source. It was “independent of” the news articles and FOIA documents which revealed the underlying fraud Moore complained of and which constituted public disclosures under the statute, both pre and post amendment. And it “materially added” to these public disclosures by “add[ing] significant details to the essential factual background of the fraud — the who, what, when, where, and how of the alleged fraud — that were not publicly disclosed.”
To be sure, the Third Circuit made clear it does not take the “material adding to” standard lightly. The whistleblower “must contribute significant additional information to that which has been publicly disclosed so as to improve its quality.” But the Court’s reading of the new standard clearly widens the birth for whistleblowers trying to escape the strictures of the public disclosure bar. This is particularly true for non-insiders like Moore who have learned of the alleged fraud indirectly or through their own in-depth analysis or study.