Defining “Public Disclosure” Under The False Claims Act: How Loud Must The Whistle Be Blown?

Author: Collin L. Ryan, Associate Member, University of Cincinnati Law Review

The term “whistleblower,” in general, refers to someone who informs on another’s illegal activities. The False Claims Act (FCA), for example, is one of several federal statutes that encourage individuals to disclose to the government their knowledge of another’s illegal activities, i.e., to blow the proverbial whistle.[1] Under the FCA, private individuals can receive large sums of money for blowing the whistle on fraud committed against the government. But once a whistle is blown, the FCA’s “public disclosure bar” prevents subsequent whistleblowers from obtaining rewards for the previously-disclosed fraud.[2] The issue, therefore, is in what manner must the whistle be blown in order for the FCA’s public disclosure bar to go into effect. For a majority of circuit courts that have addressed the issue, the public disclosure bar is not triggered unless the whistle is blown loud enough for the general public to hear it.[3] The Seventh Circuit, however, holds the whistle needs to be blown only loud enough for it to reach the ears of “a competent government official,” regardless of whether the public hears it.[4] Because the Seventh Circuit’s interpretation aligns more with the purpose of the FCA’s whistleblowing provision, it is more persuasive and should be followed by other courts.

The FCA’s Historical Background and Qui Tam Provision

During the Civil War, Congress passed the False Claims Act in order to prevent and punish the submission of fraudulent claims for payment by the United States.[5] Under the FCA, a private individual who learns of a fraudulent claim may file a qui tam[6] suit on behalf of the government against the fraudulent claimant and, if successful, receive a percentage of the proceeds from the action or settlement.[7] The False Claims Act statute, therefore, “encourage[s] any individual knowing of Government Fraud to bring that information forward.”[8] The rationale behind permitting private individuals to file such suits is that “one of the least expensive and most effective means of preventing frauds upon the Treasury is to make the perpetrators of them liable to actions by private persons acting . . . under the strong stimulus of personal ill or the hope of gain.”[9]

The Act, as originally drafted 1863, proved too broad and subject to opportunistic abuse—it “allowed anyone to bring a qui tam action and receive 50% of the amount recovered,” even if the private individual contributed no information of fraud to the government.[10] To remedy the statute’s effects, Congress placed certain limits on qui tam suits that would bar the individual party’s suit.[11] Initially, the limiting standard imposed by the FCA was the “governmental-knowledge bar,” which “preclude[d] qui tam actions based upon evidence of information in the possession of the United States, or any agency, officer or employee thereof, at the time such suit was brought.”[12] The governmental-knowledge bar, however, “proved too restrictive and the volume and efficacy of qui tam litigation dwindled.”[13] Under this standard, “claims were being barred even in cases where the qui tam plaintiff supplied the information to the government before filing the claim.”[14]

In 1986, Congress amended the statute to impose less restrictive “public disclosure bar,”[15] with the purpose of achieving “the golden mean between adequate incentives for whistle-blowing insiders with genuinely valuable information and discouragement of opportunistic plaintiffs who have no significant information to contribute of their own.”[16] However, circuit courts do not unanimously agree on what exactly constitutes a “public disclosure.”[17] While a majority of circuit courts hold that a “public disclosure” requires an affirmative act of disclosure, beyond the government and to the general public,[18] the Seventh Circuit holds that disclosure to “to a competent government official” is sufficient to trigger the bar.[19]

What Constitutes a Public Disclosure?

In Bank of Farmington, the Seventh Circuit Court of Appeals held that “[d]isclosure of information to a competent public official about an alleged false claim against the government” constitutes a public disclosure under the FCA when “the disclosure is made to one who has the managerial responsibility for the very claims being made.”[20] In reaching its conclusion, the court focused heavily on the plain language of the term “public disclosure”[21] The court then stated that its interpretation aligned with the FCA’s purpose because “[t]he point of public disclosure of a false claim . . . is to bring it to the attention of the authorities, not merely to educate and enlighten the public at large about the dangers of misappropriation of their tax money.”[22]

To clarify the meaning of “competent government official,” the Seventh Circuit explicitly admitted, “Clearly . . . not all disclosure to a public official is public disclosure,” but rather, “the public official to whom the information is disclosed must be one whose duties extend to the claim in question in some significant way.”[23] For example, “It would not have been public disclosure [in this case] had the [defendant] divulged the information . . . to a postal carrier or to the Governor of Guam and to no one else.”[24]

The Seventh Circuit continued, “Since a public official in his capacity is authorized to act for and to represent the community, and since disclosure to the public official responsible for the claim effectuates the purpose of disclosure to the public at large, disclosure to a public official with responsibility for the claim in question . . . constitutes public disclosure [under the FCA].”[25] In other words, the whistle is considered officially blown, and the public disclosure bar in effect, when a “competent government official”—an official “whose duties extend to the claim in some significant way”—is “specifically informed” of the fraudulent claim.[26] While disclosure to the public at large would most certainly satisfy this threshold “because it is likely to alert the [appropriate] authorities of the alleged fraud,” it is not necessary to constitute a public disclosure.[27]

The Seventh Circuit Against the World: What Other Circuit Courts Hold

As the Fourth Circuit Court of Appeals recently noted, “[n]o other circuit . . . has adopted the Seventh Circuit’s interpretation of the public disclosure requirement. Rather, the other five [sic] circuits to consider the question have rejected the Seventh Circuit’s approach.”[28] Instead, these circuits hold that “a public disclosure requires that there be some act of disclosure outside of the government.”[29] The majority courts argue that a “public disclosure must somehow reach a public domain and the Government is not the equivalent of the public domain.”[30] “To hold otherwise . . . wrongfully equates the government with the public,”[31] and “if providing information to the government were enough to trigger the bar, the phrase ‘public disclosure’ would be superfluous.”[32] These courts also contend that interpreting the public disclosure bar in a manner that bars suits of false claims disclosed to the government “would essentially reinstate [the government-knowledge bar] Congress expressly eliminated.”[33] Thus, for the majority of circuit courts, mere disclosure of fraud to a “competent government official” is not enough to trigger the FCA’s public disclosure bar. Rather, the disclosure must go beyond Governmental disclosure in a way that reaches the public domain.

The More Persuasive Interpretation of “Public Disclosure”

The Seventh Circuit’s minority stance is the more persuasive interpretation of what constitutes a “public disclosure” under the FCA because it better aligns with the purpose of the False Claims Act and its public disclosure bar. Thus, disclosure to a competent public official who is responsible for handling the claim under the FCA constitutes a public disclosure and should therefore bar private individuals from filing qui tam suits based on fraudulent claims they did not themselves discover and disclose to the Government.

Congress enacted the FCA so that the federal government could discover and recover the losses caused by fraudulent claimants. The qui tam provision exists to monetarily incentivize individuals to help the government learn of fraudulent claims. Thus, by implementing the FCA and its qui tam provision, “Congress wanted to reward private individuals who take significant personal risks to bring wrongdoing to light . . . and to encourage whistleblowing and disclosure of fraud.”[34] The qui tam provision, however, was not implemented for the purpose of providing private individuals with an avenue to riches. While private individuals may receive lucrative sums of money as a reward for their role in successful FCA suits,[35] this benefit is solely ancillary to the government’s primary goal of discovering fraudulent claims.

Thus, when a “competent government official” learns of the fraudulent claim, and can therefore investigate and prosecute the fraud, there is no reason to reward a private individual who subsequently provides the government with information of the same fraudulent claim because the wrongdoing has already been brought to light and the fraud disclosed. But by requiring an affirmative act of disclosure to the general public, the majority’s interpretation gives individual parties the opportunity to file suit and seek potentially large sums of money for fraudulent claims previously discovered by or disclosed to the federal government. Thus, within the framework of the FCA, this interpretation has the effect of changing the FCA’s primary goal from discovering fraud to compensating private individuals.

Similarly, the purpose of the statutory bar on FCA qui tam suits is to prevent “opportunistic plaintiffs”[36] from filing “parasitic lawsuits.”[37] Although the “governmental-knowledge bar” proved too restrictive, the subsequently enacted and less restrictive “public disclosure bar” still possessed the same overall goal—preventing opportunistic qui tam suits from plaintiffs “who have no significant information to contribute of their own.”[38] And as the Seventh Circuit stated, “the point of public disclosure of a false claim . . . is to bring it to the attention of the authorities . . . .”[39] In other words, once the false claim has been brought to the attention of the government, the information private individuals subsequently disclose only further informs the government of a false claim it already knew. And while no new wrongdoing is brought to light, for the majority of circuit courts, the private individual is still able to file the qui tam suit and seek the monetary reward.

That the Seventh Circuit’s interpretation “wrongly equates” the government with the general public is incorrect. While the government and the general public are two separate entities, interpreting “public disclosure” under the FCA as disclosure to a competent government official does not “wrongly equate” the two entities as being the same. Rather, it appropriately recognizes that the government, not any private individual, is the defrauded party seeking monetary recovery.

That the Seventh Circuit’s interpretation essentially reinstates the “governmental-knowledge bar” is also incorrect. As the Seventh Circuit clarified, “not all disclosure to a public official is public disclosure,” but rather, “the public official to whom the information is disclosed must be one whose duties extend to the claim in question in some significant way.”[40] In other words, not all false claims of which the government learns will constitute public disclosure, but only those disclosed to government officials who are capable of addressing the false claims. This does not reinstate the overly broad and highly restrictive “governmental-knowledge bar.” The Seventh Circuit’s interpretation merely limits the scope of who may file qui tam suits to those individuals who actually blew the whistle and alerted the government of a false claim that it did not already know.

The Required Whistle Volume

The FCA serves as a means to discover fraud perpetrated against the government. The qui tam whistleblower provision furthers this goal. But once the whistle is blown loud enough for a competent government official to hear, the FCA’s goal is achieved: the fraud is discovered. Blowing the whistle this loud should trigger the public disclosure bar because the government—the public entity seeking information of false claims—now knows of the fraud, and can investigate and potentially prosecute it. Here, private individuals other than the actual individual who blew the whistle should be barred from filing qui tam suits.

Although requiring one to blow the whistle so loud that the general public hears it still achieves this goal, it imposes an unnecessarily high standard for triggering the public disclosure bar that detracts from the original purpose of the FCA’s enactment. In function, this interpretation of “public disclosure” provides opportunistic plaintiffs with greater allowance to file qui tam suits for false claims of which the Government has been previously disclosed.

Rewarding private individuals for disclosing fraud to the government when the government is already aware of it does not align with the purpose of the FCA. Once the fraud is disclosed to a government official who has the power and the authority to address the fraud and recover the money lost, then such disclosure should satisfy the public disclosure bar. Although the Seventh Circuit’s interpretation is the lone minority stance on this issue, it is the more persuasive interpretation.

[1] Justice Department Recovers Nearly $6 Billion from False Claims Act Cases in Fiscal Year 2014, Department of Justice (“During the [2014 fiscal year], the government paid out $435 million to the [whistleblowers] who exposed fraud and false claims . . . ”) available at http://www.justice.gov/opa/pr/justice-department-recovers-nearly-6-billion-false-claims-act-cases-fiscal-year-2014.

[2] See 31 U.S.C. § 3730(e) (2010).

[3] E.g., Wilson v. Graham County Soil & Water Conservation Dist., 777 F.3d 691, 697 (4th Cir. 2015) (Wilson II).

[4] Bank of Farmington, 166 F.3d 853, at 861 (1999).

[5] United States ex rel. Mathews v. Bank of Farmington, 166 F.3d 853, 857 (7th Cir. 1999), overruled on other grounds by Glaser v. Wound Care Consultants, Inc., 507 F.3d 907 (7th Cir. 2009).

[6] “The term comes from the Latin expression, qui tam pro domino rege quam pro se ipso in hac parte sequitur (“Who brings the action for the King as well as himself”). Bank of Farmington, 166 F.3d at 857.

[7] United States ex rel. Whipple v. Chattanooga-Hamilton County Hospital Authority, 2015 U.S. App. LEXIS 2803, *2 (6th Cir. 2015); see also 31 U.S.C. § 3730(d) (2010) (“If the Government proceeds with an action brought by a person under subsection (b), such person, subject to the second sentence of this paragraph, receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim . . .”) (emphasis added).

[8] Bank of Farmington, 166 F.3d at 858.

[9] Id. (citing United States ex rel. Marcus v. Hess, 317 U.S. 537, 541, n. 5 (1953)).

[10] Id.

[11] See 31 U.S.C. § 3730(e) (2010).

[12] Whipple, 2015 U.S. App. LEXIS 2803 at *5, *6 (quoting Graham County Soil & Water Conserv. Dist. v. United States ex rel. Wilson, 559 U.S. 280, 294 (2010) (Wilson I)) (internal quotations omitted).

[13] Id. at *6 (quoting Wilson I, 559 U.S. at 294) (internal quotations omitted).

[14] Bank of Farmington, 166 F.3d at 858.

[15] 31 U.S.C. § 3730(e)(4)(A) (1986) (“No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.”).

[16] Wilson I, 559 U.S. 280, 286 (2010) (quoting United States ex rel. Springfield Terminal R. Co. v. Quinn, 14 F.3d 645, 649 (D.C. Cir. 1994)).

[17] Compare Bank of Farmington, 166 F.3d at 861 with Wilson II, 777 F.3d at 697 and Whipple, 2015 U.S. App. LEXIS 2803 at *16-17.

[18] E.g., Wilson II, 777 F.3d at 697.

[19] Bank of Farmington, 166 F.3d at 861.

[20] Id. (emphasis added).

[21] Id. at 860-61 (citing the Oxford English Dictionary, the court defined “disclosure” as “opening up to view, revelation, discovery, exposure,” and stated that while “the plain and ordinary meaning of public is open to general observation, sight, or cognition . . . manifested, not concealed,” the term “can also be defined as “authorized by, acting for, or representing the community”) (emphasis added) (internal quotations omitted) (citation omitted).

[22] Id. at 861.

[23] Id. at 861 (emphasis added).

[24] Id.

[25] Id.

[26] Id.

[27] Id.

[28] Wilson II, 777 F.3d at 697 (citing cases from the First, Ninth, Tenth, Eleventh, and D.C. Circuits). The Sixth Circuit most recently joined this majority interpretation. See Whipple, 2015 U.S. App. LEXIS 2803 at *16-17.

[29] Wilson II, 777 F.3d at 697 (quoting United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 730 (1st Cir. 2007) (internal quotations omitted) (emphasis omitted).

[30] Id. (quoting Kennard v. Comstock Res., Inc., 363 F.3d 1039, 1043 (10th Cir. 2004) (internal quotations omitted)).

[31] Id. (quoting Rost, 507 F.3d at 729) (emphasis added).

[32] Rost, 507 F.3d at 729.

[33] Id. (quoting United States ex rel. Oliver v. Philip Morris USA, Inc., 763 F.3d 36, 42 (D.C. Cir. 2014)).

[34] Bank of Farmington, 166 F.3d at 858

[35] See supra note 38.

[36] Wilson I, 559 U.S. 280, 286 (2010).

[37] Bank of Farmington, 166 F.3d at 858 (quoting Cooper v. Blue Cross and Blue Shield of Florida, Inc., 19 F.3d 562, 565 (11th Cir. 1994)).

[38] See Wilson I, 559 U.S. 280, 286 (2010).

[39] Bank of Farmington, 166 F.3d at 861 (emphasis added).

[40] Id. at 861.

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