Seventh Circuit Expands Public Disclosure Bar under the False Claims Act: Overruling Bank of Farmington and Caremark
Introduction
In the landmark case Glaser v. Wound Care Consultants, Inc., 570 F.3d 907 (7th Cir. 2009), the United States Court of Appeals for the Seventh Circuit addressed critical interpretations of the False Claims Act (FCA), specifically pertaining to the jurisdictional bar under 31 U.S.C. §§ 3730(e)(4). This case marks a significant shift in the court's approach by overruling its prior interpretations in Bank of Farmington and Caremark RX, aligning the Seventh Circuit with the majority of other circuits in interpreting when FCA lawsuits are considered "based upon" publicly disclosed information.
Summary of the Judgment
Carol A. Glaser, a Medicaid recipient who received treatment from Wound Care Consultants, Inc., filed a qui tam action under the FCA alleging that Wound Care improperly billed Medicaid and Medicare by misrepresenting services performed by physician's assistants as being "incident to" a physician's services without appropriate supervision. The government was already investigating Wound Care's billing practices before Glaser filed her lawsuit. The district court dismissed Glaser's complaint for lack of subject-matter jurisdiction under the FCA's jurisdictional bar, which prevents lawsuits based on public disclosures unless the relator is an original source of the information.
On appeal, the Seventh Circuit revisited its previous interpretations and ultimately concluded that Glaser's lawsuit was indeed "based upon" publicly disclosed information because the allegations in her complaint were substantially similar to those the government was already investigating. Consequently, Glaser was not deemed an original source, leading the appellate court to affirm the district court's dismissal.
Analysis
Precedents Cited
The judgment extensively references prior cases to frame its decision. Notably, the Seventh Circuit's prior decisions in Bank of Farmington and Caremark RX held a narrow interpretation of the "based upon" clause, requiring that the lawsuit "depends essentially upon publicly disclosed information and is actually derived from such information." However, these interpretations were in the minority among federal circuits.
Other significant cases include:
- United States ex rel. Grynberg v. Praxair, Inc., which supported a broader interpretation aligning with the majority of circuits.
- United States ex rel. Lamers v. City of Green Bay, illustrating the application of original-source exceptions when relators provide independent evidence.
- Various circuit cases that interpret "based upon" broadly when allegations are substantially similar to public disclosures.
The Supreme Court's decision in Rockwell International Corp. v. United States was also noted, emphasizing the importance of the original-source exception, although it did not directly alter the interpretation of "based upon."
Legal Reasoning
The court undertook a detailed statutory interpretation of 31 U.S.C. §§ 3730(e)(4), focusing on the phrase "based upon." Initially, the Seventh Circuit adhered to a narrow interpretation from Bank of Farmington and Caremark RX, which required that the FCA action must "depend essentially upon publicly disclosed information and is actually derived from such information" to trigger the jurisdictional bar.
However, the court recognized that this interpretation conflicted with eight other federal circuits that adopted a broader reading. The narrow interpretation effectively nullified the original-source exception, undermining the statute's intent to balance preventing opportunistic lawsuits while encouraging genuine whistleblowers.
Assessing the statutory purpose and the practical implications, the Seventh Circuit concluded that "based upon" should be interpreted to mean that the relator's allegations are substantially similar to publicly disclosed information, regardless of their source. This broader interpretation aligns with the FCA’s dual policy goals: deterring parasitic claims and incentivizing those with firsthand knowledge to act.
Applying this new interpretation, the court found that Glaser's allegations mirrored those under investigation by the government, thereby falling within the jurisdictional bar. Furthermore, Glaser failed to demonstrate she was an original source, as her knowledge was derived through her attorney, who was connected to an ongoing investigation.
Impact
This decision realigns the Seventh Circuit with the majority of federal circuits regarding the interpretation of the FCA's public-disclosure bar. By adopting a broader understanding of "based upon," the court reinforces a more uniform standard across jurisdictions, reducing circuit splits and enhancing predictability in qui tam prosecutions.
For litigants, this means that FCA actions will more frequently be subjected to the jurisdictional bar if they align closely with publicly disclosed allegations, regardless of the relator’s independent knowledge. Relators must now be more diligent in demonstrating that their claims stem from original, independent sources not merely echoed from public disclosures.
Moreover, this decision emphasizes the importance of the original-source exception, ensuring that those with genuine, independent knowledge can still pursue qui tam actions despite overlapping with public disclosures.
Complex Concepts Simplified
False Claims Act (FCA)
The FCA is a federal law designed to combat fraud against government programs like Medicare and Medicaid. It allows private citizens, known as "relators," to file lawsuits on behalf of the government (qui tam actions) and receive a portion of any recovered funds.
Qui Tam Action
A qui tam action is a lawsuit brought by a relator who alleges that an entity has defrauded the government. If successful, the relator can share in the recovered funds.
This provision prevents courts from hearing FCA lawsuits that are based on information already publicly disclosed, unless the relator is an original source—meaning they have independent knowledge of the fraud and have voluntarily reported it to the government before filing the lawsuit.
Original Source Exception
Even if allegations are publicly disclosed, a relator can still bring a successful qui tam action if they can prove they independently discovered the fraud and reported it to the government on their own initiative.
"Based Upon" Interpretation
The interpretation of "based upon" determines whether the allegations in an FCA lawsuit are rooted in information that has already been made public. A broader interpretation considers lawsuits "based upon" public disclosures if their allegations closely resemble those that are publicly available, thereby limiting opportunistic litigation.
Conclusion
The Seventh Circuit's decision in Glaser v. Wound Care Consultants represents a pivotal moment in FCA jurisprudence. By broadening the interpretation of "based upon" in the jurisdictional bar and overruling its previous stance in Bank of Farmington and Caremark RX, the court has reinforced a more consistent and policy-aligned approach within the FCA framework. This change underscores the necessity for relators to establish independent knowledge and origin of their claims, ensuring that qui tam actions serve their intended purpose of uncovering genuine fraud without being exploited by opportunistic litigants.
Moving forward, litigants and legal practitioners must carefully assess the origins of their allegations and diligently document their independent knowledge to navigate the nuanced requirements of the FCA's jurisdictional provisions effectively.