Third Circuit Expands Original Source Exception under Amended False Claims Act

Introduction

The case of UNITED STATES of America EX REL. MOORE & COMPANY, P.A. v. MAJESTIC BLUE FISHERIES, LLC et al. (812 F.3d 294) adjudicated by the United States Court of Appeals for the Third Circuit on February 2, 2016, addresses critical issues concerning the False Claims Act (FCA), particularly following its amendments under the Patient Protection and Affordable Care Act (PPACA). The appellant, Moore & Company, P.A., a law firm, initiated a qui tam action alleging that several Korean nationals and their limited liability companies (LLCs) fraudulently obtained licenses to fish in U.S. Pacific waters by misrepresenting control and command by U.S. citizens. This case examines the interplay between the FCA's public disclosure bar and the revised "original source" exception, questioning the proper application of these provisions post-amendment.

Summary of the Judgment

The Third Circuit reversed the District Court's dismissal of Moore & Company's FCA action. The District Court had previously dismissed the case based on the public disclosure bar and concluded that Moore was not an original source. However, the appellate court determined that the 2010 PPACA amendments to the FCA altered the legal landscape, rendering the public disclosure bar non-jurisdictional. Furthermore, the court found that despite the alleged fraud being publicly disclosed through certain media and federal reports, Moore qualified as an original source by providing independent and materially added information uncovered during a separate wrongful death litigation. Consequently, the appellate court remanded the case for further proceedings, allowing Moore's claims to proceed under the FCA.

Analysis

Precedents Cited

The judgment references several pivotal cases that have shaped the interpretation of the FCA's public disclosure bar and the original source exception:

United States ex rel. Findley v. FPC–Boron Employees' Club (D.C.Cir.1997): Highlighted the restrictive nature of the 'government knowledge defense' before the 1986 amendments, which discouraged relators from filing FCA actions based on information the government already possessed.
Schindler Elevator Corp. v. United States ex rel. Kirk (563 U.S. 401, 2011): Established that responses to Freedom of Information Act (FOIA) requests qualify as 'reports' under the FCA.
United States ex rel. Osheroff v. Humana, Inc. (11th Cir.2015) and United States ex rel. May v. Purdue Pharma L.P. (4th Cir.2013): Affirmed that the amended public disclosure bar under the PPACA is non-jurisdictional and must be handled under Rule 12(b)(6).
United States ex rel. Zizic v. Q2 Administrators, LLC (3d Cir.2013): Provided the formulaic approach to evaluating fraud allegations under the FCA.

Legal Reasoning

The court's legal reasoning focused primarily on interpreting the FCA's amendments under the PPACA, distinguishing them from prior interpretations:

Nonjurisdictional Public Disclosure Bar: The court determined that the 2010 amendments removed jurisdictional language from the public disclosure bar, aligning with other circuits that treat it as a basis for a failure to state a claim rather than a lack of jurisdiction.
Definition of 'Original Source': The amendments broadened the definition, allowing relators who materially add to publicly disclosed information to qualify as original sources. This shift required courts to assess whether the additional information significantly enhances the publicly disclosed facts.
Public Disclosure Qualification: The court confirmed that the alleged fraud had been publicly disclosed through qualifying news media and federal reports, including FOIA-obtained documents.
Original Source Exception: Moore demonstrated that the information obtained through separate discovery in a wrongful death action was both independent of and materially added to the publicly disclosed fraud, thereby satisfying the original source exception.

Impact

This judgment has significant implications for future FCA actions:

Clarification of Public Disclosure Bar: By affirming that the public disclosure bar is non-jurisdictional post-PPACA, the court clarified the procedural handling of such defenses, guiding lower courts to evaluate these bars under Rule 12(b)(6).
Expanded Original Source Exception: The broadened definition encourages relators to seek independent and materially additional information, thereby fostering more robust whistleblower actions even when initial fraud allegations are publicly known.
Encouragement for Thorough Litigation: The decision underscores the importance of comprehensive discovery in uncovering substantial evidence that can support FCA claims beyond publicly available information.

Complex Concepts Simplified

False Claims Act (FCA)

The FCA allows individuals, known as "relators," to file lawsuits on behalf of the government against entities that have defrauded federal programs. If successful, relators can receive a portion of the recovered funds.

Public Disclosure Bar

This bar prevents relators from filing an FCA lawsuit if the fraud they are alleging has already been publicly disclosed through specific channels, such as news media or federal reports. The intent is to avoid redundant litigation based on information already available.

Original Source Exception

Despite the public disclosure bar, there's an exception for relators who are "original sources." This means they have provided new, independent, and significant information about the fraud that wasn't previously disclosed.

Rule 12(b)(1) vs. Rule 12(b)(6)

Rule 12(b)(1) motions challenge the court's jurisdiction to hear a case, while Rule 12(b)(6) motions argue that even if all allegations are true, they do not amount to a legal claim. Post-PPACA, public disclosure bars should be handled under Rule 12(b)(6), not Rule 12(b)(1).

Conclusion

The Third Circuit's decision in UNITED STATES ex rel. Moore & Co. v. Majestic Blue Fisheries marks a pivotal shift in the application of the FCA's public disclosure bar and the original source exception. By recognizing the non-jurisdictional nature of the amended public disclosure bar and expanding the criteria for being considered an original source, the court has paved the way for more nuanced and thorough FCA litigation. This ensures that relators who uncover significant, independent information can pursue claims even when initial allegations have been publicly disclosed. The judgment underscores the importance of detailed discovery processes and encourages whistleblowers to contribute substantial new evidence in their efforts to combat fraud against the government.