Opinion ID: 1196972
Heading Depth: 2
Heading Rank: 2

Heading: Is the Lawsuit Based Upon Publicly Disclosed Information?

Text: To trigger the public-disclosure bar of § 3730(e)(4), it is not enough that allegations of wrongdoing have been publicly disclosed; the relator's allegations must also be based upon the public disclosure. Glaser argues that her allegations are not based upon the CMS investigation of Wound Care because they neither depend essentially upon publicly disclosed information nor are they actually derived from such information. Caremark, 496 F.3d at 737 (internal quotation marks omitted). Glaser's argument rests on the interpretation of the phrase based upon that we adopted in Bank of Farmington and reaffirmed in Caremark. Those cases held that a qui tam suit is based upon publicly disclosed information when it depends essentially upon publicly disclosed information and is actually derived from such information. Bank of Farmington, 166 F.3d at 864. This interpretation rested on a plain-language understanding that based upon normally means derived from. Id.; accord United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1347-48 (4th Cir.1994) (citing WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 180 (1986)). Bank of Farmington reasoned that if the purpose of the jurisdictional bar is to block parasitic claims filed by opportunists trying to capitalize on publicly disclosed allegations of wrongdoing, it should not prohibit a suit by a relator who independently uncovers evidence of wrongdoing through his own investigation even though his allegations are the same or similar to allegations in the public domain. 166 F.3d at 863. Although the Fourth Circuit has agreed with our approach, see Siller 21 F.3d at 1347-48, every other circuit to consider this question has adopted a different interpretation of § 3730(e)(4). Under the majority view, a lawsuit is based upon publicly disclosed allegations when the relator's allegations and the publicly disclosed allegations are substantially similar. United States ex rel. Mistick PBT v. Hous. Auth. of the City of Pittsburgh, 186 F.3d 376, 388 (3d Cir.1999); accord United States ex rel. Boothe v. Sun Healthcare Group, Inc., 496 F.3d 1169, 1171-72 (10th Cir.2007); Minn. Ass'n of Nurse Anesthetists v. Allina Health Sys. Corp., 276 F.3d 1032, 1047 (8th Cir.2002); United States ex rel. Biddle v. Bd. of Trs. of the Leland Stanford, Jr. Univ., 161 F.3d 533, 537 (9th Cir.1998); United States ex rel. McKenzie v. BellSouth Telecomms., Inc., 123 F.3d 935, 940 (6th Cir. 1997); United States ex rel. Findley v. FPC-Boron Employees' Club, 105 F.3d 675, 684-85 (D.C.Cir.1997); Fed. Recovery Servs., Inc. v. United States, 72 F.3d 447, 451 (5th Cir.1995); United States ex rel. Doe v. John Doe Corp., 960 F.2d 318, 324 (2d Cir.1992). These decisions generally concede that the approach adopted in Bank of Farmington is a faithful ordinary-meaning interpretation of the statute but nevertheless reject it because it renders the original-source exception to the § 3730(e)(4) bar superfluous. In addition, these circuits conclude that a broader interpretation is more consistent with the overall design of the jurisdictional bar, which balances the dual objectives of encourag[ing] private individuals who are aware of fraud against the government to bring such information forward at the earliest possible time, United States ex rel. Barth v. Ridgedale Elec., Inc., 44 F.3d 699, 704 (8th Cir.1995), and deterring self-serving opportunists, who do not possess their own insider information, [who will try] to get in on the action and try to collect on parasitic claims when the allegations have already been publicly disclosed and the insiders have nothing new to add, Caremark, 496 F.3d at 739. Information brought forward by relators in qui tam suits is less useful to the government once revelations about fraudulent conduct are in the public domain because the government is already aware that it might have been defrauded and can take responsive action. Thus, the public-disclosure bar implements the congressional interest in paying [relators] only for useful information. Minn. Ass'n of Nurse Anesthetists, 276 F.3d at 1047. Because our approach in Bank of Farmington and Caremark is out of step with the approach taken by eight other circuits, Wound Care invites us to revisit it. Although we must give considerable weight to our prior decisions, we are not bound by them absolutely and may overturn Circuit precedent for compelling reasons. Russ v. Watts, 414 F.3d 783, 789 (7th Cir.2005). We have overruled our prior decisions when our position remains a minority one among other circuits, id.; when the Supreme Court issues a decision on an analogous issue that compels us to reconsider our position, Haas v. Abrahamson, 910 F.2d 384, 393 (7th Cir.1990); or when an intracircuit conflict exists, Shropshear v. Corp. Counsel of City of Chi., 275 F.3d 593, 595-97 (7th Cir.2001). Each of these justifications is present in this case. We note for starters that only one other circuit (the Fourth) has adopted our interpretation. The Third Circuit has characterized the circuit split as a clash between two textual arguments ...: one based on the ordinary meaning of the phrase `based upon' and one based on the precept that a statute should be construed if possible so as not to render any of its terms superfluous. Mistick, 186 F.3d at 387. The eight circuits that have rejected the ordinary-meaning interpretation have done so largely because, as the D.C. Circuit has aptly observed, it swallows the original source exception whole. Findley, 105 F.3d at 683. The original-source exception permits jurisdiction over an FCA action even if the relator's lawsuit is based upon publicly disclosed information provided that the relator is an original source of the information. § 3730(e)(4)(A). The FCA defines an original source as someone who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information. 31 U.S.C. § 3730(e)(4)(B). If based upon means actually derived from, as Bank of Farmington says, it is hard to understand the import of the independent knowledge component of the original-source exception; a relator who actually derived his allegations of fraud from (and therefore based his allegations upon) information in the public domain could never avoid the jurisdictional bar by showing that he has independent knowledge of the fraud. Put another way, following our minority interpretation of based upon, once a court concludes that a lawsuit is actually derived from publicly disclosed information, asking the original-source question never affects the jurisdictional result. [5] Conversely, consider what happens when a court following the minority interpretation of based upon concludes that a lawsuit is not actually derived from publicly disclosed information. In those cases, the court has jurisdiction over the lawsuit whether or not the relator was an original source of the allegations in the qui tam complaint. Thus, under our minority interpretation of based upon, the original-source exception is extraneous no matter how a court resolves the actually derived from question. If a court answers the question in the negative, the original-source exception is not implicated; if a court answers in the affirmative, the original-source inquiry is a waste of time. Despite this difficulty, Caremark adhered to the Bank of Farmington interpretation  though acknowledging that the circuits in the majority had powerful arguments for rejecting it  because the minority standard holds the trump card, the plain language interpretation. 496 F.3d at 738. We now conclude that this places too much importance on a dictionary interpretation of the phrase based upon to the exclusion of other significant interpretive considerations. Beyond the damage to the original-source exception, other portions of § 3730(e)(4)(A) would yield baffling results if we read them literally without regard to context. For example, § 3730(e)(4)(A) refers to audits or investigations by the Government Accounting Office instead of the General Accounting Office, as well as information obtained from criminal and civil hearing[s] even though the statutory bar presumably covers information publicly disclosed in trials, which are not commonly referred to as hearings. See also Mistick, 186 F.3d at 387-88 (describing other examples of poor drafting). As the Third Circuit noted in Mistick, § 3730(e)(4) is hardly a model of careful draftsmanship; the drafting errors throughout § 3730(e)(4) should make us hesitant to attach too much significance to a fine parsing of the syntax. Id. at 388. Bank of Farmington and Caremark parsed § 3730(e)(4) finely, but their focus on the dictionary meaning of based upon alone was too narrow in the context of the rest of the statute. Pace v. DiGuglielmo, 544 U.S. 408, 420, 125 S.Ct. 1807, 161 L.Ed.2d 669 (2005) (statutory terms are given their ordinary meaning in the context of the statutory scheme in which they appear  (emphasis added)). Ultimately, the interpretation that carried the day in Bank of Farmington and Caremark violates the principle that [a] statute should be construed so that effect is given to all its provisions, so that no part will be inoperative or superfluous, void or insignificant  a principle the Supreme Court recently described as one of the most basic interpretive canons. Corley v. United States, ___ U.S. ___, 129 S.Ct. 1558, 1566, 173 L.Ed.2d 443 (2009). We might tolerate this result if the original-source inquiry added little or nothing to the jurisdictional analysis. But that is hardly the case. The original-source exception requires relators to establish that they have (1) direct knowledge of fraudulent activity; (2) independent knowledge of fraudulent activity; and (3) voluntarily provided their information to the government before filing a qui tam action. 31 U.S.C. § 3730(e)(4)(B). If a relator's allegations are actually derived from a public disclosure, the relator might be able to show that he has independent knowledge of the fraudulent activity and therefore bring himself within the second component of the original-source definition. But to avoid the jurisdictional bar at the original-source stage of the jurisdictional inquiry, the relator must also show he had direct knowledge of the fraud, a phrase usually interpreted to require the relator to establish that his knowledge of the wrongdoing was based on his own investigative efforts and not derived from the knowledge of others. See United States ex rel. Laird v. Lockheed Martin Eng'g & Sci. Servs. Co., 336 F.3d 346, 355 (5th Cir.2003). In addition, to be considered an original source, the relator must also have voluntarily disclosed the information to the government before filing a qui tam action, a requirement that is designed to reward those who come forward with useful information and not those who provide information in response to a governmental inquiry. See, e.g., United States ex rel. Paranich v. Sorgnard, 396 F.3d 326, 338-41 (3d Cir. 2005). Yet as we have explained, under the Bank of Farmington and Caremark interpretation of the phrase based upon, a relator can avoid the jurisdictional bar by showing that his information did not actually derive from a public disclosure without a showing that he had direct knowledge of fraudulent conduct or that he voluntarily disclosed what he knew to the government. To illustrate this, compare our decisions in Caremark and United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013 (7th Cir.1999), both of which concluded that the plaintiff-relator had avoided the jurisdictional bar. In Lamers, the relator alleged that a city agency lied about its efforts to transport local schoolchildren on public buses in order to obtain federal grant money; the relator had acquired this information by personally observing public bus routes to see if they complied with federal regulations. Although the Federal Transit Administration had issued an administrative decision several months prior to the qui tam filing finding that the City had violated federal regulations, the relator had conducted his investigation independently before the FTA decision was publicized and voluntarily gave the results of his investigation to the FTA. We concluded that the jurisdictional bar did not apply because the relator was an original source  he had direct and independent knowledge of fraudulent activity and had voluntarily given that information to the government. [6] Id. at 1017-18. By contrast, in Caremark we concluded that the jurisdictional bar did not apply because the relator's complaint was not actually derived from publicly disclosed information. 496 F.3d at 739. The relators in Caremark were thus able to avoid the jurisdictional bar without showing they had direct, independent knowledge of fraudulent activity or that they disclosed their knowledge to the government before filing their lawsuit. [7] Caremark justified its continued adherence to the minority approach of Bank of Farmington because it struck a balance between two competing policy concerns: the fear that opportunistic plaintiffs would try to get in on the action when they have nothing new to add and the desire to encourage those with knowledge about fraudulent conduct to come forward. Id. These are, as we have noted, the manifest objectives of § 3730(e)(4), but Caremark went astray in thinking that the threshold based upon language in the statute addresses these competing policies by itself. Instead, § 3730(e)(4) must be considered in its entirety. The threshold jurisdictional bar against lawsuits that are based upon publicly disclosed allegations addresses the first policy concern: prohibiting FCA lawsuits filed by opportunistic plaintiffs concerning information about fraud that is already in the public domain. By carving out an exception for original sources, the statute preserves the objective of inspiring whistleblowers to come forward promptly with information concerning fraud so that the government can stop it and recover illgotten gains. Findley, 105 F.3d at 685. The qui tam provisions of the FCA are designed to encourage persons with ` first-hand knowledge of fraudulent misconduct,' or those `who are either close observers or otherwise involved in the fraudulent activity' to come forward. Barth, 44 F.3d at 703 (citation omitted). Bank of Farmington 's interpretation subverts this goal by allowing relators to avoid the public-disclosure bar without demonstrating that they have direct knowledge of fraudulent activity or that they are not under any governmental compulsion to reveal their knowledge of fraudulent conduct. We also note that while the minority interpretation tends to resolve the jurisdictional inquiry at the based upon stage, the Supreme Court recently implied in Rockwell International Corp. v. United States, 549 U.S. 457, 127 S.Ct. 1397, 167 L.Ed.2d 190, that the main jurisdictional focus is on the original source requirement. In Rockwell, the Court was asked to interpret the original-source requirement of § 3730(e)(4)(B). One of the questions before the Court was whether the phrase information on which the allegations are based in § 3730(e)(4)(B) refers to information on which the relator's allegations are based or information on which the publicly disclosed allegations that triggered the public-disclosure bar of § 3730(e)(4)(A) are based. The Court adopted the former interpretation and in doing so imagined a hypothetical relator who has direct and independent knowledge of different information supporting the same allegation. The Court concluded that such a relator would be considered an original source. 549 U.S. at 471-72, 127 S.Ct. 1397. Although Rockwell did not address the meaning of the phrase based upon in § 3730(e)(4)(A), we think it significant that under our minority interpretation of the phrase, the hypothetical posited by the Court would be resolved at an earlier step of the jurisdictional inquiry without ever reaching the question of whether the relator was an original source. Yet given the sequential nature of the jurisdictional inquiry required by the statute, the Supreme Court's discussion assumes that its hypothetical relator is subject to the public-disclosure bar, for otherwise there would be no need to address the original-source exception at all. Id. at 467, 127 S.Ct. 1397 (As this case comes to the Court, it is conceded that the claims on which Stone prevailed were based upon publicly disclosed allegations within the meaning of § 3730(e)(4)(A).); see also Barth, 44 F.3d at 703 (A court reaches the original source question only if it finds the plaintiff's suit is based on information that has already been publicly disclosed.). This is another reason to rethink our interpretation of the based upon language in § 3730(e)(4)(A). The facts of this case aptly illustrate the flaws in the Bank of Farmington/Caremark approach. Glaser testified that she learned of Wound Care's improper billing from her attorney, and her attorney said she first became aware of possible fraudulent billing practices in August 2003. That means that more than 20 months elapsed from the time that Glaser's attorney said she first learned of Wound Care's conduct and the time she filed this qui tam action on Glaser's behalf. In the meantime, CMS commenced an investigation of Wound Care's billing irregularities and eventually  some four months before Glaser's lawsuit was filed  notified Wound Care of its findings. The relator provisions of the FCA are designed to encourage private individuals who are aware of fraud against the government to bring such information forward at the earliest possible time. Barth, 44 F.3d at 704. The circumstances here illuminate the inconsistencies between the Bank of Farmington/Caremark approach and the statutory design. Accordingly, we are now convinced that Bank of Farmington and Caremark gave undue weight to the dictionary interpretation of § 3730(e)(4) without considering the phrase based upon in the context of the rest of the public-disclosure bar  particularly the original-source exception. Our interpretation of based upon as meaning actually derived from renders the original-source exception superfluous and ignores the exception's role in balancing the FCA's competing policy goals. The majority interpretation, as the Tenth Circuit put it, treats the question of whether a lawsuit is based upon a public disclosure as a threshold analysis ... intended to be a quick trigger for the more exacting original source analysis. United States ex rel. Grynberg v. Praxair, Inc., 389 F.3d 1038, 1051 (10th Cir.2004) (internal quotation marks omitted). We now adopt the majority position and conclude that a relator's FCA complaint is based upon publicly disclosed allegations or transactions when the allegations in the relator's complaint are substantially similar to publicly disclosed allegations. To the extent Bank of Farmington and Caremark interpreted the statutory phrase based upon differently, those cases are overruled. Applying this standard to Glaser's complaint, we conclude that her allegations are based upon the allegations that were the subject of CMS's prior investigation. As the March 2005 letter from CMS to Dr. Miller makes clear, the CMS investigation focused on whether Wound Care had properly billed the government for services performed by its physician's assistants. Like the CMS investigation, Glaser's complaint alleges that Wound Care overbilled the government for physician's assistants' services by falsely representing that they had been performed incident to a physician's services. These allegations of wrongdoing are virtually identical  they pertain to the same entity and describe the same fraudulent conduct  which is enough for us to conclude that Glaser's allegations are substantially similar to the allegations that were at the heart of the CMS investigation. Glaser argues that her complaint is not based on the CMS investigation because her complaint contains particular allegations of fraud that are not mentioned in CMS's January or March 2005 communications with Wound Care nor discovered during its investigation into Wound Care's billing practices. It is true that Glaser's complaint adds a few allegations not covered by CMS's investigation. But this is not enough to take this case outside the jurisdictional bar, properly understood; based upon does not mean solely based upon. Accord McKenzie, 123 F.3d at 940; Fed. Recovery Servs., 72 F.3d at 451. [A]n FCA qui tam action even partly based upon publicly disclosed allegations or transactions is nonetheless `based upon' such allegations or transactions. Congress chose not to insert the adverb `solely', and we cannot, because to do so would dramatically alter the statute's plain meaning. United States ex rel. Precision Co. v. Koch Indus., Inc., 971 F.2d 548, 552 (10th Cir. 1992). We therefore conclude that because the allegations in Glaser's complaint (or most of them) were substantially similar to publicly disclosed allegations, Glaser's complaint is based upon those public disclosures and therefore falls within the threshold jurisdictional bar of § 3730(e)(4)(A). E.g., United States ex rel. Battle v. Bd. of Regents for the State of Ga., 468 F.3d 755, 762 (11th Cir.2006).