Opinion ID: 2305757
Heading Depth: 1
Heading Rank: 8

Heading: Public Disclosure Bar

Text: The FCA permits a person alleging that an entity has defrauded the District to bring a qui tam lawsuit against that entity on behalf of the District. [23] The FCA, however, provides in pertinent part that: [n]o person may bring an action . . . based . . . upon allegations or transactions disclosed by the news media, unless the person bringing the action is an original source of the information.[ [24] ] We consider, first, whether the NAUPA newsletter and CCH Tax Review article publicly disclosed allegations or transactions upon which Mr. Grayson's complaint is based. To answer this question, we must determine the meaning of based upon allegations or transactions as used in D.C.Code § 2-308.15(c)(2)(A). [25] The District's FCA jurisdictional bar against qui tam actions based upon allegations disclosed by the news media is substantially similar to the federal jurisdictional bar set forth in 31 U.S.C. § 3730(e)(4)(A). Federal Circuits have interpreted based upon allegations or transactions variously as actually derived from . . . public disclosure (4th Cir.), [26] or `substantially similar' to `allegations or transactions' already in the public domain (D.C.Cir.), [27] or `supported by' publicly disclosed allegations or transactions, as evidenced by `substantial identity' between the publicly disclosed allegations [or transactions] and the qui tam complaint. (10th Cir.). [28] The Tenth Circuit's decision in United States ex rel. Precision Co. v. Koch Indus., 971 F.2d 548 (10th Cir.1992), explained the reasoning behind its initial adoption of the supported by approach: As a matter of common usage, the phrase based upon is properly understood to mean supported by. In this context, an 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.[ [29] ] The Tenth Circuit gave three additional reasons for adopting a restrictive meaning of based upon: (1) to interpret based upon to mean based `solely' upon publicly disclosed information would impermissibly expand federal jurisdiction by allowing qui tam plaintiffs to avoid the more exacting `original source' requirement simply by asserting an additional count; (2) a restrictive definition promotes the federal FCA's dual goals of encourag[ing] private citizens with first-hand knowledge to expose fraud and avoid[ing] civil actions by opportunists attempting to capitalize on public information without seriously contributing to the disclosure of the fraud; and (3) a more restrictive interpretation of `based upon' is consistent with practical considerations of judicial economy. [30] A majority of Federal Circuit Courts have adopted a similar meaning of based upon. [31] And, although the D.C. Circuit follows the substantially similar test, its approach is analogous to that of the Tenth Circuit, and the D.C. Circuit cited Precision favorably in its 1997 Findley decision. As the Tenth Circuit articulated in its later 1996 decision, Fine, supra note 28, [t]he test is whether `substantial identity' exists between the publicly disclosed allegations and the qui tam complaint. [32] We see little difference in effect between the substantially similar language as used by the D.C. Circuit and the substantial identity phrase adopted by the Tenth Circuit. In United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339 (4th Cir. 1994), the Fourth Circuit determined that interpreting based upon to mean actually derived from is most consistent with section 3730(e)(4)'s indisputed objective of preventing `parasitic' actions. . . . [33] The court further stated it is self-evident that a suit that includes allegations that happen to be similar (even identical) to those already publicly disclosed, but were not actually derived from those public disclosures, simply is not, in any sense, parasitic. [34] We reject the Fourth Circuit's approach because we believe that the Tenth Circuit's current approach is most consistent with the statutory purpose of the FCA. As the D.C. Circuit said in Findley, supra: [T]he Tenth Circuit reasoned that its limited interpretation of who could sue under the statute protected the incentive for private citizens with first-hand knowledge to expose fraud, but also prohibited civil actions brought by opportunists who do not contribute anything significant to the exposure of the fraud. [35] Like the federal version, the purpose of the FCA is to deter and punish false claims by authorizing individuals with direct and independent knowledge of those claims to file suit on behalf of the District as a qui tam plaintiff; [36] and the FCA prohibits lawsuits brought by persons who base the suit on publicly disclosed information unless the person is the original source of that information. The FCA defines original source as an individual who has direct and independent knowledge of the information on which the allegations are based, who voluntarily provided the information to the District before filing an action based on that information, and whose information provided the basis or catalyst for the investigation, report, hearing, audit, or media disclosure which led to the public disclosure. . . .[ [37] ] The Seventh Circuit has indicated: If `based upon' means `actually derived from,' . . . 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, . . . once a court concludes that a lawsuit is actually derived from publicly disclosed information, asking the original-source question never affects the jurisdictional result.[ [38] ] Similarly, in cases following the minority approach where the court concludes that a lawsuit is not `actually derived' from publicly disclosed information[,] the court has jurisdiction over the lawsuit whether or not the relator was an original source of the allegations in the qui tam complaint. [39] Thus, our task is to determine whether substantial similarity or substantial identity exists between Mr. Grayson's complaint and the allegations and transactions disclosed in the NAUPA newsletter and CCH State Tax Review article. Federal case law instructs us on which allegations and transactions must be placed in the public domain to trigger the public disclosure bar. [40] Federal Circuit Courts have held that the public disclosure bar is triggered where the public disclosure raises the inference of fraud so as to set the government squarely upon the trail of the alleged fraud. [41] The D.C. Circuit has illustrated this principal: [I]f X + Y = Z, Z represents the allegation of fraud and X and Y represent its essential elements. In order to disclose the fraudulent transaction publicly, the combination of X and Y must be revealed, from which readers or listeners may infer Z, i.e., the conclusion that fraud has been committed.[ [42] ] Read appropriately, the variables of the formula are labeled as follows: X (misrepresented state of facts) + Y (true state of facts) = Z (fraud). [43] In other words, a qui tam action cannot be sustained where all of the material elements of the fraudulent transaction are already in the public domain and the qui tam relator [only] comes forward with additional evidence incriminating the defendant. [44] Several Circuits have addressed the issue of unnamed defendants in the context of the FCA's public disclosure bar. In Cooper, supra note 31, the Eleventh Circuit concluded that a Government Accountability report, Office of Inspector General Report, newspaper articles, and a prior suit against Blue Cross Blue Shield of Georgia disclosing Medicare Secondary Payer fraud did not preclude the relator's action against Blue Cross Blue Shield of Florida, where Blue Cross Blue Shield of Florida was not named in the public disclosures. [45] According to the Eleventh Circuit, requiring public disclosures to specifically identify the defendant is consistent with the statute's purpose of encouraging citizen involvement to increase the likelihood of fraud being revealed. [46] The government often knows individuals are committing fraud, but has difficulty identifying all of the individual actors engaged in the fraudulent activity. [47] This casting of a net to catch all wrongdoers is precisely where the government needs the help of its `private attorneys general.' [48] Approximately a year later the Tenth Circuit distinguished Cooper in Sandia, supra note 41. Sandia involved a relator who alleged that the defendant misappropriated funds in violation of the Nuclear Waste Policy Act. The Tenth Circuit held that a General Accounting Office Report and congressional hearing triggered the jurisdictional bar [b]ecause [the] disclosures detailed the mechanics of the practice, revealed that at least two of [the defendant's] eight sister laboratories were engaged in it, and indicated the [Department of Energy's] acquiescence. . . . [49] In finding Cooper inapplicable the Tenth Circuit stated: [w]hen attempting to identify individual actors, little similarity exists between combing through the private insurance industry in search of fraud and examining the operating procedures of nine, easily identifiable, DOE-controlled, and government-owned laboratories. [50] Other circuit courts to distinguish Cooper have likewise focused on whether the public disclosure at issue [is] sufficient to set the government squarely upon the trail of the alleged fraud without the relator's assistance [51] and concluded that [i]ndustry-wide public disclosures bar qui tam actions against any defendant who is directly identifiable from the public disclosures. [52] In Grayson, supra, a case cited by the trial court, the California Court of Appeal upheld the trial court's dismissal of Mr. Grayson's complaint (which alleged facts substantially similar to the facts alleged in this case) against prepaid calling card companies for failure to state a claim under California's False Claims Act. [53] In arriving at its decision, the Court of Appeal stated: Government Code section 12652, subdivision (d)(3)(A) provides, in part, that [n]o court shall have jurisdiction over an action under this article based upon the public disclosure of allegations or transactions in a . . . report . . . by the news media, unless . . . the person bringing the action is an original source of the information.[ [54] ] The information in the public domain had clearly alerted the government to defendants' failure to either report or escheat breakage. [55] The NAUPA newsletter and CCH State Tax Review article disclosed the questionable legality of withholding phone card breakage. [56] Moreover, plaintiff alleges that defendants failed to report the breakage to the Controller and failed to escheat the property widely known to be held by defendants and others. [57] Mr. Grayson substantially repeats what the public already knows, and as a result, the public disclosure rule bars the action. [58] And, in Findley, supra, another case cited by the trial court, the court concluded, as the Tenth Circuit reiterated, that the relator's allegations `substantially repeat what the public already knows and add only the identity of particular employees' clubs engaged in the questionable and previously documented generic practice. [59] As in Grayson, supra, and Findley, supra, sufficient information existed in the public domain to raise an inference of fraud. In the mid-1990s, both the NAUPA newsletter and CCH State Tax Review article disclosed that the unused portion of a prepaid calling card constitutes unclaimed property and an intangible asset which is due and owing. Indeed, one participant in the Roundtable which is discussed in that article specifically referenced escheat and abandoned property. [60] In addition, other articles, upon which Mr. Grayson's complaint is based, have disclosed that the calling card company industry routinely fails to count breakage as unclaimed property. [61] In Phone Card Merger Mania Card Technology, Business and Industry, January 1998, John Frank wrote: What the industry terms breakage, the amount of unused phone time on cards sold, generally runs about 20% on the retail side. . . . Breakage is pure profit for card issuers. In Feeding Frenzy; Investing in Telephone Debit Cards, Teleconnect, December 1994, Harry Newton stated: You also make money on unused card balances, lost cards and cards never used. The industry has a term for this. It's called `breakage.' The industry figures breakage is as much as 15%. He further alleged that the NAUPA newsletter and CCH Tax Review article disclosed that breakage constituted unclaimed property that must be reported. Similarly, litigation ( In re SmarTalk Teleservs., Inc. Securities Litig., 124 F.Supp.2d 487 (S.D.Ohio 2000); 124 F.Supp.2d 527 (S.D.Ohio 2000)) and another news article disclosed SmarTalk's, a division of AT & T, treatment of breakage as revenue. Thus, the public disclosures provided specific details about the fraudulent scheme and the types of actors involved in it, removing this from a situation where the government would need to comb through myriad transactions performed by various types of entities in search of potential fraud. [62] Finally with respect to the public disclosure prong of the jurisdictional bar under the FCA, we are not convinced by Mr. Grayson's argument that the NAUPA newsletter and CCH Tax Review do not constitute news media. The term `news media' includes scholarly, scientific, and technical periodicals, including trade journals, because, like newspapers, these sources disseminate information to the public in a periodic manner. [63] We agree with the trial court that the NAUPA newsletter and the CCH Tax Review article referenced in Mr. Grayson's amended complaint fall within the ambit of technical documents and trade journals and, as such, the public disclosure bar applies.