Supreme Court To Decide Important False Claims Act Question

Wednesday, August 5, 2009 - 00:00

The Supreme Court of the United States announced on June 22 that it would decide whether public disclosures made by state and local government agencies preclude federal courts from exercising jurisdiction over suits brought by whistleblowers under the federal False Claims Act. The case at issue, Graham County Soil & Water Conservation District v. United States ex rel. Wilson , No. 08-304, raises an important question for all businesses that contract with the federal government or otherwise receive federal funds, especially those businesses that are subject to audit and inspection by state and local government agencies. Depending on how the Court rules, Wilson has the potential to either limit or greatly expand the pool of potential whistleblowers who may file suit under the federal False Claims Act.

The False Claims Act And The Public Disclosure Bar

As amended on May 20, 2009, the False Claims Act ("FCA") provides the federal government with a cause of action against "[a]ny person" who, among other things, "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval" or who "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim."1 A defendant found liable under the FCA is subject to treble damages and civil penalties as great as $11,000 per claim, as well as attorneys' fees.2

The FCA is unique among federal statutes in that an action can be initiated either directly by the federal government or by a private whistleblower acting as a " qui tam relator."3 The relator sues on behalf of the United States to recover a bounty, which can total as much as 30 percent of any recovery.4 In addition, under the FCA's recently amended retaliation provision, those who discriminate against employees, contractors or agents for their whistleblower-related activities are subject to damages in the amount of "two times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys' fees."5

The problem of "parasitic" qui tam suits - i.e., suits in which relators have no personal knowledge of the fraudulent conduct in question, instead deriving their allegations from other sources - has plagued the FCA for much of its 146-year history.6 The most famous example of a parasitic qui tam suit occurred when a relator copied portions of a federal indictment and used them as the basis for a civil FCA complaint filed a few weeks after the indictment. The Supreme Court eventually upheld a verdict in favor of the relator, finding that nothing in the FCA at that time precluded the relator's conduct.7

Congress amended the FCA soon thereafter to combat parasitic qui tam suits.8 As further amended in 1986, the FCA strips federal courts of jurisdiction over suits brought by relators when those suits are based on the "public disclosure of allegations or transactions [1] in a criminal, civil, or administrative hearing, [2] in a congressional, administrative, or [Government Accountability Office] report, hearing, audit, or investigation, or [3] from the news media."9 The only exception to this rule occurs when the relator is an "original source" of the information giving rise to the suit.10

Graham County Soil & Water Conservation District v. United States ex rel. Wilson

Karen Wilson was a secretary formerly employed by the Graham County Soil and Water Conservation District. In 2001, Ms. Wilson filed a qui tam action under the FCA that also alleged she had been retaliated against for her whistleblower activities. Ms. Wilson's suit, which was filed in the United States District Court for the Western District of North Carolina, named as defendants her former employer and another county conservation district, as well as various other defendants. The United States declined to intervene in the action and Ms. Wilson was allowed to proceed with the case on her own.

In her complaint, Ms. Wilson alleged that payments made to the county conservation districts pursuant to a federal disaster relief program were false and fraudulent under various theories. Over four years earlier, however, two of Ms. Wilson's theories of liability were detailed in an audit report submitted to one of the counties in question. That audit constituted a public record under state law and was readily accessible to the general public. In addition, a report prepared by a state agency also addressed various items that were later made the subject of Ms. Wilson's complaint. Like the county audit, this latter document constituted a public record under state law.

The defendants responded to Ms. Wilson's suit by moving to dismiss her retaliation cause of action, claiming it was barred by the applicable statute of limitations. The district court dismissed Ms. Wilson's retaliation cause of action, a ruling that was later overturned on interlocutory appeal to the United States Court of Appeals for the Fourth Circuit.11 That ruling, in turn, was vacated by the Supreme Court, which held that the FCA's six-year statute of limitations did not apply to a retaliation cause of action under the FCA; instead, the Supreme Court held that courts must look to the most closely analogous state statute of limitations in deciding which limitations period to apply.12 On remand to the Fourth Circuit, the court of appeals instructed the district court to dismiss Ms. Wilson's retaliation claim because it had not been filed within the three-year time period prescribed by state law for wrongful discharge claims.13

After the case was returned to the district court, the defendants moved to dismiss the qui tam portion of Ms. Wilson's lawsuit, claiming that the FCA's public disclosure bar deprived the court of subject-matter jurisdiction. The district court agreed in an unreported decision.

The Fourth Circuit later reversed that ruling, finding that the audit and report in question did not qualify as "administrative . . . report[s] [or] audit[s]" within the meaning of the public disclosure bar's second category.14 To reach this conclusion, the court of appeals applied the interpretative maxim noscitur a sociis , which provides that a word is known by the company it keeps. As the Fourth Circuit explained, noscitur a sociis "is invoked when a string of statutory terms raises the implication that the words grouped in a list should be given related meaning. That several items in a list share an attribute counsels in favor of interpreting the other items as possessing that attribute as well."15

According to the court of appeals: "Of the three disclosure sources listed in [the public disclosure bar's second category], the first and third are clearly federal sources - congressional or GAO reports, hearings, investigations, and audits. Unlike those terms, there is nothing inherently federal about the word 'administrative,' and Congress did not define the term in the FCA. The placement of the word in the statute, however, provides strong evidence of its intended meaning."16

Although it readily acknowledged contrary rulings issued by other courts of appeals, the Fourth Circuit concluded that the " noscitur a sociis principle [was] the best tool short of a secret decoder ring [by] which to gain insight into the meaning of this murky statute."17 Accordingly, the court of appeals held that only those reports and audits issued by federal agencies could deprive courts of subject-matter jurisdiction under the public disclosure bar's second category.

The Petition For Supreme Court Review

In asking the Supreme Court to review the Fourth Circuit's decision, the defendants in Wilson argued that Supreme Court review was necessary because federal appellate courts had issued conflicting rulings on whether disclosures by state and local agencies fall within the meaning of the public disclosure bar. In particular, the defendants pointed to conflicting rulings issued by the Third, Eighth, Ninth and Eleventh Circuits, a conflict that had only been exacerbated by the Fourth Circuit's decision.18

On October 8, 2008, a total of five amicus curiae briefs were filed in support of the petition for Supreme Court review. Reflective of the FCA's wide impact, a diverse variety of groups supported Supreme Court review. Specifically, the Chamber of Commerce of the United States of America; the American Health Care Association; the National League of Cities; a total of 19 states led by Pennsylvania; the Pharmaceutical Research and Manufacturers of America; the Biotechnology Industry Organization; the Washington Legal Foundation, and the Allied Educational Foundation all asked the Supreme Court to accept Wilson for review.19

In her brief opposing Supreme Court review filed on November 7, 2008, Ms. Wilson conceded the existence of a circuit split on the question presented. She nonetheless argued that given the thoroughness of the Fourth Circuit's decision, other circuits should be given an opportunity to evaluate their own precedent to determine whether it was still correct.

On December 8, 2008, the Supreme Court issued an order asking the Solicitor General of the United States to file an amicus brief expressing the views of the United States. As is customary, the Court imposed no filing deadline for the Solicitor General's brief.

On May 20, 2009, the Solicitor General filed her brief on behalf of the United States, supporting the request for Supreme Court review. Consistent with the Department of Justice's previous litigation position, the Solicitor General argued that the substance of the Fourth Circuit's decision was correct. In the opinion of the United States, the Solicitor General advised the Court, public disclosures made by state and local government agencies do not preclude federal courts from exercising jurisdiction over suits brought by relators.

At the same time, however, the Solicitor General acknowledged that the Fourth Circuit's decision "deepens a pre-existing circuit conflict regarding whether state and local administrative audits and reports fall within the scope of the FCA's 'public disclosure' provision."20 Accordingly, the Solicitor General advised the Court that it should grant the petition for review "to resolve the split among the circuits on an important legal issue affecting the federal courts' jurisdiction over FCA qui tam actions."21

On the morning of June 22, 2009, the Court issued an order granting the petition for Supreme Court review. An additional round of briefing will take place over the summer and early fall. Oral argument will occur sometime during the fall, with a decision likely in early 2010.

Conclusion

The Supreme Court's decision to hear Wilson has important ramifications for all types of businesses that face potentially devastating financial liability under the FCA, which allows for per claim penalties as high as $11,000, treble damages and attorney's fees. The Court's eventual ruling in Wilson has the potential to either limit or greatly expand the pool of potential whistleblowers who may file suit under the recently amended FCA, which could substantially affect the overall number of qui tam suits that are filed against businesses that contract with the federal government or otherwise receive federal funding.

Almost all businesses are subject to inspections or audits by state and local government agencies in one form or another. For example, a significant cross-section of the healthcare industry is subject to state inspections that purport to assess healthcare providers' compliance with certain statutory and regulatory conditions for participating in the Medicare and Medicaid programs. Qui tam relators, in turn, are well versed in using violations of these conditions of participation as the basis for FCA suits.22 Because the results of these state inspections often are made available to the public, a ruling by the Supreme Court affirming the Fourth Circuit's decision could result in even greater parasitic litigation under the FCA by relators who have no firsthand knowledge to support their factual allegations.

The healthcare industry should be especially cognizant of the upcoming ruling's potential ramifications. That being said, various other industries are subject to similar oversight by state and local governments. Therefore, the Supreme Court's eventual ruling in Wilson will impact the entire spectrum of government contractors and those who otherwise receive federal funding.

Malcolm J. Harkins III is a Partner in the Health Care and Corporate Defense & Investigations practice areas and represents numerous institutional healthcare providers, including hospitals, nursing homes and pharmacies, as well as several state and national associations of healthcare providers. James F. Segroves is a Senior Associate in the Health Care Department and is a resident in the Washington, DC office of Proskauer Rose LLP. Please visit our website at www.metrocorpcounsel.com for the footnotes to this article.

Please email the authors at mharkins@proskauer.com or jsegroves@proskauer.com with questions about this article.