05.20.2011

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Updates

A U.S. Supreme Court decision handed down on May 16, 2011, restricts the information upon which a private plaintiff can base a False Claims Act case.  Private plaintiffs have often used the Freedom of Information Act ("FOIA") to obtain information from government agencies to bolster claims under the False Claims Act.  In Schindler Elevator Corp. v. United States ex rel. Kirk, the Supreme Court held that a federal agency's written response to a FOIA request constitutes a "report" within the meaning of the False Claims Act's public disclosure bar, which deprives a court of jurisdiction over any False Claims Act action that is based on certain public disclosures, including a report from a federal agency.  The ruling should restrict the ability of private plaintiffs to use FOIA to support a False Claims Act case. 

Schindler Elevator Corp. v. United States ex rel. Kirk

The decision arose from a False Claims Act case filed by Daniel Kirk against his former employer, Schindler Elevator Corporation.  Kirk alleged that Schindler had submitted hundreds of claims to the government falsely certifying that the company had complied with statutory reporting requirements.  To support his allegations, Kirk relied on information that the U.S. Department of Labor ("DOL") produced in response to three FOIA requests made by Kirk's wife. 

 

After the United States chose not to intervene in the case, Schindler moved to dismiss based on the public disclosure bar, which deprives a court of jurisdiction over a False Claims Act case based upon the public disclosure of allegations or transactions in a "congressional, administrative, or Government Accounting Office report," unless the plaintiff is an original source of the information.  The district court granted Schindler's motion on the ground that DOL's responses to the FOIA requests were "administrative reports" within the meaning of the public disclosure bar.  The Second Circuit Court of Appeals then reversed, holding that DOL's FOIA responses were not reports under the public disclosure bar. 

 

In a 5-3 decision (with Justice Kagan recused), the Supreme Court reversed the Second Circuit decision, agreeing with the district court that DOL's FOIA responses – including both the written responses and the documents produced with the responses – constituted "reports" within the meaning of the public disclosure bar.  The Supreme Court focused on the "ordinary meaning" of the term "report" because that term is not defined in the False Claims Act.  Surveying a number of different sources, the Court concluded that a written agency response to a FOIA request constitutes a report as that term is commonly understood.  In doing so, the Court held that the language of the False Claims Act "suggests a wide-reaching public disclosure bar" and cautioned against overly narrow interpretations of the public disclosure bar that are inconsistent with the plain meaning of the text.  The Court stressed that the "sole touchstone" in the statutory text is "public disclosure."  Finally, the Court found no principled way to define "report" to exclude written FOIA responses. 

 

Although the Court did not consider recent amendments to the False Claims Act, those amendments should not affect the Court's analysis: under either the current version of the statute or the earlier version considered by the Supreme Court, an agency's written response to a FOIA request should constitute a government report sufficient to trigger the public disclosure bar. 

What Does It Mean? 

The most immediate impact of the decision will be to limit the use of FOIA by private plaintiffs bringing False Claims Act cases – and to provide a defense to claims by private plaintiffs that are based on information obtained through FOIA requests.  Without FOIA, some private plaintiffs may have difficulty meeting the requirement under Federal Rule of Civil Procedure 9(b) that plaintiffs plead the circumstances of a False Claims Act violation with particularity. 

 

The Supreme Court's decision should also serve as a warning against overly narrow interpretations of the public disclosure bar.  The Supreme Court expressly held that the False Claims Act's public disclosure bar should be interpreted in accordance with the plain meaning of the statutory text and that courts should not indulge strained interpretations that unduly limit the application of the bar. 

 

While all of that is good news for defendants, the outlook for defendants is not entirely rosy.  The Court stopped short of answering a number of important questions concerning the public disclosure bar.  For example, the Court limited its analysis to an agency that makes a written response to a FOIA request and did not address whether the mere disclosure of documents without an accompanying written report would constitute a public disclosure for purposes of the public disclosure bar.  The Court also declined to address the proper scope of the "original source" exception to the public disclosure bar and did not determine whether Kirk's allegations were "based upon" the information provided by DOL in response to his wife's FOIA requests.  The Court remanded the case for the resolution of those issues. 

 

Even more important, the False Claims Act remains a formidable weapon.  With its qui tam provisions that allow private plaintiffs to sue on behalf of the government to recover treble damages and civil penalties, the False Claims Act has spawned more and more litigation in recent years.  Recent legislative amendments to the False Claims Act generally make it more difficult for defendants to obtain dismissal based on the public disclosure bar and threaten to accelerate that trend.  While the Supreme Court decision in Schindler is a welcome and appropriate correction, it is unlikely to stem the tide of False Claims Act litigation.

 

 © 2011 Perkins Coie LLP