The Supreme Court recently heard oral argument in a case testing
the scope of the False Claims Act's public disclosure
bar. The False Claims Act ("FCA") is the
government's primary weapon against waste, fraud, and abuse
in government contracting. Penalties for FCA violations are
harsh: actual damages are trebled, and each false claim (such as an
individual invoice) triggers a penalty of up to $11,000. Under
the FCA's qui tam provisions, whistleblowers
(formally called relators) can bring lawsuits on behalf of the
government. Whistleblowers receive a significant bounty for
acting as private prosecutors: they are entitled to between 15 and
30 percent of the government's proceeds from the
litigation. This is a substantial sum, as the trebling and
penalty provisions catapult many modest matters into multimillion
dollar actions.
Congress recognized that this lucrative bounty could attract
parasites. Without any controls, whistleblowers could file
qui tam lawsuits based on nothing more than public
information or media reports. To prevent such parasitic
lawsuits, Congress required that whistleblowers base their
complaints on personal knowledge. This policy is enacted
through the FCA's public disclosure bar.
The public disclosure bar is a jurisdictional limit. It states
that courts lack jurisdiction over a qui tam suit if the
complaint is based on "allegations or transactions ... in a
congressional, administrative, or Government Accounting Office
report, hearing, audit, or investigation, or from the news
media." 31 U.S.C. § 3730(e)(4)(A) (2009). The whistleblower
may proceed, however, if it was the original source of the
information. Otherwise, the whistleblower is barred from
prosecuting the action.
(The public disclosure bar was amended by the Patient Protection and Affordable Care
Act. The version at issue before the Supreme Court, and
thus the text quoted above, is from the pre-amended
statute. The effect of the amendment is discussed
below.)
In the case before the Supreme Court (Schindler Elevator Corp. v. United States ex rel.
Kirk), Daniel Kirk brought a qui tam lawsuit
against his former employer, Schindler Elevator
Corporation. He pursued various legal remedies after leaving
Schindler, including filing an administrative complaint with the
Department of Labor ("DOL") alleging a violation of the
Vietnam Era Veterans Readjustment Assistance Act
("VEVRAA"). VEVRAA requires certain government
contractors to submit veteran employment information to the DOL in
annual VETS-100 reports. Kirk's wife filed a Freedom
of Information Act ("FOIA") request with the DOL to
obtain Schindler's VETS-100 reports. The DOL reported
that it could not find Schindler's reports for some
years. For other years, the DOL located Schindler's
reports, but pursuant to the Privacy Act, it could only release
redacted copies. Based on the information obtained through
these FOIA requests, Kirk alleged that Schindler violated the FCA
by failing to file VETS-100 reports for some years, and by filing
false reports in other years.
Schindler moved to dismiss the complaint under the public
disclosure bar. Schindler objected, claiming that a FOIA
request is not a report or investigation (the two relevant sources
listed in the public disclosure bar statute). The district court resolved the dispute by focusing
on an agency's actions when it responds to a FOIA
request. An agency must broadly research the matter and
identify which information is responsive to the request. It
then analyzes the responsive information and determines whether it
may be disclosed or is exempt from disclosure. Certain
information may only be disclosed with redactions, as was the case
here. As a final step, the agency produces the documents or
informs the requester why certain information was not
produced.
The district court turned to the dictionary to define
"investigation" and "report." It defined
investigation as a search or inquiry, and report as a formal
statement of the results of an investigation. Because the DOL
searched its records, determined what was available for disclosure,
and produced an official document describing the results of the
inquiry, the court held that the process involved both an
investigation and a report.
Kirk appealed, and the Second Circuit disagreed with the district
court. The Second Circuit interpreted "report" and
"investigation" based on its neighboring words. The
court looked at the words "hearing" and "audit"
as neighboring words to "report" and
"investigation." It held that these words must all
refer to the synthesis of information in an investigatory
context. Applying this definition, the court limited
"report" to the analysis of information to serve a
governmental end. Likewise, "investigation" was
defined as a focused and defined inquiry toward a governmental
end. It concluded that an agency's process of
responding to a FOIA request is not a report or investigation
because it is merely the production of documents; it does not
require the agency to synthesize any information. Under the
Second Circuit's ruling, a FOIA response would only trigger
the public disclosure bar if the documents produced were themselves
reports or investigations.
Schindler appealed to the Supreme Court. The company
criticized the Second Circuit's ruling as opening the door
to parasitic lawsuits: if an ordinary FOIA response does not
trigger the public disclosure bar, then an outsider with no
independent knowledge could bring a qui tam
action. Kirk responded that Schindler's definition
would characterize all governmental statements as a report,
rendering the other statutory words superfluous.
The Supreme Court appeared skeptical of both
positions. Justice Ginsburg asked Schindler if there should be
a difference between documents created by the government and
documents created by private parties. Similarly, Justice
Kennedy questioned whether the public disclosure bar would capture
documents in a publicly accessible reading room. Schindler
responded that all FOIA responses are reports, and a reading room
would constitute a report if the agency used its discretion in
deciding what to make available.
The justices also challenged Kirk's position. Justice
Roberts asked if the process of analyzing responsive documents and
creating a privilege log constituted a report. Justices Alito
and Kennedy asked why compliance with FOIA would not be a
governmental end. Kirk claimed that FOIA alone is unique among
agency duties. A FOIA response, according to Kirk, is a
ministerial act not connected to an agency's substantive
mission. Remarkably, Justice Scalia, who eschews inquiries
into legislative intent, asked about the FCA's purpose of
limiting qui tam lawsuits to those with inside
information. Kirk claimed that the FCA is intended to
encourage those with secondhand information or who might need
government evidence to support their case. Justice Scalia also
noted that Schindler's definition would be easier to
apply.
Regardless of how the Supreme Court resolves this case, its impact
may be limited by recent amendments to the public disclosure
bar. The Patient Protection and Affordable Care Act removed
the jurisdictional element of the bar. Instead, the government
decides whether the action should be barred. If a defendant
moves to dismiss based on the public disclosure bar and the
government opposes the dismissal, then the public disclosure bar is
no impediment and the case continues. The government would be
expected to oppose dismissal in the vast majority of cases because
the qui tam provisions allow it to prosecute a case
vicariously without expending any resources. To paraphrase
Schindler's Supreme Court brief, the winners of this legislative change
are "the class of professional relators, whose ranks will
swell exponentially once released from the FCA's
jurisdictional barrier against parasitic lawsuits."
All merit briefs, including the government's brief as
amicus curiae in support of Kirk, can be found on the
American Bar Association's website. A transcript
of the oral argument can be found on the Supreme Court's website.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
