United States: Recent Fourth Circuit Decision Makes Clear That, With Respect To The FCA Public-Disclosure Bar, The Disclosure's Timing Must Be Considered Against The First Pleading In Which The Relevant Allegations Are Initially Made

Last Updated: March 3 2016
Article by Luke Levasseur

In United States ex rel. Beuchamp v. Academi Training, the Fourth Circuit recently reversed the dismissal of a False Claims Act (FCA), explaining that the trial court had misapplied the public-disclosure bar when it dismissed the relators' claims. The appellate court's opinion explains recent (2010) statutory amendments, the manner in which an important pre-amendment Supreme Court precedent applies, and the proper application of the public-disclosure bar to the facts at issue. In short, when analyzing the timing of the public disclosure that purportedly bars FCA allegations, courts must focus on the pleading in which the relator(s) first alleged the relevant fraud—not on the most recent amendment to the complaint.

The Beuchamp relators allege that their former employer, Academi Training, made several types of false claims related to a 2005 contract with the State Department under which Academi was "to provide security services for officials and embassy workers stationed across the Middle East." Relevant to the appeal, the relators' first amended complaint alleged that Academi implemented a fraudulent scheme under which it "routinely failed to qualify its contractors on two of the required weapons—the M-240 and M-249 belt fed machine guns—and fabricated scorecards showing proficiency with these firearms for submission to the State Department."

After the first amended complaint was filed (and when it was under seal), other former Academi employees contacted relators' counsel with additional information regarding the alleged weapons qualification scheme. Those employees filed a separate wrongful termination lawsuit in which the scheme was described. That separate lawsuit generated press coverage, including a Wired.com article.

DOJ completed its investigation into the Beauchamp FCA complaint and declined to intervene in the case. The complaint was then unsealed. The relators decided to file a second amended complaint in which they added non-FCA claims and "expanded on the allegations as to the weapons qualification scheme by adding a number of paragraphs" from the other former employees' retaliation lawsuit.

Academi moved to dismiss the Beauchamp FCA case based on, among other grounds, the public-disclosure bar. The district court accepted Academi's argument that, under the Supreme Court's 2007 decision in Rockwell Int'l v. US, "the public disclosure bar inquiry applies to 'the allegations in the original complaint as amended'" (meaning as most recently amended). The Beauchamp relators' second amended complaint was filed after the public disclosure of the alleged weapons qualification scheme, and allegations related to that scheme were included in that complaint (as they had been in the first amended complaint). The trial court determined "that the Wired.com article satisfies the public prong of the public disclosure analysis"—and (as the relators were not "original sources" of those allegations) dismissed the claim.

The Fourth Circuit reversed the trial court's application of the public disclosure bar. The appellate opinion's background section includes a helpful explanation of the 2010 amendments to the FCA, which (among other things) "significantly chang[ed] scope of the public disclosure bar" by revising language to make the bar an affirmative defense instead of a "jurisdiction-removing provision." The appellate opinion also describes the "public-disclosure bar['s] aims," i.e., "'to strike a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits' in which a relator, instead of plowing new ground, attempts to free-ride by merely reiterating previously disclosed fraudulent acts."

The Fourth Circuit explained why the Supreme Court focused on the final "as amended" complaint in Rockwell. In that case, the relator was an original source with respect to the fraud allegations set forth in its original complaint but "had abandoned th[ose claims] in favor of a wholly different fraud theory" set forth in the amended complaint. The Supreme Court focused on the last pleading because that was the submission in which the relevant fraud had been pled for the first time; the Court also performed "a claim-by-claim analysis" of when the allegations were made versus when the information was first disclosed.

In the Academi case, the trial court failed to evaluate the weapons qualification claim relative to the first amended complaint, in which the claim was initially made. The appeals court explained that the second amended complaint "merely added further detail about a claim already alleged"—which is not precluded under the public-disclosure bar. Thus, the Fourth Circuit rejected Academi's back-up argument that the additional details provided in the second amended complaint constituted the "first [pleading] that describes with specificity the weapons qualification scheme." To the contrary, the court parsed the first amended complaint and explained that the allegations made in that pleading were sufficient and that, as a result, "the public-disclosure bar does not apply here."

Originally published on March 2, 2016

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