The District Court for the Eastern District of New York has once again rejected a qui tam suit filed by the relator, Omni Healthcare Inc., against U.S. Oncology Inc. because of the public disclosure bar. As a refresher, the relator in this case had alleged that U.S. Oncology violated the FCA by directing its employees to harvest and bill for overfill from oncology drugs between 2003 and 2014 in U.S. ex rel Omni Healthcare Inc. v. U.S. Oncology Inc., No. 19-cv-5125. Given the relevant period of the allegations, both the pre- and post-2010 amendment versions of the FCA — in particular, its public disclosure bar and original source provisions — apply.
On July 21, 2022, the district court granted U.S. Oncology's first motion to dismiss because Omni had not established that it was an original source under the FCA's public disclosure bar. U.S. ex rel Omni Healthcare Inc. v. U.S. Oncology Inc., 2023 WL 5831140 (E.D.N.Y. Sept. 8, 2023). In rejecting the relator's arguments, the court held that the relator did not have "direct" knowledge of the information upon which its allegations were based (per the pre-amendment version of the public disclosure bar) and it also did not have knowledge that "materially add[ed] to the publicly disclosed allegations or transactions" (per the post-amendment version of the bar). Following the filing of an amended complaint, U.S. Oncology again moved to dismiss, arguing that the relator still had not demonstrated that it qualified for the original source exception to either version of the public disclosure bar. Judge Gershon agreed.
As to the pre-amendment version of the original source exception, the court held that Omni failed to demonstrate that it had both "direct and independent knowledge" of the alleged fraud given that "Omni allege[d] that it obtained its knowledge entirely secondhand through conversations with, or documents provided to it by, third parties." Although the amended complaint asserted that the relator's principal and owner conducted his own investigation, Omni did not allege any details about that investigation and whether it consisted of anything more than speaking with third parties. The court found that an allegation that the relator simply undertook an investigation was insufficient.
The relator fared no better under the post-amendment version of the original source exception. First, the court agreed with U.S. Oncology that Omni had not "voluntarily disclosed" to the government the information on which its suit was based. Why? Omni had alleged the following:
On or about September 13, 2012, as required by 31 U.S.C. § 3730(b)(2), Relator voluntarily submitted prior to the filing of the initial complaint in this action a confidential written disclosure statement (subject to the attorney-client privilege) to the United States Government, containing materials, evidence, and information in its possession pertaining to the allegations contained in this Complaint.
According to the court: (1) Omni's "legal conclusion" that it had voluntarily disclosed pursuant to the statute was insufficient; (2) its acknowledgment that it had mandatorily disclosed "as required by" the statute undermined any argument of voluntariness; and (3) it failed to allege actual facts showing a voluntary disclosure of information to the government before the relevant public disclosures. Even a declaration from Omni's former counsel about conversations he had with the government prior to the filing of the original complaint did not make the cut. The court found that such a declaration could not be considered on a motion to dismiss but that, even if it were considered, it would be insufficient as it demonstrated that the disclosures were made in connection with and pursuant to the required disclosures under the qui tam provisions of the FCA — i.e., not voluntarily.
In addition, the court found that the newly added allegations within the amended complaint did not "materially add[]" to the public disclosure because Omni only named specific individuals who could attest to the allegations, supplying additional "source" information but not "substance." The court also rejected the relator's argument that, by identifying individuals in its amendment, it materially added evidence of scienter. The court found that this addition did not materially add to the publicly disclosed allegations of scienter because the amended complaint already alleged that U.S. Oncology was aware of the illegality of this practice.
We will keep our readers updated on any appeal of or reaction to this decision, which adds to the body of case law outlining the contours of the original source exception under both pre- and post-amendment standards. Interested in learning more now? Read our prior blog post here about the Second Circuit's dismissal of another qui tam lawsuit against U.S. Oncology based on the pre-amendment public disclosure bar.
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.
