D.C. Circuit recognizes that its original source rule is no more

by Ben Vernia | May 23rd, 2012

For fifteen years, the D.C. Circuit has interpreted the False Claims Act’s original source rule to require relators to meet a high burden: to survive the public disclosure bar, a relator must demonstrate that, prior to the public disclosure of the allegations of fraud, they informed the government of the scheme. On May 15, the D.C. Circuit recognized, in U.S. ex rel. Davis v. District of Columbia, that the Supreme Court had undercut the premise of its interpretation in its decision in Rockwell Int’l v. U.S. ex rel. Stone.

The relator in the D.C. case was employed as a contractor by the district to review its records for transportation and medical care for needy students and submit reports for Medicaid reimbursement. The relator was replaced by another contractor, who prepared and submitted a report for the district, but because the district had not retrieved its records in the relator’s possession, he alleged, it lacked supporting documentation. These deficiencies were subsequently identified in an audit report.

The government declined to intervene in the case, and the district court, following the D.C. Circuit’s interpretation of the public disclosure bar, dismissed the suit. Because the relator provided the government with evidence of the alleged fraud after the audit report was made public, he was barred from proceeding under the Act.

The D.C. Circuit recognized that statements in the Supreme Court’s decision in the Rockwell case undercut its interpretation. The information the relator must provide to the government prior to filing suit, in order to qualify as an original source, the Court reasoned, is not the same information which is publicly disclosed. “We now understand that the ‘information’ provided [to the government] is the relator’s. Importantly, the relator’s information can be different and more valuable to the government that the information underlying the public disclosure, which might be nothing more than speculation or rumors.”

The Court nevertheless agreed with the district that the relator’s claim for treble damages must fail because he had not alleged damages. The Court rejected the relator’s argument that the lack of documentation tainted the entire Medicaid payment. Instead, the government was entitled to recover the value of services not provided – but everyone in the case agreed that the services paid for were, in fact, provided. The Court granted the small consolation to the relator that if he could prove his claims on remand, he could still share in statutory penalties.

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