False Claims Counsel

In Section 10104 of the Patient Protection and Affordability Act, Congress quietly amended the False Claims Act’s public disclosure/original source rule. Here’s the prior rule, under 31 USC § 3730(e)(4):

(4)(A) No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.

(B) For purposes of this paragraph, “original source” means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information.

And here’s the new rule:

(4)(A) The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed—

(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party;
(ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or
(iii) from the news media,

unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
(B) For purposes of this paragraph, ‘‘original source’’ means an individual who either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.

The breadth of these changes to existing law is striking. These amendments apparently:

• Convert this provision from a jurisdictional bar to a basis for a motion to dismiss;
• Give the US a veto over public disclosure motions;
• Replace the “based upon” language with a simpler test of whether the allegations or transactions were publicly disclosed;
• Clarify that only federal court cases and hearings constitute “public disclosures,”
• Limit court cases and administrative hearings further, to those in which the US is a party;
• Discards the “direct and independent knowledge” test entirely, saving relators who have voluntarily disclosed evidence, or who provide information that “is independent of and materially adds to the publicly disclosed allegations or transactions”.

In the coming week, I’ll offer an overview of the new laws’ affects and likely affects on fraud investigations and cases.

(h/t to Phillips and Cohen’s FCA blog.)