When False Claims Cause Contractual Damages: Pursuing Parallel Qui Tam and Breach Claims, and the Public Disclosure Conundrum
J. Taylor Benson, EXCELL CONSULTING INTERNATIONAL, INC. / BENSON LAW OFFICE, PLLC
This article concerns a unique quandary in the realm of government contracts—what must government contractors consider when, on the one hand, the government contractor seeks information from the Government to support its breach of contract action against the Government or one of the government contractor’s contracting partners, and, on the other hand, the government contractor also desires to bring a qui tam action against the contracting partner for violations of the False Claims Act?
A typical qui tam action brought under the False Claims Act (“FCA”) involves a person, known as a “relator,” who directly observes his or her employer or other closely related entity submitting false or fraudulent claims for payment to the government (“false claims”). See 31 U.S.C. § 3730(b). The relator may bring an action on behalf of the United States for violations of the FCA and recover up to 30 percent of the proceeds resulting from the action (plus attorney’s fees, costs, and expenses) if successful. See id.
But consider the scenario where, in preparing for litigation with the Government or a contracting partner on a project, a federal contractor learns of false claims submitted by the contracting partner (for example an Architect/Engineer, subcontractor, or service provider with or without whom the contractor has privity (other “parties”)). Where false claims of another party are discovered, a contractor may be incentivized to pursue a qui tam action against the other party in an effort to collect a percentage of damages as permitted by the FCA. In pursuit of both the underlying cause of action and the potential qui tam action, contractors must carefully navigate the collection of documentation pertaining to the opposing party’s contract via the Freedom of Information Act (“FOIA”), by requesting an Office of Inspector General (“OIG”) investigation, or communications with another Federal agency, while avoiding triggering the FCA’s jurisdictional bars.
The current FCA contains two main jurisdictional bars designed to delineate the fine line between encouraging whistle-blowing and discouraging “parasitic” relators who would bring FCA suits based on information publicly disclosed, if that relator did not discover the information of its own accord. See 31 U.S.C. § 3730(e); See United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 727 (1st Cir. 2007) (internal citations omitted). These jurisdictional considerations are commonly known as the “public disclosure bar” and the “original source exception,” respectively.
Public Disclosure Bar
The FCA bars qui tam actions that contain substantially the same allegations or transactions that have been previously disclosed to the public through listed sources, including information disclosed via federal agency report, hearing, audit, or investigation. See 31 U.S.C. § 3730(e)(4)(A).
Despite a deep Circuit split, the majority view after the 2010 amendment to the Patient Protection and Affordable Care Act is that a “public disclosure” requires some act of disclosure to the public outside of the government. Thus, mere Government knowledge of the information does not trigger the public disclosure bar. See United States ex rel. Wilson v. Graham Cnty. Soil & Water Conservation Dist., 777 F.3d 691, 697 (4th Cir. 2015) (noting that public disclosure does not mean simply “landing on a DOJ lawyer’s desk”). To bar jurisdiction of a FCA claim, public disclosure must also “reveal both the misrepresented state of facts and the true state of facts,” even if from different sources, so that an inference of fraud may be drawn. United States ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 54 (1st Cir. 2009).
Accordingly, a contractor requesting information or investigative assistance from federal agencies in pursuit of evidence for a breach of contract claim against one of its contracting partners may inadvertently cause the allegation or transactions underlying a potential qui tam action to be publicly disclosed. For example, written responses and documents produced by a Government agency under a FOIA request are deemed “reports” subject to the FCA’s public disclosure bar. See Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S. 401 (2011). Thus, to the extent the elements supporting a qui tam action have been disclosed in response to a FOIA request or Government production of documents, the qui tam action would be dismissed for lack of jurisdiction under the public disclosure bar.
Confidential disclosures to the OIG may trigger an investigation, and Government investigators may disclose confidential information to the public while conducting their investigation. While the FCA does not bar jurisdiction over qui tam actions based on disclosures made confidentially to the Government, it may bar qui tam actions if the Government subsequently disseminates those disclosures to the public. See Rost, 507 F.3d at 729. At least one Circuit has determined that information was publicly disclosed when conveyed to a company’s “innocent” employees by federal investigators executing a search warrant during an investigation into fraudulent overcharging. See United States ex rel. Doe v. John Doe Corp., 960 F.2d 318, 322-33 (2d. Cir. 1992). It logically follows, then, that information provided to innocent employees interviewed by an OIG agent investigating the employee’s company for false claims would likewise be deemed publicly disclosed.
Given the apparent ease with which information may be “publicly disclosed,” federal contractors considering bringing parallel qui tam and breach of contract claims should take precautions to avoid indirectly disclosing essential false claims information to the public, while pursuing discovery of information to support a breach claim.
Original Source Exception
A relator may overcome the public disclosure bar if the relator is an “original source” of the information released into the public domain. See 31 U.S.C. § 3730(e)(4)(A)-(B). The current version of the original source exception provides alternative definitions of “original source” based on the timing of the public disclosure.
Under the first definition, a relator who voluntarily discloses to the Government information on which allegations or transactions in a FCA action are based, prior to public disclosure, is an original source. Id. § 3730(e)(4)(B)(i). The key analysis under this definition focuses on the timing of the disclosures to the Government and the disclosure to the public. This definition applies to relators who provide salient information to the OIG, Department of Justice, or other federal agency and where subsequently that information is disclosed to the public. This part of the original source exception gives potential relators the ability to work with federal agencies to ferret out false claims without fear of being later barred because of the agency’s public disclosure of the information.
Under the second definition, a relator who discloses his or her information to the Government after a public disclosure still may be considered an original source if he or she has “knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions” and has “voluntarily provided the information to the Government before filing” a qui tam action. Id. § 3730(e)(4)(B)(2) (emphasis added).
The First Circuit recently addressed the “materially adds” criteria of the second definition, holding that additional information is material if it is significant or essential, and “knowledge of the [information] would affect a person’s decision-making.” See United States ex rel. Winkelman v. CVS Caremark Corp., 827 F.3d 201 (1st Cir. 2016). In Winkelman, the Court implied that a “material addition” to publicly disclosed allegations or transactions must add an essential element of the qui tam action that was not previously disclosed publicly. The Court conversely reasoned that simply asserting that the same allegedly fraudulent practice occurred over a longer duration of time does not “materially add” to the information already publicly disclosed. Id. at 212. The Court likewise determined that repeating the same publicly disclosed allegations in another jurisdiction also does not constitute a “material addition.” Id.
Under the timing requirements of the original source exception, a relator who discloses their information to the Government, after the information is publicly disclosed, clearly faces additional obstacles in maintaining their qui tam action.
Conclusion
Federal contractors who find themselves in the unique situation of pursuing breach of contract actions and simultaneously considering qui tam actions must carefully consider the interplay between the oftentimes competing interests: discovering as much pertinent information as possible to support each cause of action, and not inadvertently causing the allegations or transactions underlying the qui tam action to be disclosed to the public. Any contractor facing this dilemma should gain a deep knowledge of the public disclosure bar and original source exception before disclosing any information to Government agencies and before finalizing its strategies for bringing its claims.
—————————–
Moral of the story: An inexperienced Government construction team can be a daunting hurdle for a contractor to overcome. However, the professional consultants at Excell Consulting have decades of combined experience dealing with these individuals. A single call to Excell can be all that it takes to get your issues resolved, your employees back to work, and your project back on track with your financial position intact!
And by the way, consultation calls are always FREE!
For a PDF version of the original publication of this article, click here.