Supreme Court Resolves Circuit Split by Limiting Qui Tam Actions under the False Claims Act - At Least for Now

4.1.2010 - Posted in E&B Alerts – Government Contracts

Information available in state or local government reports cannot form the basis of a qui tam action under the False Claims Act, the Supreme Court ruled Tuesday in Graham County Soil & Water Conservation District v. United States, No. 08-304. Under the False Claims Act, a private individual with information about fraud against the government can bring a lawsuit on behalf of the United States and share in the recovery. However, such a claim is barred if the information is already publicly available through "a congressional, administrative or Government Accounting Office report, hearing, audit, or investigation," or if it has been reported in the media or other legal dispute. 31 U.S.C. § 3730(e)(4)(A). The Supreme Court's decision in Graham County Soil resolved a split among the circuits on whether the prior disclosure in state or local administrative materials would bar a qui tam suit: The 3rd and 4th Circuits held that the bar applied only to administrative materials from federal sources, while the 9th and 11th Circuits held that state and local sources also triggered the bar. The 8th Circuit took a middle ground approach.

In a 7-2 decision, the Court held that since the statute does not explicitly limit administrative materials to federal administrative materials, information available in state and local reports cannot form the basis of a qui tam action, even though the surrounding words in the statute, "congressional" and "Government Accounting Office," only refer to federal materials. Because the Court adopted the broader interpretation of "administrative materials" advanced by the 9th and 11th Circuits, the effect of this decision will be to prevent many potential lawsuits from being brought under the False Claims Act. At the same time, the decision is limited because the statutory language it interpreted was amended by the Patient Protection and Affordable Care Act, signed into law on March 23, 2010. The new language explicitly states that information cannot form the basis of a False Claims Act qui tam action if it has already been disclosed in "[1] a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; [2] in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or [3] from the news media." 124 Stat. 119 § 10104(j)(2). By adding the word "Federal" before report, any ambiguity is removed. While it is uncertain exactly how this new legislation will be applied in light of the Supreme Court's decision, it appears that, going forward, qui tam plaintiffs will likely have the benefit of this less restrictive legislation and the Supreme Court decision will be applicable only to False Claims Act cases already pending.

A copy of the Supreme Court's decision is available at http://www.supremecourt.gov/opinions/09pdf/08-304.pdf. If you have questions about how these judicial and legislative changes may affect you or your business, please contact Mark Blando at [email protected] or (612) 236-0162.