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Supreme Court Addresses Qui Tam Requirements

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The False Claims Act (‛FCA“) authorizes civil actions to be brought by the United States Attorney General or private individuals for false or fraudulent claims for payment made to the United States Government. With respect to suits by private individuals (known as ‛qui tam relators“), the FCA contains the following express limitation:

"No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions … from the news media, unless the action is brought by the Attorney General or the person bringing the action is the original source of the information."

31 U.S.C. § 3730(e)(4)(A). An ‛original source“ is defined under the FCA as ‛an individual who has direct and independent knowledge of the information on which the allegations are based“ and, prior to bringing suit, has ‛voluntarily provided the information to the Government….“ 31 U.S.C. § 3730(e)(4)(B).

The Supreme Court recently interpreted this ‛public disclosure“ limitation in Rockwell Int’l Corp v. U.S., 127 S.Ct. 1397 (2007). Significant holdings in Rockwell include the following:

• The ‛public disclosure“ limitation is a restriction on the District Court’s subject matter jurisdiction (the Seventh Circuit had previously taken the contrary view in United States ex rel. Fallon v. Accudyne Corp, 97 F.3d 937, 940-41 (7th Cir. 1996), which was rejected in Rockwell).

• Because the limitation is jurisdictional, it must be analyzed and addressed even where the defendants have conceded the qui tam relator’s original source status.

• The requirement that the qui tam relator have ‛direct and independent knowledge of the information on which the allegations are based“ (31 U.S.C. § 3730(e)(4)(B)) means ‛direct and independent knowledge of the information on which [the relator’s own] allegations are based.“ Whether or not the relator is the source of the press accounts that trigger the public disclosure limitation is irrelevant. The lower courts had previously been divided on this issue.

• The test for whether the relator has ‛direct and independent knowledge of the information on which the allegations are based“ involves an analysis of the complaint or, if it is amended, the amended complaint or, if one is entered, the final pretrial order. As a litigation progresses and claims are refined, the qui tam relator must continue to be the original source of the information underlying the most current set of ‛allegations.“ This is true even where the Attorney General intervenes (notwithstanding the exception for actions ‛brought by the Attorney General“ under 31 U.S.C. § 3730(e)(4)(A)).

• The FCA does not allow ‛claim smuggling“ and does not provide ‛jurisdiction in gross.“ The qui tam relator must be the original source of information supporting each of his or her claims.

The upshot of Rockwell is that a putative qui tam relator must satisfy the requirements of 31 U.S.C. § 3730(e)(4)(A) and (B) at the time the complaint is filed, and must continue to do so as the litigation progresses. If the relator (or the Attorney General) files subsequent amendments to the complaint, or if issues are refined for trial such that the relator is no longer the source of the current ‛allegations“ in the action, this will have been done at the relator’s peril.

Doug Pepe

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New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

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