Whistleblowers Must Have Independent Knowledge to Actually Blow the Whistle

To bring a valid qui tam action and overcome the so-called “public disclosure bar” under the False Claims Act (“FCA”), a whistleblower must have direct knowledge of the alleged fraudulent activity, independent of already publicly disclosed information. Seems simple enough, you might say. But of course, simplicity in the application of what seem like common sense legal standards is often anything but simple. And in applying the public disclosure bar, courts vary on what constitutes direct knowledge and already publicly disclosed information.

For example, the United States Court of Appeal for the Third Circuit (covering Delaware, New Jersey, Pennsylvania and the Virgin Islands) recently upheld the dismissal of an FCA action, finding that the whistleblower had relied on his own experience, and not direct knowledge of actual events, in bringing the claim. The whistleblower in that case brought suit against several pharmaceutical companies for allegedly submitting false claims to the government, soliciting and accepting kickbacks from drug-makers to favor their drugs, and paying kickbacks to health plans to obtain business. In rejecting the claim, the appellate court found the whistleblower had “failed to meet his burden to satisfy that he was an original source of his claims against [the defendants]” and his allegations were “plainly insufficient to qualify as an original source under the FCA.”

In making this ruling, the Third Circuit offered guidance on the meaning of “direct” and “independent” knowledge with respect to the public disclosure bar. “Direct” knowledge, it asserted, is first-hand knowledge, seen with the whistleblower’s own eyes and obtained without any immediate outside influence. “Independent” knowledge, according to the panel, means “knowledge of the fraud that cannot be merely dependent on a public disclosure.” According to the court then, knowledge of a scheme is not direct nor independent when it is obtained by reviewing files and discussing that information with individuals who actually participated in the alleged underlying events. The court also rejected the whistleblower’s argument that he should be able to rely on his experience that the pharmaceutical companies could not have afforded to enter into various arrangements if they were complying with the FCA.

However, other appellate courts have not interpreted the public disclosure bar as narrowly and found it is not a hurdle where the “essence of the alleged fraud” had not been publicly disclosed. For example, the Eighth Circuit (covering Arkansas, Iowa, Minnesota, Missouri, Nebraska and North and South Dakota) recently also affirmed the dismissal of an FCA case, but in doing so it asserted that if a whistleblower found out about a claim through discovery in prior litigation that had not been filed with the court (and thus had not become publicly available), the public disclosure bar did not apply.

By contrast, the Seventh Circuit (covering Illinois, Indiana and Wisconsin) recently reversed the dismissal of an FCA case where the whistleblower had relied on information on a government website in bringing an FCA claim, finding that the public disclosure bar was not violated because the whistleblower went beyond merely adding specificity to the publicly disclosed material. Rather, the whistleblower asserted that a telecommunications company was overcharging school districts and the government for services, even though it was required to offer eligible school districts the lowest price charged to “similarly situated” non-residential customers. The whistleblower, who had been hired by several school districts to audit their bills, uncovered that some school districts were paying higher rates and that other “similarly situated” customers received lower rates. The whistleblower also found more pricing information on a government website and then filed a qui tam action. After an initial dismissal based on the public disclosure bar, the Seventh Circuit reversed, finding the allegations were not based on a public disclosure because the whistleblower’s complaint did not merely add specificity to the publicly disclosed material and rather resulted from “independent investigation and analysis to reveal any fraudulent behavior.”

In short, while the courts quibble over the boundaries of the “public disclosure bar,” it is apparent that whistleblowers must have independent knowledge of facts that do more than add specificity to already disclosed information in order to bring a successful claim under the FCA.