Fourth Circuit Affirms Dismissal of FCA Suit Based On Public Disclosure Bar

Last week, the Fourth Circuit affirmed the dismissal of a qui tam action based on the pre-2010 version of the False Claims Act’s (“FCA”) public disclosure bar. Ten years ago, Mark Radcliffe, a former district sales manager for Purdue Pharma, filed a qui tam action under the FCA against Purdue.  Specifically, he alleged that Purdue marketed OxyContin as having a falsely overinflated potency as compared to one of the company’s older pain drugs, MS Contin.  Mr. Radcliffe claimed that by doing this, Purdue deceived physicians into prescribing, and the federal government into paying, for OxyContin instead of the less costly drug, MS Contin.  In 2010, the action was dismissed based on a release that Mr. Radcliffe executed upon accepting a severance package from Purdue after it restructured its workforce.

Less than two months after the Supreme Court denied Mr. Radcliffe’s petition for cert., his wife, along with a former Purdue employee, decided to file the instant qui tam action against Purdue asserting nearly identical allegations as those brought by Mr. Radcliffe. Notably, counsel in the instant action also represented Mr. Radcliffe throughout his qui tam suit.

While the district court found that the Relators did not base their allegations on a personal review of the documents filed in Mr. Radcliffe’s suit, it nevertheless found that the fraudulent scheme alleged came from the attorney, who simply used his own knowledge developed during Mr. Radcliffe’s action, as well as the documents provided by Mr. Radcliffe. The district court dismissed the Relators’ complaint, holding that the allegations were based on the claims from Mr. Radcliffe’s action and therefore, the public disclosure bar stripped the court of subject matter jurisdiction.  The Relators appealed to the Fourth Circuit.

The FCA provides a cause of action “against anyone who knowingly presents to the government a false or fraudulent claim for payment or approval.”  To fulfill this objective, the FCA permits qui tam actions in certain circumstances, which “provide cash bounties…to private citizens who successfully bring suit against those who defraud the federal government.” One barrier to this, however, is the “public disclosure bar.”  And, even though Congress amended the public disclosure bar in 2010, the Court held that given that the allegations asserted were between 1996 and 2005, the pre-2010 version applied.  This pre-2010 version stated: “No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations….unless…the person bringing the action is an original source of the information.”

Notably, the Fourth Circuit emphasized that it interpreted the phrase “based upon” differently than its sister circuits. While other circuits read the phrase to bar claims that are “substantially similar to” or “supported by” publicly disclosed information, the Fourth Circuit interprets it to bar actions “only where the relator has actually derived from a public disclosure the allegations upon which the action is based.”  Thus, the issue before the Fourth Circuit was whether the Relators could get around the public disclosure bar when their allegations, although not directly stemming from the docket entries in Mr. Radcliffe’s lawsuit, were nevertheless derived from facts their attorney learned while representing him and preparing the public filings for his suit.  Relying on applicable precedent, the Fourth Circuit held that the district court correctly dismissed the Relators’ action.

Specifically, Purdue argued that the Relators’ action was a “quintessential parasitic action” because it provided no new information, but instead merely copied the substance of Mr. Radcliffe’s prior action. The Relators, however, claimed that the FCA is meant to encourage actions in which qui tam plaintiffs learned of fraud second-hand.  The Fourth Circuit agreed with Purdue, however, emphasizing that “Congress did not invite a free-for-all for aspiring relators salivating over the FCA’s qui tam reward provision.”

In affirming the district court, the Fourth Circuit emphasized that the Relators did not independently discover the facts underlying their allegations.  Instead, the Relators’ knowledge came from their attorney’s involvement in Mr. Radcliffe’s qui tam action.  The Fourth Circuit further highlighted that this result was consistent with the purpose of the public disclosure bar.