A great deal of helpful commentary has followed in the wake of the Supreme Court’s important decision in United States ex rel. Stone v. Rockwell, 127 S.Ct. 1397( 2007). In its opinion, the Court established stricter standards for who can qualify as an “original source” under the qui tam provisions of the False Claims Act, 31 U.S.C. § 3730(e)(4)(B). These new standards are critically important since one of the primary ways in which defense counsel seek to terminate relator-initiated qui tam cases is by moving to dismiss under Rule 12(b)(1), arguing that the FCA complaint is predicated upon a “public disclosure” (see, § 3730(e)(4)(A)). The only way a relator can defeat such a motion is by establishing that he or she is an “original source” as defined in § 3730(e)(4)(B). If the challenged relator cannot convince the district court that they satisfy this standard, then they lose their jurisdictional standing to initiate the action and are dismissed.
It is not the purpose of this brief article to recount the Rockwell holding in detail, for there already are many excellent commentaries available on the internet. See, e.g., John T. Boese’s FraudMail Alert No. 07-04-11, and Robert Salcido’s “Health Industry Alert” regarding the decision. Rather, I briefly want to discuss one element of the decision that has been overlooked and its potential consequences for the defense bar.
One of the most effective devices for getting qui tam cases dismissed under the so-called “public disclosure bar” has been the position of most Circuits that if any of the complaint’s allegations is “based” upon a public disclosure, and the relator cannot establish that he or she is an “original source,” then the entire complaint will be dismissed even if other allegations do not fall victim to the public disclosure trap. As the Sixth Circuit put it: “a person who bases any part of a FCA claim on publicly disclosed information is effectively precluded from asserting that claim in a qui tam suit” (emphasis supplied). United States ex rel. Bledsoe v. Community Health Systems, Inc., 342 F.3d 634, 646 (6 th Cir. 2003). This position has been adopted – with the exception of the Third Circuit – by every Circuit that has considered the issue. As the Tenth Circuit noted, a "FCA qui tam action even partly based upon publicly disclosed allegations or transactions is nonetheless 'based upon' such allegations or transactions." United States ex rel Precision Company v. Koch Industries, 971 F.2d 548, 552 (10th Cir. 1992). See also, United States ex rel. Fine v. Sandia Corp., 70 F.3d 568, 571 (10 th Cir. 1997).
A portion of Justice Scalia’s Rockwell opinion may put this tactical approach in doubt. One of the arguments upon which the relator placed reliance was that even if certain of his complaint’s allegations were based upon public disclosures, and he did not satisfy the Court’s criteria for establishing original source status, the fact that other of his allegations were not based upon public disclosures should immunize from dismissal those that were. Justice Scalia appropriately made short work of rejecting this contention, which he characterized as “claim smuggling.” 127 S.Ct. 1397 at 1410.
To support his rejection of relator’s argument, Justice Scalia pointed to a Third Circuit decision authored by Justice Alito when he was a member of that court. United States ex rel. Merena v. SmithKline Beecham Corp., 205 F. 3d 97 (3d Cir. 2000). There then Judge Alito wrote: “[t]he plaintiff’s decision to join all of his claims in a single lawsuit should not rescue claims that would have been doomed by section (e)(4) if they had been asserted in a separate action.” However, Justice Scalia continued his quote beyond this point: “And likewise, this joinder should not result in the dismissal of claims that would have otherwise survived.” Id. at 1410-11.
It is the second clause of the quote that potentially could cause problems for defense counsel asserting the position that if one part of a qui tam complaint falls victim to the public disclosure bar, the entire complaint must be dismissed. It seems to suggest that the Court would reject this approach if it were confronted with issue. This is especially so given the fact that Justice Scalia did not even need to invoke the second clause of the quote, since it does not address the situation the Court was resolving.
The situation becomes even more “sticky “ if additional language from the Merena decision is considered. For there Judge Alito wrote: “Thus, in applying section (e)(4), it seems clear that each claim in a multi-claim complaint must be treated as if it stood alone.” When a court is confronted with a complaint containing some claims foreclosed by the public disclosure bar, and others that are not, it must approach the issue by asking whether relators “would have been entitled to such a share [of the government’s recovery] had their complaints asserted those claims alone.” Merena at 102.
One can only wonder why Justice Scalia, ordinarily one of the Court’s most careful judicial craftsmen, would include dicta with such far-reaching potential ramifications in his opinion. A further wrinkle to the puzzle arises from the fact that the Merena court is in a distinct minority in adopting this position. See, United States ex rel. McKenzie v. Bellsouth Tel., 123 F.3d 935,940-41 (6 th Cir. 1997); see also, 1 John T. Boese, Civil False Claims and Qui Tam Actions § 405[C], at 4-84-4-85 (3d ed. 2007). Is the Court sending a message to the qui tam defense bar? Or was it simply an inadvertent slip-up made by a Court not particularly conversant with the intricacies of the FCA? Whatever the explanation, defense counsel should expect to confront this argument the next time they invoke the “public disclosure bar.”