Third Circuit Correctly Interprets Amended Public Disclosure Bar to Encourage Outsiders to Step Forward as Qui Tam Relators

Over the years, no provision of the False Claims Act has been amended more times than the so-called “public disclosure bar.” Its primary objective has been to prevent relators from recovering whistleblower rewards when they essentially copy evidence of fraud from specific public sources. While seeking to discourage such parasitic relators, the drafters of the public disclosure bar have also gone to great lengths to encourage legitimate relators to step forward with inside evidence of fraud.

For example, oftentimes, newspaper articles might generally discuss wrongdoing that has allegedly transpired within the corporate walls of a company. While such articles might trigger the public disclosure bar, Congress included an “original source exception” that allows relators to come forward with qui tam actions when their knowledge is independent of the newspaper article and their knowledge materially adds to the publicly disclosed allegations.

Under the current language of the original source exception, some False Claims Act scholars have argued that the provision effectively precludes outsiders from qualifying for the exception. However, the Third Circuit Court of Appeals rejected such a narrow reading of the Act, when it effectively held that a relator could qualify for the original source exception even when they were not employed by the corporate defendant. Instead, the Court stressed that the analysis turns on whether the relator’s information “materially adds” to the information that is already in the public domain.

The Court then went on to define the original source exception’s statutory term “materially adds.” Grafting the Rule 9(b) pleading standard onto the statutory language, the Court held that a relator materially adds to the publicly disclosed allegation or transaction of fraud when it contributes information—distinct from what was publicly disclosed—that adds in a significant way to the essential factual background: “the who, what, when, where and how of the events at issue.”

This is a helpful decision for qui tam relators. Oftentimes, the basic fraud allegations might be in the public domain, but the specifics of the fraud—the who, what, when, where and how—are not publicly available. When that is the case, the Third Circuit’s decision and the FCA encourage qui tam relators to step forward with essential factual information.

More information for whistleblowers is located at the Nolan Auerbach & White.