In an important decision regarding the False Claims Act’s much-litigated “public disclosure” bar, the United States Court of Appeals for the Fourth Circuit recently concluded that the disclosure of reports and audits to government officials, without further distribution to the public or dissemination in the “public domain,” does not implicate the FCA’s “public disclosure” provision.  See United States ex rel. Wilson v. Graham Cnty. Soil & Water Conservation Dist., No. 13-2345 (4th Cir. Feb. 03, 2015).  Aimed at foreclosing “parasitic” qui tam actions based on information already in the public domain, the public-disclosure rule requires dismissal of FCA claims that are based on publicly available information.  See 31 U.S.C.§  3730(e)(4)(A).

The case arose from the alleged submission of fraudulent claims by several local government entities who received Federal funds pursuant to a cooperative agreement to provide disaster recovery services. The relator—a secretary employed by one of the entities—allegedly observed improprieties, including an illegal kickback scheme by a colleague and contractor.  During the course of performance, an auditor also noted irregularities with the local entities’ operations and memorialized its findings in a report.  Similarly, a USDA investigator drafted a report that identified the entities’ potential violation of criminal laws.

Relying on the fact that each report had been distributed to other local, state, and federal agencies, the district court dismissed the complaint, observing that such distribution implicated the “public disclosure” bar.  The Fourth Circuit reversed, holding that although the reports were shared with in fact shared with other agencies, such distribution was not to the “public domain” as contemplated by the FCA.

The Fourth Circuit’s ruling—one of first impression in that Circuit—brings it in line with the majority of other circuit courts that have addressed the issue, including the First, Ninth, Tenth, Eleventh, and District of Columbia Circuits.  The Seventh Circuit has gone the other way, interpreting the same provision to preclude a lawsuit when an audit or report is disclosed to a public official under the reasoning that the government acts for the public.