California Federal Court Dismisses FCA Case Pursuant to Public Disclosure Bar

by Akin Gump Strauss Hauer & Feld LLP
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In United States and State of California ex rel. Fryberger et al. v. Kiewit Pacific Company, et al., No. 12-CV-02698, 2013 WL 5770514 (October 24, 2013), a California federal court in the Northern District of California  dismissed the relators’ complaint pursuant to the “public disclosure bar” in the federal False Claims Act (FCA) and the California False Claim Act (CFCA). The public disclosure bar applies where a plaintiff alleges fraud against the government that has already been publicly disclosed and the plaintiff is not the “original source” of the information. The court found that both requirements had been met and addressed two interesting issues: (1) whether it could take judicial notice of the defendants’ evidence; and (2) whether the relators could claim original source status based on information that they obtained from another person.

The qui tam plaintiffs, SSL, LLC and Surecast, LLC along with their individual owners, alleged that defendant Kiewit Pacific Company and the individual defendant employees and managers of Kiewit falsely certified compliance with the terms of Kiewit’s contract to install Mechanically Stabilized Earth (MSE) walls as a part of the Los Angeles County Metropolitan Transportation Authority’s project to expand the 405 freeway’s lanes. Funded with grants from the United States federal government and the State of California beginning in April 2009, the project required Kiewit to adhere to the terms of a Design Build Contract, which provided for installation of the MSE walls in accordance with SSL’s proprietary MSE system. In late 2011, several media outlets reported that the MSE walls installed by Kiewit had begun to shift and fail. The plaintiffs alleged that Kiewit falsely certified that it had complied with SSL’s system when, in fact, Kiewit had deviated from several specifications and falsified the quality assurance and quality control documents that it had submitted under the contract.

The defendants moved to dismiss the complaint, in part, on the grounds that both the FCA and CFCA require dismissal if “substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed . . . from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.” 31 U.S.C. § 3730(e)(4)(A)(iii); see also Cal. Gov. Code § 12652(d)(3)(A). The defendants argued that (1) the plaintiffs’ allegations were publicly disclosed because the media had previously reported on the problems with the MSE walls, and (2) the plaintiffs were not “original sources” because they did not possess any independent, material knowledge of the alleged fraud that they could have disclosed to the government prior to the public disclosure. The defendants asked the court take judicial notice of several declarations and exhibits containing government presentations, news articles, and other materials reporting on the failure of Kiewit’s MSE walls.

First, the court considered what types of documents a court may judicially notice on a motion to dismiss an FCA case under the public disclosure bar. The defendants argued that the court could take judicial notice of the materials because the public disclosure bar is jurisdictional, thus requiring consideration of factual material outside the complaint. The court rejected this argument and held that, while a pre-2010 version of the FCA indicated that “‘no court shall have jurisdiction over an action’ subject to the public disclosure bar,” the bar was not jurisdictional because Congress removed this language in the 2010 amendments and replaced the jurisdictional language with a simple dismissal requirement. However, the court took judicial notice of the media reports because such reports are judicially noticeable if considered only “for the fact that the reports were made.”

The court then held that the two news articles met the public disclosure bar requirements because they publicly disclosed that there were severe problems with the MSE walls and that the government was aware of these problems. Incorporating language from the Ninth Circuit decision in Wang v. FMC Corp., 975 F.2d 1412 (9th Cir. 1992), the court reasoned that “‘[f]airly characterized,’ Relators’ complaint ‘repeats what the public already knows: that serious problems existed with’ the MSE retaining walls, even if Relators’ allegations are ‘supported by a few factual assertions never before publicly disclosed.’”

Second, the court considered whether the plaintiffs could qualify as “original sources” if they provided new information that they obtained from another person. Under the FCA, a relator is an original source if prior to public disclosure, the relator “voluntarily disclosed to the Government the information on which allegations or transaction in a claim are based” or the relator “has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.” Prior to filing suit, the plaintiffs provided the government with an executed declaration from a former employee of Kiewit who described the alleged false certifications. The plaintiffs argued this disclosure demonstrated that they had independent, material knowledge adding to the publicly disclosed information.

The defendants responded – and the court agreed – that despite this disclosure, the plaintiffs could not qualify as “original sources” because the information they provided was based on the former Kiewit employee’s, not the plaintiffs’, knowledge. Quoting U.S. ex rel. Devlin v. State of Cal., 84 F.3d 358, 360 (9th Cir. 1996), the court held, “[i]n order to be classified as an ‘original source,’ a relator must have ‘direct and independent’ knowledge of the alleged fraud. This means that the relator must have ‘discovered the information underlying his allegations of wrongdoing through his own labor.’”

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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