Eleventh Circuit Affirms Dismissal of Relator's Complaint Under Amended Public Disclosure Bar

Foley & Lardner LLP

In United States of America ex rel. Marc Osheroff v. Humana, Inc. et al., No. 13-15278 (11th Cir., Jan. 16, 2015), the Eleventh Circuit affirmed dismissal of a relator’s complaint under the public disclosure bar of the False Claims Act (FCA). The Court addressed several notable issues and provided insight as to how courts may apply the public disclosure bar as amended by the Patient Protection and Affordable Care Act (ACA).

Relator Marc Osheroff alleged that he operated medical office buildings in Miami. In the early 2000s, he began conducting market research with the goal of opening a health clinic. Upon learning that certain area clinics provided patients with free services such as transportation, meals, spa and salon services, and entertainment, he filed a qui tam action in December 2010. His complaint alleged that the health clinics and insurers provided and promoted the free services in violation of the Anti-Kickback Statute, the Civil Monetary Penalties Law, and the False Claims Act. The District Court dismissed Osheroff’s claims based on the FCA’s “public disclosure bar,” and Osheroff appealed to the Eleventh Circuit Court of Appeals.

The Eleventh Circuit first considered whether the public disclosure bar, as amended by the ACA, remains a jurisdictional defense or should instead be considered under a Federal Rule of Civil Procedure 12(b) (6) motion for failure to state a claim. This difference can have significant practical impact, as a motion under Rule 12(b)(6) requires the court to view the alleged facts as true, in the light most favorable to the plaintiff. The pre-ACA public disclosure bar was explicitly jurisdictional and the District Court assumed the amended statute presented the same jurisdictional bar. The Eleventh Circuit disagreed, joining the Fourth Circuit and several other courts in holding that the FCA as amended may create grounds for dismissal for failure to state a claim, but not a jurisdictional bar.

The Court went on to apply a three-part test to determine whether the public disclosure bar prohibited the relator’s suit:

(1) were the allegations “publicly disclosed”;

(2) were the allegations “substantially the same” as those contained in a public disclosure; and

(3) if so, was the relator the information’s “original source.”

In applying this test, the Court addressed several notable issues. The Court applied a broad interpretation of the statutory phrase “news media,” and held that sources such as advertisements and websites might satisfy the prong of publicly disclosed information. The Court also clarified that the public disclosures need not contain any allegations of wrongdoing to satisfy the second prong. Lastly, under the third prong, the Court held that background information that merely helps to understand or contextualize a public disclosure does not “materially add” to the public disclosure, as required by the amended provision, and thus will not enable a relator to be an original source of the allegations and thus avoid dismissal. The Court cited the Eighth Circuit’s interpretation of this provision (discussed in a previous blog post), which adopted the majority rule that a qui tam suit is based upon a public disclosure if the allegations in the suit and public disclosure are the same, regardless of the source of the relator’s information. The application of the post-ACA public disclosure bar is an issue that we expect to continue to develop as the number of FCA cases commenced after the effective date of the ACA amendments increase. We will continue to monitor the developments with regard to the application of this important defense, intended to balance the government’s desire to incentivize relators to identify potential fraud with the desire to prevent opportunistic suits by relators who do not provide valuable and unique information concerning alleged frauds but are interested in a collecting what can be a sizable bounty.

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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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