Federal Judge Dismisses False Claims Act Lawsuit Citing Advertisement as Public Disclosure

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Recently, a federal judge in the Central District of California granted a Motion to Dismiss on behalf of a manufacturer of ophthalmic lenses alleged to have engaged in an illegal kickback scheme, based on the public disclosure bar doctrine. The Court found that because the defendant in the case had long publicly advertised the rewards program alleged to have violated federal law, the Relator in the case could not overcome the False Claims Act (“FCA”) public disclosure bar.

The case, captioned United States of America, et. al. v. Shamir USA, Inc., case no. 2:18-cv-09426-RGK-PLA, 2020 WL 6152466, involved a defendant-manufacturer of progressive lenses (“Shamir”) headquartered in Israel, with subsidiaries located in California. The Relator was formerly a key account manager for the lens manufacturer.  Shamir’s lenses are sold to consumers through third-party eyecare professionals (“ECPs”) such as optometrists, ophthalmologists, and opticians.  Shamir allegedly offered such ECP’s who sell a certain number of its lenses incentives and rewards through various rewards programs, providing cash, rebates, discounts, gifts, free products, and gift cards.  Both government and private insurance plans reimburse ECPs for some of the lenses, therefore, the Relator alleged that this scheme violated the Federal Anti-Kickback Statute (“AKS”) and the FCA.  In its Motion to Dismiss, however, Shamir contended that the Relator was foreclosed from bringing a complaint under the public disclosure bar because Shamir had previously publicly advertised the nature and operation of its rewards program.  The Court agreed and dismissed the case, providing the Relator permission to amend his pleadings, as discussed below.

As has been discussed in previous McGuireWoods alerts, the FCA’s public disclosure bar precludes private parties from bringing qui tam suits when the relevant information alleged by the plaintiff has already entered the public domain through certain channels. The purpose of this doctrine is to prevent “parasitic” claims in which relators feed off of previous disclosures of government fraud.  Therefore, the Court must first determine whether substantially the same allegations or transactions underlying the suit were previously disclosed through an enumerated channel, and, second, whether the relator is an “original source” within the meaning of the statute.

In Shamir, the Court took Judicial Notice of several articles about Shamir’s rewards programs from various industry publications, as well as Shamir’s “About Us” webpage before the lawsuit was filed. The Court held that such sources fit within the category of “news media,” which is an enumerated channel under the FCA public disclosure bar. Because the details of the allegations in this suit were substantially similar to those publicly disclosed through the news media articles, the Court found that the facts of the relevant transaction from which the alleged fraud could be inferred had previously been disclosed.

Furthermore, the Court found that even if the Relator’s alleged facts were sufficiently specific to distinguish them from publicly available information, the Relator failed to establish itself as an “original source” of the allegations.  In order to be considered an original source, the Relator must have voluntarily provided relevant information to the Government before filing the FCA action.  The Court found that nowhere in the Relator’s complaint did it claim to have voluntarily provided the information to the Government before filing, therefore, the Relator fails to establish itself as an original source. The Court, however, granted the Relator leave to amend its pleadings for the purpose of alleging whether he meets the statutory requirements for an original source.

As other relators and defendants consider the application of the public disclosure bar, advertisements such as the ones described in Shamir may be the subject of further inquiry.

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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