Second Circuit: Disclosures Made Only to the Government are not “Public Disclosures” Triggering the Public Disclosure Bar

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The Second Circuit, in United States ex rel. Foreman v. AECOM, No. 20-2756-cv, 2021 WL 5406437 (2d Cir. Nov. 19, 2021), addressed a question it had not previously decided, namely, whether disclosures made solely to the government are “public disclosures” sufficient to trigger the public disclosure bar under the False Claims Act (FCA).

The public disclosure bar, which is codified at 31 U.S.C. § 3730(e)(4)(A), provides that:

The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed–

(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party;

(ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation;

or

(iii) 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.

In AECOM, the qui tam Relator who brought the lawsuit alleged that the defendant had submitted fraudulent claims under a defense contract with the United States, pursuant to which defendant was supposed provide certain maintenance and management support services to the United States Army in Afghanistan. Specifically, the Relator alleged that defendant had falsely certified its compliance with the contract by overstating its man-hour utilization rate, improperly billing for labor not performed, and failing to properly track government property, resulting in significant government costs. Defendant argued, among other things, that the Relator’s allegations were contained within reports disclosed by various federal agencies. The District Court had rejected this argument, ruling that the only report that was publicly disclosed was a Department of Defense Inspector General (DODIG) report, but finding that such report had not disclosed “the material elements of the property-related fraud alleged in the Complaint.” United States ex rel. Foreman v. AECOM, 2021 WL 5406437 at *24. The lower court further held that “the other government documents and communications relied on by AECOM were not disclosed to anyone outside the government and were therefore not public.” Id.

On appeal, defendant did not contest the District Court’s conclusion that the DODIG report had not sufficiently disclosed the material elements of the property-related fraud, but it continued to maintain that the other government materials were publicly disclosed. The Second Circuit rejected defendant’s position, adopting the reasoning of nine other Circuit Courts of Appeal that the public disclosure bar applies “only where there has been a disclosure outside of the government” and that “disclosures to government officials do not constitute public disclosures for purposes of the public disclosure bar.” Id. at *25.  In AECOM, the Second Circuit noted that there were no allegations in the complaint or any other evidence that the key reports relied upon were disclosed outside the government. Id.

The Second Circuit also rejected defendant’s argument that the information in the reports became public because the reports were eventually released to defendant’s employees and were accessed by the Relator. The court noted that those reports were marked “Confidential” and held that since “there is no evidence that the fraud allegations were disclosed to individuals without prior knowledge of the fraud in the absence of a confidentiality obligation, the disclosures were not public and the public disclosure bar does not apply.” Id. at *26. The Second Circuit observed that a different result would be contrary to the purpose of the public disclosure bar:

This conclusion is reinforced by the negative ramifications of AECOM’s proposed public disclosure theory. If we were to adopt it, a relator who had personally observed and investigated fraud would be barred from bringing a FCA claim merely because he obtained access to a confidential government report describing the fraud. And it would also seem that, under AECOM’s public disclosure theory, anytime the government has knowledge of the fraud and seeks corrective action from a contractor in connection with a confidential investigative audit or investigation, a qui tam action would be barred. But such a restrictive interpretation of the public disclosure bar is inconsistent with the plain language and purpose of the public disclosure bar, because it would effectively collapse the public disclosure bar into the “government knowledge” standard that Congress eliminated and would undermine Congress’s goal “of encouraging private citizens to expose fraud.” John Doe Corp., 960 F.2d at 321.

. . . Indeed, allowing private suits when the information underlying the action is known only to government auditors and others involved in a confidential audit or investigation balances Congress’s goals in encouraging private citizens with first-hand knowledge to expose fraud while avoiding civil actions by opportunists attempting to capitalize on public information without seriously contributing to the disclosure of the fraud.

Id. at 26-27 (citations omitted).

With the AECOM decision, therefore, the Second Circuit has adopted a governing principle requiring, for public disclosure purposes, that information be disclosed more widely than to the government alone or solely in the context of a confidential (rather than public) government audit or 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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