The United States Court of Appeals for the Seventh Circuit has issued an opinion that underscores the importance of the "public disclosure bar" in False Claims Act (FCA) litigation. The court affirmed a lower court’s dismissal of a qui tam lawsuit filed against two companies, Medline and Tutera Group, in United States ex rel. Bogina v. Medline Industries Inc., where a plaintiff-relator alleged that Medline violated the FCA by inducing nursing homes to purchase Medline’s products through the use of kickbacks and rebates funded by inflated reimbursement claims submitted to the government. Medline had faced similar allegations, however, in a prior FCA lawsuit that was settled with the government for $85 million, of which $23 million went to another relator formerly employed by Medline.
Calling the plaintiff-relator a "bounty hunter," Circuit Judge Richard Posner, writing for the court on January 4, 2016, agreed with the lower court that the public disclosure bar prohibited this lawsuit. Under the FCA, a relator is barred from bringing a subsequent qui tam lawsuit asserting identical or similar allegations that had been publicly disclosed unless he meets the "original source" exception. Under the FCA, as amended in 2010, a relator qualifies as an "original source" if he "has knowledge that is independent of and materially adds to the publicly disclosed allegations . . . and who has voluntarily provided the information to the Government before filing an action under this section."
Bogina claimed to be an "original source" of the information in the complaint, and contended that there were critical differences between his claims and the prior qui tam lawsuit, including: (1) the addition of a second defendant, Tutera Group; (2) that although the government had released its civil claims against Medline for false claims under certain Medicare programs, it had not done so for other federal and state programs such as Medicare Part B and Tricare; and (3) the fraud had allegedly continued after the settlement. The court rejected these claims outright as merely adding details to a previously known scheme, finding that none of the purported differences between the two lawsuits were "material"; therefore, the court held the prior lawsuit barred Bogina’s qui tam lawsuit under the public disclosure bar. Notably, the court reasoned that the previous FCA claim put the government on notice of a "broader bribe-kickback scheme" and thus could have launched a broader case against Medline and others involved, such as Medline’s customers
The relator’s third argument − that fraud continued after the settlement − was also rejected because it was not plead with "particularity" pursuant to Fed. R. Civ. P. 9(b). Indeed, Bogina based his claim that the alleged fraud continued after Medline settled with the government "on information and belief," which failed to pass muster under Rule 9(b). As Circuit Judge Posner explained, Rule 9(b) requires particularity because "a public accusation of fraud can do great damage to a firm before the firm is exonerated in litigation."
The Seventh Circuit’s decision in Bogina demonstrates that the public disclosure bar is alive and well in False Claims Act litigation. This rule protects companies from "bounty hunters" − in the court’s words − who attempt to resurrect settled FCA cases for personal financial gain. This decision stands as a clear warning to potential relators that courts will not accept hair-splitting arguments or minor distinctions under the original source exception to that rule.
For companies defending against a duplicative FCA lawsuit, it is important to highlight that the prior disclosure bar is not limited to identical subsequent claims, but also extends to claims that the government could have investigated and prosecuted in the previous FCA claim. In making that determination, this case suggests that courts should take a pragmatic approach, and recognize that the government often has legitimate reasons not to pursue certain FCA claims when settling with a company, since by its nature a "settlement is a compromise."
Finally, this case is an example of how procedural protections like Rule 9(b) are powerful tools to protect a business from baseless allegations of fraud or false claims.
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