The Who, What, When, Where, and How of Clearing the Public Disclosure Bar

Last week, the U.S. Court of Appeals for the Third Circuit interpreted the False Claims Act’s (“FCA’s”) public disclosure bar, as modified by the 2010 amendments, in a manner favorable to potential relators.  The bar, added to the FCA in 1986, precludes a would-be relator from filing suit based on allegations of fraud that were publicly disclosed in certain sources, unless she is the “original source” of those allegations.  As initially defined, an “original source” was a person with “direct and independent knowledge” of information that she voluntarily provided to the government before the information was publicly disclosed. In 2010, Congress amended the public disclosure bar by, among making other changes, expanding the definition of “original source” to include relators with knowledge that “materially adds” to publicly disclosed information.[1]  That change was the focal point of the Third Circuit’s decision in United States ex rel. Moore & Company, P.A. v. Majestic Blue Fisheries.[2]

The plaintiff and appellant, Moore & Company, is a law firm that filed an FCA action against Korean-based tuna-fishing company, Majestic Blue Fisheries, and related companies and individuals. While representing a plaintiff in a wrongful death suit against Majestic Blue Fisheries, Moore & Company acquired information that would become the basis for its FCA allegations that the Korean companies violated the South Pacific Tuna Treaty by fraudulently certifying to the U.S. Coast Guard that they were controlled by, and that their fishing boats were captained by, U.S. citizens.

Before Moore & Company filed its FCA suit, two articles concerning Majestic Blue Fisheries’ vessel, the aptly name F/V Majestic Blue, were published on websites. Both articles documented the tribulations of a U.S. citizen, who claimed that he was the nominal captain of the ship but lacked actual authority over the crew and the vessel. Additionally, before filing the suit, Moore & Company acquired the allegedly false certifications and related emails from the Korean entities through the Freedom of Information Act (“FOIA”).

The district court and the Third Circuit agreed that the articles and the FOIA documents constituted public disclosures of fraud.  The question was whether Moore & Company was nevertheless an “original source” under the amended FCA.  The district court held that Moore & Company was not an original source and granted the defendants’ motion to dismiss.  However, the Third Circuit reversed and remanded the case for further proceedings, effectively reinstating the complaint.

According to the Third Circuit, the district court had not adequately considered whether Moore & Company’s allegations “materially add” to the publicly disclosed information, as courts must now do in light of the 2010 FCA amendments.  Relying on the New Oxford Dictionary, the Third Circuit determined that to “materially add” to a publicly disclosed allegation of fraud, a relator must “contribute significant additional information to that which has been publicly disclosed so as to improve its quality.”

Significantly, under this standard, relators need not be the first to disclose essential elements of fraud.  They need only add to “the who, what, when, where, and how of the events at issue.”  Other courts have invoked the same language – which reflects the ingredients of an effective newspaper story – to describe the particularity with which plaintiffs must allege fraud to state a claim under the Federal Rules of Civil Procedure.

Here, the articles and FOIA documents already provided the basis for the allegations that the Korean entities had submitted false certifications in violation of the South Pacific Tuna Treaty.  Moore & Company enhanced the narrative by alleging “significant details,” including that two Americans served as straw-owners of Majestic Blue Fisheries, and that representatives of the Korean companies used the pseudonym “William Phil” when emailing with the government in order to make it seem like the communications were coming from an American citizen.

Though Moore & Company leaves some questions to be answered by future cases – like, for example, where the line between “significant details” and insignificant details lies – one implication from the decision is clear.  At least in the Third Circuit, a relator can survive a motion to dismiss even if she is not the original source of all essential elements of the alleged fraud, as long as her allegations develop the factual background in a way that the court finds meaningful.  Thus, when drafting an FCA complaint, it is more important than ever that counsel not only plead the elements of fraud with particularity, but also tell the story surrounding the fraud with as much compelling detail as it can include.

[1] 31 U.S.C. § 3730(e)(4)(B).

[2] — F.3d  —-, 2016 WL 386087, Case No. 14-14292 (Feb. 2, 2016).

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