• Seventh Circuit Brings "Based Upon" Element of False Claims Act Public Disclosure Bar Analysis In Line with Majority of Circuits
  • July 30, 2009 | Author: Michael E. Paulhus
  • Law Firm: King & Spalding LLP - Atlanta Office
  • On July 2, the Seventh Circuit decided Glaser v. Wound Care Consultants, Inc., No. 07-4036, a federal False Claims Act (FCA) case in which the court affirmed the dismissal of a qui tam relator’s suit based on the jurisdictional bar of 31 U.S.C. § 3730(e)(4), commonly referred to as the “public disclosure bar.” The case is significant because the court reversed course in its interpretation of the FCA’s language prohibiting jurisdiction if an action is “based upon” a public disclosure. The court adopted the majority reading of the statute applied by eight other circuits that “based upon” is construed broadly to mean “when the relator’s complaint describes allegations or transactions that are substantially similar to those already in the public domain.” Slip Op. 2-3. This change has the potential to make the “public disclosure” bar a more useful defense in the Seventh Circuit.

    Previously, the Seventh Circuit had construed the “based upon” requirement narrowly and only applied the jurisdictional bar if the lawsuit “depends essentially upon publicly disclosed information and is actually derived from such information.” Slip Op. 2 (quoting United States v. Bank of Farmington, 166 F.3d 853, 864 (7th Cir. 1999)). The court explained that this understanding was based upon the “faithful ordinary-meaning interpretation of the statute.” Slip. Op. 15. Nevertheless, the court reversed this reading because it renders the original source exception of § 3730(3)(4) superfluous. The court reasoned, “[i]f ‘based upon’ means ‘actually derived from’ . . . it is hard to understand the import of the ‘independent knowledge’ component of the original source exception; a relator who ‘actually derived’ his allegations of fraud from . . . information in the public domain could never avoid the jurisdictional bar by showing that he has ‘independent knowledge’ of the fraud.” Slip. Op. at 17. After weighing the competing cannons of construction, and noting other courts’ recognition that § 3720(e)(4) is “hardly a model of draftsmanship,” the court concluded the focus of prior Seventh Circuit panels “on the dictionary meaning of ‘based upon’ alone was too narrow in the context of the rest of the statute.” Slip. Op. at 19.

    Under the court’s revised interpretation, after a public disclosure has been established, the “based upon” requirement serves as a “threshold analysis . . . intended to serve as a quick trigger for the more exacting original source analysis.” Slip. Op. 26 (quoting United States ex rel. Grynberg v. Praxair, Inc., 389 F.3d 1038, 1051 (10th Cir. 2004).