Recent Supreme Court Ruling Narrows Scope of Corporate Whistleblower Suits Under Federal False Claims Act (Schindler Elevator Corp v. United States ex rel. Kirk, U.S. Supreme Court, No. 10-188 (May 16, 2011))

The Supreme Court recently ruled that corporate whistleblower plaintiffs ("relators") cannot bring claims for fraudulent billing against government contractors based on information obtained through a Freedom of Information Act ("FOIA") request, in an important decision narrowing the scope of False Claims Act ("FCA") whistleblower suits. The FCA allows private persons to bring civil lawsuits against companies in the name of the government, and allows them to share in recoveries ("qui tam suits"). This opinion is good news for corporate employers such as health care providers who receive funds from the federal government.

As originally enacted in 1863, the FCA placed no restrictions on the sources from which a qui tam relator could acquire information on which to base a whistleblower lawsuit. However, in 1986, Congress added the "public disclosure bar" to the FCA, in order to prevent parasitic lawsuits brought by opportunistic litigants based on information already disclosed to the public. The May 16, 2011 Schindler Elevator ruling provides additional and important support for defendants seeking to dismiss qui tam suits on this frequently litigated ground. You can access the entire opinion by clicking Schindler Elevator Corp v. United States ex rel. Kirk.

In Schindler Elevator, the Court upholds a broad reading of the FCA's public disclosure bar, concluding that a federal agency's written responses to FOIA requests are "reports" within the meaning of the bar. The Court first looked to the ordinary meaning of the term "report," observing that dictionaries define it generally as "something that gives information," a reading that is "consistent with the generally broad scope of the FCA's public disclosure bar." The Court also placed substantial weight on the concern that allowing FCA cases based on FOIA responses could encourage "fishing expeditions and parasitic lawsuits." The majority (authored by Justice Thomas, joined by Chief Justice Roberts, and Justices Scalia, Kennedy and Alito) concluded that the Schindler Elevator case "seems to us a classic example of the 'opportunistic' litigation that the public disclosure bar is designed to discourage." And although the plaintiff alleged that he became suspicious from his own experiences working at the company, the Court reasoned that "anyone could have filed the same FOIA requests and then filed the same suit." Left unresolved was the issue of whether disclosure of information in a written FOIA response "forever taints that information for purposes of the public disclosure bar" or whether a relator may successfully argue that a qui tam action is not "based upon" the initial public disclosure (see Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 915 (7th Cir. 2009) (discussing split)).

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Post-Note: The pre-2011 Congress and U.S. Supreme Court have not been aligned with respect to the scope of False Claims Act whistleblower suits. For the past several years, Congress has sought to broaden the scope of the False Claims Act and to narrow or eliminate defenses available to corporate defendants in whistleblower suits. This is the second time in two years that the Supreme Court has construed the public disclosure bar expansively to foreclose potential sources of information available to prospective qui tam relators. In Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson, 130 S. Ct. 1396 (2010), the Court also upheld a broad reading of the public disclosure bar, interpreting it to include information within administrative reports, hearings, and investigations issued by state and local as well as federal agencies. That decision was immediately abrogated by Congress. In response to the decision, Congress revised the statute to clarify that only federal reports or investigations could bar qui tam suits under the public disclosure provision. See 31 U.S.C. § 3730(e)(4)(A)(i)-(ii). The Schindler Elevator dissent (authored by Justice Ginsburg, joined by Justices Breyer and Sotomayor) invites a similar response from Congress, writing that the majority opinion "severely limits whistleblowers' ability to substantiate their allegations before commencing suit" and was "worthy of Congress' attention." Unless and until that occurs, Schindler Elevator provides strong support for defendants seeking dismissal of qui tam suits under the public disclosure bar.

Graham County and Schindler Elevator are both important decisions reflecting the Supreme Court's understanding of a broad public disclosure bar. In Graham County, the Court explained that the bar is intended to have "a broad sweep," and that the statutory "touchstone" is whether the allegations have, in fact, been "publicly disclosed." In Schindler Elevator, the Court further explained that the statute reflected "a wide-reaching public disclosure bar" and an "intent to avoid underinclusiveness."

This legal alert is not intended to provide legal advice, and no legal or business decision should be based on its content. If you have any questions about the contents of this memorandum, please call your Theodora Oringher contact or Suzanne Cate Jones at 714.549.6109 or email sjones@tocounsel.com.