Surviving the Public Disclosure Bar Just Got Easier for Relators in the Ninth Circuit

On March 15, 2018, the Ninth Circuit Court of Appeals, in United States ex rel. Solis v. Millennium Pharm., Inc., 885 F.3d 623 (9th Cir. 2018), potentially gave new life to a whistleblower’s False Claims Act case against three drug makers–Schering-Plough Corporation, Merck & Co., and Millennium Pharmaceuticals, Inc.–alleging that the drugmakers offered kickbacks to physicians in exchange for them prescribing certain drugs and also alleged off-label claims. The federal District Court for the Eastern District of California dismissed the relator’s case as barred by the FCA’s public disclosure bar because the information was publicly disclosed prior to the filing of relator’s complaint and because the relator was not an “original source”[1] of the information disclosed. The Ninth Circuit, however, disagreed. Instead, it vacated the decision and remanded the case because subsequent Ninth Circuit case law modified the applicable legal standard for determining whether a relator qualifies as an original source. The Ninth Circuit’s decision revives the relator’s case and gives him another opportunity to demonstrate to the District Court that he was the original source of the previously disclosed information.

This case provides an excellent example of the constantly shifting legal landscape as courts continue to grapple with, and decide, close issues in the False Claims Act space. These shifting legal interpretations also demonstrate the importance for litigants to monitor nationwide legal decisions in the FCA space, as those decisions can impact active litigation.

The Ninth Circuit Shifts its ‘Original Source’ Standard

The relator’s 2009 lawsuit alleged that three drug makers violated the FCA and state laws through both the promotion of off-label uses of certain drugs and by paying physicians kickbacks to induce them to prescribe the drugs. After a three-year investigation, the United States and all 24 states named in the complaint declined to intervene. The relator proceeded with the action on his own and the defendants sought dismissal by arguing, in part, that the Court lacks subject matter jurisdiction over the action due to the public disclosure bar found at 31 U.S.C. § 3730(e)(4) because the allegations were previously disclosed and the relator is not an original source of the information. The Court determined that the allegations at issue were previously disclosed under the statute, and then turned to the issue of whether the relator qualifies as an original source.

In analyzing the original source issue, the District Court applied the Ninth Circuit’s then applicable three-part test, which deems a relator an original source under the following circumstances:

1. [H]e must have direct or independent knowledge of the information on which his allegations are based;
2. He must have voluntarily provided the information to the Government before filing his FCA action; and
3. He must have had a hand in the public disclosure of the allegations that are a part of [his]suit.

United States ex rel. Solis, 885 F.3d at 627-28 (citing Wang ex rel. United States v. FMC Corp., 975 F.2d 1412, 1417-18 (9th Cir. 1992)) (internal quotation marks omitted). The District Court concluded that the relator was not an original source because he did not “have a hand in” the public disclosures at issue. In doing so, the District Court did not rule on whether the relator satisfied the first two prongs of the test.

The Ninth Circuit disagreed and vacated the District Court’s decision and remanded the case based on United States ex rel. Hartpence v. Kinetic Concepts, Inc., 792 F.3d 1121 (9th Cir. 2015) (en banc). Hartpence, a Ninth Circuit en banc decision handed down after the District Court’s decision in Solis, “repudiated” and eliminated the third element of the original source standard as not being sufficiently based on the statutory text of 31 U.S.C. § 3730(e)(4). Based on that subsequent decision, the three-judge panel in Solis remanded the case to the District Court for an application of the two remaining elements of the original source test, thus giving the relator a second chance at demonstrating his status as an original source.

Impact of the Decisions on Future FCA Cases

This case is a great example of the constantly shifting legal landscape in the False Claims Act arena. It may now be easier for relators to copy old allegations and survive motions to dismiss based on the public disclosure bar if they had direct and independent knowledge of the facts upon which claims are based and voluntarily provided information to the government before filing an action. Thus, it is becoming easier in the Ninth Circuit, for relators to clear the public disclosure bar. As government enforcement priorities change and as relators become more aggressive, the courts will continue to grapple with new and complex sets of issues. We expect that courts will continue to enhance and develop their interpretations of the FCA in the coming months and years.

Arent Fox’s FCA & Investigations, and Health Care teams will continue to monitor developments in this area. If you have any questions regarding the topics discussed here, please contact Jacques Smith, Randall Brater, Stephanie Trunk, David Greenberg, or the Arent Fox professional who regularly handles your matters.

[1] Under 31 U.S.C. § 3730(e)(4), courts must dismiss false claims act actions if “substantially the same allegations or transactions” have been publicly disclosed unless the action is brought by the person who is “an original source of the information.” The statute defines an “original source” as an individual who either “(1) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of an materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.”