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Ninth Circuit Holds That Any Kind of Government Investigation Is an 'Investigation' Under FCA's Public Disclosure Bar


HLD, v. 29, n. 9 (September 2001)

Ninth Circuit Holds That Any Kind of Government Investigation Is an "Investigation" Under FCA's Public Disclosure Bar

Abraham Gale worked for Packard-Bell NEC, Inc. ("PBNEC") for ten weeks, after which he was fired. Gale filed a qui tam action against PBNEC under the False Claims Act ("FCA"), asserting that the company had "committed fraud by selling computers to the government as new even though they contained used parts." The government declined to intervene in Gale's action but launched criminal and civil investigations into PBNEC's allegedly fraudulent conduct. The government allowed Gale to review documents obtained during at least one of these investigations and also let him review documents in another investigation of Zenith Data Systems, Inc. ("Zenith"). After reading various government documents, Gale learned that Zenith was probably involved in fraud similar to that of PBNEC. Gale filed a separate qui tam action against Zenith. After an evidentiary hearing, the federal district court in California determined that it lacked jurisdiction over Gale's action. Gale appealed.

The Ninth Circuit affirmed, finding that the lower court lacked jurisdiction over Gale's qui tam action because his claim was based on publicly disclosed information and because he was not an original source of the information. As a threshold matter, the appeals court noted that, under 31 U.S.C. � 3730(e)(4)(A) (barring jurisdiction over claims that are based on public disclosure), there are various methods for making a public disclosure of allegations or transactions. Specifically, the appeals court observed, "[t]he disclosures may be 'in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media.'" Framing the relevant issue as "whether the investigations undertaken by the government, and disclosed to Gale, are 'investigation[s]' within the meaning of � 3730(e)(4)(A)," the appeals court turned to congressional intent after finding the language of the statute "somewhat ambiguous." The appeals court observed that the purpose of � 3730(e)(4)(A) "is to prevent someone like Gale, who has information only because he obtained it from the government, from profiting from that information and thereby diminishing the government's recovery from the defrauder." In order to fulfill Congress' intent, the appeals court concluded that "the term 'investigation' . . . must encompass any kind of government investigation--civil, criminal, administrative, or any other kind." Next, the appeals court determined that Gale was a member of the public for purposes of its inquiry. Although the appeals court had previously indicated that government employees who received information relevant to an FCA action were not members of the public under � 3730(e)(4)(A), it distinguished the instant case because "Gale was an outsider to the Zenith investigation at the time he received the information" from the government. Furthermore, the appeals court found that Gale had "significant incentive" to use allegations of Zenith's fraud to his own advantage. Thus, the appeals court concluded that deeming Gale a member of the public in relation to the Zenith investigation was "consistent with Congress' intent that the FCA not be used by people attempting to 'free ride' on information obtained from the government."

Because the appeals court had concluded that the information contained in Gale's suit had been publicly disclosed to him before he had filed his complaint against Zenith, it turned to the issue of whether Gale was an original source of the information and thus not barred from pursuing his action. See 31 U.S.C. � 3730(e)(4)(B). The appeals court answered this question in the negative. Although noting that it was "undisputed that Gale was the original source of information about alleged fraud at PBNEC, and that Gale's information prompted the government to initiate an investigation into that company," the appeals court emphasized that Gale's information about PBNEC had not included Zenith. The appeals court determined that, although Gale's disclosures had started the government on the trail that led to Zenith's alleged fraud, "others provided substantial assistance to the government on the way." Furthermore, the appeals court found that Gale had "played no role whatsoever in any government investigation, and Gale obtained his information about Zenith from the government." Thus, the appeals court determined that Gale's action was barred by � 3730(e)(4)(A).

SEAL 1 v. SEAL A, No. 98-56447, 2001 WL 747588 (9th Cir. July 5, 2001) (14 pages).

Health Lawyers thanks Margaret M. Manning, in Los Angeles, California, for notifying us of this decision.

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