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