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United States ex rel. Hartpence v. Kinetic Concepts, Inc.

United States Court of Appeals, Ninth Circuit

July 7, 2015

UNITED STATES EX REL. STEVEN J. HARTPENCE, Plaintiff-Appellant,
v.
KINETIC CONCEPTS, INC.; KCI-USA, INC., Defendants-Appellees. UNITED STATES EX REL. GERALDINE GODECKE, Plaintiff-Appellant,
v.
KINETIC CONCEPTS, INC.; KCI-USA, INC., Defendants-Appellees

Argued and Submitted En Banc, San Francisco, California March 17, 2015.

Appeal from the United States District Court for the Central District of California. D.C. No. 2:08-cv-01885-GHK-AGR, D.C. No. 2:08-cv-06403-GHK-AGR. George H. King, Chief District Judge, Presiding.

SUMMARY[*]

False Claims Act

The en banc court reversed the district court's dismissal of consolidated civil qui tam suits brought on the government's behalf by Steven Hartpence and Geraldine Godecke under the False Claims Act, alleging that plaintiffs' former employer fraudulently claimed reimbursements from Medicare.

The court held that there are two, and only two, requirements in order for a whistleblower to be an " original source" who may recover under the False Claims Act: (1) Before filing the action, the whistleblower must voluntarily inform the government of the facts which underlie the allegations of the complaint; and (2) the whistleblower must have direct and independent knowledge of the allegations underlying the complaint. Abrogating earlier precedent, Wang ex rel. United States v. FMC Corp., 975 F.2d 1412, 1418 (9th Cir. 1992), the court held that it does not matter whether the whistleblower also played a role in the public disclosure of the allegations that are part of his suit. The court remanded for the district court to consider whether plaintiffs qualified as original sources under the two-part test announced in the opinion.

The court also held that the district court erred in its application of the first-to-file bar, which provides that a whistleblower must be the first to file an action seeking reimbursement on behalf of the government based on the fraudulent scheme. The panel concluded that Godecke's second and third claims were based on different material facts than the claims contained in Hartpence's earlier-filed complaint. Thus, they were not precluded by the first-to-file bar.

Mark Irving Labaton (argued) and Oren Rosenthal, Isaacs Friedberg & Labaton, Los Angeles, California; Michael A. Hirst, Hirst Law Group, P.C., Davis, California; Patrick J. O'Connell, Andrea Dawn Rose, and Jan Soifer, O'Connell & Soifer LLP, Austin, Texas, for Plaintiffs-Appellants.

Gregory M. Luce (argued), Maya P. Florence, and Colin V. Ram, Skadden, Arps, Slate, Meagher & Flom LLP, Washington, D.C.; Matthew E. Sloan, Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles, California, for Defendants-Appellees.

Before: Sidney R. Thomas, Chief Judge and Stephen Reinhardt, Alex Kozinski, Kim McLane Wardlaw, William A. Fletcher, Ronald M. Gould, Marsha S. Berzon, Consuelo M. Callahan, Carlos T. Bea, Sandra S. Ikuta and N. Randy Smith, Circuit Judges. Opinion by Judge Bea.

OPINION

Carlos T. Bea, Circuit Judge:

If a whistleblower informs the government that it has been bilked by a provider of goods and services, and that scheme is unmasked to the public, under what conditions can that same whistleblower recover part of what the guilty provider is forced to reimburse the government? We hold today that there are two, and only two, requirements in order for a whistleblower to be an " original source" who may recover under the False Claims Act: (1) Before filing his action, the whistleblower must voluntarily inform the government of the facts which underlie the allegations of his complaint; and (2) he must have direct and independent knowledge of the allegations underlying his complaint. Abrogating our earlier precedent, we conclude that it does not matter whether he also played a role in the public disclosure of the allegations that are part of his suit. We also hold that the district court erred in its application of the rule that a whistleblower must be the first to file an action seeking reimbursement on behalf of the government based on the fraudulent scheme.

OVERVIEW

The False Claims Act (" FCA" ), 31 U.S.C. § § 3729-3733, prohibits knowingly submitting to the federal government a false or fraudulent claim for payment.[1] As one enforcement mechanism, the FCA authorizes private parties, known as " relators," to bring civil qui tam suits on the government's behalf against entities who have allegedly defrauded the government. 31 U.S.C. § 3730(b)(1). In these suits, the relators seek reimbursement of the defrauded amounts on the government's behalf. Where, as here, the government declines to intervene in the suit, the relator stands to receive between 25% and 30% of any recovery. Id. § 3730(d)(2).

However, the FCA also includes several provisions that deprive federal courts of subject-matter jurisdiction over certain qui tam actions. These cases concern two such provisions, the " public disclosure" bar and the " first-to-file" bar. The public disclosure bar precludes qui tam suits where there has been a public disclosure of the fraud, unless the relator qualifies as an " original source" of the information. Id. § 3730(e)(4). The first-to-file bar precludes civil actions based on complaints which allege the same material facts as an earlier-filed civil complaint. Id. § 3730(b)(5); United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1188-90 (9th Cir. 2001).

In these consolidated qui tam cases, Steven Hartpence and Geraldine Godecke (" Relators" ) allege their former employer fraudulently claimed reimbursements from Medicare. After these allegations of Medicare fraud were publicly disclosed, Relators each informed the government of the alleged fraud and then filed separate complaints in district court. Under the public disclosure bar, the district court lacked jurisdiction over these actions unless Relators qualified as " original sources" under the FCA. 31 U.S.C. § 3730(e)(4). Relying on our existing precedent, the district court held that neither Relator qualified as an original source, because neither had a " hand in the public disclosure" of the fraud, a requirement we announced in Wang ex rel. United States v. FMC Corp., 975 F.2d 1412, 1418 (9th Cir. 1992). The district court further held that Godecke's complaint was also barred by the first-to-file bar, because her complaint alleged the same material elements of fraud as the complaint Hartpence had filed six months earlier. After a careful review of the statutory text, we overrule Wang as wrongly decided, and we remand for the district court to consider whether Relators qualify as original sources under the two-part test we announce today. Second, we hold that the district court erred in finding Godecke's action barred by the first-to-file bar, because some of Godecke's claims are materially distinct from Hartpence's claims.

I. The FCA

The FCA authorizes whistleblowing private citizens to file suit after discovering that the federal government has been defrauded. Schindler Elevator Corp. v. United States ex rel. Kirk, 131 S.Ct. 1885, 1889, 179 L.Ed.2d 825 (2011). As originally enacted, the FCA allowed a relator to bring a qui tam action even if he discovered the fraud merely by reading information already in the public domain. See Wilson, 559 U.S. at 293-94. In 1943, Congress amended the FCA to bar such " ...


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