A recent case from the District of Massachusetts raises an interesting question under the False Claims Act’s public disclosure bar. See United States ex rel. Estate of Cunningham v. Millennium Laboratories of California, Civil Action No. 09-12209 (D. Mass. Jan. 30, 2012). The defendant Millennium Laboratories provides drug testing services to physicians who treat chronic pain conditions and need to closely monitor their patients’ drug use. The relator Robert Cunningham was a compliance officer for Calloway Laboratories, a competitor of Millennium. On December 29, 2009, Cunningham filed a qui tam complaint in the District Massachusetts against Millennium, alleging that the company was encouraging physicians to use incorrect billing codes to charge Medicaid, Medicare and other government funded health care programs in connection with initial drug screens the physicians performed in their offices.

Five days earlier, on December 24, 2009, Millennium commenced a defamation lawsuit against Calloway in California state court, alleging that several Calloway executives were contacting Millennium’s customers and informing them that Millennium’s billing practices allowed it to bill insurance companies and the government twice for the same service. Millennium annexed several examples of these communications to its defamation complaint. Cunningham passed away in December 2010. Cunningham’s estate took over the qui tam lawsuit and filed an amended complaint on February 25, 2011. The government declined to intervene.

Millenium moved to dismiss the qui tam complaint on three grounds: for lack of subject matter jurisdiction pursuant to the FCA’s public disclosure bar, failure to plead fraud with particularity under Rule 9(b), and failure to state a claim under Rule 12(b)(6). Because jurisdiction is a threshold matter, the court addressed the public disclosure bar issue first.

Under the pre-PPACA version of the public disclosure bar (i.e., the version that existed prior to March 23, 2010), a previous public disclosure could have occurred in either a federal or state case or hearing to trigger the FCA’s public disclosure bar. Under the post-PPACA version, previous public disclosures in state court proceedings no longer trigger the public disclosure bar.

As you would expect, the parties disagreed as to which version of the public disclosure bar should apply to the case. Defendant Millennium argued that the pre-PPACA public disclosure bar should apply because that is the version that was in effect at the time the relator filed his original qui tam complaint. Under this view, the state defamation suit would qualify as a prior public disclosure. The relator argued that the post-PPACA public disclosure bar should apply because, according to the relator, it is retroactive. Under this interpretation, the state defamation suit would not qualify as a prior public disclosure.       

The court agreed with Millennium and held that the pre-PPACA public disclosure bar applied because “the court must decide whether there was jurisdiction over Relator’s FCA claim under the public disclosure bar as it existed at the time Robert Cunningham filed the original Complaint in this suit.” The court held that the California state suit qualifies as a prior public disclosure and dismissed the action:

Although the situation is atypical, the California suit undoubtedly qualifies as a prior public disclosure under the FCA as it existed at the time Robert Cunningham filed the original Complaint in this case. In the complaint in the California suit, Millennium describes its billing practice and argues that Calloway has misrepresented it as fraudulent….The public disclosure of allegations of fraud can occur when a plaintiff brings a defamation suit alleging that the defendant has represented plaintiff’s actions to be fraudulent. This interpretation of the FCA’s jurisdictional requirement furthers the policy that underlies the public disclosure bar. When a company like Millennium brings a defamation suit against accusations of fraud, it is not working to conceal its interpretation of the law. Rather, it is voluntarily bringing to light the actions that it took. Additionally, it is not insulating itself from potential liability in a lawsuit brought by the United States government. In such a case, a relator is not necessary to “rout out the fraud” and a qui tam suit should be denied if the circumstances fulfill the other prongs of the public disclosure bar.