Motion to Dismiss Granted in False Claims Act Case Based on Public Disclosure Bar

By Sarah Wirskye - On

A California federal district court granted a motion to dismiss in a False Claims Act (“FCA”) case based upon the FCA public disclosure bar. United States of America, et. al. v. Shamir USA, Inc., 2:18-cv-09426-RGK-PLA, 2020 WL 6152466. The public disclosure bar prohibits a relator from bringing a FCA case based on a fraud that has already been disclosed through certain public channels, unless the relator is an “original source” of the information. 31 U.S.C. § 3730(e)(4)(A)(iii).

The defendant, Shamir, was a manufacturer of eye lenses.  Like in many FCA cases, the relator was a former employee – account manager for the defendant. Shamir’s lenses were sold to consumers through third parties such as optometrists, ophthalmologists, and opticians. Relator alleged violations of the Anti-Kickback Statute because Shamir allegedly offered third parties rewards, such as cash, rebates, discounts, gifts, free products, and gift cards.

In its motion to dismiss, Shamir contended that the relator could not bring a complaint under the FCA public disclosure bar because Shamir had previously publicly advertised the details of its rewards program. The Court agreed based upon several news media articles about Shamir’s rewards programs and Shamir’s “About Us” webpage before the lawsuit was filed. The Court held that such sources fit within the category of “news media,” under the FCA public disclosure bar. The other two categories of the FCA public disclosure bar include a “[f]ederal criminal, civil, or administrative or a hearing in which the Government or its agent is a party; [or] a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation.” 31 U.S.C. § 3730(e)(4)(A).

The Court further found that the relator failed to establish itself as an “original source” of the allegations. In order to be considered an original source under the FCA, the relator must have voluntarily provided relevant information to the Government before filing the FCA action or has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions. § 3730(e)(4)(B). As is usually the case when an initial motion to dismiss is granted, the Court granted the relator leave to amend its pleadings for the purpose of alleging whether the relator met the statutory requirements for an original source.

It is important to note that the FCA public disclosure bar states that the “court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed” via the methods previously discussed or ‘unless the action is brought by the Attorney General.”  §3730(e)(4)(A) (emphasis added). Therefore, while the public disclosure bar has a narrow application, Shamir is still an important case.  With more information in the public domain via the internet, defendants may be more successful in asserting this defense in the future.

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