Opinion analysis: Court restricts use of FOIA in FCA cases

By Eric M. Fraser
on May 16, 2011 at 8:33 pm

The False Claims Act prohibits fraud against the federal government, and contains a provision allowing a private party, known as a relator, to sue an alleged fraudster. Such a suit, called a qui tam suit, is brought on behalf of the government. If the suit is successful, then the relator may share in the recovery.

To prevent parasitic suits, however, the False Claims Act bars suits that are based upon certain public disclosures – for example, a suit brought by a private individual against a government contractor that is based upon information from a criminal case that the government had already brought against the contractor. The Act lists the sources that trigger this “public disclosure bar,” including an administrative report, an administrative investigation, a criminal hearing, and the news media.

In this case Daniel Kirk, the respondent, filed a suit against Schindler Elevator Corp., his former employer. Kirk alleged that Schindler had not only failed to comply with its obligations as a government contractor to promote job opportunities for veterans, but it had also either filed fraudulent reports documenting the number of veterans in its workforce or failed to file such reports altogether.  He based these allegations in part upon his own personal knowledge as a former employee, but he also relied upon responses by the Department of Labor to FOIA inquiries made by his wife. Schindler argued that because these FOIA responses were administrative reports or administrative investigations, the public disclosure bar therefore applied to preclude Kirk’s lawsuit.

The district court agreed with Schindler and dismissed the case, but the Second Circuit reversed.  It held that an agency’s response to a FOIA request does not necessarily trigger the public disclosure bar because not all such responses can be fairly characterized as an “administrative report” or an “administrative investigation” – an issue that, until now, was the subject of an ongoing split among the courts of appeals.

In a relatively short and simple opinion by Justice Thomas that was joined by the Chief Justice and Justices Scalia, Kennedy, and Alito, the Court reversed the decision of the Second Circuit.  It interpreted the word “report” to have a broad meaning. (The Court did not need to decide whether a FOIA response is also an “investigation.”) Using several dictionary definitions, the Court explained that a “report” is “something that gives information,” a “notification,” or “[a]n official or formal statement of facts or proceedings.” Further, it continued, the public disclosure bar generally has a “broad scope,” and its interpretation is consistent with the other enumerated sources, such as information from the news media.

The Court rejected the Second Circuit’s reasoning (as well as the arguments advanced by the respondent in this case) that a broad interpretation of the word “report” would be inconsistent with the legislative history and would lead to unusual circumstances, including the prospect that a potential defendant could insulate himself by filing FOIA requests to cut off potential relators. The Court suggested not only that it found these arguments unpersuasive, but also that it would be tough for them to overcome the unambiguous text of the statute. Moreover, it noted, neither the Second Circuit nor the respondent had articulated a principled workable narrow definition of the terms.

Justice Ginsburg filed a dissenting opinion, which was joined by Justices Breyer and Sotomayor.  In it, she explained that she “would affirm the Second Circuit’s judgment as faithful to the text, context, purpose, and history of the FCA’s public disclosure bar.” Justice Kagan took no part in the case.

After this decision, potential relators will not be able to use FOIA requests to go on a so-called “fishing expedition” to find instances of fraud, but their role as independent, external auditors will also be curtailed. The Court did, however, leave open the possibility that a FOIA disclosure will not necessarily bar all qui tam suits. First, a relator who is the “original source” of the information may still bring a suit, even if the information later appeared in a FOIA disclosure. Second, the Court left undecided the question whether a FOIA disclosure would bar a relator who discovers the wrongdoing independently.

Eric M. Fraser is the Executive Director for Research for the Committee on Capital Markets Regulation. The views expressed herein do not necessarily represent the views of the Committee.

DISCLOSURE: Mr. Fraser is the author of an article on the question presented by this case.