In Recent "Original Source" Decision, Relator's Pre-2010 "Secondhand" Claims Back-Handed by Third Circuit
A recent Third Circuit decision reaffirmed the high bar a relator must meet to qualify as an "original source" under the pre-2010 version of the False Claims Act's (FCA) public disclosure bar. Before the 2010 amendments to the FCA, the statute defined "original source" to require that relators have "direct" (i.e., firsthand) and independent knowledge of the information underpinning their claims. In 2010, Congress expanded the original source exception to include instances where the relator "materially adds to the publicly disclosed allegations," even if the relator did not directly obtain the information at issue. Importantly, the 2010 amendment does not apply retroactively, meaning that, in cases involving pre-2010 conduct, relators still must meet the "firsthand knowledge" standard to qualify as an original source.
In United States ex rel. Denis v. Medco Health Solutions, 2019 WL 2513790 (3d Cir. Jun. 18, 2019), the relator alleged that Medco and its parent Express Scripts accepted illegal kickbacks disguised as discounts in their contracts with AstraZeneca. Medco had moved to dismiss the case on several grounds, including the public disclosure bar. In determining whether the relator was an original source, the district court applied what it deemed an "awkward" approach under which courts evaluate any pre-2010 allegations using the "direct" knowledge rule and post-2010 allegations using the "materially adds to" standard. United States ex rel. Denis v. Medco Health Solutions, 299 F. Supp. 3d 610, 614 (D. Del. 2017). The Court found the relator had not been directly involved in negotiating the agreements at issue, but rather had gained knowledge regarding the allegations in his complaint exclusively through review of the relevant contracts and discussions with other employees.
On appeal, relying on an earlier decision from a case arising out of the same relationship between Medco and AstraZeneca, United States ex rel. Schumann v. AstraZeneca Pharmaceuticals L.P., 769 F.3d 837 (3d Cir. 2014), the Third Circuit explained that direct knowledge means "'first-hand [knowledge], seen with the relator's own eyes, unmediated by anything but [the relator's] own labor, and by the relator's own efforts, and not by the labors of others, and … not derivative of the information of others.'" Denis, 2019 WL 2513790 at *2 (internal citations omitted). The Third Circuit affirmed the district court's dismissal, holding that the relator's allegations reflected "exclusively information he learned second-hand from other Medco employees and [from] reviewing the agreements already in place," which was not "direct" knowledge of the alleged kickback scheme. Id. at *3.
The Third Circuit's decision is consistent with numerous other decisions making clear that before 2010, where the relevant information was previously disclosed, a relator must have firsthand knowledge and do more than review documents and discuss them with others who actually participated in the conduct at issue. Although this decision certainly represents a victory for defendants, because its holding was limited to the pre-2010 standard, its utility may be limited moving forward, given that allegations of pre-2010 conduct likely will fall off sharply in the coming years.
© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.