Unfiled Discovery Documents in Contract Action Not Public Disclosure Under FCA

2010 Volume 1

By: Chelsea S. Rice*

On May 12, 2009, the United States District Court for the Southern District of Ohio, Western Division, denied a motion to dismiss an FCA qui tam action after finding that unfiled discovery materials in a prior breach of contract case did not constitute a public disclosure that would bar the relator from bringing his claim under the FCA. U.S. ex rel. Fry v. Health Alliance of Greater Cincinnati, No. 1:03-cv-00167 (S.D. Ohio May 12, 2009).

Factual Background

On March 7, 2003, the relator, Dr. Harry F. Fry, filed a qui tam complaint against defendants The Christ Hospital and Health Alliance of Greater Cincinnati (hereinafter, “the defendants”) for allegedly engaging in a “pay-to-play” scheme that violated federal fraud and abuse laws. The government elected to intervene on April 1, 2008. The defendants sought to dismiss the relator from the action, based on the grounds that his complaint was premised on disclosures in previous litigation, thus barring him under the FCA’s “public disclosure bar.”

The documents at issue were discovery documents from a previous breach of contract action between Medical Diagnostic Associates and University Internal Medicine Associates, Inc. — documents upon which certain allegations in the relator’s qui tam complaint were based. The relator argued that only documents filed with the court (i.e., the complaint) constitute a public disclosure for purposes of the FCA, not documents exchanged between private parties as part of discovery.

Legal Analysis

In reaching a decision on the motion to dismiss, the court was called on to interpret a recent Sixth Circuit decision, U.S. ex rel. Poteet, 552 F.3d 503 (6th Cir. 2009). In Poteet, the Sixth Circuit held that for a relator’s qui tam action to be barred by a prior public disclosure of the underlying fraud, “the disclosure must have (1) been public, and (2) revealed the same kind of fraudulent activity against the government as alleged by the relator.” Id. at 511. The Sixth Circuit went on to clarify that a public disclosure “includes documents that have been filed with a court, such as discovery documents, and a plaintiff’s complaint.” Id. at 512.

The defendants argued that Poteet did not decide the issue of whether unfiled discovery could constitute public disclosure under the FCA. However, the court agreed with the government’s contention that if unfiled discovery in litigation could constitute public disclosure it would remove incentives for relators to blow the whistle on fraud. In addition, the government “plainly stated” that it relied on the relator’s information and without it the government would have had no knowledge of the case.

The court found that Poteet, by stating that publicly filed documents amount to a public disclosure, necessarily excluded unfiled documents from the public disclosure bar. The court also said that there are a number of policy reasons for such a rule: “[T]he whole purpose of the FCA is to harness incentives for a whistleblower or ‘private attorney general’ to report to the government alleged fraud that otherwise could go undiscovered.” Fry at pp. 6–7.

The court noted that there may be instances in which unfiled discovery documents may be disclosed through other avenues, implying that those situations may constitute “public disclosure” for purposes of the FCA. However, in this case, the discovery documents did not preclude the relator from bringing his qui tam claims, and thus the court denied the defendant’s motion to dismiss. The court also rejected the defendant’s suggestion that the public disclosure issue would be appropriate for immediate appellate review, finding that such an appeal would not materially advance the termination of the litigation.

* Chelsea S. Rice is a former member of Ober|Kaler's Health Law and Government Investigations and White Collar Defense Group.