DC Circuit Rules On Public Disclosure and First-to-File Bars
In U.S. ex rel. Shea v. Cellco, No. 15-7135 (D.C. Cir. July 25, 2017) (“Shea”), the United States Court of Appeals for the D.C. Circuit issued an opinion addressing the public disclosure bar and pending case bar (also referred to as the “first-to-file bar”). The D.C. Circuit affirmed in all respects the district court’s dismissal of the relator’s lawsuit without prejudice.
In Shea, the relator had initially filed a lawsuit claiming that Verizon overcharged the Government for certain taxes and fees in connection with a single Government contract. That case ultimately resulted in a settlement, but before the first case was settled, the relator – instead of amending the first complaint to add new claims – filed a second lawsuit alleging that Verizon was engaging in similar practices in connection with numerous other Government contracts. While the second-filed case was pending in the district court, the first case was settled. The defendant moved to dismiss the second-filed case, and the relator argued that he should be allowed to continue pursuing the second-filed lawsuit. The relator contended that because he was the relator in the first-filed case, that should not bar his own second-filed case; the relator also argued that, after the dismissal of the first-filed case, the “first-to-file bar” should no longer prevent him from continuing to pursue the second case. The district court rejected the relator’s argument and ordered the dismissal of the second-filed case without prejudice. The defendant also argued that the second-filed case was barred by the “public disclosure bar,” and therefore should have been dismissed with prejudice, but the district court rejected that argument.
The D.C. Circuit held that Shea’s lawsuit was not barred by prior public disclosures. The Court held that while disclosures in a public website could qualify as “public disclosures,” in this case, one could not infer from any prior public disclosures that Verizon had been improperly billing certain taxes or fees to the Government. In so holding, the Court relied upon its oft-cited ruling in U.S. ex rel. Springfield Terminal Ry. v. Quinn, 14 F.3d 645 (D.C. Cir. 1994), that a complaint is “based upon” earlier public disclosures only when prior disclosures contained either an allegation of the fraud (the “Z” in the equation X+Y=Z), or allegations concerning both the defendant’s misrepresentations (the “X”) and the true facts of affairs (the “Y”) such that fraud could be inferred from the disclosures. The Court noted that while the requirements in Verizon’s government contracts were available on-line, information about Verizon’s actual billing practices were not in the public domain. The Court recounted how the relator, who was not an insider to Verizon, had utilized his industry contacts and knowledge to obtain non-public information about Verizon’s practice of illegally charging certain surcharges and taxes to its government customers. The Court held that when a relator “bridge[s] the gap” between the misrepresentations and the true facts by his “own efforts and experience, the public disclosure bar does not apply.” Shea, slip op. at 22 (citing U.S. ex rel. Springfield, 14 F.3d at 657). The Court specifically rejected the notion that public disclosures concerning Verizon’s statements that it would begin charging fees to government customers to cover surcharges and taxes gave rise to an inference of fraud, opining that these modifications “tend to show that Verizon contracted with the government to charge the fees, not that it fraudulently billed the government.” Shea, slip op. at 21.
The D.C. Circuit further held that, because the second case was originally filed at a time when another related, earlier-filed case was pending, the district court was required to dismiss the second-filed lawsuit without prejudice, even though the first-filed lawsuit had already been resolved before the court had the opportunity to rule on the motion to dismiss the second-filed case. The D.C. Circuit held that the relator was not permitted to “cure” the violation of the pending case bar by filing an amended or supplemented complaint, and that dismissal without prejudice was the appropriate action. It is noteworthy that the D.C. Circuit’s decision is in conflict with the First Circuit’s well-reasoned opinion in U.S. ex rel. Gadbois v. PharMerica Corp., 809 F.3d 1 (1st Cir. 2015), as well as a number of district court opinions that have held that in this kind of situation, the relator in the second-filed case may “cure” the violation by filing an amended or supplemented complaint. (Note: VS&G represents the relator in the U.S. ex rel. Gadbois lawsuit.)