Fifth Circuit Rebukes District Court For Overly General Application of the Public Disclosure Bar
In U.S. ex rel. Little v. Shell Exploration, No. 14-20156, 2015 U.S. App. LEXIS 2824 (5th Cir. Feb. 23, 2015) the Court of Appeals for the Fifth Circuit chastised the court below for applying the public disclosure bar at too high a level of generality, and held that the bar does not apply unless the public disclosures not only “concern the fraudulent scheme alleged” but also are “as broad and as detailed” as the allegations in the relator’s complaint.
The relators in Little alleged that Shell Exploration violated the False Claims Act by improperly deducting from royalties paid the government its costs of “gathering” oil, i.e., moving extracted oil to a central accumulation or treatment station. 2015 U.S. App. LEXIS 2824, at *3. Based on the defendant’s public statements and on prior administrative and court decisions involving other aspects of the defendant’s royalty payments, the district court initially granted summary judgment against the relators on public disclosure and other grounds. Id. On appeal, the Fifth Circuit reversed and remanded with instructions conduct the public disclosure analysis with more specificity. Id. at *4. But despite this mandate, the district court again granted summary judgment without engaging in a detailed public disclosure analysis. Id. at *12–13.
The Fifth Circuit again reversed. Id. According to the court, the public disclosure bar does not apply unless the public disclosures both concern allegations or transactions related to the alleged fraud and are at least “as broad and as detailed as those in the relator’s complaint.” Id. at *11. None of the public disclosures Shell pointed to met this standard. First, Shell’s public statements, in which it urged a federal agency to make gathering costs deductible, simply were “neither an allegation nor an actual transaction of fraud.” Id. at *14. Second, the administrative decisions Shell pointed to “concerned facts substantially different from the fraudulent scheme alleged by Relators” because they involved disputes about oil transportation costs rather than oil gathering costs. Id. at *18–25.
Finally, the judicial decisions Shell relied on did not disclose the fraudulent scheme alleged by the relators because none of the cases involved a scheme specific to oil gathering costs: one of the cases concerned whether all royalty deductions were illegal under an earlier version of the applicable regulations, id. at *27–29; and the others involved different types of fraudulent activity related to oil royalties—namely, misrepresenting the market value of extracted oil and overestimating otherwise-deductible transportation costs, id. at *30–32. Thus, these cases were “simply too factually and legally dissimilar to constitute public disclosures of the fraudulent scheme alleged in this case.” Id. at *32.