Federal District Court Issues Troubling Decision Regarding Public Disclosure Bar

Guest Blogger: Jason Workmaster, McKenna Long & Aldridge LLP

In a long-running civil False Claims Act (“FCA”) case, United States ex rel. Rille v. Sun Microsystems, Inc., No. 4:04-C-V00986-BRW, the U.S. District Court for the Eastern District of Arkansas recently denied a Government motion to dismiss, on public disclosure grounds, the relators’ claim that Sun had fraudulently provided inaccurate Commercial Sales Practices (“CSP”) data in support of the pricing of its General Services Administration (“GSA”) Schedule. The court’s denial of the Government’s motion is troubling for several reasons.

The Sun case began in 2004 when the relators filed their initial qui tam complaint. As relevant here, that complaint alleged that Sun participated in an industry-wide “strategic alliance” scheme that somehow resulted in violations of the requirement that a contractor be “truthful in negotiations, and … certify that the cost or pricing data they proffer to the Government is current, accurate, and complete.” The relators’ 2004 complaint did not expressly allege that Sun had “defectively priced” any particular contract, let alone that it had submitted inaccurate CSP data in connection with its GSA Schedule.

At the same time the relators were filing their initial complaint, the GSA Inspector General (“IG”) was conducting a wholly independent audit of Sun’s GSA Schedule. The IG’s findings, including allegations that Sun had defectively priced its GSA Schedule by providing inaccurate CSP data, began to be made available to Sun in 2004 and were the subject of press reports in 2005. In 2006, the relators in the Eastern District of Arkansas case amended their complaint to allege that Sun had provided GSA with inaccurate information regarding its “best pricing.”

On the basis of the above chronology, the Government moved to dismiss, on public disclosure grounds, the relators’ claim that Sun had defectively priced its GSA Schedule. The Government argued: (1) that the relators did not assert this claim until 2006; (2) by that time, the claim had been publicly disclosed; and (3) that the relators were not original sources.

The court rejected all three of the Government’s arguments. First, the court found that the 2004 qui tam complaint’s vague references to violations of the general requirement that contractors submit accurate cost or pricing data were sufficient to encompass the claim that Sun had defectively priced its GSA Schedule. This finding is disturbing as it reflects a willingness to read relators’ complaints very liberally. This has potentially negative implications for Rule 9(b) motions (in which defendants seek to have FCA complaints dismissed for failing to plead fraud with particularity) as well as for statute of limitations analysis.

Second, the court rejected the Government’s assertion that the pre-2006 disclosures constituted “public disclosures” within the meaning of the FCA. Even though the disclosures notified the public that the Government was questioning the adequacy of the CSP data Sun had submitted, the court found that those disclosures did not provide notice that the Government considered Sun’s conduct to be fraudulent. Without such disclosure, the court held, there could not be a “public disclosure” for FCA purposes. This rule—that the public disclosure must specifically assert fraud—is yet another hurdle that, if more widely adopted, would make it harder for FCA defendants to obtain dismissals.

Third, and finally, the court found that, even if the Government had shown that the relators’ defective pricing allegation regarding Sun’s GSA Schedule was based upon a public disclosure, the relators in the case were “original sources.” The court based this conclusion on relators’ knowledge of “contracts between Accenture [relator Rille’s former employer] and Sun,” as well as their possession of “hundreds of thousands of pages of documents at the onset of their qui tam cases” regarding the alleged strategic alliances. This was an extremely low bar for the relators to clear in order to show themselves to be “original sources” regarding their defective pricing claim. And, under this rule, it could be difficult for future defendants to show that a relator was not an original source.

That the court went to such lengths to disagree with the Government itself regarding whether the public disclosure bar required dismissal of the relators’ defective pricing claim in the Sun case is a cautionary tale for future defendants seeking to rely on this tool.

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