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Court Affirms Public Disclosure Bar to Qui Tam Action: Seventh Circuit
Practical Law Legal Update w-001-4849 (Approx. 3 pages)
Court Affirms Public Disclosure Bar to Qui Tam Action: Seventh Circuit
by Practical Law Litigation
| Published on 01 Mar 2016 • USA (National/Federal) |
In Cause of Action v. Chicago Transit Authority, the US Court of Appeals for the Seventh Circuit held that the case fell within the public-disclosure bar to the qui tam provision of the False Claims Act.
On February 29, 2016, in Cause of Action v. Chicago Transit Authority, the US Court of Appeals for the Seventh Circuit held that the case fell within the public-disclosure bar to the qui tam provision of the False Claims Act ( (7th Cir. Feb. 29, 2016)).
In 2005 and 2007, the Illinois Auditor General conducted two performance audits of the Chicago Transit Authority (CTA), which concluded that the CTA misreported its transit data to the Federal Transit Authority (FTA). In 2012, the FTA sent a letter to the CTA explaining that the FTA had conducted an in-depth review, and directed the CTA to revise its transit data for reporting in 2011.
In May 2012, Cause of Action, a nonprofit government watchdog organization, brought an action against the CTA under the qui tam provision of the False Claims Act (31 U.S.C. § 3730) in the US District Court for the District of Maryland. Cause of Action alleged that for several decades, the CTA fraudulently misreported transit data to the FTA to receive inflated federal grants. In its complaint, Cause of Action attached the technical and audit reports conducted by the Illinois Auditor General, and an affidavit from the author of the reports. The District of Maryland transferred the case to the Northern District of Illinois. The US declined to intervene and the complaint was unsealed.
The CTA then moved to dismiss on the ground that Cause of Action failed to establish subject matter jurisdiction under the False Claims Act's public-disclosure bar. The public-disclosure bar withdraws jurisdiction over qui tam actions, which allows a private person to sue for a penalty on behalf of the government, on allegations that have already been disclosed publicly unless the relator is an original source of the information. The Northern District of Illinois concluded that Cause of Action's allegations had been publicly disclosed in the technical and audit reports and the FTA letter.
The Seventh Circuit agreed that the allegations had been publicly disclosed, and affirmed. The court applied a three-step analysis to determine if an action is barred under the public-disclosure bar, which examines whether:
- The allegations in the complaint have been publicly disclosed.
- The relator's lawsuit is based upon or substantially similar to the publicly disclosed allegations.
- The relator is an original source of the information on which the lawsuit is based.
The Seventh Circuit held that the first prong was met because:
- The facts disclosing the fraud are in the government's possession. Notably, the court held that unlike in other circuits, "public disclosure" does not require some act of disclosure to the public outside of the government. However, the Seventh Circuit stated there was "significant force" in the position of these other circuits. The court found that the FTA Letter and the audit report were publicly disclosed within the meaning of the statute, since the CTA's inaccurate reporting was publicly disclosed by the time Cause of Action's complaint was filed.
- The audit report provided a sufficient basis to infer directly that the CTA knew it was presenting a false set of facts to the government.
The Seventh Circuit also found that the second and third prongs of the three-step analysis were satisfied.