Fifth Circuit Upholds Original Source Requirements under False Claims Act
The Fifth Circuit recently affirmed the dismissal of two Relators’ claims brought under the Federal False Claims Act (“FCA”), 31 U.S.C. §§ 3729-3733 based on the Relators’ lack of personal knowledge of the information in their Complaint. In requiring a federal False Claims Act relator to be an original source of the information underlying the FCA claim in order to assert a qui tam action, the federal appeals court in New Orleans has agreed with other federal courts that this is a prerequisite to an FCA claim. United States ex rel. Lockey, No. 13-10884 (5th Cir. Aug. 4, 2014).
The Relators asserted they had personal knowledge of alleged discriminatory housing practices by the City of Dallas. They alleged the City failed to adhere to certifications submitted to the U.S. Department of Housing and Urban Development (“HUD”) in order to receive federal funding. The Relators alleged the City intentionally avoided building low-income housing in certain parts of Dallas, contravening certifications submitted to HUD that it would “affirmatively further fair housing, meaning that it would conduct an analysis to identify impediments to fair housing choice within the jurisdiction, and take appropriate actions to overcome the effects of any impediments.” The Relators also filed a contemporaneous claim with HUD against the City and the Dallas Housing Authority (“DHA”), in addition to their FCA claim against the City and the DHA. HUD subsequently issued a Letter of Finding and Non-Compliance.
The District Court found the Relators’ FCA Complaint mentioned the Relators’ alleged personal knowledge in passing, instead concentrating on information learned by review of publicly disclosed documents, which included documents obtained through FOIA requests and a prior widely publicized lawsuit, to which HUD, the DHA and the City had all been party. That lawsuit alleged similar conduct to Relators’ FCA claim – that the City and DHA had intentionally failed to build low-income housing in parts of Dallas, despite its obligations to “further fair housing” and “take appropriate actions to overcome the effects of impediments” to fair housing.
The Defendants in Lockey moved to dismiss the FCA claim, arguing the action was jurisdictionally barred by the FCA’s public disclosure bar and the Relators did not qualify for the “original sources” exception, 31 U.S.C. § 3730(e)(4)(B). The District Court granted Defendants’ motion to dismiss on this basis.
The appellate court affirmed the District Court’s decision, rejecting the Relators’ argument that their claims were based upon personal knowledge and, to the extent the claims were based upon public disclosures, the District Court erred in finding they did not qualify as an “original source” of the information. The Fifth Circuit noted that while the Relators could save their FCA claim if they could be considered an “original source”, to do so, they would have to show: (1) they had direct and independent knowledge of the information underlying their FCA claim; and (2) they voluntary disclosed the information to the Government before filing the claim.
Applying these factors, the Court found Relators were not “original sources”. In particular, the Court noted the Relators’ personal knowledge had no relation to the DHA, and as a result, they could not possibly have direct or independent knowledge of any alleged fraud by the DHA. Therefore, the Fifth Circuit dismissed the claim against the DHA. In addition, the Fifth Circuit found the vast majority of their Complaint against the City was based upon publicly disclosed information. Despite their argument that their personal knowledge placed HUD “on the trail” of the City’s alleged fraud, the Court stated this does not mean “that second-hand information may be converted into ‘direct and independent knowledge’ simply because the plaintiff discovered through investigation or experience what the public already knew.” Furthermore, the Court clarified the type of knowledge required to be an original source, “[a relator’s] investigation or experience…either must translate into some additional compelling fact, or must demonstrate a new and undisclosed relationship between disclosed facts, that puts a government agency ‘on the trail’ of fraud, where that fraud might otherwise go unnoticed.” (Emphasis added.)
This decision continues to indicate the Court’s increasing willingness to scrutinize assertions made by Relators seeking to assert FCA claims.