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Foley & Lardner LLP: 7th Circuit Rejects Public-Disclosure Bar in Qui Tam Case

By Eric G. Pearson

A cardinal rule of a qui tam action brought under the False Claims Act is that the relator must be the information’s original source.

In United States ex rel. Heath v. Wisconsin Bell, Inc., No. 12-3383 (7th Cir. July 28, 2014), the Seventh Circuit grappled with this bar on the use of publicly disclosed information, refusing to apply it in a case involving the amounts Wisconsin Bell charged to Wisconsin school districts for phone service.  (The  Affordable Care Act modified this rule somewhat, but the change was not retroactive, so the court applied the law that was in effect before the Affordable Care Act became law.)

Certain Wisconsin school districts employed the relator, Heath, to audit their telecommunications bills. Understanding why requires a brief explanation of the Education Rate Program. The program is a federal subsidy created by the Telecommunications Act of 1996. It subsidizes telecommunication services for qualifying school districts, but it requires that any participating telecommunications provider charge “rates less than the amounts charged for similar services to other parties.” 47 U.S.C. § 254(h)(1)(B).

Heath discovered that Wisconsin Bell was overcharging the school districts under this rule. It charged certain school districts more than others, and, as Heath found after unearthing the state’s Voice Network Services Agreement on the Department of Administration’s website, Wisconsin Bell charged other state departments and agencies less than the school districts.

Heath brought a case under the False Claims Act, but the district court dismissed it for lack of subject-matter jurisdiction. It adopted Wisconsin Bell’s argument that the publicly available information on the DOA’s website barred Heath’s claim.

The public-disclosure bar is one way that the False Claims Act “seeks to prevent parasitic lawsuits by ‘opportunistic plaintiffs who have no significant information to contribute of their own[.]‘” Slip Op. 5. Applying it is a three-step inquiry: (1) examining whether the relator’s allegations were “publicly disclosed,” (2) asking if the lawsuit is based on that publicly disclosed information, and (3) determining if the relator is the information’s “original source.” Slip Op. 5-6.

Only the second of these three mattered to the Seventh Circuit because it found that Heath’s lawsuit was not based solely on publicly disclosed information. The publicly disclosed Voice Network Services Agreement was only part of his claim. “No one,” the court explained, “could view the agreement in a vacuum and realize that Wisconsin Bell was overcharging school districts.” Slip Op. 7. It was Heath’s “extensive knowledge of the schools’ telecommunications pricing” that made his claim possible. Id. at 8. And Heath, the court held, was that information’s original source because of his work for the school districts.

As it has at least three times before, the court cautioned “against the use of the public disclosure bar at a high level of generality.” Id. at 7. Relators, no doubt, will take note.

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