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Seventh Circuit Offers Additional Guidance on the Pre-2010 Public Disclosure Bar

In an opinion by Judge Richard Posner, the Seventh Circuit recently had an opportunity to revisit the pre-2010 version of the public disclosure bar found in 31 U.S.C. § 3730(e)(4). In United States ex rel. Bogina v. Medline Industries, Inc., No. 15-1867 (7th Cir. Jan. 4, 2016), the court considered the dismissal of a 2011 qui tam complaint filed against Medline Industries, Inc., a “major seller of medical equipment to institutions reimbursed by Medicare,” and Tutera Group, a “chain of nursing homes that is a Medline customer.” The relator alleged that Medline paid bribes and kickbacks to the Tutera Group to induce additional purchases.

The case hinged on application of the public disclosure bar, due to earlier lawsuits against Medline based on the same conduct. As the conduct at issue occurred from 2003 to 2009, the court applied the pre-2010 version of the public disclosure bar. (In Graham County Soil & Water Conservation Dist. v. U.S. ex rel. Wilson, 559 U.S. 280 (2010), the Supreme Court held that the 2010 amendment to § 3730(e)(4) is not retroactive.) That version of the statute barred a qui tam suit “based upon public allegations” unless the relator was “an original source of the information.” In 2010, the statute was amended to bar a qui tam suit where “substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed,” unless the relator was an “original source.” The amendment also changed the definition of original source. Previously, an “original source” was an “individual who has direct and independent knowledge of the information.” The new statute defined an original source as an individual with “knowledge that is independent of and materially adds to the publicly disclosed allegations.”

In his opinion, Judge Posner described the pre-2010 definition of “original source” as “inscrutable” and difficult to apply. His opinion also concluded that the new definition is only a clarification, rather than a change, to the meaning of the term “original source.”

Thus, he held that “because the earlier definition is inscrutable as well as skimpier than the current one, the current one should be deemed authoritative regardless of when a person claiming to be an original source acquired his knowledge.” In other words, because the amendment to the “original source” definition “is a clarifying rather than a substantive amendment, it is not subject to a retroactivity bar.”

This part of the holding is important, as it means that courts and litigants no longer have to wrestle with the question of what it means to have “direct” and “independent” knowledge – questions that have vexed lawyers for years.

Returning to the facts of the case, the court concluded that the suit was barred by the public disclosure bar. Because the prior lawsuit against Medline also accused it of paying kickbacks, the court concluded that the new lawsuit did not “materially add” to the allegations raised in the first lawsuit. The only material difference between the new complaint and the prior complaint was the addition of the Tutera Group, which the court deemed immaterial.

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