Court Decision Revokes Wang Public Participation Requirement

In a victory for whistleblowers, the U.S. Court of Appeals for the Ninth Circuit in an en banc decision this month reversed a central holding in the long-standing precedent U.S. ex rel. Wang v. FMC Corp in an opinion filed July 7, 2015. Wang held that to qualify as an “original source,” under the False Claims Act, a whistleblower must prove him or herself to be the source of any public disclosure concerning the allegations or transactions of fraud.

The en banc decision in U.S. ex rel. Hartpence v. Kinetic Concepts, Inc., a case brought by two whistleblowers alleging Medicare fraud, reverses the requirement that a whistleblower be the source of any public disclosure, recognizing, as whistleblower attorneys argued for years, that the requirement had no basis in law.

Wang, decided in 1992, required whistleblowers to meet the following three-prong test to qualify as an “original source.”

1. The relator must voluntarily inform the government of the facts that underlie the fraud allegations before the qui tam action is filed.
2. The relator must have direct and independent knowledge of the allegations.
3. The relator must have a role in the public disclosure of the fraud actions.

The 9th Circuit decision in Hartpence eliminates the third test requirement: that the relator must have a role in the public disclosure of the fraud itself. The en banc court held that the third test was an impermissible obstacle to whistleblower, and one disfavored in nearly every other circuit.

The decision rightly opens the door to many new whistleblower claims in the 9th Circuit under the FCA and removes a tremendous and wrongheaded impediment to false claim lawsuits. The new decision will make it easier for relators to hold companies who cheat the government accountable for their fraud.

Why Wang was Wrong

The effect of Wang was to drive whistleblowers into silence or into other Circuits (when available as proper forums), preventing valid claims from being brought in the largest federal circuit in the country. Wang failed to strike the right balance between encouraging legitimate claims and discouraging duplicative and frivolous claims.

The 9th Circuit in Hartpence recognized that this additional and unjustified burden imposed by Wang went so far as to prevent some plaintiffs from bringing qui tam actions for fear that a public disclosure might be identified that the whistleblower had no hand in bringing about.

In Hartpence, One of the whistleblower claimants was a former employer of Kinetic Concepts, Inc. He alleged that Kinetic had engaged in Medicare fraud by submitting false claims such as charges for treatments for wounds which were unnecessary. The second claimant, also a former employee, alleged other false claims.

Hartpence recognized that the additional burden imposed on whistleblowers by the Wang decision had no basis in the text or history of the False Claims Act, and that the statute in this regard was not ambiguous.

The 9th Circuit also acknowledged that nearly all sister circuits did not impose this “third prong” under the original source test. “Today, we join our sister circuits; after reviewing the statutory text, we conclude that Wang’s hand-in-the-public-disclosure requirement has no textual basis, and we give it a respectful burial.”

The 9th Circuit decision also addressed the first to file requirement in more narrow terms.

New Decision Opens the Door to More 9th Circuit FCA claims

The Hartpence decision opens the door to many more False Claims Act filings by relators across the 9th Circuit. The 9th Circuit includes all of California, Washington, Oregon, Hawaii, Guam, Nevada, Arizona, Montana, Northern Mariana Islands and Idaho.

For decades, Wang led whistleblowers and their counsel to other circuits far from where the whistleblower typically resided, where it could be demonstrated that fraud occurred outside the circuit. Where not, the cases simply were not brought to the government in many instances and the fraud remained unreported.

The new decision means that qui tam relators have an open door to filing more suits against companies defrauding the government even where there exists and public disclosure and the whistleblower had no hand in that disclosure, if the whistleblower can satisfy (under the amended version of the FCA) the statutory “original source” definition.

The Wang decision likely cost the government millions of dollars because many fraud actions couldn’t be brought by a whistleblower unable to meet Wang’s arbitrary test.

Whistleblower lawsuits, which are on the rise, help to disclose fraud committed against a large number of government agencies.

Relators under the False Claims Act are incentivized by the statute to report fraud and assist the government’s ability to recover damages against those who defraud it.  Actions are brought under seal in federal course, during which time the government investigates the case and decides whether to intervene in the matter.  When the government decides not to intervene, as happened in the Kinectic Concepts, Inc. case, relators can get between 25 percent and 30 percent of any recovery.

The new decision corrects a long-standing bad precedent that harmed whistleblowers and impeded the government’s ability to prosecute fraud; it paves the way for more qui tam cases which will help the government recoup losses and stop fraud.

Opinion: http://cdn.ca9.uscourts.gov/datastore/opinions/2015/07/07/12-55396.pdf