In U.S. ex rel. Beauchamp v. Academi Training Ctr., LLC, the Fourth Circuit recently determined that the public disclosure rule did not necessarily bar a False Claims Act (“FCA”) qui tam suit where the plaintiff amended its complaint with details gained from a news story that was published online after its prior complaint was filed.   As discussed below, this decision may serve to benefit a plaintiff who learns additional details about a fraudulent scheme through a public disclosure after filing a complaint, potentially expanding the liability of the defendant contractor.  Nevertheless, because of heightened pleading requirements in fraud cases, and the unique set of facts presented in Beauchamp, this decision may have limited utility for quit tam plaintiffs in the future.

The FCA permits a private citizen (known as a “relator”) to file a qui tam suit (i.e., an action on behalf of the federal government) against a government contractor based on a contractor’s knowing submission of false claims for goods or services to the United States.  However, under the public disclosure rule, if “substantially the same allegation or transactions as alleged in the action or claim were publicly disclosed” in a hearing, government report, or by the news media, the relator’s suit will be dismissed—unless the relator was the “original source” for the information publicly disclosed.  Thus, a public disclosure must necessarily precede the complaint in order for the rule to apply.  Beauchamp presents a twist, however, because the public disclosure in that case occurred in between the filings of a first-amended complaint and a second-amended complaint.

In April 2011, two individuals filed a complaint alleging that a contractor providing security services in Iraq and Afghanistan violated the FCA when it “submitted false reports and bills to the State Department for contractors employed in positions in which they did not actually work and also defrauded the State Department by requesting payment for unissued equipment.”  The relators amended their complaint in May 2011, adding allegations that the contractor “routinely failed” to ensure that its personnel maintained the required degree of proficiency with certain firearms, and in fact “fabricated scorecards showing proficiency with these firearms for submission to the State Department.”

While the first-amended complaint was pending, two former firearm instructors for the contractor contacted the two relators and provided additional information about this “weapons qualification scheme.” The firearm instructors later filed their own lawsuit against the contractor alleging they had been wrongfully terminated for reporting the scheme.  In July 2012, an online news publication published a story about the firearm instructors’ case.  And in November 2012, after the government declined to intervene in the relators’ case, the relators filed a second-amended complaint “adding a number of paragraphs” from the wrongful termination complaint “that further detailed the State Department contract and [the contractor’s] alleged failure to meet its weapons testing requirements.”  Upon the contractor’s urging, the district court dismissed the relators’ FCA claims, finding that the weapons qualification scheme was barred by the public disclosure rule because the news publication preceded the relators’ last pleading—the second-amended complaint.  The trial court relied upon the Supreme Court case Rockwell International Corp. v. United States, which held that “courts look to the amended complaint to determine jurisdiction.”

The Fourth Circuit reversed, disagreeing with the district court’s interpretation ofRockwell.  The Fourth Circuit reasoned that in Rockwell, the relevant fraud appeared for the first time in the amended complaint that postdated the disclosure, whereas here, the relevant fraud was already alleged in the first-amended complaint that preceded the public disclosure, and the second-amended complaint “merely added further detail about a claim already alleged.”  The court concluded that “the determination of when a plaintiff’s claims arise for purposes of the public-disclosure bar is governed by the date of the first pleading to particularly allege the relevant fraud and not by the timing of any subsequent pleading.”

Contractors must take notice of the Beauchamp decision because it provides relators with another potential tool to use against contractors.  Under this decision, the traditional public disclosure bar would not necessarily prevent a relator from using news media, government reports, or hearings to “bulk up” an amended complaint, so long as the prior version of the complaint preceded the public disclosure and contained the same fraud allegations—if in more general terms.  This could result in a scenario where a relator files a factually weak complaint that relies on more generalized allegations in hopes that a public disclosure will later manifest and provide an opportunity to add sufficient detail and further strengthen an FCA claim.

All is not lost, however.  First, a plaintiff still must clear the heightened pleading requirements required in fraud cases under Rule 9(b) of the Federal Rules of Civil Procedure: when alleging fraud or mistake, “a party must state with particularity the circumstances constituting fraud or mistake.”  Second, in a footnote, the Fourth Circuit clarified that its holding did not “suggest that a plaintiff can raise skeletal claims of fraud and then use such a pleading to avoid the public-disclosure bar when he or she later files an amended complaint that adds necessary facts gleaned from the public domain.”  Finally, it is worth noting that this case involved a specific scenario where the “scheme” at issue was actually pled in the initial complaint; “[i]t was not a new fraudulent scheme first introduced after the . . . public disclosure.”   Thus,Beauchamp should not support a relator’s attempt to add a new claim alleging a new fraudulent scheme based on a public disclosure.  It remains to be seen, though, how courts will determine what is a “new fraudulent scheme.”  We expect to see litigation on this issue in the future.