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April 9, 2015
  United States ex rel. Wilson v. Graham County -- Fourth Circuit
Headline: Fourth Circuit Rejects Application of Public Disclosure Bar in Relator's Qui Tam Action

Area of Law: Civil Procedure

Issue Presented: Whether information contained in reports issued to county, state, and federal government officials should be considered "publicly disclosed" for purposes of the False Claims Act.

Extended Summary: The qui tam provisions of the False Claims Act ("FCA") authorize private citizens, known as "relators," to recover from persons who make false or fraudulent claims for payment to the United States government. When Relator Karen Wilson filed suit in 2001, the FCA contained a jurisdiction stripping provision know as the public disclosure bar. The public disclosure bar mandated that claims based on information that was publicly disclosed "in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation" would be dismissed unless the action was brought by the U.S. Attorney General or the person bringing the action was the original source of the information. The public disclosure bar was amended in 2010, however, those amendments were not retroactive for the purpose of this litigation.

Karen Wilson worked at the Graham County Soil and Water Conservation District ("SWCD") as a part-time secretary from 1993-1997. In 1995, a storm caused significant flooding and erosion in parts of western North Carolina. North Carolina's Graham and Cherokee Counties applied for relief and the United States Department of Agriculture ("USDA") agreed to provide funding to cover the costs of cleanup through its Emergency Watershed Protection Program ("recovery program") administered by the Natural Resources Conservation Service ("NRCS") and the U.S. Forest Service. The counties entered into cooperative agreements with the USDA, agreeing to perform or contract out the necessary recovery work in order to remediate areas damaged by flooding. The responsibility for the administration of the recovery programs fell to each county's SWCD. Both SWCDs hired independent contractors to complete the required recovery tasks.

When the recovery program commenced, Karen Wilson began to suspect fraud in its implementation by her colleagues at the SWCD and employees of the NRCS. Wilson wrote a letter to a USDA Special Agent outlining her concern that two NRCS employees had agreed with independent contractors to front the cost of supplies in exchange for a share of the ultimate profits. She additionally informed the agent that the SWCD had chosen an independent contractor who was a salaried SWCD employee and therefore ineligible to work under the contract. Finally, she informed the agent that county auditors were auditing the SWCD. The ensuing county audit report issued to state and county government officials exposed potential irregularities in the SWCD's hiring and documentation. The report was distributed to county and state agencies, and the Graham County SWCD was given a copy to distribute to the USDA if so required.

The county audit report failed to put an end to Karen Wilson's suspicions of ongoing fraud. In 1996, Wilson wrote to another USDA special agent, reiterating and expanding on her earlier allegations. In 1997, that special agent issued a federal audit report confirming Wilson's allegations against her colleague Richard Green. The federal report was not to be distributed outside of state and federal law enforcement agencies.

In 2001, Wilson filed a qui tam action alleging that fraudulent invoices were submitted to the federal government under the recovery program in both Graham and Cherokee Counties. In 2006, after two trips to the U.S. Supreme Court, Wilson filed her third amended complaint in which she named as defendants Graham County, the Graham County SWCD, the Cherokee County SWCD, and several individuals.

The issue presented by the operative pleading for this appeal was whether the information contained in internal government reports (whether federal, state, or local) was publicly disclosed for purposes of the FCA. The district court dismissed the case for lack of subject matter jurisdiction pursuant to the FCA's public disclosure bar. The court concluded that all reports had been publicly disclosed because they were distributed to public officials, which put the government on notice of possible fraud. On appeal, the United States Court of Appeals for the Fourth Circuit held that the district court applied the incorrect legal standard in reaching its conclusion. The Fourth Circuit agreed with the majority of other circuits, finding public disclosure requires that there be some act of disclosure outside of the government to the public domain.

The Fourth Circuit found that neither of the reports at issue was publicly disclosed prior to the time Wilson filed suit. Because the FCA's public disclosure bar does not apply to Wilson's suit, the court remanded the case to the district court, which has subject matter jurisdiction.

To read the full opinion, please click here.

Panel: Circuit Judges Motz and King, and District Judge Allen.

Argument Date: 12/09/2014

Date of Issued Opinion: 02/03/2015

Docket Number: Case No. 13-2345

Case Alert Author: Bethany Henneman, Univ. of Maryland Carey School of Law

Counsel: Mark Tucker Hurt, Abingdon, Virginia, for Appellant. Sean Francis Perrin, WOMBLE CARLYLE SANDRIDGE & RICE, PLLC, Charlotte, North Carolina, for Appellees Raymond Williams, Dale Wiggins, Lynn Cody, and Graham County. Martin McCracken, NORTH CAROLINA DEPARTMENT OF JUSTICE, Raleigh, North Carolina, for Appellees Graham County Soil & Water Conservation District, Cherokee County Soil & Water Conservation District, Gerald Phillips, Allen Dehart, Lloyd Millsaps, Bill Tipton, C.B. Newton, and Eddie Wood.

Author of Opinion: Judge Motz

Case Alert Circuit Supervisor: Professor Renée Hutchins

    Posted By: Renee Hutchins @ 04/09/2015 03:22 PM     4th Circuit  

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