7th Circuit Notes Split Re Meaning and Standard of "Based Upon" in Qui Tam Actions

Per U.S. ex rel. Fowler v. Caremark RX, L.L.C., --- F.3d ----, 2007 WL 2142310 (7th Cir.(Ill.) Jul 27, 2007) (NO. 06-4419):

"[A] lawsuit is based upon public[ly] disclose[d information] when it 'both depends essentially upon publicly disclosed information and is actually derived from such information.' " Feingold, 324 F.3d at 497 (quoting Mathews, 166 F.3d at 864). Caremark notes that our standard conflicts with the standard adopted by the majority of circuits and argues that we should reconsider our position in light of this conflict.

The majority of circuits apply the standard "that a qui tam action is 'based upon' a public disclosure when the supporting allegations are 'the same as those that have been publicly disclosed ... regardless of where the relator obtained his information.' " Mathews, 166 F.3d at 863 (quoting United States ex rel. Doe v. John Doe Corp., 960 F.2d 318, 324 (2d Cir.1992)) (citing United States ex rel. Kreindler & Kreindler v. United Tech. Corp., 985 F.2d 1148, 1158 (2d Cir.1993); United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 652-55 (D.C.Cir.1994); United States ex rel. McKenzie v. BellSouth Telecomm., Inc., 123 F.3d 935, 940 (6th Cir.1997); United States ex rel. Wang v. FMC Corp., 975 F.2d 1412, 1417 (9th Cir.1992); United States ex rel. Precision Co. v. Koch Indus., Inc., 971 F.2d 548, 552 (10th Cir.1992); United States ex rel. Cooper v. Blue Cross and Blue Shield of Florida, Inc., 19 F.3d 562, 566-67 (11th Cir.1994)); see also United States ex rel. Paranich v. Sorgnard, 396 F.3d 326, 334-35 (3d Cir.2005); Federal Recovery Servs. v. United States, 72 F.3d 447, 451 (5th Cir.1995); United States ex rel. Minnesota Assoc. of Nurse Anesthetists v. Allina Health Sys. Corp., 276 F.3d 1032, 1044-47 (8th Cir.2002). In Mathews, we declined to adopt the majority standard and instead adopted our current standard from the Fourth Circuit's decision United States ex rel. Siller v. Becton Dickinson & Co. Mathews, 166 F.3d at 863 (citing 21 F.3d 1339, 1347-48 (4th Cir.1994)).

In Mathews, we explained that the Fourth Circuit's standard of " 'based upon' is ... better on the grounds both of plain meaning and public policy." Id. The plain language argument is that " 'based upon' does not mean 'similar (even identical) to' but 'derived from.' " Id. (quoting Siller, 21 F.3d at 1347-48). The public policy justification is that "information which happens to be similar or identical to publicly disclosed allegations or transactions, but which derives from some other source than the public disclosure, is not parasitic, and should not be barred by a provision meant to bar parasitic lawsuits." Id. (quoting Siller, 21 F.3d at 1348).

In United States ex rel. Mistick PBT v. Housing Auth. of the City of Pittsburgh, the Third Circuit analyzed the circuit split and concluded that there was "merit" on both sides of the split. 186 F.3d 376, 386 (3d Cir.1999) (Alito, J.). According to the Mistick court, although the minority standard was a more faithful plain language interpretation, the interpretation would render the "original source" exception largely superfluous. Id. Thus, the circuit split was framed as "a clash between two textual arguments concerning the meaning of 31 U.S.C. ยง 3730(e)(4)(A): one based on the ordinary meaning of the phrase 'based upon' and one based on the precept that a statute should be construed if possible so as not to render any of its terms superfluous." Id. at 387 (citations omitted). Citing various drafting errors in the statute, the Third Circuit determined that "[t]he inescapable conclusion is that the qui tam provision does not reflect careful drafting [and therefore] we are hesitant to attach too much significance to a fine parsing of the syntax." Id. at 388. Consequently, it rejected the plain language interpretation of the minority standard and determined the majority standard to be superior.

Then-Chief Judge Becker dissented from the Mistick decision. He noting that (1) traditionally courts defer to the plain language interpretation of statutes, (2) there were several plausible situations in which the plain meaning interpretation would not make the "original source" clause superfluous, (3) the plain meaning interpretation was consistent with how Congress had used "based upon" in another statute, and (4) the plain language interpretation was consistent with both the False Claims Act's underlying policy and legislative history. Id. at 395-403 (Becker, C.J., dissenting).

We reject Caremark's invitation to alter our position and reaffirm our adherence to the standard that "[a] lawsuit is based upon public[ly] disclose[d information] when it both depends essentially upon publicly disclosed information and is actually derived from such information." Feingold, 324 F.3d at 497. "In a statutory construction case, the beginning point must be the language of the statute, and when a statute speaks with clarity to an issue judicial inquiry into the statute's meaning, in all but the most extraordinary circumstances, is finished." Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 475, 112 S.Ct. 2589, 120 L.Ed.2d 379 (1992) (citing Demarest v. Manspeaker, 498 U.S. 184, 190, 111 S.Ct. 599, 112 L.Ed.2d 608 (1991)). Both the majority and minority standard have rallied powerful arguments to their respective sides, but the minority standard holds the trump card, the plain language interpretation. We may be in the minority, but we will not jettison a standard when that standard includes an appropriate plain language interpretation of the statute.


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