Simpson v. Bayer Healthcare and the “Original Source” Exception: Eighth Circuit’s Interpretation Ups the Ante for Defendants in FCA Suits by Limiting Scope of the Public Disclosure Bar
The Eighth Circuit in Simpson v. Bayer Healthcare became the latest circuit court to weigh in on the meaning of the “original source” exception to the False Claims Act’s public disclosure jurisdictional bar. The public disclosure bar prohibits private citizens from pursuing qui tam actions based on information that had been publicly disclosed prior to the relator’s lawsuit, “unless . . . the person bringing the action is an original source of the information.” 31 U.S.C. § 3730(b)(1) (emphasis added). Reinforcing its own precedent, the court in Simpson provided a broad interpretation of this language that’s ultimately good news for relators: to demonstrate the relator is an “original source” of the information, the relator need not demonstrate direct and independent knowledge of the fraudulent transactions or communications that form the basis of the claim. Instead, all that is required for original source status is direct and independent knowledge of “the true state of facts,” even though the relator’s knowledge that a misrepresentation actually occurred is not first-hand.
The court’s ruling and the line it draws is significant for two reasons. First, the Eighth Circuit’s more liberal interpretation of “original source” narrows the reach of the public disclosure bar. Second, this liberal definition has not been universally applied across the circuit courts, thus, companies must stay abreast as the law develops in this area and adjust their pretrial motion strategy accordingly.
Background in Simpson v. Bayer Healthcare
Laurie Simpson, a former Bayer Healthcare market research manager, filed a qui tam action against Bayer in 2006 alleging Bayer knew that Baycol, a cholesterol-lowering statin, caused increased risks of a rare disorder, and that Bayer misrepresented Baycol’s effectiveness as compared with other drugs in communications with the Department of Defense. Simpson further claimed that Bayer concealed these risks in its marketing efforts and communications with the DOD, thereby fraudulently inducing the DOD into two multi-million dollar contracts for Baycol.
In a second round of pre-trial motions to dismiss, Bayer asserted that the public disclosure bar doomed Simpson’s qui tam action. Bayer argued that the court lacked jurisdiction over the qui tam claim because the alleged fraudulent conduct and its contracts with the DOD had previously been publicly disclosed in lawsuits, public filings, and the media. The district court ultimately agreed with Bayer, concluding that Simpson did not have direct and independent knowledge of the alleged fraudulent communications that induced the DOD to enter into the contracts and dismissed the lawsuit.
Eighth Circuit Reinforces Liberal “Original Source” Standard
On appeal, the court reversed the dismissal of Simpson’s claim, finding that the district court had misapplied the “original source” standard. Relying on its own precedent and a textual analysis of the statutory language, the divided panel held that to be an “original source,” a relator need only possess direct and independent knowledge of the “information” on which her claim is based—in other words, she must have direct knowledge of the true state of facts about Baycol; she need not possess direct and independent knowledge of all the alleged false communications between Bayer and DOD that formed the basis for the FCA claim. Thus, Simpson could be an original source even if her firsthand knowledge extended only to facts proving Baycol was not as effective and caused increased risks of harm, and even though she lacked firsthand knowledge that Bayer actually communicated otherwise to the DOD.
Notably, the Eighth Circuit did not analyze whether Simpson satisfied the correct standard it had just announced. It remanded the case to the district court to address that issue. It remains to be seen whether the district court, in applying the broad scope of “original source,” will ultimately conclude that Simpson may proceed with her qui tam action.
The Simpson court’s liberal interpretation of the “original source” standard was not a landmark decision in the sense that it marked a clear departure from earlier Eighth Circuit precedent on the issue. But the court’s choice to draw the line where it did is still notable because this exception continues to be applied inconsistently among the circuit courts. For example, in 2015 the Ninth Circuit applied a similarly broad interpretation to the exception, overturning 23 years of precedent (we wrote about that decision here). And more recently, the Sixth Circuit imposed a stricter application of “original source” and dismissed a claim because the relator’s allegations were too broad and varied only slightly from publicly disclosed information.
While some may see this issue as ripe for Supreme Court review, that result is unlikely anytime soon. Indeed, the Court rejected a petition regarding the Sixth Circuit’s decision just this past May.
Perhaps Simpson will nudge the Supreme Court to revisit this issue sooner rather than later based on the concern that the circuit split may encourage forum shopping. In the interim, counsel must stay abreast of the ever-evolving pleading standards in false claims actions.