Metropolitan News-Enterprise


Thursday, December 14, 2006


Page 1


Prior State Audit Is ‘Public Disclosure’ Barring Suit Under False Claims Act—C.A.


By TINA BAY, Staff Writer


An administrative audit, report or investigation prepared by a state entity qualifies as a source of public disclosure for purposes of barring a whistleblower suit under the federal False Claims Act, the Ninth U.S. Circuit Court of Appeals ruled yesterday.   

Affirming a ruling by U.S. District Judge Dean D. Pregerson in part, the panel rejected the bulk of a Los Angeles woman’s 2001 qui tam suit against the California Department of Rehabilitation because she failed to prove she was an original source of the information underlying her fraud allegations.

A portion of her allegations, pertaining to the period of June 1997-June1999, was based on information that had already been disclosed in report published by the California State Auditor, the panel noted. 

The “qui tam” provision of the federal False Claims Act allows private citizens to file a lawsuit in the name of the U.S. government charging fraud by government contractors, and to share in any money recovered through the suit.

For qui tam actions based on allegations that have previously been publicly disclosed, a district court has jurisdiction only if the suit is brought by an “original source” of the public disclosure—an individual who has direct and independent knowledge of the information on which the fraud allegations are based.

Audit Report

The audit report had concluded that the state’s vocational rehabilitation program could better serve a greater number of disabled Californians by more effectively managing its program.

Deciding a question of first impression, the judges ruled that an audit report issued by a state agency nonetheless amounted to a “public disclosure” that precluded qui tam actions on behalf of the federal government.

Such a report is a public disclosure within the category of “a congressional, administrative, or Government Accounting Office report, hearing, audit or investigation” under the False Claims Act, the judges concluded.

Writing for the panel, Senior Circuit Judge William C. Canby Jr. explained:

“The likelihood that the information will be brought to the federal government’s attention is heightened in cases like this where the audited program is connected significantly to federal regulations and funds.”

The court also held that allegations pertaining to fiscal years 1995-1997 were barred by the public disclosure rule, because they had been made public in a previous qui tam action brought by the same woman.

Third Lawsuit

Charlotte Bly-Magee’s 2001 qui tam suit was the third one she had brought against the department based on alleged evidence of fraud that she initially uncovered while a social worker at Southern California Rehabilitation Services. In the complaint, she accused the department of defrauding the federal government from fiscal year 1995-1996 to fiscal year 1999-2000.

Her second qui tam suit had contained allegations similar to those in the third, but with respect to the period of October 1992-June 1997. That action was dismissed—the Ninth Circuit yesterday affirmed the dismissal in a separate unpublished opinion—as was her first qui tam suit, which was filed in the early 1990s.

In both her second and third suits, Bly-Magee alleged that various department employees submitted false claims stemming from a kickback scheme with state agencies. Specifically, she claimed the employees violated federal procurement standards in awarding contracts, forced the federal government to purchase unnecessary services, granted contracts to irresponsible parties, and falsely certified that they had conducted audits.

During her term as executive director of the non-profit organization, which receives state and federal funds to serve disabled individuals, Bly-Magee allegedly became suspicious of the department’s conduct. After further investigation, she claimed, she discovered a large number of people were not receiving their disability benefits as a result of the department’s fraudulent contracts.

Not Original Source

Canby said the plaintiff failed to establish she was an original source of the allegations that had already been disclosed publicly in her second qui tam action:

“Bly-Magee submitted a declaration to the district court that provided a lengthy explanation of her involvement with Southern California Rehabilitation Services and her investigation, but her recital is fatally short of specifics on the most material point: she still failed to show direct and independent knowledge of the information underlying her complaint.”

As for the remaining general allegations pertaining to the fiscal year 1999-2000, the court held dismissal was improper and remanded them to Pregerson with instructions to clarify whether they fell within the False Claims Act.

Circuit Judge Marsha S. Berzon and Senior Circuit Judge John T. Noonan concurred in the opinion.

Bly-Magee’s attorney, Sherman Oaks lawyer Joseph E. Deems, told the MetNews his client would ask the Ninth Circuit to rehear her appeal.

“We will be seeking a rehearing on the grounds that this decision is not clear on what the state audit [publicly] disclosed, because what the state audit disclosed in this case is in direct conflict with what my client claims is happening with fraudulent draw-downs of federal moneys,” he said.

Noting that the Ninth Circuit’s ruling on the state audit was at odds with the holdings of various other circuits, Deems added that his client would take the issue to U.S. Supreme Court.

Valencia attorney Joseph L. Stark, who represented the defendants, declined to comment specifically, but said his clients were “looking at [the decision] with respect to seeking additional remedies with the Ninth Circuit.”

The case is Bly-Magee v. Premo, 05-55556.


Copyright 2006, Metropolitan News Company