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The Gift That Keeps On Giving: Pre-ACA Public Disclosure Bar's Stringent Original Source Requirements Defeat Relator's Claim in the Fifth Circuit

As we have written about previously, although almost eight years have passed since the 2010 ACA amendments, because qui tam actions often stay under seal for many years, there are numerous cases before the courts to this day that involve conduct that occurred prior to the amendments. Most recently, the Fifth Circuit in United States ex rel Solomon v. Lockheed Martin Corp. upheld a grant of summary judgment in favor of defendants Lockheed Martin and Northrop Grumman where the relator failed to show that his knowledge of the allegedly false claim was not derived from earlier public disclosures under the pre-2010 amendments to the original source exception. 878 F.3d 139 (5th Cir. 2017).

The relator worked for Northrop Grumman, a subcontractor for Lockheed Martin on the development of the F-35 Joint Strike Fighter. Under Lockheed’s contract with the government, Lockheed was entitled to earn periodic award fees which were to be shared with subcontractor Northrop, subject to hitting certain benchmarks. Both Lockheed and Northrop were contractually required to report project costs and performance against benchmarks through an Earned Value Management System (EVMS), allowing the government real time access and awareness of the project’s costs. In 2005, Solomon served as Northrop’s EVMS Monitor or Focal Point, and his  duties included developing a plan to be approved by the Defense Contract Management Agency (DCMA) for how Northrop would submit monthly Cost Performance Reports (CPRs) and up-to-date Estimates at Completion (EACs) for each portion of the project.

Solomon filed a qui tam action under the FCA in 2012, in which he claimed that despite an express contractual prohibition, Lockheed and Northrop used contractually obligated reserve funds meant for other purposes to make it appear that their actual costs were closer to their budget estimates so that they would receive high award fees from the government for being on budget. Before the district court, Lockheed and Northrop moved for, and won summary judgment on the grounds that Solomon’s complaint was jurisdictionally barred because (1) the allegations in his complaint could have been synthesized from public disclosures made by Lockheed and Northrop and reported in DCMA and Government Accounting Office (GAO) reports and the publicly available Joint Strike Fighter contract; and (2) he did not qualify as an original source because his reports to the government had been nonvoluntary (in this case, contractually required).

On appeal, the Fifth Circuit first evaluated whether Solomon’s complaint was based upon public disclosures. As Solomon’s complaint concerns events prior to 2010, the case is governed by the FCA’s language prior to the 2010 ACA amendments. Under the pre-2010 version of the FCA, a court is stripped of jurisdiction where the action is based on a “public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or a person bringing the action is an original source of the information.” Solomon argued that the publicly available reports cited by Lockheed and Northrop did not expressly allege fraud, an essential element under the FCA. The Fifth Circuit determined, however, that such an explicit reporting of fraud need not be shown, and that Solomon could have synthesized an inference of fraud from public disclosures in DCMA and GAO reports that contained sufficient facts of the “readily identifiable” potentially fraudulent scheme alleged by Solomon in his complaint that Lockheed and its subcontractors were violating their contract by using their management reserve budgets to lower their cost performance indexes and estimates at completion. Further, the court found that the final link in Solomon’s FCA claim, that the estimates at completion were the basis for the government issuing award fee bonuses, was publicly disclosed in the Joint Strike Fighter System Design and Development contract, which cites cost performance index reporting as a criteria for disbursement of award fees.

Finding that Solomon’s complaint could have been derived from public disclosures, the Fifth Circuit next considered whether Solomon was the original source of the publicly disclosed information. Under the pre-ACA law, to qualify as an original source, the relator cannot merely “add” to the publicly disclosed information, but must have “direct and independent knowledge of the information on which the allegations are based.” The district court found that Solomon did not voluntarily report the information to the government because the function, and obligation, of his employment was to affirmatively report any EVMS fraud to the government, making his 2005 through 2007 surveillance reports and discussions with the DCMA nonvoluntarily. The Fifth Circuit reached the same result but via a different path, finding that Solomon failed to qualify as an original source because he derived his knowledge about the connection between cost performance and award fees from reading publicly available portions of the contract, as Solomon himself conceded that, based on his own direct level of knowledge, he could only “suspect” that there might be a relationship between the two, which he had to confirm by reading the contract.

So long as pre-2010 cases continue to linger, rulings like this one will be important to companies defending against aging allegations that were long ago investigated, audited, and reported on to the contracting agencies. Even for courts hearing cases under the current version of the FCA, this decision may well be persuasive in their consideration of what constitutes a public disclosure and how a relator can demonstrate he or she was the original source.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.