The Public Disclosure Bar of the New Jersey False Claims Act

State of New Jersey ex rel. Health Choice Group, LLC v. Bayer Corporation, ___ N.J. Super. ___ (App. Div. 2024). As Judge Gilson discussed in his opinion for the Appellate Division today, the New Jersey False Claims Act, N.J.S.A. 2A:32C-1 to -15, -17 to -18 (“the NJFC Act”), like its federal analog False Claims Act, 31 U.S.C. §§ 3729-33, “permit private persons, called ‘relators,’ to bring qui tam suits on behalf of the government and, if the relators prove that false claims were paid by the government, receive a portion of any recovery. 31 U.S.C. § 3730(b), (d)(2); N.J.S.A. 2A:32C-5(b), -7(d).” This appeal comprised two actions in which relators brought such claims but saw their cases dismissed by the Law Division on multiple grounds.

Relators appealed, but the Appellate Division affirmed, applying de novo review. Judge Gilson found it necessary only to address one of the Law Division’s rationales: “Relators lack[ed] standing to bring claims under the NJFC Act when the claims are based on allegations or transactions that have already been publicly disclosed and the relators were not the original source of the information. See Brennan v. Lonegan, 454 N.J. Super. 613, 620 (App. Div. 2018).” That principle, which also appears in federal law, is known as the “public disclosure bar.”

“The public disclosure bar in the NJFC Act prevents a private person from bringing a qui tam action that is based upon publicly disclosed allegations or transactions ‘unless the person bringing the action is an original source of the information.’ N.J.S.A. 2A:32C-9(c). Accordingly, the public disclosure provision bars an action by a private person when (1) there has been a prior public disclosure of the alleged fraud; and (2) the person’s lawsuit is based upon ‘substantially the same allegations or transactions[;]’ unless (3) the person is an original source of the information. Ibid.”

Here, Judge Gilson said, “[t]here is no dispute that there was a prior disclosure of the fraud. Plaintiffs first sued Bayer and Lilly in federal court in Texas,” alleging the same wrongful conduct pled in these New Jersey cases. “The NJFC Act identifies allegations made in a ‘criminal, civil, or administrative hearing in which the State or an agent of the State is a party’ as prior disclosures.” And that was so even though the same relators here were the parties that filed in Texas. Judge Gilson cited cases under the federal False Claims Act to that effect.

As a result, the case came down to whether relators were the original source of the allegations. As a predicate to ruling on that issue, Judge Gilson held that a 2023 amendment to the NJFC Act that, among other things, altered the definition of “original source,”applied only prospectively, so that this appeal was controlled by the law in effect in 2019 when relators brought these cases. “In 2019, original source was defined to mean ‘an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the State before filing an action under this act based on the information.’ N.J.S.A. 2A:32C-9(c) (2010).”

Viewing the plain language of that definition, Judge Gilson concluded that “‘direct and independent’ requires that the relator’s knowledge be gained from its own efforts and that the knowledge does not depend on public information.” According to federal cases that the panel found persuasive, that required “first-hand information” that was not “derivative of the information of others.”

Relators did not meet that standard, Judge Gilson said. “In their complaints, plaintiffs acknowledge that they learned of the alleged fraudulent schemes by having their agents conduct a series of interviews. Indeed, those interviews were conducted before plaintiffs, which are limited liability companies, were even formed. Therefore, plaintiffs did not have direct and independent knowledge of the alleged fraud. Instead, they were twice removed from direct knowledge. Their parent corporation used agents to conduct interviews, then analyzed publicly available data. After that information was collected indirectly, plaintiffs were then incorporated to bring the actions. In short, plaintiffs’ knowledge was not direct and independent because it came from interviews conducted by agents who, in turn, were not directly involved in the alleged transactions.” Based on the public disclosure bar, therefore, the panel affirmed the Law Division’s dismissal of the two cases.