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October Term, 2010

May 16, 2011

Today the Supreme Court issued two decisions, described below, of interest to the business community.

False Claims Act—“Public Disclosure” Bar

Schindler Elevator Corp. v. United States ex rel. Kirk, No. 10-188 (previously discussed in the September 28, 2010 Docket Report).

The False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq., imposes civil penalties and treble damages on persons and businesses that submit false or fraudulent claims for payment or approval to the federal government. To assist the government in monitoring fraudulent claims, the FCA allows private plaintiffs, or “relators,” to file “qui tam” actions in the name of the United States against those who submit fraudulent claims. Relators have substantial financial incentives to bring qui tam claims, as they share between 15 and 30 percent of the government’s eventual recovery. To prevent opportunistic relators from bringing qui tam suits without having substantially assisted in the discovery of the fraud, the FCA—prior to recent amendments—deprived courts of jurisdiction over qui tam claims based on certain kinds of publicly disclosed information, including information disclosed in an administrative “report” or “investigation.” As a result of those amendments, the public-disclosure bar is no longer jurisdictional and courts are now authorized to hear such claims if the government opposes their dismissal. Interpreting the scope of the public-disclosure bar under a pre-amendment version of the statute, the Supreme Court today held in Schindler Elevator Corp. v. United States ex rel. Kirk, No. 10-188, that a federal agency’s written response to a Freedom of Information Act (“FOIA”) request is a “report” within the meaning of the public-disclosure bar.

This decision is important to businesses and other entities that directly or indirectly participate in publicly funded programs, such as government contractors, subcontractors (at any tier), or grant recipients. By holding that an agency’s written response to a FOIA request is a “report” within the meaning of the public-disclosure bar, the Court has limited the scope of qui tam claims and businesses’ exposure to FCA liability, at least as to claims brought under the pre-amendment version of the statute. Although the public-disclosure bar is no longer jurisdictional, today’s decision might also reduce the scope of liability under the current version of the FCA, since claims that fall within the public-disclosure bar must still be dismissed unless the government affirmatively opposes dismissal.

The case arose from allegations that petitioner Schindler Elevator Corp. (“Schindler”) failed to file reports in some years and filed false reports in other years under the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (“VEVRAA”). Respondent relator Kirk was a former Schindler employee, but did not base his allegations on personal knowledge acquired during his employment. Instead, Kirk’s wife submitted FOIA requests to the Department of Labor (“DOL”) for the VEVRAA-mandated reports filed by Schindler, and Kirk based his qui tam action on the written FOIA responses produced by the DOL. In the decision below, the Second Circuit held that the DOL’s FOIA responses were not “reports” or “investigations” and thus did not fall within the public-disclosure bar.

In a five-to-three decision authored by Justice Thomas, the Supreme Court reversed. The Court first explained that “report” in the FCA’s public-disclosure bar carries its ordinary meaning of “something that gives information.” Slip op. 5. The Court then held that the DOL’s written responses, along with the agency records attached to those responses, were “official or formal statement[s]” that “[gave] information” (id. at 8–9), and were therefore reports within the meaning of the public-disclosure bar. However, the Court did not decide (1) whether records released under FOIA, but not attached to a written FOIA response, are reports; or (2) whether an agency’s search for records in response to a FOIA request qualifies as an “investigation” under the public-disclosure bar.

ustice Kagan did not participate in the case.

ERISA—Court’s Authority to Modify Plan’s Terms

CIGNA Corp. v. Amara, No. 09-804 (previously discussed in the June 28, 2010 Docket Report).

The Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001 et seq., seeks to ensure that individuals receive accurate and understandable information regarding their rights and obligations under employee benefit plans. To this end, ERISA requires plan administrators to provide plan beneficiaries with a summary plan description (SPD) and a summary of material modifications (SMM). Today, in CIGNA Corp. v. Amara, No. 09-804, the Supreme Court provided guidance on what plan beneficiaries must demonstrate in order to recover benefits when suing based on alleged inconsistencies between the plan’s terms and an SPD and SMM.

The case arises out of changes to an ERISA plan established by CIGNA. Plan beneficiaries sued, contending that the company had failed to adequately disclose certain terms of the modified plan. The district court found that CIGNA’s disclosures violated its obligations under ERISA and caused the employees “likely harm.” Slip op. 2. The court then reformed the modified plan and ordered CIGNA to enforce the plan as reformed, finding authority to do so in ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B). The Second Circuit summarily affirmed.

The Supreme Court had granted certiorari “to decide whether the District Court applied the correct legal standard, namely, a ‘likely harm’ standard, in determining that CIGNA’s notice violations caused its employees sufficient injury to warrant legal relief.” Slip op. 2. In an opinion by Justice Breyer, however, the Supreme Court focused on a threshold question raised by CIGNA in its merits briefing—whether § 502(a)(1)(B) “authorizes entry of the relief the District Court provided.” Slip op. 2. The Court held that it does not. But the Court observed that a different provision—ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), which “authorizes ‘appropriate equitable relief’ for violations of ERISA”—covers the types of remedies entered by the district court. Slip op. 2. Accordingly, the Court vacated the judgment and remanded the case for further proceedings.

Without expressing a view on what equitable relief, if any, the district court should in its discretion order on remand, the Supreme Court briefly addressed the “likely harm” issue that was originally presented for review. Rather than adopt a single standard that would necessarily apply in all cases, the Court instead identified certain “equitable principles that the [trial] court might apply on remand,” observing that “the relevant standard of harm will depend upon the equitable theory by which the District Court provides relief.” Slip op. 2. The Court made clear that if “a court exercises its authority under § 502(a)(3) to impose a remedy equivalent to estoppel, a showing of detrimental reliance must be made.” Id. at 21. And although it emphasized that “actual harm must be shown” under all circumstances before any form of equitable relief is available, the Court noted that proof of detrimental reliance “is not always necessary” and that a plan beneficiary seeking “relief by surcharge” (i.e., by one of the few forms of monetary relief traditionally available in equity) “need only show harm and causation.” Id. at 22.

In an opinion concurring in the judgment and joined by Justice Thomas, Justice Scalia agreed that § 502(a)(1)(B) did not authorize the relief entered by the district court, but he declined to join the Court’s opinion because he believed that the Court had no need or justification to say anything else to dispose of the case.

Justice Sotomayor did not participate in the case.

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