United States of America ex rel. v. Fesenmaier

Background

The Cameron-Ehlen Group, Inc., doing business as Precision Lens, distributed products related to eye surgeries. Kipp Fesenmaier had worked for Precision Lens’s corporate partner, Sightpath Medical, Inc., including as its vice president. Fesenmaier was a relator—a private person who brings a False Claims Act case on behalf of the United States—in an earlier lawsuit alleging that Precision Lens and others paid kickbacks to physicians.

Fesenmaier and his wife filed for Chapter 7 bankruptcy in 2012. They did not list as assets any anticipated False Claims Act claims based on the kickback allegations that Fesenmaier had reported to the Federal Bureau of Investigation. Fesenmaier later brought the earlier False Claims Act lawsuit and received approximately 19.5 percent of settlement proceeds recovered in that litigation.

Precision Lens then brought this lawsuit against Fesenmaier. After the United States declined to intervene, Precision Lens filed an amended complaint alleging four False Claims Act violations. Precision Lens claimed that Fesenmaier lacked the right to pursue the earlier claims or receive settlement proceeds because he had not disclosed those claims in bankruptcy.

Motion to Dismiss

Fesenmaier moved to dismiss on three grounds: the False Claims Act’s public-disclosure bar, failure to state a claim and failure to plead fraud with sufficient detail, and issue preclusion based on rulings in the earlier litigation.

The public-disclosure bar generally requires dismissal when substantially the same allegations or transactions were publicly disclosed in a federal proceeding involving the government. An exception applies when the person bringing the case is an “original source,” meaning, as relevant here, someone who voluntarily disclosed the information underlying the claims to the government before the public disclosure.

Precision Lens conceded that the allegations in its amended complaint had been publicly disclosed in the earlier litigation. It argued that it qualified as an original source because its counsel questioned Fesenmaier about his bankruptcy documents during a deposition attended by an Assistant United States Attorney.

Court’s Analysis

The court held that Precision Lens’s disclosure was not voluntary. Precision Lens made the disclosure while defending itself against fraud allegations in the earlier litigation, and the court found that its conduct was motivated by self-interest and by a desire to shift the investigation’s focus from Precision Lens to Fesenmaier. The court also found no indication that Precision Lens would have approached the government with the information, or learned the information, without the government’s investigation.

The court further held that Precision Lens was not the source of the relevant information. Its counsel’s questions concerned publicly available bankruptcy documents, and any nonpublic information came from Fesenmaier’s testimony rather than from Precision Lens. The court explained that the False Claims Act’s original-source exception requires the relevant information to originate with the person claiming that status; asking questions that lead another person to disclose information does not satisfy that requirement.

Disposition

The court concluded that the public-disclosure bar precluded Precision Lens’s False Claims Act claims because the allegations had been publicly disclosed and Precision Lens was not an original source. The court granted Kipp Fesenmaier’s motion to dismiss and dismissed The Cameron-Ehlen Group’s amended complaint with prejudice. Because of that conclusion, the court did not address Fesenmaier’s alternative arguments based on issue preclusion or failure to state a claim. Judge Wilhelmina M. Wright ordered judgment to be entered accordingly.