In July 2021, the U.S. District Court for the Eastern District of New York dismissed a False Claims Act complaint filed by CKD Project, LLC, an entity created for the purpose of filing the lawsuit, which alleged that Fresenius violated the federal Anti-Kickback Statute by over-paying physicians for a majority interest in certain dialysis centers in exchange for the physicians’ continued referrals.
Fresenius moved to dismiss the claims under the False Claims Act’s public disclosure bar on the grounds that it previously disclosed the material elements of its joint-venture model for purchasing dialysis centers in its SEC filings. The district court agreed, dismissing the complaint and denying CKD leave to amend.
On appeal, CKD argued that the SEC filings did not disclose certain “important information” about the transactions, like that Fresenius allegedly (1) allocated most of the purchase price to “goodwill” and (2) required the physicians to execute non-compete agreements, or that the contracts allegedly included warranty provisions about the number of patients at the centers. But, the Second Circuit agreed that the “material elements” of the acquisitions—including that Fresenius utilized non-competes, seller warranties, and purchased intangible assets like goodwill—were disclosed in Fresenius’s SEC filings, landing CKD’s claims within the public disclosure bar. The Second Circuit also concluded that CKD could not avoid dismissal as an “original source” because the information CKD obtained from an “insider” to one of the transactions did not “materially add” to what was disclosed in the SEC filings.
Takeaways
The Second Circuit’s decision emphasizes that the False Claims Act’s public disclosure bar does not require that every detail of a transaction be publicly disclosed to bar a later-filed lawsuit about the same transaction, so long as the essential elements were made public. The case also shows that if the essential elements are disclosed, it may be difficult for a would-be relator to “materially add” to the disclosures, because, as the Second Circuit explained, “[p]roviding detail or color to previously disclosed elements of an alleged scheme is not a material addition.”
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