US-CourtOfAppeals-7thCircuit-SealLast March, we published a post applauding a U.S. District Court for the Southern District of Indiana ruling which dismissed a qui tam relator’s False Claims Act (FCA) suit on the grounds that the relator wasn’t the “original source” of the information motivating the claims. The judge also imposed sanctions against the relator’s lawyers, peppering her especially forceful justification of the financial penalty with pop culture and literary references.  U.S. ex rel. Leveski v. ITT Educational Services.

It came to our attention today that the U.S. Court of Appeals for the Seventh Circuit reversed the district court’s ruling on its lack of subject matter jurisdiction (based on the FCA’s original source rule) and its attorney sanctions order, and then remanded the case back to the Southern District of Indiana for further proceedings.

The Seventh Circuit acknowledged that relator Leveski’s lawyers had unsuccessfully filed previous FCA suits against for-profit education businesses in situations where the lawyer “appears to have recruited relators who possessed little to no knowledge beyond what was already in the public domain.” The panel concluded, however, that

Leveski has added new facts and new details to this general knowledge that were not previously in the public domain. Even though prior relators . . . were not able to add new facts and new details, Leveski is different.  Through her deposition testimony and her affidavit, Leveski has informed the public about a new method of violating the HEA prohibition against incentive compensation—a method much more difficult to detect than outright commission and bonus schemes.

The appeals court thus found that Leveski had provided enough original information to inform her suit that she was an “original source.”

The court very briefly addressed the sanctions issue, writing, “Our lengthy discussion of Leveski’s case has shown that Leveski’s case appears to be substantial, not frivolous.” “Of course,” the court added,

if it becomes clear later in the course of litigation that Leveski has made up all of her allegations and all of her supporting evidence, then sanctions may be warranted. But for now, the truth of Leveski’s allegations is not appropriately resolved on a  motion to dismiss for lack of subject-matter jurisdiction.