Bates v. Mortgage Electronic: Plaintiff Cannot Maintain Qui Tam Action Based On Information That Is Already In The Public Domain

In Bates v. Mortgage Electronic Registration System, Inc., --- F.3d --- (9th Cir. 9/17/12), the plaintiff filed suit under the California False Claims Act (“CFCA”), Cal. Gov’t Code §§ 12650-12655, against a number of defendants, alleging that they made false representations in recorded mortgage documents in order to avoid paying recording fees. The district court granted the defendants' motion to dismiss, and the Ninth Circuit affirmed.

First, the Court held that the district court did not err in denying plaintiff's motion to remand, which he based on the argument that the State of California was a party to the action, thus defeating diversity jurisdiction. The Court held that the State was a nominal party only, that plaintiff failed to point to any allegation in the complaint showing that he was suing on behalf of the State, and the State would recover nothing if he prevailed. Slip. op. at 11329.

Second, the Court held that the CFCA's public disclosure provision barred the action. Slip. op. at 11329-11331. The public disclosure provision “erects a jurisdictional bar to qui tam actions that do not assist the government in ferreting out fraud because the fraudulent allegations or transactions are already in the public domain.” The provision applies when the prior public disclosures are “sufficient to place the government on notice of the alleged fraud [or] practice prior to the filing of the qui tam action.” The complaint showed that the information supporting the fraud allegations were in the public domain prior to plaintiff's alleged discovery of them, and plaintiff could not be the "original source" of the information.

The opinion is available here.