Reported / Citable
Background
The False Claims Act (FCA) is the federal government’s primary tool for combating fraud against the public treasury. It empowers private citizens — called qui tam relators — to file lawsuits on the government’s behalf and share in any recovery. A key limitation is the “public disclosure bar” (31 U.S.C. § 3730(e)(4)(A)), which bars FCA claims where substantially the same fraud allegations have already been publicly disclosed through specified channels, including government reports and “news media.” The idea is to encourage genuine whistleblowers, not copycat suits based on public information.
Relator, LLC, a California limited liability company, filed a qui tam suit against CalCon Mutual Mortgage, LLC (also a California company) and its CEO Joshua Erskine, alleging that CalCon fraudulently obtained and had forgiven a $4.96 million Paycheck Protection Program (PPP) loan. Relator contended that CalCon was categorically ineligible as a mortgage lender under Small Business Administration rules, falsely certified the loan was necessary when its business actually thrived during the pandemic, and inflated its reported employee count. The United States declined to intervene, leaving Relator to pursue the case alone.
The Southern District of California dismissed the complaint, finding that the public disclosure bar blocked the claim because PandemicOversight.gov — a federal website listing PPP loan recipients and their industry classification codes — had already publicly disclosed the essential elements of the alleged fraud. The district court also found the employee headcount theory too speculative and denied leave to amend. Relator appealed.
The Court’s Holding
A unanimous Ninth Circuit panel reversed the dismissal and remanded for further proceedings. On the public disclosure bar, the court held that the district court analyzed the issue at too high a level of generality. The NAICS industry code (522292 — real estate collateral lender) on PandemicOversight.gov identified CalCon as a type of lender, but that alone did not disclose that CalCon was ineligible for a PPP loan, because SBA regulations contain exceptions allowing certain mortgage servicing companies to qualify. Only by analyzing Relator’s additional, specific allegations — for example, that CalCon offers jumbo loans that cannot be disbursed within the 14-day closing window required by the exception — could one complete the X + Y = fraud inference. Those specifics were not on PandemicOversight.gov, so the public disclosure bar did not foreclose the claim.
The court also established a new test for when a website constitutes “news media” under the FCA’s public disclosure bar. Simply being publicly accessible online is not enough. Courts should ask whether the site’s primary purpose is to disseminate information about recent events to the general public, whether it publishes information about third parties (not just itself), and whether a reasonable news consumer would regard it as news media. Under that test, CalCon’s own corporate website — whose audience is limited to potential borrowers and whose content is self-promotional rather than journalistic — is plainly not “news media.”
The court agreed with the district court that Relator’s employee headcount theory (estimating workforce from headquarters square footage) rested on impermissible speculation. But it reversed the denial of leave to amend, holding that a voluntary pre-ruling amendment does not establish futility; the district court should have allowed Relator the chance to supply concrete headcount allegations after the court identified the deficiency.
Key Takeaways
- A NAICS industry code on a government database does not publicly disclose fraud if eligibility rules have exceptions that the code does not address — the public disclosure bar requires that the specific fraud inference (X + Y = Z) be accessible from public information, not merely the broad industry category.
- A company’s own corporate website is not “news media” under the FCA’s public disclosure bar; the Ninth Circuit’s new multi-factor test looks at the site’s primary purpose, its coverage of third-party events, and whether the public would treat it as a journalistic source.
- FCA qui tam relators whose claims survive the public disclosure bar must still plead fraud with factual specificity — allegories based on office square footage or similar indirect proxies for headcount will not suffice.
- A single voluntary amendment does not foreclose further amendment; courts should grant leave to amend unless there has been repeated failure to cure the same deficiency after court-identified errors.
- PPP loan recipients — particularly lenders, mortgage companies, and others in industries with complex eligibility rules — remain exposed to FCA qui tam suits well into 2026, especially where relators have independent, specific knowledge of the borrower’s operations.
Why It Matters
For California businesses that received PPP loans — especially those in financial services, mortgage, and lending — this opinion is a reminder that the FCA whistleblower threat has not expired. The court’s holding that publicly available data (like loan databases or industry codes) only bars FCA claims when it actually discloses the specific fraud, not just the industry category, means relators with inside knowledge of a company’s particular operations can still bring viable suits. Companies that may have stretched their PPP eligibility or certifications should consult counsel about exposure even years after loan forgiveness.
For litigators, the opinion provides a useful new framework on two unsettled FCA questions. The “news media” ruling — rejecting a defendant’s argument that disclosures on CalCon’s own website triggered the public disclosure bar — limits defendants’ ability to invoke the bar based on information a company itself published. And the leave-to-amend holding reinforces the general Ninth Circuit principle that plaintiffs deserve at least one court-guided opportunity to fix deficiencies before a complaint is dismissed with prejudice.