This post was written by Scot T. Hasselman, Andrew C. Bernasconi, Nathan Fennessy, and Gunjan Talati.

In a case of first impression in the United States Court of Appeals for the Fifth Circuit, the court held in United States ex rel. Little v. Shell Exploration & Production Co., No. 11-20320 (5th Cir. July 31, 2012) that government employees are entitled to bring qui tam actions under the False Claims Act (“FCA”) – even if their federal job function is to investigate fraud on behalf of the government. Relying primarily on its interpretation of the statutory language of the FCA, the court determined that there was no express exception within the statute prohibiting federal employees from maintaining FCA actions. The Fifth Circuit rejected arguments put forth by the federal government, as amicus curiae, that conflict of interest statutes and regulations prohibit federal government employees from serving as qui tam relators.

The relators in Little were auditors for the Minerals Management Service, an agency within the Department of Interior. As part of their official duties, they obtained and reported information to their superiors regarding allegedly fraudulent conduct by Shell. After reporting this information – and in the absence of any action by MMS or any other federal agency – the relators took it upon themselves to file a qui tam action against Shell. After the Justice Department declined to intervene, the district court granted Shell’s motion for summary judgment on the basis that federal employees were prohibited from maintaining qui tam actions and that the action was barred by the FCA’s public disclosure bar.

While the court’s decision may send a signal to government employees that they are free to proceed with FCA actions, there are some important limitations identified in the decision. First, the appellate court remanded to the district court to re-consider whether there had been a public disclosure in audits or civil proceedings of the allegations contained in the Complaint, which could potentially result in dismissal of the action. Second, the court concluded that if the district court holds that there has been a public disclosure of the Complaint’s allegations, within the meaning of the FCA, the suit will have to be dismissed because the relators would not qualify as original sources.

This case was brought prior to the three recent amendments to the FCA. In the 2009 FERA amendments, Congress eliminated the public disclosure bar as a jurisdictional defense. This means that the dismissal of an action based upon a public disclosure is entirely permissive to the United States. That the Department of Justice will move courts to dismiss cases with government relators that violate the public disclosure bar is not a “sure thing.” In fact, during oral argument in ex rel. Little, the government candidly conceded that it might be “unwilling to incur the political costs associated with dismissing potentially meritorious suits” where the government relator is using information derived from illicit conduct.

In other words, if there is money in it, the federal government may allow a federal employee to personally profit from information derived from his or her employment as a fraud auditor, investigator, or agent.