Court Bars Qui Tam Lawsuit Over PPP Loan Eligibility on Public Disclosure Grounds

A federal judge has dismissed a whistleblower lawsuit challenging the eligibility of several companies for Paycheck Protection Program loans, ruling that the case violated the False Claims Act’s public disclosure bar.

U.S. District Judge John J. McConnell Jr. granted summary judgment to the defendants, finding that relator John Berkley’s allegations were primarily based on information already available in the public domain.

The case centered on six companies, including three that allegedly submitted fraudulent PPP applications by falsely certifying they met the program’s affiliation and necessity requirements under the CARES Act. Berkley also named certain private equity entities as defendants, claiming they controlled or directed the alleged misconduct.

“The undisputed facts in the record show that Mr. Berkley’s fraud claims against these defendants are substantially like transactions appearing in the public domain,” Judge McConnell wrote in his 14-page decision.

The dispute began when the COVID-19 pandemic hit and Ocean State CEO John Roselli informed landlords, including Berkley, that the company might be unable to pay rent. Berkley, believing that New Harbor Capital—the private equity firm with a controlling investment in Ocean State—should cover these payments, suggested Ocean State get rent money from New Harbor.

After Roselli rejected this suggestion, Berkley claimed he began investigating Ocean State’s PPP loan applications, which led to his qui tam complaint under the False Claims Act.

In his lawsuit, Berkley alleged that Ocean State, Blueprint Test Preparation, and Fyzical Acquisition Holdings falsely certified they met CARES Act requirements when applying for PPP loans. He asserted the companies didn’t qualify because they failed to meet size requirements and had sufficient funds available through New Harbor Capital.

The defendants initially moved to dismiss the complaint, arguing it was barred by the FCA’s public disclosure provision. While the court initially denied this motion, after discovery, the defendants renewed their argument through a summary judgment motion.

Judge McConnell conducted a three-part analysis to determine whether the public disclosure bar applied. First, he found that prior public disclosure of the alleged fraud had indeed occurred. The judge noted that before filing his case, Berkley “had no documents from the PPP Recipients related to the loans, never spoke with any of their employees about the applications or any potential fraudulent scheme, did not work for any of the Defendants, and had no private information about New Harbor’s assets under management or fee structure.”

Critical information in Berkley’s complaint—such as PPP loan data published by the U.S. Treasury Department, employee counts and assets disclosed on ZoomInfo pages, and New Harbor’s investment in Ocean State reported by the Wall Street Journal—was all publicly available.

Second, the judge determined that these disclosures came from sources specified in the FCA’s public disclosure provision, including SBA PPP loan data, New Harbor’s website, press releases, and news articles.

Finally, McConnell concluded that Berkley’s action was based on these prior disclosures, rejecting his argument that he discovered the fraud through a “mosaic theory” combining public and non-public information with his industry expertise. The judge noted that while Berkley claimed his allegations were informed by his experience with private equity, he acknowledged relying on publicly disclosed facts about New Harbor’s assets and investments.

Without any evidence that Berkley was an “original source” under the FCA’s public disclosure provision, the court granted the defendants’ motion for summary judgment, effectively ending the qui tam case.

The ruling highlights the significant limitations whistleblowers face when bringing FCA claims based on information that may already exist in the public domain, particularly regarding high-profile federal programs like the Paycheck Protection Program.