State of New Jersey Ex Rel. Edelweiss Fund, LLC v. Jpmorgan Chase & Co.

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the

internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1340-23

STATE OF NEW JERSEY ex rel.

EDELWEISS FUND,

LLC,

Plaintiff-Respondent,

v.

JPMORGAN CHASE & CO.,

JPMORGAN CHASE BANK, N.A., J.P.

MORGAN SECURITIES LLC, f/k/a

JPMORGAN SECURITIES, INC.,

CITIGROUP INC., CITIGROUP

GLOBAL MARKETS INC., CITIBANK,

N.A., CITIGROUP FINANCIAL

PRODUCTS INC., CITIGROUP

GLOBAL MARKETS HOLDINGS INC.,

CITIGROUP GLOBAL MARKETS

LIMITED, WELLS FARGO &

COMPANY, WELLS FARGO BANK,

N.A., WELLS FARGO SECURITIES

LLC, WACHOVIA BANK, N.A., its

predecessor by merger, BANK OF

AMERICA CORPORATION, BANK OF

AMERICA, N.A., BANK OF AMERICA

SECURITIES LLC, MERRILL LYNCH,

PIERCE, FENNER & SMITH

INCORPORATED, BANK OF

AMERICA CAPITAL CORPORATION,

BOFA MERRILL LYNCH ASSET

HOLDINGS, INC., BANK OF AMERICA

MERRILL LYNCH, MORGAN

STANLEY, MORGAN STANLEY

SMITH BARNEY LLC, MORGAN

STANLEY & CO. LLC, and MORGAN

STANLEY CAPITAL GROUP INC.,

Defendants-Appellants.

____________________________________

Argued October 1, 2024 – Decided December 27, 2024

Before Judges Gooden Brown and Smith.

On appeal from an interlocutory order of the Superior

Court of New Jersey, Law Division, Mercer County,

Docket No. L-0885-15.

Robert N. Hochman (Sidley Austin LLP) of the Illinois

bar, admitted pro hac vice, argued the cause for

appellants Morgan Stanley, Morgan Stanley Smith

Barney LLC, Morgan Stanley & Co. LLC, and Morgan

Stanley Capital Group Inc. (Aguilar Bentley LLC,

Robert N. Hochman, Joan M. Loughnane (Sidley

Austin LLP) of the New York bar, admitted pro hac

vice, Kathleen L. Carlson (Sidley Austin LLP) of the

Illinois bar, admitted pro hac vice, David H. Hoffman

(Sidley Austin LLP) of the Illinois bar, admitted pro

hac vice, and Thomas H. Collier (Sidley Austin LLP)

of the Illinois bar, admitted pro hac vice, attorneys;

Anna Aguilar, Lisa D. Bentley, Kathleen L. Carlson,

David H. Hoffman, Robert N. Hochman, Thomas H.

Collier, and Joan M. Loughnane, on the joint brief).

Jennifer L. Del Medico (Jones Day), and Michael P.

Conway (Jones Day) of the Illinois bar, admitted pro

hac vice, attorneys for appellants Wells Fargo &

A-1340-23

2

Company, Wells Fargo Bank, N.A., Wells Fargo

Securities, LLC, and Wachovia Bank, N.A. (Jennifer L.

Del Medico and Michael P. Conway, on the joint brief).

Greenberg Traurig, LLP, attorneys for appellants JP

Morgan Chase & Co., JPMorgan Chase Bank, N.A., and

J.P. Morgan Securities LLC (Eric D. Wong, on the joint

brief).

Gibbons PC, Matthew D. Benedetto (Wilmer Cutler

Pickering Hale & Dorr LLP) of the California bar,

admitted pro hac vice, and Megan E. Barriger (Wilmer

Cutler Pickering Hale & Dorr LLP) of the

Massachusetts bar, admitted pro hac vice, attorneys for

appellants Bank of America Corporation, Bank of

America, N.A., Bank of America Securities LLC,

Merrill Lynch, Pierce, Fenner & Smith Incorporated,

Bank of America Capital Corporation, BofA Merrill

Lynch Asset Holdings, Inc., and Bank of America

Merrill Lynch (Lawrence S. Lustberg, Matthew D.

Benedetto, and Megan E. Barriger, on the joint brief).

Pashman Stein Walder Hayden PC, Susanna M.

Buergel (Paul, Weiss, Rifkind, Wharton & Garrison

LLP) of the New York bar, admitted pro hac vice, and

Daniel A. Negless (Paul, Weiss, Rifkind, Wharton &

Garrison LLP) of the New York bar, admitted pro hac

vice, and Jane O'Brien and Lina Dagnew (Paul, Weiss,

Rifkind, Wharton & Garrison LLP) of the District of

Columbia bar, admitted pro hac vice, attorneys for

appellants Citigroup Inc., Citigroup Global Markets

Inc., Citibank, N.A., Citigroup Financial Products Inc.,

Citigroup Global Markets Holdings Inc., and Citigroup

Global Markets Limited (Brendan M. Walsh, Susanna

M. Buergel, Daniel A. Negless, Jane O'Brien, and Lina

Dagnew, on the joint brief).

A-1340-23

3

Daniel W. Levy (McKool Smith, PC) argued the cause

for respondent (Stone & Magnanini LLP, Erica

Blachman Hitchings (Whistleblower Law

Collaborative LLC) of the Massachusetts bar, admitted

pro hac vice, and Daniel W. Levy, attorneys; Robert A.

Magnanini, Julio C. Gomez, Erica Blachman Hitchings,

and Daniel W. Levy, on the brief).

PER CURIAM

In this qui tam action, plaintiff Edelweiss Fund LLC, hereinafter referred

to as Edelweiss or relator, filed suit on behalf of the State of New Jersey. The

complaint alleged that defendants, a number of financial institutions and their

subsidiaries,1 violated the New Jersey False Claims Act (NJFCA or the Act),

N.J.S.A. 2A:32C-1 to -15, -17 to -18, in connection with their resetting of

interest rates of variable-rate, tax-exempt municipal bonds, defrauding the State

of more than $100 million. Defendants moved for summary judgment based on

an affirmative defense contained in the NJFCA, and relator cross-moved for

summary judgment opposing dismissal of the action. Retroactively applying a

2023 amendment to the NJFCA, the trial court denied defendants' motion and

granted relator's cross-motion in an order entered on October 24, 2023. By leave

1

Defendants consist of entities and subsidiaries of JPMorgan Chase & Co.,

Citigroup Inc., Wells Fargo & Company, Bank of America Corporation, and

Morgan Stanley.

A-1340-23

4

granted, defendants appeal from the interlocutory order. For the reasons that

follow, we reverse.

I.

The NJFCA

By way of background,

[t]he [NJFCA] imposes civil penalties on any person

who "[k]nowingly presents . . . a false or fraudulent

claim for payment or approval." N.J.S.A. 2A:32C-3(a).

The [NJFCA] is modeled on the [Federal False Claims

Act (federal FCA)] and is intended to protect the

government, and ultimately taxpayers, from paying

false claims. See State ex rel. Hayling v. Corr. Med.

Servs., Inc., 422 N.J. Super. 363, 372 (App. Div. 2011)

(quoting Assemblyman Herb Conaway, Jr., who

described the [NJFCA] to the Assembly[] Judicia[ry]

Committee "as New Jersey's [whistleblower] statute

which tracks the federal law that allows private

individuals . . . to sue on behalf of the government to

recover the losses to the public"). A "claim" is defined

to include a request or demand for money, property, or

services that is "made to any employee, officer, or agent

of the State" if the State provides any portion of the

money, property, or services requested. N.J.S.A.

2A:32C-2.

[State ex rel. Health Choice Grp., LLC v. Bayer Corp.,

478 N.J. Super. 184, 195 (App. Div. 2024) (omissions

and third and last alteration in original).]

Under the NJFCA, the Attorney General (AG) must investigate a violation

of the Act and may bring a civil action against an offending party in either state

A-1340-23

5

or federal court. N.J.S.A. 2A:32C-5(a). While a private person may also bring

a civil action in the name of the State of New Jersey for a violation of the Act,

a copy of the complaint must be served upon the AG to afford the AG the

opportunity to intervene and proceed with the action on behalf of the State.

N.J.S.A. 2A:32C-5(b), (d). To that end, a NJFCA complaint instituted by a

private person shall remain under seal for at least sixty days to enable the AG to

decide whether to proceed with the action. N.J.S.A. 2A:32C-5(c), (g).

If the AG intervenes and proceeds with the action, the AG then has the

primary responsibility for prosecuting the action. N.J.S.A. 2A:32C-6(a). If the

AG decides not to proceed with the action, the person who initiated the action

shall have the right to conduct the action and is rewarded with a portion of any

recovery.2 N.J.S.A. 2A:32C-6(f), 7(d). "The decision of the [AG] on whether

to proceed with an action shall be deemed final and shall not be subject to review

by any court or agency." N.J.S.A. 2A:32C-6(f). If the AG later wishes to

intervene and take over the action, the AG must move for leave to do so based

upon a showing of good cause. Ibid.

2

Generally, the relator bringing the action recovers regardless of whether the

AG intervenes or not. See N.J.S.A. 2A:32C-7(a) to (b), (d). If the AG does

intervene, the relator receives 15% to 25% of any recovered proceeds. N.J.S.A.

2A:32C-7(a). If the AG does not intervene, the relator receives 25% to 30% of

recovered proceeds. N.J.S.A. 2A:32C-7(d).

A-1340-23

6

The NJFCA affords alleged violators an affirmative defense referred to as

the public disclosure bar. N.J.S.A. 2A:32C-9(c); see Health Choice, 478 N.J.

Super. at 199 (defining the public disclosure bar defense). The public disclosure

bar precludes actions by private persons based on allegations or transactions that

have previously been publicly disclosed, unless "the person bringing the action

is an original source of the information." N.J.S.A. 2A:32C-9(c). This

affirmative defense is not available when an action is brought by the AG or when

the AG intervenes and takes over a case brought by a relator. Ibid. Instead, it

serves as a barrier to parasitic lawsuits while "encouraging private persons to

root out fraud." Brennan ex rel. State v. Lonegan, 454 N.J. Super. 613, 620

(App. Div. 2018) (quoting Graham Cnty. Soil & Water Conservation Dist. v.

United States ex rel. Wilson, 559 U.S. 280, 295 (2010)).

As set forth below, in June 2023, the Legislature amended N.J.S.A.

2A:32C-9(c). One of the amendments provides that a court shall not dismiss a

relator's action or claim under the NJFCA on the basis of the public disclosure

bar if such dismissal is "opposed by the [AG]." Ibid. Pursuant to the

amendment, the AG may oppose the dismissal without intervening and taking

over the action. Ibid. The Legislature stated that the amendments to the NJFCA

were to "take effect immediately." L. 2023, c. 73, § 11.

A-1340-23

7

The Action

Turning to the underlying facts of this appeal, variable-rate demand

obligations (VRDOs) are variable-rate, tax-exempt municipal bonds issued by

state and local governments to finance long-term public interest projects for

local communities. They allow the issuers to borrow money for long periods

while paying lower, short-term interest rates and are attractive to investors

because they are low-risk, offer high-liquidity, and are generally tax-exempt.

VRDO issuers hire banks to act as remarketing agents. In that capacity,

the banks are contractually obligated to reset the interest rates for VRDOs at the

lowest rate that, in their judgment, would enable the bond to be sold at face

value. When resetting rates, the banks must consider "prevailing market

conditions" and the individual characteristics of the bonds, and attempt to

broadly market the bonds to those investors who would be willing to hold the

bonds at the lowest interest rates possible.

Relator is a limited liability company located in Delaware. Relator's sole

principal, B. Johan Rosenberg, is a registered municipal advisor with more than

twenty years of experience advising municipalities and other clients on issuing

securities such as VRDOs. Rosenberg noticed that two very different VRDOs

A-1340-23

8

had the same interest rates and rate changes for a significant period of time. He

found this "anomalous" and "odd."

Because there was no existing way to efficiently analyze and compare

interest rates for groups of VRDOs, Rosenberg developed his own patented

commercial software. He then obtained raw VRDO data by subscribing to the

Short-Term Obligation Subscription Service offered by the Municipal Securities

Rulemaking Board (MSRB) at a cost of $10,000 annually. MSRB is a self-

regulatory organization created by statute and overseen by the Securities and

Exchange Commission. Rosenberg obtained additional data that was posted on

the MSRB's free online portal, Electronic Municipal Market Access (EMMA).

The same data was also available through subscription services offered by

Bloomberg's "Municipal Securities Master Database," a global provider of

financial news and information, although limits applied as to how much data

could be downloaded.

Rosenberg then performed a forensic analysis of the interest rates for

VRDOs issued by New Jersey and other states for which defendants served as

the remarketing agents for the period from April 1, 2009, through November 14,

2013. The results led Rosenberg to suspect that defendants were fraudulently

A-1340-23

9

collecting fees as remarketing agents for services they did not perform as

required.3

As a result, in 2015, relator filed a complaint under seal on behalf of the

State of New Jersey alleging that defendants violated the NJFCA in connection

with the resetting of VRDO interest rates. Specifically, relator alleged that in a

long-term coordinated scheme, defendants: (1) intentionally failed to reset rates

at the lowest possible rate, opting instead to reset rates mechanically en masse ,

which relator termed "robo-resetting," at artificially high rates, with no

consideration of a bond's individual characteristics, the prevailing market

conditions, or investor demand; (2) ignored the investors defendants knew

would accept the lowest interest rates, thereby failing to ascertain the lowest

possible rate that could be charged; and (3) charged the State fees for

remarketing services that were not provided and letter of credit services that

were needlessly incurred.4

3

He later analyzed more current data, including 226 rate resets that occurred

between June 30 and August 16, 2023, and alleged defendants' misconduct

continued through this period.

4

Relator has pursued similar litigation in other states. In Illinois, several of

defendants here, along with three other banks, agreed to pay $48,000,000,

exclusive of counsel fees, to resolve the case. Constantine Cannon Announces

Record $70 Million Whistleblower Settlement for Alleged Municipal Bond

A-1340-23

10

While the case was under seal, relator amended the complaint twice—on

January 24, 2017, and March 28, 2019. On July 17, 2019, the AG declined to

intervene in the case. After the trial court unsealed the case on July 26, 2019,

relator filed a third amended complaint in early 2020. Thereafter, defendants

moved to dismiss the complaint, relying on the public disclosure bar and other

grounds. The court granted defendants' motion on November 30, 2020, and

dismissed the complaint without prejudice.

In analyzing the applicability of the public disclosure bar, the court

applied the seminal "X + Y = Z" formula set out in United States ex rel.

Fraud and Price Fixing, Constantine Cannon (Mar. 22, 2024),

https://constantinecannon.com/firm-news/constantine-cannon-record-70-

million-whistleblower-settlement/; see generally State ex rel. Edelweiss Fund,

LLC vs. JPMorgan Chase & Co., No. 2017-L-000289 (Ill. Cir. Ct. Feb. 1, 2019)

(denying defendants' motion to dismiss on ground that relator was original

source). Discovery is ongoing in cases in New York and California. See State

ex rel. Edelweiss Fund, LLC v. JPMorgan Chase & Co., No. 100559/2014, 2024

WL 3913912 (N.Y. Sup. Ct. Aug. 23, 2024) (ruling on document redaction); see

also State ex rel. Edelweiss Fund, LLC v. JPMorgan Chase & Co., 307 Cal. Rptr.

3d 750, 758 (Ct. App.), as modified on denial of reh'g, (2023) (reversing trial

court's dismissal of Edelweiss's complaint and rejecting defendant banks'

argument that Edelweiss's claims were foreclosed by the public disclosure bar

in the California False Claims Act, Cal. Gov't Code §§ 12650-12656). But see

Rosenberg v. JPMorgan Chase & Co., 169 N.E.3d 445, 461, 465-66 (Mass.

2021) (affirming dismissal of Rosenberg's qui tam action after the court found

that EMMA was "news media" triggering the public disclosure bar of the

Massachusetts False Claims Act, Mass. Gen. Laws ch. 12, §§ 5A-5O).

A-1340-23

11

Springfield Terminal Railway Co. v. Quinn, 14 F.3d 645, 654 (D.C. Cir. 1994),

where the court stated:

On the basis of plain meaning, and at the risk of

belabored illustration, if X + Y = Z, Z represents the

allegation of fraud and X and Y represent its essential

elements. In order to disclose the fraudulent

transaction publicly, the combination of X and Y must

be revealed, from which readers or listeners may infer

Z, i.e., the conclusion that fraud has been

committed . . . .

. . . In terms of the mathematical illustration,

when X by itself is in the public domain, and its

presence is essential but not sufficient to suggest fraud,

the public fisc only suffers when the [whistleblower's]

suit is banned. When X and Y surface publicly, or when

Z is broadcast, however, there is little need for qui tam

actions, which would tend to be suits that the

government presumably has chosen not to pursue or

which might decrease the government's recovery in

suits it has chosen to pursue.

[Ibid. (emphasis omitted).]

Stated differently, "where only one element of the fraudulent transaction is in

the public domain (e.g., X), the qui tam plaintiff may mount a case by coming

forward with either the additional elements necessary to state a case of fraud

(e.g., Y) or allegations of fraud itself (e.g., Z)." Id. at 655 (emphasis omitted).

Applying these principles, the trial court made the following findings:

It is clear from a generous reading of the third

amended complaint and the applicable cases that the

A-1340-23

12

[NJFCA] public disclosure bar precludes relator's fraud

claims because the underlying transactions on which

they are based were public[ly] disclosed data regarding

VRDO rate resets.

This rate reset data was public[ly] disclosed

through easily accessible websites, and this [c]ourt is

far more persuaded by the cases cited by defendants[]

which [espouse] . . . the overwhelming majority view,

that these types of websites qualify as news media.

So th[e] X, which are defendants' obligations that

are set forth in the remarketing agreements, and the Y,

the VRDO rate reset data, were public[ly] disclosed

before this lawsuit was filed.

The trial court ruling in the parallel

Massachusetts case [5] is persuasive to this [c]ourt on

this issue[,] and this [c]ourt agrees with [that court's]

analysis, mainly that the VRDO reset data was

public[ly] available in the official statements, through

EMMA, as well as through Bloomberg . . . which . . .

permits SIFMA[6] Index information.

Similarly[,] here the sources of data for relator's

claim, EMMA, Bloomberg, and Federal Reserve

economic data, are all news media[,] and [that] holding

is consistent, as I said, [with] the overwhelming

majority of cases.

5

Commonwealth ex rel. Rosenberg v. JPMorgan Chase & Co., No. SUCV2014-

03323-BLS1, 2019 WL 3643035 (Mass. Super. Ct. July 23, 2019), aff'd sub

nom., Rosenberg v. JP Morgan Chase & Co., 169 N.E.3d 445 (Mass. 2021).

6

SIFMA refers to the Securities Industry Financial Markets Association swap

index, which tracks the average interest rate for highly rated VRDOs reset on a

weekly basis.

A-1340-23

13

This [c]ourt is not persuaded by the outlier case

from the California Court of Appeals relied upon by

relator, the [Bartlett] v. Miller . . . case. [7] . . .

[R]elator[] contend[s] that the Y is that defendants

collusively used a rate setting process to artificially

inflate VRDO rates. . . . [D]efendants are correct in

pointing out that the conclusion is the ultimate

inference of fraud which is the Z.

Defendants are also correct in pointing to

N.J.S.A. 2A:32C-9(c)[,] which states that no action

brought under this Act shall be based upon public

disclosure of allegations or transactions. The key word

there being transactions, which means that the NJFCA

does not require the disclosure of allegations of fraud

where the transaction[s] upon which the assertion of

fraud is based are public[ly] disclosed. And this is

consistent once again with the Springfield Terminal

case. And this ultimately means that there does not

have to be public disclosure of the allegations of

robo[‑]resetting.

Another case that is persuasive in this analysis is

Conrad v. Abbott Labs, from the District of

Massachusetts 2013, [8] which held that a relator cannot

bring a qui tam suit based on public[ly] disclosed facts,

even if her expertise makes her the first to understand

the alleged fraud.

7

State ex rel. Bartlett v. Miller, 197 Cal. Rptr. 3d 673 (Ct. App. 2016).

8

United States ex rel. Conrad v. Abbott Labs., Inc., No. 02-11738, 2013 WL

682740 (D. Mass. Feb. 25, 2013).

A-1340-23

14

And it is likewise clear that relator cannot qualify

as an original source because the claims are not based

on direct and independent information.

The term direct and independent comes from

N.J.S.A. 2A:32C-9(c), which defines original source as

an individual who has direct and independent

knowledge of the information on which the allegations

are based and has voluntarily provided the information

to the State before filing an action under this Act based

on this information . . . .

Direct knowledge means firsthand under the

analogous federal case law. This means that the

third[‑]party statements of the unidentified witnesses

do not qualify since they are indirect knowledge. [9] And

just looking at this prong, it is clear that relat[or] is not

an original source.

In addition, relator does not possess knowledge

independent of public[ly] disclosed transactions.

Inferences drawn exclusively from public[ly] disclosed

information are not independent of that information.

That[ is] a logical statement and consistent with the law

stated by . . . defendants. There are no true insiders

here that qualify as an original source, and to say

otherwise would be disingenuous to the spirit and letter

of the [NJFCA].

9

Relator added to the third amended complaint allegations by defendants'

former employees that defendants reset VRDOs en masse without individualized

consideration, aimed to make sure bonds were not "put" back to remarketing

agents, and primarily marketed VRDOs to existing customers, making

negligible efforts to court prospective purchasers.

A-1340-23

15

On March 1, 2021, relator filed its fourth amended complaint. Defendants

again moved to dismiss the complaint based on the public disclosure bar and

other grounds. On September 13, 2021, the court denied defendants' motion

without prejudice, finding that relator had addressed the defects in the third

amended complaint, such as clarifying defendants' obligations under the

remarketing agreements vis-à-vis individualized rate setting and explaining how

the statistical analysis performed by Rosenberg supported an allegation of fraud.

As to the public disclosure bar, the court found as follows:

Defendant[s] also contend[] that the fourth

amended complaint should be dismissed pursuant to the

[NJFCA] public disclosure bar. Defendants raise

significant issues in support of their motion and relator

raised significant . . . issues in opposition. What is clear

is that many of the supporting and opposing arguments

rely on factual claims that have not been subject to

discovery. It would be inappropriate for the [c]ourt to

rule on this portion of the motion absent discovery on

the issues raised in the motion papers. So[,] the [c]ourt

will deny the motion but it will be without prejudice[,]

and defendants can bring this motion again if

appropriate following discovery on the public

disclosure bar.

On March 23, 2023, defendants filed another motion for summary

judgment, again urging dismissal of the complaint under the public disclosure

bar. Relator opposed the motion and cross-moved for summary judgment on the

applicability of the public disclosure bar. While the motions were pending, on

A-1340-23

16

June 30, 2023, the New Jersey Legislature amended various provisions of the

NJFCA, effective "immediately." L. 2023, c. 73, § 11. In particular, the

Legislature amended N.J.S.A. 2A:32C-9(c) to empower the AG to block the

dismissal of a qui tam action on public disclosure bar grounds by simply filing

a notice of opposition without intervening in the case. Ibid. Notably, the federal

FCA had been similarly amended in 2010, Patient Protection and Affordable

Care Act, Pub. L. No. 111-148, § 10104(j)(2), 124 Stat. 119, 901-02 (2010)

(codified at 31 U.S.C. § 3730(e)), and other state FCAs were subsequently

amended in the same way, see, e.g., Act of July 1, 2012, ch. 139, 2012 Mass.

Legis. Serv. (H.B. 3539) (West) (codified at Mass. Gen. Laws ch. 12, § 5C).

In an accompanying statement, the New Jersey Legislature stated that it

had revised the NJFCA "to comply with federal law for purposes of entitling

[the] State to enhanced recovery in Medicaid fraud cases," explaining that:

Under federal law, a state is entitled to enhanced

recovery in Medicaid fraud cases if the Inspector

General in the federal Department of Health and Human

Services determines that the state has a [FCA] that is

"at least as effective" as the federal [FCA] in

facilitating these whistleblower actions. Presently, the

Inspector General has determined that the NJFCA is not

"at least as effective" as the federal [FCA], and has

recommended specific revisions. This bill would

implement the Inspector General's recommendations.

A-1340-23

17

[Assemb. Budget Comm. Statement to A. 5584 (June

27, 2023).]

Relying upon the 2023 amendment, on August 16, 2023, the AG filed a

notice exercising its right to oppose the dismissal of the instant action based on

the NJFCA's public disclosure bar. In the notice, the AG wrote in part:

Federal courts applying the nearly identical

provision of the federal [FCA] have held that, "the

government has the right to block a defendant's attempt

to have a meritorious case dismissed on public

disclosure grounds," and "once the government objects

[to dismissal on a public disclosure ground], the court

does not even address the issue." United States ex rel.

Conroy v. Select Med[.] Corp., No. 3:12-cv-00051,

2017 WL 468276, at *4 (S.D. Ind. Feb. 3, 2017) . . . .

Therefore, because the State opposes dismissal

based on the public disclosure bar, the [c]ourt may not

dismiss applicable claims in the [f]ourth [a]mended

[c]omplaint based on the bar.

[(first and third alterations added) (footnote omitted).]

In the notice, the AG did not discuss whether the 2023 amendment on

which it was relying applied retroactively. As a result, the court directed the

parties to file supplemental briefs focused upon the retroactive application of

this "[newly enacted] veto power." Thereafter, following oral argument, the

court denied defendants' motion for summary judgment and granted relator's

cross-motion for summary judgment in an October 24, 2023, order. In the order,

A-1340-23

18

the court found that the AG's exercise of its veto power rendered the public

disclosure bar affirmative defense unavailable to defendants.

In an accompanying oral opinion, the court ruled that the 2023 amendment

had to be given retroactive effect as it reflected a mere "procedural" change in

how the State, the real party in interest, could block the public disclosure bar

from applying. Alternatively, the court ruled that if the 2023 amendment did

not apply retroactively, both parties' motions had to be denied given the material

issues of disputed fact regarding whether the bar applied. Specifically, the court

determined there were disputed factual issues regarding whether there was

public disclosure of the transactions through a news media source, and whethe r

relator could be considered an original source of the information. 10

On January 4, 2024, we granted defendants' motion for leave to file an

interlocutory appeal of the October 24, 2023, order, and on October 25, 2024,

we granted defendants' motion for a partial stay. On appeal, defendants argue

the court erred in ruling that the 2023 amendment to the public disclosure bar

applied retroactively. Defendants also contend that the court erred in

10

The court's alternative ruling was entirely contrary to its 2020 ruling that the

public disclosure bar affirmative defense was applicable under the facts of the

case.

A-1340-23

19

alternatively holding that material issues of fact as to the availability of the

public disclosure bar precluded the grant of summary judgment to either party.

II.

We first address the retroactivity question.

We apply a two-part test to determine if a statute

should apply retroactively. We must first determine

"whether the Legislature intended to give the statute

retroactive application"; and second, "whether

retroactive application of that statute will result in

either an unconstitutional interference with vested

rights or a manifest injustice." James v. N.J. Mfrs. Ins.

Co., 216 N.J. 552, 563 (2014) (quoting In re D.C., 146

N.J. 31, 50 (1996)). "Both questions must be satisfied

for a statute to be applied retroactively." [Johnson v.

Roselle EZ Quick LLC, 226 N.J. 370, 387 (2016).]

As to the first question, there are three

circumstances that justify applying a statute

retroactively: (1) when the Legislature explicitly or

implicitly expresses an intent that a law be retroactive;

(2) when an amendment is ameliorative or curative; or

(3) when the parties' expectations warrant retroactive

application. Ibid.

[Maia v. IEW Constr. Grp., 257 N.J. 330, 349-50

(2024).]

"[C]ourts generally 'enforce newly enacted substantive statutes

prospectively, unless [the Legislature] clearly expresses a contrary intent'" for

retroactive application. Id. at 350 (first alteration added) (emphasis omitted)

(quoting In re J.D.-F, 248 N.J. 11, 22 (2021)). "The Legislature may convey its

A-1340-23

20

intent to apply a statute retroactively by expressing it explicitly 'in the language

of the statute or in the pertinent legislative history,' or impliedly, by rendering

it necessary 'to make the statute workable or to give it the most sensible

interpretation.'" Id. at 350-51 (quoting Gibbons v. Gibbons, 86 N.J. 515, 522

(1981)).

"[W]hen determining whether a statute or amendment is ameliorative or

curative, courts look to whether the statute or amendment 'is designed merely to

carry out or explain the intent of the original statute.'" Id. at 351 (quoting

Johnson, 226 N.J. at 388). A curative amendment does not "alter the intended

scope or purposes of the original act," but is simply intended to clarify existing

law or "remedy a perceived imperfection in or misapplication of a statute." Ibid.

(quoting Johnson, 226 N.J. at 388).

"[I]f there is no 'clear expression of legislative intent' concerning

retroactivity, then 'a court will look at the controlling law at the relevant time

and consider the parties' reasonable expectations as to the law,' which may

warrant retroactive application." Ibid. (citation omitted) (quoting Johnson, 226

N.J. at 388-89). "An expectation of retroactive application 'should be strongly

apparent to the parties in order to override the lack of any explicit or implicit

A-1340-23

21

expression of intent for retroactive application.'" Ibid. (quoting Johnson, 226

N.J. at 389).

"Settled rules of statutory construction favor prospective rather than

retroactive application of new legislation" in order to avoid unfair outcomes.

Pisack v. B & C Towing, Inc., 240 N.J. 360, 370 (2020) (quoting James, 216

N.J. at 563). Moreover, "New Jersey courts have repeatedly construed

[legislative] language stating that a provision is to be 'effective immediately,' or

'effective immediately on a given date,' to signal prospective application because

it 'bespeak[s] an intent contrary to, and not supportive of, retroactive

application.'" Maia, 257 N.J. at 352 (first alteration added) (quoting Pisack, 240

N.J. at 371).

Recently, in Health Choice, we considered whether the pre- or post-

amendment definition of "original source" applied for purposes of invoking the

NJFCA's public disclosure bar and concluded that the 2023 amendments to the

NJFCA applied prospectively, reasoning:

The 2023 amendments to the [NJFCA] used

language clearly indicating that the Legislature

intended the amendments to apply prospectively. In

that regard, the Legislature stated that the amendments

"shall take effect immediately." L. 2023, c. 73, § 11.

"Our Supreme Court has consistently held that an

amendment that is to take effect immediately is to be

applied only prospectively." State v. Rosado, 475 N.J.

A-1340-23

22

Super. 266, 276 (App. Div. 2023); see also Pisack, 240

N.J. at 371 (explaining that "the Legislature provided

that the 2018 amendatory legislation 'shall take effect

immediately.' Those 'words bespeak an intent contrary

to, and not supportive of, retroactive application.'"

[(citation omitted)] (quoting Cruz v. Cent. Jersey

Landscaping, Inc., 195 N.J. 33, 48 (2008))).

The amendments to the [NJFCA] were also not

curative. Although the amendments were designed to

bring the [NJFCA] into compliance with the [federal]

FCA, the Legislature explained that the goal was to

enhance recoveries in Medicaid fraud cases.

Federal courts have consistently construed the

2010 amendment to the [federal] FCA to apply

prospectively. See, e.g., United States ex rel. Zizic v.

Q2Administrators, LLC, 728 F.3d 228, 232 n.3 (3d Cir.

2013); United States ex rel. Poteet v. Bahler Med., Inc.,

619 F.3d 104, 107 n.2 (1st Cir. 2010); United States ex

rel. May v. Purdue Pharma L.P., 737 F.3d 908, 914-18

(4th Cir. 2013); Bellevue v. Universal Health Servs. of

Hartgrove, Inc., 867 F.3d 712, 717-18 (7th Cir. 2017);

Prather v. AT&T, Inc., 847 F.3d 1097, 1103 (9th Cir.

2017). Accordingly, we presume that the New Jersey

Legislature was aware of the federal law concerning the

prospective application of the new definition of original

source and meant to likewise apply the [NJFCA]

amendments prospectively.

[Health Choice, 478 N.J. Super. at 198-99.]

Here, in ruling that the 2023 amendment to the public disclosure bar

applied retroactively, the court agreed with relator that the amendment

constituted a procedural, and not a substantive, change as the amendment did

A-1340-23

23

"not confer any new right" on the State nor "destroy any of . . . defendants'

[rights]." The court reasoned:

The [c]ourt agrees with . . . relator that the [newly

enacted] veto powers are procedural in function. It is

the [c]ourt's position that rather than creating novel

rights, the amendment serves as a tool that bolsters the

State's ability to protect its existing interest.

Legislative change by conferring upon the [AG] the

authority to contest dismissal enhances the State's

procedural toolkit without altering the fundamental

nature of its role in qui tam actions and does so without

violating any, quote, vested right, closed quote, of . . .

defendant[s].

In conclusion, the [c]ourt posits that the State's

objection to dismissal post amendment is not indicative

of the bestowal of new rights but, instead, is an organic

expression of its enduring interest in and responsibility

for the qui tam claim. This [perspective] aligns with

. . . relator's stance and emphasizes the continuity of the

State's role in the proceeding.

When a trial court's conclusion is based on its "interpretation of the law

and the legal consequences that flow from established facts," its conclusion is

"not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm.,

140 N.J. 366, 378 (1995). Rather, we apply a de novo standard of review. Ibid.

"Questions of statutory interpretation are also reviewed de novo," without

deference "to the legal conclusions reached by the trial court." W.S. v. Hildreth,

252 N.J. 506, 518 (2023) (citing State v. Lane, 251 N.J. 84, 94 (2022)).

A-1340-23

24

Based on our de novo review, we agree with defendants that the court

failed to consider the express language of the Legislature that the amendments

were to take effect "immediately," language which has historically been

construed as indicating prospective application. We also believe the

amendments were not curative in nature but were enacted to enable the State to

obtain enhanced recoveries in Medicaid fraud cases.

Although it is true that the State always retained the power to divest

defendants of the public disclosure bar as an affirmative defense, the elimination

of the requirement that the State intervene in the action and assume the cost of

the litigation in order to do so was a significant change. Had the Legislature

viewed this change as suitable for retroactive application, it could have said so.

We also reject relator's argument that the 2023 amendment should be

given pipeline retroactivity. In that regard, relator's reliance on Roik v. Roik,

477 N.J. Super. 556 (App. Div. 2024), is misplaced. In Roik, we determined

that certain amendments to our intestacy laws and the equitable distribution

statute should be applied retroactively to pending cases that were not dismissed

prior to the effective date of the new statutes because: (1) the language of the

amendments contemplated such retroactivity; (2) the amendments were clearly

curative; and (3) pipeline retroactivity advanced the purposes of the amendments

A-1340-23

25

and facilitated the administration of justice. Id. at 574. None of those factors

are present here. 11

III.

Next, we turn to defendants' challenge to the court's alternate ruling

denying summary judgment to either party.

We review the trial court's summary judgment ruling "de novo under the

same standard as the trial court." Templo Fuente De Vida Corp. v. Nat'l Union

Fire Ins. Co. of Pittsburgh, 224 N.J. 189, 199 (2016). That standard is well-

settled.

[I]f the evidence of record—the pleadings, depositions,

answers to interrogatories, and affidavits—"together

with all legitimate inferences therefrom favoring the

non-moving party, would require submission of the

issue to the trier of fact," then the trial court must deny

the motion. R. 4:46-2(c); see Brill v. Guardian Life Ins.

11

Relator also asserts that even if the court's retroactivity ruling is reversed on

appeal, "[r]elator's allegations concerning [d]efendants' ongoing false claims

submitted after June 30, 2023, must still survive." However, we decline to

consider the argument because it was not presented to the trial court and relator

has presented no supporting authority on appeal. See In re Est. of Byung-Tae

Oh, 445 N.J. Super. 402, 408 (App. Div. 2016) (explaining that "we need not

consider . . . belated argument[s]" that were "not raised in the trial court").

Regardless, we are persuaded by the rationale articulated in federal cases

holding that the anti-retroactivity rule requires courts to apply the pre-

amendment version of the statute to the entire continuous course of conduct.

See, e.g., Zizic, 728 F.3d at 232 n.3 (applying only the pre-amendment public

disclosure bar to an action alleging conduct both pre- and post-dating the 2010

federal amendment).

A-1340-23

26

Co. of Am., 142 N.J. 520, 540 (1995). On the other

hand, when no genuine issue of material fact is at issue

and the moving party is entitled to a judgment as a

matter of law, summary judgment must be granted. R.

4:46-2(c); see Brill, 142 N.J. at 540.

[Steinberg v. Sahara Sam's Oasis, LLC, 226 N.J. 344,

366 (2016).]

"[T]he public disclosure bar involves a question of standing." Health

Choice, 478 N.J. Super. at 194. "Whether a party has standing to pursue a claim

is a question of law subject to de novo review." Cherokee LCP Land, LLC v.

City of Linden Plan. Bd., 234 N.J. 403, 414 (2018); accord Brennan, 454 N.J.

Super. at 618. "Standing 'involves a threshold determination of the court's power

to hear the case.'" Health Choice, 478 N.J. Super. at 194 (quoting Watkins v.

Resorts Int'l Hotel & Casino, Inc., 124 N.J. 398, 418 (1991)). "Relators lack

standing to bring claims under the [NJFCA] when the claims are based on

allegations or transactions that have already been publicly disclosed and the

relators were not the original source of the information." Ibid.

"[T]he public disclosure bar in the [NJFCA] uses the word 'shall,' which

denotes that it is a mandatory bar when applicable." Ibid.; N.J.S.A. 2A:32C-

9(c).

Accordingly, the public disclosure provision bars an

action by a private person when (1) there has been a

prior public disclosure of the alleged fraud; and (2) the

A-1340-23

27

person's lawsuit is based upon "substantially the same

allegations or transactions[";] unless (3) the person is

an original source of the information.

[Health Choice, 478 N.J. Super. at 199 (quoting

N.J.S.A. 2A:32C-9(c)).]

A public disclosure of transactions raising an inference of fraud does not

require that the actual allegations of fraud be published; rather, there must

simply be disclosure of the essential information from which the inference could

be derived. Springfield Terminal, 14 F.3d at 653-55. Moreover,

there may be situations in which all of the critical

elements of fraud have been publicly disclosed, but in

a form not accessible to most people, i.e., engineering

blueprints on file with a public agency. Expertise in the

field of engineering would not in itself give a qui tam

plaintiff the basis for suit when all the material

elements of fraud are publicly available, though not

readily comprehensible to nonexperts.

[Id. at 655 (emphasis omitted).]

Under the NJFCA, public disclosure of the allegations or transactions at

issue may be made by the "news media." N.J.S.A. 2A:32C-9(c). Subscription

fees to a particular news source do not render its disseminated information non-

public. United States ex rel. Patriarca v. Siemens Healthcare Diagnostics, Inc.,

295 F. Supp. 3d 186, 200 (E.D.N.Y. 2018); see also United States ex rel. Doe v.

Staples, Inc., 932 F. Supp. 2d 34, 40 (D.D.C. 2013) (explaining that subscription

A-1340-23

28

trade publication that compiles shipping manifest information qualifies as "news

media").

The "original source" language in both the federal FCA and the NJFCA

was intended "to avoid 'parasitic lawsuits' based on publicly disclosed

information." Brennan, 454 N.J. Super. at 620 (quoting Graham, 559 U.S. at

295). Because we hold that the Legislature did not intend for the 2023

amendments to the NJFCA to apply retroactively, the pre-2023 definition of

"original source" applies here. That definition is "an individual who has direct

and independent knowledge of the information on which the allegations are

based and has voluntarily provided the information to the State before filing an

action under this act based on the information." N.J.S.A. 2A:32C-9(c) (2010).12

12

With L. 2023, c. 73, § 11, the Legislature amended the definition of "original

source" to track the since-amended federal definition, which refers to

an individual who either (1) prior to a public disclosure

as described in this paragraph has voluntarily disclosed

to the State the information on which allegations or

transactions in a claim are based, or (2) has knowledge

that is independent of and materially adds to the

publicly disclosed allegations or transactions, and who

has voluntarily provided the information to the State

before filing an action under this act.

[N.J.S.A. 2A:32C-9(c).]

A-1340-23

29

"'Direct knowledge' is knowledge obtained without any 'intervening

agency, instrumentality or influence: immediate.'" United States ex rel.

Schumann v. AstraZeneca Pharms. L.P., 769 F.3d 837, 845 (3d Cir. 2014)

(quoting United States ex rel. Atkinson v. Pa. Shipbuilding Co., 473 F.3d 506,

520 (3d Cir. 2007)). It is knowledge that is "first-hand," "[seen] with [the

relator's] own eyes," "unmediated by anything but [the relator's] own labor," and

"not derivative of the information of others." United States ex rel. Paranich v.

Sorgnard, 396 F.3d 326, 336 (3d Cir. 2005) (third alteration in original)

(citations omitted) (first quoting United States ex rel. Findley v. FPC-Boron

Emp.'s Club, 105 F.3d 675, 690 (D.C. Cir. 1997), overruled on other grounds by

United States ex rel. Davis v. District of Columbia, 679 F.3d 832, 838-39 (D.C.

Cir. 2012); then quoting Wang ex rel. United States v. FMC Corp., 975 F.2d

1412, 1417 (9th Cir. 1992), overruled on other grounds by United States ex rel.

Hartpence v. Kinetic Concepts, Inc., 792 F.3d 1121, 1129 (9th Cir. 2015); and

then quoting United States ex rel. Hafter v. Spectrum Emergency Care, Inc. 190

F.3d 1156, 1162 (10th Cir. 1999)). "Knowledge that is based on research into

public records, review of publicly disclosed materials, or some combination of

these techniques is not direct." United States ex rel. Ondis v. City of

Woonsocket, 587 F.3d 49, 59 (1st Cir. 2009).

A-1340-23

30

"The independent knowledge requirement means that 'knowledge of the

fraud cannot be merely dependent on a public disclosure.'" Schumann, 769 F.3d

at 845 (quoting Paranich, 396 F.3d at 336). Put differently, "a relator who would

not have learned of the information absent public disclosure [does] not have

independent information." United States ex rel. Stinson, Lyons, Gerlin &

Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1160 (3d Cir. 1991)

(internal quotation marks omitted).

In alternately ruling that substantive issues of fact as to the applicability

of the public disclosure bar precluded the grant of summary judgment to either

party, the court stated:

[T]he more you look at the law here, the statutory

language and the cases interpreting [the public

disclosure bar], it[ is] clear that this is an intensely fact-

based analysis. Here, . . . relator is asserting that [its]

case should[ not] be subject to the public disclosure bar

for several reasons.

First, [it] argue[s] that there was no public

disclosure in the specific fraud outlined in the

complaint before [its] lawsuit[.] [It] highlight[s] the

extensive effort and financial investment made by the

principal, . . . Rosenberg, to inve[nt] a novel

methodology for analyzing bond transaction data

ultimately uncovering the alleged fraud.

According to . . . relator, this was[ not] a case of

reiterating of facts but a genuinely original discovery.

Indeed, it is . . . relator's position that prior to [its]

A-1340-23

31

lawsuit there was no public allegation of [the] specific

fraud outlined in the complaint and in subsequent

complaints. [It] emphasize[s] the novel methodology

invented by . . . Rosenberg to uncover the alleged fraud

through the analysis of bond transaction data.

Furthermore, . . . relator contests the

characterization of [its] actions as parasitic[,]

emphasizing that [it] did[ not] rely on prior disclosures

and, in fact, had to go through a rigorous process to

unearth the fraud. [It] argue[s] that applying the public

disclosure bar in this case goes against the very purpose

of encouraging individuals to expose fraud.

Putting forth the principles of [Rule 4:46-2] and

considering each summary judgment motion as

providing the non-moving party the benefit of all

reasonable inferences, the [c]ourt has no choice but to

deny . . . defendants' motion and relator's motion on the

public disclosure elements. Whether the alleged fraud

in question was within the public domain and whether

it was only revealed through extensive efforts and

financial investment by . . . relator is clearly a question

of material fact and must be decided by a fact finder.

The evidence put forth by each side, relator and

defendants, and each prong of the public disclosure bar

analysis clearly creates a disputed issue of material fact

on all the essential elements of this affirmative defense,

especially considering that the [c]ourt has to give all

favorable inferences to the non-moving party.

The public disclosure bar analysis as set forth

above is [a] fact-specific analysis and the factual

predicate set forth by . . . defendants and relator[] as to

each and every prong of the analysis clearly creates

disputed issues of material fact.

A-1340-23

32

In its decision, the court departed wholly from its November 2020

determination that the transactions on which Edelweiss based its suit were

publicly disclosed by news media and that Edelweiss was not an original source

of the information. The court did so without explaining what had changed.

Regardless of the technical difficulties Rosenberg encountered in amassing from

public sites the information he needed to perform his analysis and the costs he

incurred, the fact remains that the data was publicly available. Expert analysis

has not been deemed sufficient to support a qui tam suit when "all the material

elements of fraud are publicly available, though not readily comprehensible to

nonexperts." Springfield Terminal, 14 F.3d at 655. Rosenberg relied on that

publicly available data in drawing his conclusions; he did not have direct and

independent knowledge that "robo-resetting" was taking place. Therefore, he

does not qualify as an original source of information of the alleged fraud.

Accordingly, we reverse the court's denial of summary judgment to defendants

on this alternate basis.

Reversed and remanded to the trial court for the entry of summary

judgment in favor of defendants.

A-1340-23

33