Dingle v. Bioport Corp ( 2004 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 04a0369p.06
UNITED STATES COURTS OF APPEALS
FOR THE SIXTH CIRCUIT
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RUSSELL E. DINGLE, THOMAS L. REMPFER, UNITED
Plaintiffs-Appellants, -
STATES OF AMERICA, EX REL.,
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No. 03-1841
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v. >
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Defendants-Appellees. -
BIOPORT CORPORATION, ROBERT MYERS,
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Appeal from the United States District Court
for the Western District of Michigan at Lansing.
No. 00-00124—Gordon J. Quist, District Judge.
Argued: September 17, 2004
Decided and Filed: October 28, 2004
Before: KENNEDY and COOK, Circuit Judges; HOOD, District Judge.*
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COUNSEL
ARGUED: Kenneth T. Levine, NELSON LEVINE DeLUCA & HORST, Blue Bell, Pennsylvania, for
Appellants. Ronald H. Clark, ARENT FOX PLLC, Washington, D.C., for Appellees. ON BRIEF:
Kenneth T. Levine, NELSON LEVINE DeLUCA & HORST, Blue Bell, Pennsylvania, for Appellants.
Ronald H. Clark, D. Jacques Smith, Brian C. Lansing, ARENT FOX PLLC, Washington, D.C., for
Appellees.
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OPINION
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KENNEDY, Circuit Judge. Plaintiffs/Relators Russell E. Dingle and Thomas L. Rempfer
(“Relators”) appeal the dismissal of their qui tam false claims action for lack of jurisdiction due to the public
disclosure bar. Because we find no error in the district court’s decision, we AFFIRM it.
*
The Honorable Joseph M. Hood, United States District Judge from the Eastern District of Kentucky, sitting by designation.
1
No. 03-1841 Dingle, et al. v. Bioport Corp., et al. Page 2
BACKGROUND
Relators filed this qui tam false claims action in district court in October of 2000 alleging that the
BioPort Corporation (“BioPort”) made false statements and claims to the U.S. government when it supplied
anthrax vaccines to the federal government that were manufactured in a manner inconsistent with the
process approved by the Food and Drug Administration and inconsistent with FDA regulations. The
amended complaint specifically alleges that BioPort changed the type of filter from a “stintered glass filter”
to a “low-protein-binding nylon membrane filter” and that this change put BioPort in breach of FDA
regulations, the FDA approval process, Public Health Service regulations, and BioPort’s contract with the
federal government.
BioPort moved to dismiss the complaint on the grounds that public disclosures in the form of
congressional testimony on the Anthrax vaccine, newspaper articles on the subject, and internet web sites,
eliminated the district court’s jurisdiction over the qui tam action pursuant to 31 U.S.C. § 3730(e)(4)(a)1.
BioPort also argued that Relators did not fall under the “original source” exception created by
§ 3730(e)(4)(b).2
BioPort provided the district court the materials it argued were public disclosures under the statute
and requested that the district judge take judicial notice of the materials. The district judge took judicial
notice of congressional testimony, including congressional testimony by Marc S. Zaid (an attorney for a
serviceman that refused to take the anthrax vaccine) and testimony of Kwai-Cheung Chan (Director of
Special Studies and Evaluations for the National Security and International Affairs Division of the General
Accounting Office), a House Committee on Government Reform report entitled The Department of Defense
Anthrax Vaccine Immunization Program: Unproven Force Protection, and a newspaper article from the
Lansing State Journal entitled Documents Hold Anthrax Secrets.
All of the judicially noticed items discussed different aspects of the controversy surrounding the
vaccination of U.S. servicemen and servicewomen, and portions of each source discussed problems with
the production of the vaccine at the BioPort facility, the sole facility producing anthrax vaccine in the United
States. Defendant argued that this discussion of problems with the vaccine could lead one to draw an
inference that BioPort defrauded the government. Relators countered arguing that the disclosures did not
deal with the specific problems (namely the change in the filters) advanced by Relators in their complaint
or that the disclosures did not otherwise qualify under the “allegations or transactions” test used by this
Court.
The district court used these documents to determine that a public disclosure had occurred, that the
disclosure was of the allegations or transactions that formed the basis of Relators’ complaint, that the
complaint was based on the public disclosure within the meaning of § 3730(e)(4)(a), and that Relators were
not original sources under § 3730(e)(4)(b). United States ex rel. Dingle v. BioPort Corp., 270 F. Supp. 2d
968 (W.D. Mich. 2003) (relying on United States ex rel. Jones v. Horizon Healthcare Corp., 160 F.3d 326,
330 (6th Cir. 1998)). Based on these holdings, the district court determined that it did not have jurisdiction
1
Section 3730(e)(4)(a) reads:
No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or
transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government [sic] Accounting
Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General
or the person bringing the action is the original source of the information.
2
Section 3730(e)(4)(b) reads:
For purposes of this paragraph, “original source” means 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 Government before filing
an action under this section which is based on the information.
No. 03-1841 Dingle, et al. v. Bioport Corp., et al. Page 3
over the qui tam action and dismissed the complaint. Id. at 980. Relators appeal two aspects of the district
court’s ruling. First, Relators argue that the district court interpreted the meaning of the phrase “allegations
or transactions” too broadly and in doing so, impermissibly lumped their claim in with the allegations or
transactions described in the disclosures. Second, Relators ask this Court to reconsider its understanding
of “based upon” and adopt a meaning Relators believe to be better in line with congressional intent.
ANALYSIS
A. Standard of Review
We review the district court’s dismissal for lack of jurisdiction and its application of the facts to the
law de novo. RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1135 (6th Cir. 1996).
However, we review the district court’s factual findings for clear error. United States v. A.D. Roe Co., 186
F.3d 717, 722 (6th Cir. 1999).
B. “Allegations or Transactions”
Section 3730(e)(4)(a) denies jurisdiction in qui tam actions when publicly disclosed allegations or
transactions form the basis for the complaint. 31 U.S.C. §3730(e)(4)(a). An allegation “connotes a
conclusory statement implying the existence of provable supporting facts.” United States ex rel. Springfield
Terminal Ry. Co. v. Quinn, 14 F.3d 645, 653-54 (D.C. Cir. 1994). A transaction is best represented by a
formula created by the DC Circuit:
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.
***
[Q]ui tam actions are barred only when enough information exists in the public domain to expose
the fradulent transaction (the combination of X and Y), or the allegation of fraud (Z). Id. at 655
(adopted by Jones, 160 F.3d at 331).
Both the D.C. Circuit and this Circuit went on to further describe X as the true state of facts and Y as the
misrepresented state of facts. A.D. Roe, 186 F.3d at 725; Jones, 160 F.3d at 331; Springfield, 14 F.3d at
654. Either a public disclosure which includes an allegation of fraud, or a public disclosure that describes
a transaction that includes both the state of facts as they are plus the misrepresented state of facts must be
present to eliminate jurisdiction in a case.
This Circuit has addressed the question of jurisdiction in qui tam actions several times. In McKenzie,
the plaintiff sued BellSouth alleging that it defrauded the government by falsifying trouble reports to make
it appear that lines were repaired within 24 hours or that an exception to the 24 hour repair rule applied.
United States ex rel. McKenzie v. BellSouth Telecomm., Inc., 123 F.3d 935, 937 (6th Cir. 1997). McKenzie
alleged that BellSouth was falsifying these reports to avoid having to refund money to the government and
other customers. Id. The district court denied jurisdiction based on filings in two other lawsuits (a tort
action that alleged a similar fraud and another qui tam action containing similar claims against BellSouth
subsidiaries in other parts of the country) and the media publicity surrounding those suits. Id. Although
the lawsuits and the publicity did not exactly mirror McKenzie’s complaint, this Court agreed that the
allegations were publicly disclosed prior to the filing of the suit. Id. at 940. In Jones, this Circuit reaffirmed
its holding in McKenzie by holding that Jones’ Whistleblower action, which was filed prior to her qui tam
action, presented sufficient facts to create an inference of wrongdoing on the part of the defendant. Jones,
160 F.3d at 332.
No. 03-1841 Dingle, et al. v. Bioport Corp., et al. Page 4
In Springfield, the plaintiff alleged that an arbitrator in a labor dispute fraudulently billed the
government for days on which he did not work on the dispute. Springfield, 14 F.3d at 648. The arbitrator
moved to dismiss the complaint on the basis that his pay vouchers and telephone records, which had been
publicly disclosed, served to bar the qui tam action. Id. at 648-49. The district court agreed, but the D.C.
Circuit reversed reasoning that the pay vouchers and the telephone records by themselves only met the
requirement that the government knew about the misrepresented state of affairs. Id. at 656. Because fraud
also requires a showing of an actual state of affairs, and the government had no way of knowing from the
facially valid vouchers that the arbitrator did not work on the days for which he submitted payment requests,
the qui tam action was not barred by those public disclosures. Id.
Finally, in Fine, a Relator filed suit against Sandia National laboratory alleging that Sandia
improperly “taxed” its nuclear waste fund to provide research and development funding for its discretionary
budget. United States ex rel. Fine v. Sandia Corp., 70 F.3d 568, 569 (10th Cir. 1995). The Tenth Circuit
agreed that his suit was barred based on a public disclosure (in this case, a GAO report) that indicated that,
in general, DOE laboratories were “taxing” nuclear waste accounts to fund R&D activities. Id. at 571. The
Tenth Circuit determined that despite the fact that Fine’s action alleged the Sandia taxing with more
specificity, the fact that the GAO report described the DOE lab practice in general sufficiently put the
government on notice as to the potential problem at Sandia. Id. Therefore, the Tenth Circuit determined
that the allegations or transactions described in the public disclosure formed the basis for Fine’s complaint
and barred his action. Id.
In this case, the district court found that the testimony of witnesses Zaid and Chan, the House report,
and the Lansing State Journal article were public disclosures (a fact that relator does not contest on appeal)
and that those public disclosures contained both allegations and reports of transactions that formed the basis
of Relators’ complaint. Dingle, 270 F. Supp. 2d at 976-77. The district court specifically pointed to the
Zaid testimony in which Mr. Zaid told congress that “...the vaccine may not be the same one approved by
the FDA.” Id. (quoting Zaid Testimony, Defs.’ Mem. Supp. Mot. Dismiss Ex. 2). It also pointed to the
LANSING STATE JOURNAL article, which stated that changes had been made to both the filters and the
containers in which the vaccine was produced. Id. (citing A.J. Evenson, Documents Hold Anthrax Secrets,
Lansing State Journal, Aug. 25, 2000, at 1A, 7A, Br. Supp. Mot. Dismiss Amend. Compl. Ex. D). Finally,
the district court referenced the house report, which noted that the Lansing plant had been cited numerous
times for deviating from the FDA regulations and problems that arose during potency testing. Id. (citing
House Report, Defs.’ Reply Br. Ex. C at 7, 12, 42–44, 61.). The court reasoned that all of these public
disclosures allowed it to draw an “inference of fraud” and dismiss the case for lack of jurisdiction. Id.
Relators argue that the public disclosures described above do not describe the same “allegations or
transactions” as they allege in their complaint. They distinguish the Zaid testimony and the House report
as relating to the injection of Squalene or other issues unrelated to the change of filters alleged in their
complaint. Relators also argue that the Lansing State Journal article is not a public disclosure of the
allegations or transactions on which their complaint is based because it only mentions the filter changes (the
actual state of facts, or the X) without mentioning that BioPort had not had these changes approved by the
FDA (the misrepresented state of facts or the Y). Relators also argue that the article presented no allegation
of fraud (Z). Finally, Relators argue that they were aware of the manufacturing changes before the article
was written. Relators argument on this point is spurious as it is irrelevant that they knew the information
when the Lansing State Journal published its article. The only relevant point is that the government had
available the information in the article at the point that the article was published in August 2000, before
Relators filed their suit in October.
We agree with Relators that the Lansing State Journal article, standing alone, does not present the
state of affairs as they are, as well as the misrepresented state of affairs (X + Y), nor does it make an
allegation of fraud (Z). It does, however, present the state of affairs as they are (X). The district court found
that one could infer from the article that the vaccine being produced and sold after the changes was different
from the one approved by the FDA.
No. 03-1841 Dingle, et al. v. Bioport Corp., et al. Page 5
Whether this inference is justified is irrelevant, because the House report supplies the other
necessary element in the X + Y = Z equation. Despite the fact that the House report does not specify in
great detail what type of problem the FDA identified, the very fact that the House report mentioned that the
FDA cited BioPort for “deviations” from the Federal Food, Drug, and Cosmetic Act allows a reader to
strongly infer that BioPort was not producing its vaccine in line with the FDA requirements. Thus, it forms
the necessary Y to the Lansing State Journal article’s X in that the House report provides evidence of
misrepresentation (as found by the FDA) and the Lansing State Journal article provides the actual state of
affairs. The fact that the information comes from different disclosures is irrelevant. All that is required is
that public disclosures put the government on notice to the possibility of fraud. These two sources, in
combination, certainly achieve that requirement.
The other public disclosure that the district court relied on seems to fall into the allegations category
(the Z in the equation). The Zaid testimony alleges fraud. This fact is true, regardless of whether Zaid
alleges fraud with respect to different aspects of the vaccine manufacturing process. Zaid informed the
government in his testimony that the vaccine may not be the same one approved by the FDA due to
modifications. Though he did no use the words fraud and though he may have been talking about a different
modification than the one alleged by Relators3 these points are not relevant here. The words fraud or
allegations need not appear in the disclosure for it to qualify. Jones, 160 F.3d at 332. Nor does the
allegation have to be exactly what Relators’ allege. McKenzie, 123 F.3d at 940. So long as the government
is put on notice to the potential presence of fraud, even if the fraud is slightly different than the one alleged
in the complaint, the qui tam action is not needed.
This holding is in line with our holdings in McKenzie and Jones and the Tenth Circuit’s holding in
Fine where the public disclosures were all slightly different, but still sufficient to put the government on
notice as to the possibility of fraud. This case differs from the Springfield case, however, because unlike
in Springfield, both the X and the Y are present here (albeit in different sources), or at the very least, the Z
is present with sufficient particularity.
Relators construct a hypothetical in which they argue that a suit that alleges fraud on the part of a
manufacturer with regard to a car’s seats should not preclude a suit alleging manufacturer fraud with respect
to the same car’s engine. While we agree that if both suits alleged the respective frauds (and only those
frauds) with particularity, the one suit would likely not bar the other, that hypothetical scenario is not
present here. By analogy, the scenario present here includes multiple general allegations of fraud by public
sources with respect to the car and a more specific claim of fraud by Relators with respect to the engine of
the car. Allowing such a suit would allow potential qui tam plaintiff’s to avoid the public disclosure bar
by pleading their complaints with more and more detailed factual allegations slightly different from more
general allegations already publicly disclosed. Given that the purpose of the qui tam action is to prosecute
fraud of which the government is unaware, such a result would not advance Congress’ purpose, and would
only multiply the number of parasitic qui tam actions pursued by plaintiffs. Springfield, 14 F.3d at 651.
See also McKenzie, 123 F.3d at 938.
Finally, it is true, as Relator’s claim, that general and unsupported allegations of fraud will often not
be enough to bar a qui tam action as those allegations would be tantamount to “simply innocuous
information.” A.D. Roe, 186 F.3d at 724. In this case, however, the allegations and transactions discussed
in the public disclosures are sufficiently definite to give the government enough information about possible
fraud as they specifically mention the manufacturing process as well as the filters themselves. Therefore,
3
Relators argues that Zaid was discussing Squalene rather than a filter change. Although we have no reason to doubt Relators
on this point, the quote as recorded does not mention Squalene. It just contains an allegation that the vaccine is not being
produced in a manner consistent with FDA approved processes. As such, that quote alone is enough to “sufficiently alert the
government” to the possibility of fraud. Fine, 70 F.3d at 571; Springfield, 14 F.3d at 655 (“to set government investigators on
the trail of fraud”).
No. 03-1841 Dingle, et al. v. Bioport Corp., et al. Page 6
this qui tam action is unnecessary and the public disclosure bar should remove jurisdiction from the district
court.
C. “Based upon”
While recognizing that the district court interpreted “based upon” in line with this court’s holding
in McKenzie where we adopted the rule that “based upon” means “supported by” for the purposes of this
statute, Relators seek to challenge that interpretation. They do not directly challenge the district court’s
interpretation or findings on this point, rather they ask this panel to overturn our prior decision and interpret
“based upon” to mean “derived from” in line with some other circuits. Relators advance several arguments
to support their position.
Regardless of whether these arguments have merit, we cannot do as Relators request. “A panel of
this Court cannot overrule the decision of another panel. The prior decision remains controlling authority
unless an inconsistent decision of the United States Supreme Court requires modification of the decision
or this Court sitting en banc overrules the prior decision.” Salmi v. Sec’y of Health and Human Servs., 774
F.2d 685, 689 (6th Cir. 1985). Relators cite no such authority and this Court could find none that would
compel us to disturb the decision of the prior panel. As a result, we decline to rule as Relators request.
CONCLUSION
We AFFIRM the judgment of the district court.