United States Ex Rel. Oliver v. Philip Morris USA Inc. , 949 F. Supp. 2d 238 ( 2013 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES ex rel.
ANTHONY OLIVER,
Plaintiff,
Civil Action No. 08-0034 (CKK)
v.
PHILIP MORRIS USA INC.,
Defendant.
MEMORANDUM OPINION
(June 13, 2013)
The plaintiff/relator in this case, Anthony Oliver (“Oliver”), brings suit against Defendant
Philip Morris USA Inc. (“Defendant”) pursuant to the False Claims Act (the “FCA”), 31 U.S.C.
§§ 3729 et seq. Presently before the Court is Defendant’s [53/62] Motion to Dismiss. 1 Upon
consideration of the parties’ submissions, the applicable authorities, and the record as a whole,
the Court shall GRANT Defendant’s motion and dismiss this case for lack of subject matter
jurisdiction. 2
1
Defendant timely filed its original motion to dismiss on July 27, 2012. See ECF No. [53]. On
October 10, 2012, with leave of the Court, Defendant re-filed the same motion, with the only
modifications being the correction of an address in the signature block and a corrected caption
that reflects Defendant’s request for oral argument on the motion. See ECF No. [62].
2
While the Court renders its decision on the record as a whole, its consideration has focused on
the following documents: Pl.’s Second Am. Compl. (“Compl.”), ECF No. [49]; Def.’s Mem. of
Law in Supp. of Def. Philip Morris USA Inc.’s Mot. to Dismiss (“Def.’s Mem.”), ECF No. [53-
1]; Pl.’s Mem. in Opp’n to Def.’s Mot. to Dismiss (“Pl.’s Opp’n”), ECF No. [59-1]; and Def.’s
Reply in Supp. of Def. Philip Morris USA Inc.’s Mot. to Dismiss (“Def.’s Reply”), ECF No.
[60]. In an exercise of its discretion, the Court finds that holding oral argument on the instant
motion would not be of assistance in rendering a decision. See LCvR 7(f).
I. BACKGROUND
Oliver, President and CEO of Medallion Brands International Co., a tobacco company,
filed this qui tam suit under seal on January 4, 2008. ECF No. [1]. On September 13, 2011, the
United States advised the Court that it would not intervene in the case. ECF No. [28]. In the
Second Amended Complaint, ECF No. [49] (hereinafter the “Complaint”), which is the operative
complaint in this action, Oliver alleges that Defendant violated the FCA by falsely certifying that
it was providing the United States military with the best price for its cigarettes.
Specifically, Oliver alleges that for a number of years and at least from 2002 until the
time the Complaint was filed, Defendant supplied the Navy Exchange Service Command
(“NEXCOM”) and the Army and Air Force Exchange Service (“AAFES”) with cigarettes.
Compl. ¶ 20. Oliver alleges that Defendant’s sales of cigarette products to NEXCOM and
AAFES were subject to “most favorable customer” warranties of NEXCOM’s and AAFES’s
contracting requirements. Id. ¶ 21. According to Oliver, during all times relevant to the
Complaint, NEXCOM’s contracting requirements provided, in pertinent part: “The Contractor
certifies that prices, terms and conditions offered under this contract, including consideration of
any discount rebate arrangements, do not exceed prices then being charged the Contractor’s most
favored customer or another military exchange for like items.” Id. ¶ 14. Similarly, for most of
the period covered by the Complaint, AAFES’s contracting requirements required a vendor to
provide the following price warranties: “The Contractor warrants that during this contract, the
net price to AAFES (considering each unit price, discounts, allowances, co-op advertising,
rebates, and other terms and conditions) for each item purchased will be as favorable as, or better
than, the price the item is being sold by the Contractor to other customers under the same or
similar conditions and in the same general geographical area pursuant to agreements made
2
during the same period. In the event the Contractor subsequently agrees to sell the item to
another customer at a lower price, the Contractor is obligated to promptly offer the lower price,
in writing, to the Contracting Officer.” Id. ¶ 16. 3
Oliver alleges that at all times mentioned in the Complaint, Defendant has, through the
submission of its purchase orders and other contract documents (both of which Oliver alleges
incorporated the “most favorable customer” warranties, id. ¶ 22), knowingly represented to
NEXCOM and AAFES that the prices it was charging for its cigarette products complied with
the “most favorable customer” warranties. Id. ¶ 23. However, he claims that, throughout the
period covered by the Complaint, Defendant has in fact “knowingly sold cigarette products
identical to the cigarettes sold to AAFES and NEXCOM to affiliates of defendant – including,
but not limited to, Philip Morris Duty Free, Inc. and Philip Morris International, Inc. – at prices
lower than the prices such cigarettes were sold to NEXCOM and AAFES.” Id. ¶ 25. Oliver
further contends that Defendant sold these cigarette products to its affiliates, knowing that its
affiliates were, in turn, re-selling the cigarettes to foreign purchasers in markets similarly situated
to NEXCOM and AAFES at prices lower than the prices charged to NEXCOM and AAFES. Id.Accordingly, Oliver alleges that Defendant falsely certified compliance with the “most
favorable customer” warranties and therefore violated the FCA in two ways – first, by selling its
cigarette products to its affiliates (whom Oliver claims have always been treated by Defendant as
3
This price warranty was effective from November 1995 until December 2007. In December
2007, the price warranty was modified as follows: “The prices for products provided by the
Contractor in this contract are hereby warranted by the Contractor to be comparable to, or more
favorable to AAFES than, the comparable prices, terms, and conditions that have been offered by
the Contractor to any of its customers. If the Contractor offers to industry or government at large
price decreases on the products and services included in this contract, which become effective
during the term of the contract, the price decreases will be passed on to AAFES to any portion of
contract performance not completed at time of implementation of the price decreases by the
Contractor, to the extent the decreased prices would be lower than the prices in this contract. . . .”
Compl. ¶ 19.
3
independent companies) for less than it was selling to the military, and/or second, by knowingly
using its affiliates as conduits through which to sell its cigarettes to the civilian duty free market
for less than it was selling to the military. Id. ¶ 29; Pl.’s Opp’n at 2. Either way, Oliver alleges
that, throughout the period covered by the Complaint, Defendant has charged NEXCOM and
AAFES millions of dollars more, annually, for its cigarette products than has been paid by either
Defendant’s affiliates purchasing such products or foreign purchasers buying such products from
Defendant’s affiliates. Compl. ¶ 29. While Oliver provides as an “example” a single allegation
of an alleged price discrepancy between the cost of Defendant’s cigarettes in the civilian duty-
free market in American Samoa and the price at which the same cigarettes were purchased by
NEXCOM for the Navy on Guam, see id. ¶ 26, the Complaint otherwise speaks in very broad
terms and contains neither geographic limitations nor specific allegations regarding the timing,
number, or other circumstances surrounding the alleged execution of the relevant contracts or
purchase orders. See generally id. It is Oliver’s position that, because he has not yet been
afforded discovery in this matter, he cannot be expected to provide greater specification of the
details of the allegedly fraudulent purchase orders at this time. Id. ¶ 30.
II. LEGAL STANDARDS
Defendant moves to dismiss the Complaint pursuant to Federal Rule of Civil Procedure
12(b)(1) for lack of subject matter jurisdiction or, in the alternative, Federal Rule of Civil
Procedure 12(b)(6) for failure to state a claim for relief. The Court must address Defendant’s
jurisdictional challenge before the merits of the case may be considered. See Vt. Agency of Nat’l
Resources v. U.S. ex rel. Stevens, 529 U.S. 765, 778 (2000) (“Questions of jurisdiction, of
course, should be given priority – since if there is no jurisdiction there is no authority to sit in
judgment of anything else.”). Because the Court concludes that this case must be dismissed
4
under 12(b)(1) for lack of subject matter jurisdiction, it need not address Defendant’s alternative
argument under 12(b)(6).
A court must dismiss a case pursuant to Rule 12(b)(1) when it lacks subject matter
jurisdiction. In determining whether there is jurisdiction, the Court may “consider the complaint
supplemented by undisputed facts evidenced in the record, or the complaint supplemented by
undisputed facts plus the court’s resolution of disputed facts.” Coalition for Underground
Expansion v. Mineta, 333 F.3d 193, 198 (D.C. Cir. 2003) (citations omitted); see also Jerome
Stevens Pharm., Inc. v. Food & Drug Admin., 402 F.3d 1249, 1253 (D.C. Cir. 2005) (“[T]he
district court may consider materials outside the pleadings in deciding whether to grant a motion
to dismiss for lack of jurisdiction.”). “At the motion to dismiss stage, counseled complaints, as
well as pro se complaints, are to be construed with sufficient liberality to afford all possible
inferences favorable to the pleader on allegations of fact.” Settles v. U.S. Parole Comm’n, 429
F.3d 1098, 1106 (D.C. Cir. 2005). In spite of the favorable inferences that a plaintiff receives on
a motion to dismiss, it remains the plaintiff's burden to prove subject matter jurisdiction by a
preponderance of the evidence. Am. Farm Bureau v. Envtl. Prot. Agency, 121 F. Supp. 2d 84, 90
(D.D.C. 2000).
4
The FCA prohibits fraudulent claims for payment from the United States, § 3729(a),
and authorizes private individuals (referred to as “relators”) to bring civil actions on behalf of the
Government based on their knowledge of fraud committed against the Government, id. §
3730(b)(1). The FCA incentivizes these so-called qui tam actions by relators with inside
information by permitting those relators to share in the Government’s recovery of the funds that
were the subject of the false claim or claims. See id. § 3730(d). However, the ability of a private
4
Unless otherwise indicated, all section references are to Title 31 of the United States Code.
5
party to bring such actions is limited by the “public disclosure” provision of the FCA, which
divests courts of subject matter jurisdiction over suits alleging facts that were publicly disclosed
in certain specified forums before the suit was filed, where the individual is not an “original
source” of that information. See id. § 3730(e)(4)(A). 5 It is this “public disclosure” bar on which
Defendant’s Rule 12(b)(1) motion relies.
The version of the FCA in effect when Oliver filed his Complaint provided, in pertinent
part, that “[n]o court shall have jurisdiction over an action … based upon the public disclosure of
allegations or transactions in a criminal, civil, or administrative hearing, in a congressional,
administrative, or Government Accounting Office report, hearing, audit or investigation, or from
the news media, unless … the person bringing the action is an original source of the
information.” Id. The D.C. Circuit has construed the statutory phrase “based upon” to mean
“‘supported by,’ not ‘derived from.’” U.S. ex rel. Schwedt v. Planning Research Corp., Inc., 39
F. Supp. 2d 28, 33 (D.D.C. 1999) (quoting U.S. ex rel. Findley v. FCP-Boron Employees’ Club,
105 F.3d 675, 682 (D.C. Cir. 1997)); accord U.S. ex rel. Hockett v. Columbia/HCA Healthcare
Corp., 498 F. Supp. 2d 25, 47 (D.D.C. 2007). In other words, the public disclosure bar
“encompass[es] situations in which the relator’s complaint repeats what the public already
knows, even though [he] had learned about the fraud independent of the public disclosures.”
Findley, 105 F.3d at 683. See also U.S. ex rel. Settlemire v. Dist. of Columbia, 198 F.3d 913,
918 (D.C. Cir. 1999) (“Under this regime, jurisdiction is lacking whenever the relator files a
complaint describing allegations or transactions substantially similar to those in the public
5
The public disclosure bar was amended on March 23, 2010, but the Supreme Court held that
the amendments do not apply retroactively. Graham Cnty. Soil & Water Conservation Dist. v.
U.S. ex rel. Wilson, 559 U.S. 280, 130 S. Ct. 1396, 1400 n.1, 176 L. Ed. 2d 225 (2010).
Accordingly, the version of 31 U.S.C. § 3730(e)(4) that was in effect at the time Oliver filed his
Complaint applies to the instant action.
6
domain, regardless of the actual source for the information in the particular complaint.”)
(citations and internal quotation marks omitted).
The FCA excepts from its public disclosure jurisdictional bar situations where the relator
is an “original source” of the relevant information. An “original source” is a person who has
“direct and independent knowledge” of the information on which the allegations in his
Complaint are based and who provided that information to the Government before filing suit. Id.§ 3730(e)(4)(B); see also U.S. ex rel. Green v. Serv. Contract Educ. and Training Trust Fund,
843 F. Supp. 2d 20, 30 (D.D.C. 2012). 6 “The D.C. Circuit has defined ‘direct’ knowledge as
knowledge ‘marked by absence of intervening agency,’” Green, 843 F. Supp. 2d at 30 (citing
United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 656 (D.C. Cir. 1994)),
“or ‘first-hand knowledge,’” id. (citing Findley, 105 F.3d at 690), and “independent knowledge”
as “‘knowledge that is not itself dependent on public disclosure,’” id. (citing Quinn, 14 F.3d at
656).
Together, the public disclosure bar and original source exception reflect congressional
consideration of the “optimal balance” between “encouraging suits by ‘whistle-blowing insiders
with genuinely valuable information’ and discouraging claims by ‘opportunistic plaintiffs who
have no significant information to contribute of their own.’” Id. (citing Quinn, 14 F.3d at 649).
6
As the Court in Green explained, in addition to the statutory requirement that the relator
provide the information to the government before filing suit, the D.C. Circuit in Findley inferred
a third requirement for an individual to qualify as an original source: that the individual must
also “provide the information to the government prior to any public disclosure.” See Green, 843
F. Supp. 2d at 30-31 (emphasis added). However, in U.S. ex rel. Davis v. Dist. of Columbia, the
D.C. Circuit observed that recent Supreme Court precedent may have called into question this
implicit pre-disclosure requirement. 679 F.3d 832, 837 (D.C. Cir. 2012). Here, because the
Court finds, for reasons explained infra Part III.C, that Oliver failed to demonstrate that he
provided the relevant information to the government before filing suit, the Court need not inquire
as to whether he also failed to do so prior to the public disclosure.
7
III. DISCUSSION
Here, Defendant argues that the “allegations or transactions” upon which Oliver’s suit is
based were the subject of public disclosure in both a civil hearing and in the news media within
the meaning of section 3730(e)(4)(A) of the FCA. Defendant also argues that Oliver does not
qualify as an “original source” within the meaning of section 3730(e)(4)(B) and that therefore the
FCA’s public disclosure bar precludes this Court from exercising subject matter jurisdiction over
this action. For the below reasons, the Court agrees.
A. “Public disclosure”
Defendant attaches as an exhibit to its motion a copy of a Philip Morris USA interoffice
memorandum identifying the difference between “PM USA military tax-free prices” and “PMI
duty free list prices,” which Defendant asserts was publicly disclosed when PM USA produced
documents to the Government in United States v. Philip Morris Inc., et al., Civ. A. No. 99-
02496-GK (D.D.C.), a RICO action against several large tobacco companies (hereinafter the
“RICO Action”). 7 See Def.’s Mem., Ex. A (Mem. from Mike Madden to Jacquie Gilbert
regarding MWR NAS Keflavik, Iceland, Dec. 28, 1999) (hereinafter “Interoffice
Memorandum”). The Interoffice Memorandum states, in relevant part:
Attached is a letter written by the Director, Morale, Welfare & Recreation (MWR)
Department at the U.S. Naval Station in Keflavik, Iceland to a duty-free wholesaler in
Norfolk, Virginia. The MWR facility has tried, unsuccessfully, to have a duty-free
wholesaler, Belkov Brothers, supply them with Philip Morris products. Doug Nelson
of PMI Duty-Free Sales has alerted PM USA Military department of this issue and has
advised Belkov not to ship product to the MWR facility.
PM USA is responsible for U.S. Military markets worldwide and is the source for
product to MWR facilities. These outlets are independent operations and not associated
with our major Service Headquarters i.e. AAFES, NEXCOM. The facility in Iceland is
7
The Court’s consideration of the Interoffice Memorandum is proper because, as stated supra
Part II, “the district court may consider materials outside the pleadings in deciding whether to
grant a motion to dismiss for lack of jurisdiction.” Jerome Stevens Pharm., Inc. v. Food & Drug
Admin., 402 F.3d 1249, 1253 (D.C. Cir. 2005).
8
a small operation and we have recommended that they source their product from the
Iceland Navy warehouse. As you can see from their letter, they are not satisfied with
the support from the Navy.
PMI Duty-Free list prices are lower than PM USA Military tax-free prices and we
frequently receive inquiries from the Service Headquarters on why they can’t
purchase tax-free product at these lower prices. Our response is that PM USA is the
U.S. Federal Government’s source of product, and we ensure that the product conforms
to the proper Surgeon General warnings. If the MWR were able to source product from
Belkov, they would have a substantial price advantage over the Navy Exchange. . . .
Id. (emphasis added).
Defendant argues that the pricing information in the Interoffice Memorandum qualifies as
publicly disclosed “in a … civil … hearing,” § 3730(e)(4)(A), as well as “from the news media,”
id., which courts have construed to include readily accessible websites. Specifically, Defendant
explains that the Interoffice Memorandum was produced to the Government as part of civil
discovery in the RICO Action, and that in December 2002 – over five years before Oliver
commenced the instant suit – Defendant uploaded the Interoffice Memorandum to a publicly
available, fully searchable online database created pursuant to a 1998 settlement agreement
between Defendant and 46 state Attorneys General, mandating public access to documents that
Defendant had produced in tobacco and health litigation. See Def’s Mem. at 14 & Ex. B (Philip
Morris USA Public Document Site Screen Shot); see also http://www.pmdocs.com/Home.aspx
(last visited June 5, 2013). Defendant’s document disclosure obligations under the settlement
agreement were subsequently extended for an additional ten years by a 2006 order from this
Court, which, inter alia, ordered Defendant to maintain in its online database and make
searchable “all documents produced to the Government in this case.” See United States v. Philip
Morris, Inc., Civ. A. No. 99-02496-GK (D.D.C.), Order #1015: Final Judgment and Remedial
Order (Aug. 17, 2006), ECF No. [5733], at ¶¶ 8, 10(a)(1), 10(c). Defendant also explains that in
January 2003, the Interoffice Memorandum was independently copied to the University of
9
California at San Francisco’s publicly-available online document archive. See id. & Ex. C
(University of California, San Francisco Legacy Tobacco Documents Library Screen Shot); see
also http://legacy.library.ucsf.edu/tid/epz42c00 (last visited June 5, 2013) (indicating a “Date
Added UCSF” date of January 15, 2003 and a “Date Added Industry” date of December 4,
2002).
The Supreme Court has recently underscored that the channels of public disclosure
specified in the FCA’s public disclosure statutory bar should be construed broadly. See
Schindler Elevator Corp. v. United States ex rel. Kirk,  U.S. , 131 S. Ct. 1885, 179 L. Ed. 2d
825 (2011). In Schindler, the relator alleged that his former employer had submitted false claims
for payment under its federal contracts. To support his allegations, he pointed to information
that his wife had received from the Department of Labor in response to several requests for
records she filed pursuant to the Freedom of Information Act (“FOIA”), 5 U.S.C. § 522. The
question before the Supreme Court was whether a federal agency’s written response to a FOIA
request, including any records produced along with such response, was a government “report”
within the meaning of the FCA’s public disclosure bar. Reasoning that the “sources of public
disclosure in § 3730(e)(4)(A), especially ‘news media,’ suggest that the public disclosure bar
provides ‘a broa[d] sweep,’” the Court held that it was. Id. at 1891 (citing Graham County, 559
U.S. 280, 130 S. Ct. 1396, at 1404). The Court noted that this conclusion was further supported
by the drafting history of the public disclosure bar, finding that the relator’s case was a “classic
example of the ‘opportunistic’ litigation that the public disclosure bar is designed to discourage.”
Id. at 1894 (citation omitted). Specifically, the Court explained that “although [the relator]
alleges that he became suspicious from his own experiences . . . working at Schindler, anyone
could have filed the same FOIA requests and then filed the same suit. Similarly, anyone could
10
identify a few regulatory filing and certification requirements, submit FOIA requests until he
discovers a federal contractor who is out of compliance, and potentially reap a windfall in a qui
tam action under the FCA.” Id.
Although Schindler concerned the meaning of government reports, the “generally broad,”
“wide-reaching” scope of the FCA’s public disclosure bar undoubtedly requires a similarly
generous application of the other categories enumerated in the statute. See id. at 1891. Indeed,
this Circuit has held that “discovery material, when filed with the court (and not subject to
protective order), is ‘public[ly] disclos[ed]’ in a ‘civil hearing’ for purposes of § 3730(e)(4)(A)’s
jurisdictional bar.” Quinn, 14 F.3d at 652; see also id. (rejecting the relator’s argument that the
word “hearing” suggests formal proceedings open to the general public and finding instead that
“for purposes of § 3730(e)(4)(A), ‘hearing’ is roughly synonymous with ‘proceeding’”).
Oliver argues that the Interoffice Memorandum does not meet the Circuit’s definition of
publicly disclosed discovery material because it was never “filed” in Court. Pl.’s Opp’n at 17.
But this is too simplistic a reading of Quinn’s holding. While the Circuit restricted the
application of the public disclosure bar to discovery material “which is actually made public
through filing” – it immediately thereafter offered in contrast: “as opposed to discovery material
which has not been filed with the court and is only theoretically available upon the public’s
request.” Quinn, 14 F.3d at 652 (emphasis in original). The Court further stated: “[W]e doubt
that the discovery process conducted between two private litigants could itself constitute a public
disclosure within the meaning of [the FCA].” Id. The focus, therefore, is not on the “filing” of
the discovery materials on the docket per se, but rather, on whether the discovery materials were
made public as part of the civil case. Here, disclosure by way of a publicly accessible online
database – which public disclosure was a condition of a settlement agreement that was
11
subsequently ordered extended by the very court which presided over the case in which the
Interoffice Memorandum was produced, see supra – was “actual” and not just “theoretical,” and
consequently sufficient to trigger the public disclosure bar.
Alternatively, even if the Interoffice Memorandum had not been disclosed publicly in
connection with a civil hearing, the Court finds that it qualifies as publicly disclosed in the “news
media” given its availability online. “The FCA does not define ‘news media,’ and courts that
have considered the issue have construed the term to include readily accessible websites.”
Green, 843 F. Supp. 2d at 32 (holding that promotional information contained on a website of an
international labor union’s training organization was disclosure by “news media” under the
FCA’s public disclosure provision); cf. U.S. ex rel. Rosner v. WB/Stellar IP Owner, L.L.C., 739
F. Supp. 2d 396, 407 (S.D.N.Y. 2010) (finding that a publicly searchable database on a city
agency’s website, presenting synthesized tax benefit histories for many different properties over
many years, organized by block and lot number, was an administrative “report” subject to the
FCA’s public disclosure bar).
Oliver argues that, given the massive volume of the online databases, there was no
“realistic possibility” that the disclosure would actually be seen and understood by “the public.”
See Pl.’s Opp’n at 19-22. But Oliver cites no authority suggesting that, in addition to being
publicly accessible, the disclosure must also be conspicuous or widespread, and the Court is
aware of none. Compare, e.g., U.S. ex rel. Doe v. Staples, Inc., Civ. A. No. 08-846, 2013 WL
1192982, *4 (D.D.C. Mar. 22, 2013) (finding that shipping data provided by a trade publisher in
reports accessible from its website constituted public disclosure of information through the news
media for purposes of the FCA’s public disclosure jurisdictional bar). See also Green, 843 F.
Supp. 2d at 33 (“That the [ ] website may have been directed to a select audience, presumably
12
because of its subject matter, does not detract from its ready accessibility.”) (internal quotation
marks and citations omitted).
For all of the foregoing reasons, the Court finds that the posting of the Interoffice
Memorandum online in a public, searchable database pursuant to a settlement agreement and
subsequent court order constitutes disclosure both in a “civil hearing” and in the “news media”
within the meaning of the FCA’s public disclosure bar. The re-posting of the document in a text-
searchable university database available to the general public likewise constitutes public
disclosure in the “news media.”
B. “Based upon … allegations or transactions”
The inquiry, of course, does not end there. As explained supra Part II, the FCA’s public
disclosure provision bars only those qui tam actions that are “based upon the public disclosure of
allegations or transactions.” § 3730(e)(4)(A). Here, Oliver argues that, even if the Interoffice
Memorandum was “publicly disclosed” within the meaning of the FCA, it does not contain the
“allegations or transactions” of the fraudulent conduct upon which this case is based – namely,
that, from 2002 to the present, Defendant has falsely certified to AAFEX and NEXCOM that it
was complying with its “most favored customer” warranty. Pl.’s Opp’n at 3.
A suit is jurisdictionally barred under the FCA’s public disclosure provision if “either the
allegations of fraud or the critical elements of the fraudulent transaction themselves were in the
public domain.” Quinn, 14 F.3d at 654. An “allegation” is a “conclusory statement implying the
existence of provable supporting facts,” while a “transaction” is “an exchange between two
parties or things that reciprocally affect or influence one another.” Id. The D.C. Circuit has
explained the inquiry with the following formula:
[I]f 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
13
and Y must be revealed, from which readers or listeners may infer Z, i.e., the
conclusion that fraud has been committed.
Id.Accordingly, the “allegations or transactions” in the public domain need not “irrefutably
prove a case of fraud” to trigger the jurisdictional bar, Settlemire, 198 F.3d at 918; rather, the
central inquiry is “whether the publicly disclosed information ‘could have formed the basis for a
governmental decision on prosecution, or could at least have alerted law-enforcement authorities
to the likelihood of wrongdoing,’” id. (quoting Quinn, 14 F.3d at 564). “If the public disclosure
could have alerted the government to the fraud, there is little value in permitting a private
individual to sue, and the FCA accordingly deprives courts of jurisdiction to hear a qui tam
action.” Green, 843 F. Supp. 2d at 30.
Here, Oliver does not dispute that the Interoffice Memorandum discloses complaints by
NEXCOM and AAFES that Defendant’s then affiliate, Philip Morris International, Inc., offered
lower list prices to its customers in the duty free market than Defendant offered to the military.
Nor could he, as the language of the memorandum is unequivocal. See Def.’s Mem., Ex. A
(Interoffice Memorandum) (“PMI Duty-Free list prices are lower than PM USA Military tax-free
prices and we frequently receive inquiries from the Service Headquarters on why they can’t
purchase tax-free product at these lower prices.”). Oliver also cannot dispute that this is the
same disparate pricing allegation on which his Complaint is premised. See Compl. ¶¶ 25-27
(alleging that Defendant sold its cigarette products to affiliates of defendant, including Philip
Morris International, Inc., at prices lower than the prices at which identical cigarette products
were sold to NEXCOM and AAFES and that such affiliates were re-selling the cigarette products
to foreign purchasers in markets similarly situated to NEXCOM and AAFES, such as civilian
duty-free markets, at prices lower than those charged to NEXCOM and AAFES).
14
Instead, Oliver argues that the Interoffice Memorandum itself does not imply that there is
anything wrong with the pricing disparity referenced therein. See Pl.’s Opp’n at 13-15. More
specifically, Oliver argues that because the memorandum makes no reference to the “most
favored customer” requirements of NEXCOM and AAFES’s contracts or to Defendant’s
certifications of compliance with those requirements, it does not reveal any practice that is, on its
face, of “questionable legality.” Id. at 15 (citing Green, 843 F. Supp. 2d at 20). In other words,
Oliver argues, there is nothing in the memorandum that “could have formed the basis for a
governmental decision on prosecution” or “alerted law-enforcement authorities to the likelihood
of wrongdoing.” Id. at 15 (citing Quinn, 14 F.3d at 654).
The Court finds Oliver’s argument unavailing. The memorandum plainly discloses
Defendant’s affiliates’ practice of selling cigarettes on the duty-free market at list prices lower
than to AAFES and NEXCOM, as well as the fact that AAFES and/or NEXCOM – the very
entities whom Oliver contends were defrauded by Defendant – had previously complained about
(and were therefore necessarily aware of) this pricing differential. This alone could be viewed as
revealing “transactions” sufficient to “alert[ ] law enforcement authorities to the likelihood of
wrongdoing,” Quinn, 14 F.3d at 654. Although the Interoffice Memorandum does not reference
the reason why the pricing differential is of questionable legality (i.e., the “most favored
customer” certifications), the Court agrees with Defendant that the “most favored customer”
provisions contained within the AAFES and/or NEXCOM’s General Provisions Publications are
legal requirements that the Government is presumed to know. See Def.’s Reply at 8. After all,
they are the Government’s own requirements. See, e.g., Schindler, 131 S. Ct at 1890.8 Further,
8
Defendant also argues that, well before the filing of Oliver’s Complaint, the publications were
available not only to vendors doing business with the exchanges, as Oliver himself concedes, see
Compl. ¶ 10-19; Pl.’s Opp’n at 22, but also to the broader public. See Def.’s Mem. at 12.
15
the fact of Defendant’s certifications with the “most favored customer” requirements – by way of
the purchase orders and contracts pertaining to its sales – can be inferred by the simple fact that
AAFEX and NEXCOM continued to purchase Defendant’s cigarette products during the time
covered by the Complaint. Oliver himself seems to acknowledge that he has no personal
knowledge of the certifications, but instead, appears to rely on this very common sense
inference. See Compl. ¶ 30 (“Because relator has not yet been afforded discovery in this action,
he is … unable to provide greater specification of the details of each of these purchase orders at
this time.”).
Relator’s contention that he can provide additional examples of alleged overpricing – i.e.,
the sole comparison mentioned in his complaint between cigarettes in the civilian duty-free
market in American Samoa and the price purchased by NEXCOM for the Navy on Guam, see
Compl. ¶¶ 26-27 – does not change this Court’s analysis, as it is well-established that “a relator’s
ability to reveal specific instances of fraud where the general practice has already been publicly
disclosed is insufficient to prevent operation of the jurisdictional bar.” Settlemire, 198 F.3d at
919. See also Quinn, 14 F.3d at 655. (“A qui tam action cannot be sustained where all of the
material elements of the fraudulent transaction are already in the public domain and the qui tam
relator comes forward with additional evidence incriminating the defendant.”); Findley, 105 F.3d
at 688 (“‘[T]he relator must possess substantive information about the particular fraud, rather
than merely background information which enables a putative relator to understand the
Defendant cites as support the website addresses where the publications can be found. Id. at 12
& nn. 6,7. However, unlike the websites containing the Interoffice Memorandum, neither of the
websites to which Defendant cites here indicate the date on which these documents were posted.
Although the Court is permitted to look outside of the pleadings on a Rule 12(b)(1) motion, it
declines to conclude that the fact that these publications are presently publicly available online
necessarily means that they were so available prior to 2008.
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significance of a publicly disclosed transaction or allegation.’”) (quoting U.S. ex rel. Stinson,
Lyons, Gerlin & Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1160 (3rd Cir. 1991)).
For all of the foregoing reasons, the Court finds that Oliver’s Complaint describes
“transactions” “substantially similar to those in the public domain” and therefore is “based upon”
the public disclosure of those transactions within the meaning of section 3730(e)(4)(A). See
Settlemire, 198 F.3d at 918.
C. Original Source
Finally, because this suit is based upon public disclosures, to establish jurisdiction, Oliver
must demonstrate that he is an “original source” – that is, an individual with “direct and
independent knowledge” of the information on which his allegations are based who has
voluntarily provided that information to the Government before filing suit. § 3730(e)(4)(B). The
inquiry is whether Oliver has direct and independent knowledge of the information underlying
his own allegations, not the information underlying the public disclosure. See Green, 843 F.
Supp. 2d at 35 (citing Rockwell Int’l Corp. v. U.S., 549 U.S. 457, 470-72, 127 S. Ct. 1397, 167 L.
Ed. 2d 190 (2007)). Oliver has failed to make such a showing.
Oliver argues that he notified the Government, before filing suit, of the fraud and the
evidence he had underlying his claim. Pl.’s Opp’n at 23; see also id., Ex. A (Decl. of Anthony
Oliver in Supp. of Opp’n to Mot. to Dismiss (“Oliver Decl.”)). Specifically, Oliver attaches as
an exhibit an e-mail he alleges to have sent to the Department of Defense hotline on November
16, 2007, which reports, in pertinent part, that he is aware of an “on-going fraud” against the
Military Exchange Systems, which “has been perpetrated by three major tobacco companies
resulting in overpayments to these tobacco companies in the purchase of cigarettes by the
(AAFES, NEXCOM, MCX) Military Exchange Systems.” See id., Ex. 1 to Ex. A (Nov. 16,
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2007 e-mail regarding “Report of Fraud”). Oliver also represents that he had conversations with
employees of NEXCOM and AAFES “regarding the issues set forth in [his] e-mail.” See id., Ex.
A (Oliver Decl.) at ¶ 5.
The foregoing showing is inadequate for two reasons. First, Oliver has failed to show
that he has “direct” knowledge – i.e., “first-hand knowledge,” Quinn, 14 F.3d at 656 – of the
allegations underlying his Complaint. The Complaint itself provides no basis whatsoever for
Oliver’s knowledge, and the declaration attached to his opposition brief states only that he
“became aware of the false claims alleged in this action” “through [his] relationships with the
United States military and [his] involvement in the sale of tobacco products to NEXCOM.”
Pl.’s Opp’n, Ex. A (Oliver Decl.) at ¶ 3. Notwithstanding the direct challenge to Oliver’s
“original source” status briefed at length in Defendant’s opening brief, Oliver makes no attempt
in response to explain how, exactly, he learned of the alleged price differentials or of
Defendant’s participation in, or awareness of, the alleged fraudulent violations of the “most
favored customer” provisions. And his broad assertions of “relationships” with unspecified
members of the military and “involvement” in the sale of tobacco products simply do not suffice.
See, e.g., Green, 843 F. Supp. 2d at 35 (“Green’s general assertion that he has direct and
independent knowledge ‘derived through his employment’ does not suffice to explain the basis
of his knowledge of any elements of the alleged fraud.”). Accordingly, the Court is left with no
foundation from which to infer that Oliver had the requisite “direct and independent knowledge”
of the allegations underlying his Complaint.
Second, even if Oliver had been shown to have direct and independent knowledge of the
information underlying his Complaint, he may only qualify as an “original source” if he
“voluntarily provided the information to the Government before filing [his] action.”
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§3730(e)(4)(B). Oliver has failed to satisfy this requirement as well. This is because “a relator
must qualify as an original source for each distinct kind of claim or scheme [he] alleges.” U.S.
ex rel. Hockett v. Columbia/HCA Healthcare Corp., 498 F. Supp. 2d 25, 54 (D.D.C. 2007)
(citing Rockwell, 127 S. Ct. 1397). “It is not enough that a relator was an original source of
allegations that are linked by theme and subject matter to other allegations that are based on
public disclosures.” Id. As Defendant correctly observes, Oliver’s declaration states generally
that he disclosed “an on-going fraud” to the Government, but does not state that he disclosed this
fraud – that is, the fraud relating to the “most favored customer” clauses that are the subject of
his Complaint. See Def.’s Reply at 14. The disclosures he describes neither mention
Defendant’s alleged breaches of the “most favored customer” clauses nor contain any details that
may have prompted an investigation into Defendant’s pricing of products sold to NEXCOM and
AAFES as compared to those sold to its affiliates and/or duty-free civilian customers. A broad
accusation of “fraud” by “three major tobacco companies” that has “result[ed] in overpayments”
in the “purchase of cigarettes” simply does not amount to the kind of independent information
that the original source doctrine protects. See U.S. ex rel. Davis v. Dist. of Columbia, 679 F.3d
832, 837 (D.C. Cir. 2012) (questioning whether letters alleging “Medicaid fraud” and “diversion
of Medicare funds” were too vague to establish pre-suit disclosure but ultimately not addressing
the issue because relator was able to produce another letter expressly identifying the allegations
forming the basis of his complaint). See also, e.g., .g., Staples, 2013 WL 1192982 at *5 (finding
that the relator did not qualify as an “original source” because he “failed to ‘allege specific facts
– as opposed to mere conclusions – showing exactly how and when he … obtained direct and
independent knowledge of the fraudulent acts alleged in the complaint[.]’”) (citing In re Natural
Gas Royalties, 562 F.3d at 1045 (10th Cir. 2009)).
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In summary, Oliver has failed to demonstrate that he disclosed to the Government direct
and independent knowledge of the fraud alleged in his Complaint, and he has therefore failed to
show that he is entitled to the “original source” exception to the FCA’s public disclosure bar.
IV. CONCLUSION
For all of the foregoing reasons, the Court finds that Oliver has failed to satisfy his
burden of establishing that the FCA’s public disclosure bar does not apply to his claims.
Accordingly, the Court shall GRANT Defendant’s motion for lack of subject matter jurisdiction
on the grounds that Oliver’s claims are based upon publicly disclosed information, of which
Oliver is not the original source.
Date: June 13, 2013
_____/s/______________________
COLLEEN KOLLAR-KOTELLY
United States District Judge
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