United States v. Philip Morris USA Inc.

          Argued January 15, 2016

         Appeal from the United States District Court for the District of Columbia (No. 1:08-cv-00034)

          David S. Golub argued the cause for appellant. With him on the brief were Carl S. Kravitz and Jason M. Knott.

          Elizabeth P. Papez argued the cause for appellee. With her on the brief were Andrew C. Nichols, Eric M. Goldstein, Eric T. Werlinger, and Thomas J. Frederick. Ilan Wurman entered an appearance.

          Before: Rogers and Wilkins, Circuit Judges, and Williams, Senior Circuit Judge.

          OPINION

          WILKINS CIRCUIT JUDG.

         Appellant and relator Anthony Oliver brings this qui tam action alleging that Appellee Philip Morris USA violated the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-3733 (2006), ^[1] by charging the Navy Exchange Service Command ("NEXCOM") and the Army and Air Force Exchange Service ("AAFES") prices for cigarettes that violated the terms of their contracts. The District Court concluded that it lacked jurisdiction to hear the claim under the FCA's public disclosure bar, 31 U.S.C. § 3730(e)(4)(A). After reviewing the record, we affirm the judgment of the District Court. The transactions that Oliver contends create an inference of fraud were publicly disclosed through a statutorily enumerated channel, triggering the jurisdictional bar. Additionally, Oliver does not possess any direct information about the underlying transactions that would allow him to rescue his claim from the jurisdictional bar by qualifying as an original source.

         I.

         Oliver is the President and CEO of Medallion Brands International Company ("Medallion"), which sells tobacco products to civilian and military markets in the United States and abroad.^[2] NEXCOM and AAFES (collectively "the Exchanges") provide goods and services to customers in the military community. Each of the Exchanges' contracts with its vendors includes "Most Favored Customer" provisions (the "MFC provisions"). These provisions ensure that "the prices paid by [the Exchanges] for the products they purchase are equal to or more favorable than the prices, including any customer discounts, at which the vendors sell like products to other non-governmental and government purchasers." Compl. ¶ 9, J.A. 17. Philip Morris USA ("Philip Morris" or "PM USA") has, since at least 2002, sold cigarette products to the Exchanges pursuant to contracts including the MFC provisions. Despite Philip Morris's knowledge of the MFC provisions, Philip Morris sold the Exchanges at least 1.8 million cartons of cigarettes at prices higher than the MFC provisions require. Specifically, Philip Morris sold cigarettes to Philip Morris Duty Free, Inc., ("PM DFI") and Philip Morris International, Inc. ("PMI"), at prices lower than the prices sold to the Exchanges. One of these affiliates purchased Philip Morris cigarettes for resale on American Samoa at a cost of $13.83 per carton, while NEXCOM purchased cigarettes for the Navy on Guam at a cost of $27.77 less a $4.00 rebate, for a price differential of $9.94.

         Oliver filed this action in 2008 alleging that these transactions violated the MFC provisions, and, as a result, the FCA. The FCA removes jurisdiction from the federal courts for certain actions brought under it. 31 U.S.C. § 3730(e).^[3]Specifically, the statute provides:

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 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 an original source of the information.

Id. § 3730(e)(4)(A).^[4] The FCA further defines an 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 Government before filing an action under this section which is based on the information." Id. § 3730(e)(4)(B).^[5]

         The District Court dismissed Oliver's complaint in 2013, reasoning that Oliver's action was subject to the FCA's jurisdictional bar and that he did not qualify as an original source. U.S. ex rel. Oliver v. Philip Morris, 949 F.Supp.2d 238, 251 (D.D.C. 2013). Oliver appealed, and we vacated and remanded. U.S. ex rel. Oliver v. Philip Morris (Oliver I), 763 F.3d 36, 44 (D.C. Cir. 2014). In Oliver I, we held that the FCA's public disclosure bar was not triggered because "Philip Morris . . . made no attempt to show that its allegedly false certifications of compliance with [the MFC] provisions were in the public domain." Id. at 41. We rejected Philip Morris's contention that Government awareness of the MFC provisions constituted public disclosure that triggers the FCA's jurisdictional bar. Id. at 42. Additionally, we held that the Iceland Memo, a 1999 inter-office memorandum discussing concerns about cigarette pricing at a United States naval station in Iceland, did not publicly disclose the MFC provisions or Philip Morris's obligation to charge the Exchanges its lowest price for cigarettes. Id. at 43. We also rejected efforts by Philip Morris after oral argument to demonstrate that the MFC provisions were generally available so as to trigger the public disclosure bar because it had abandoned those arguments on appeal and submitted new evidence that we were unable to properly evaluate. Id. at 43-44. Accordingly, we vacated the District Court's decision and remanded the case for further proceedings. Id. at 44.

         On remand, Philip Morris moved again to dismiss the complaint for lack of subject matter jurisdiction. This time, Philip Morris argued that the FCA's public disclosure bar was triggered because the MFC provisions were published online prior to the filing of the complaint. The District Court concluded that, based on the archived webpages Philip Morris submitted in conjunction with its motion, the MFC provisions were publicly disclosed in an "administrative report" and in the "news media, " and that the allegations or transactions in the complaint were substantially similar to those in the public domain. U.S. ex rel. Oliver v. Philip Morris USA, Inc., 101 F.Supp. 3d 111, 123-27 (D.D.C. 2015). The District Court also concluded that Oliver did not qualify as an "original source" under the statute and once more dismissed the Complaint. Id. at 127-29.

         II.

         We review de novo a dismissal for lack of subject matter jurisdiction. Oliver I, 763 F.3d at 40.

         A.

         As we explained in Oliver I, "[t]he False Claims Act's public disclosure bar states that a court lacks subject matter jurisdiction over an action 'based upon the public disclosure of allegations or transactions.'" 763 F.3d at 40 (quoting 31 U.S.C. § 3730(e)(4)(A)). "Transaction" in this sense "refers to two or more elements that, when considered together, give rise to an inference that fraud has taken place." Id. at 40 (citing U.S. ex rel. Springfield Terminal Co. v Quinn, 14 F.3d 645 (D.C. Cir. 1994)). Springfield Terminal provides the familiar equation we use in such cases:

[I]f X=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. The language employed in § 3730(e)(4)(A) suggests that Congress sought to prohibit qui tam actions only when either the allegation of fraud [Z] or the critical elements of the fraudulent transaction themselves were in the public domain.

14 F.3d at 654 (final two emphases added). In other words, we lack subject matter jurisdiction if either of the following has been publicly disclosed: (1) the allegation of fraud itself, or (2) the transactions that give rise to an inference of fraud. Applied to this case, the transaction would be "the fact that Philip Morris was not providing the Exchanges with the best price for cigarettes (X) plus the fact that Philip Morris falsely certified that it complied with the Most Favored Customer provisions (Y), " which "gives rise to the conclusion Philip Morris committed fraud (Z)." Oliver I, 763 F.3d at 41. Accordingly, we "lack[] jurisdiction over Oliver's suit only if X and Y, i.e., both the ...