Moore & Co P A v. Majestic Blue Fisheries LLC , 812 F.3d 294 ( 2016 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 14-4292
_____________
UNITED STATES OF AMERICA EX REL.
MOORE & COMPANY, P.A.,
Appellant
v.
MAJESTIC BLUE FISHERIES, LLC; PACIFIC BREEZE
FISHERIES, LLC; DONGWON INDUSTRIES COMPANY,
LTD; JAYNE SONGMI KIM; JOYCE JUNGMI KIM; AND
JAEWOONG KIM
On Appeal from the United States District Court
for the District of Delaware
(District Court No.: 1-12-cv-01562)
District Court Judge: Honorable Sue L. Robinson
Argued on September 9, 2015
Before: VANASKIE, NYGAARD and RENDELL, Circuit
Judges
(Opinion filed: February 2, 2016)
Clay M. Naughton, Esquire (Argued)
Moore & Company
355 Alhambra Circle, Suite 1100
Coral Gables, FL 33134
Phillip A. Giordano, Esquire
William M. Kelleher, Esquire
Gordon Fournaris & Mammarella
1925 Lovering Avenue
Wilmington, DE 19806
Counsel for Appellant
Robert S. Salcido, Esquire (Argued)
Akin, Gump, Strauss, Hauer & Feld
1333 New Hampshire Avenue, N.W.
Suite 400
Washington, DC 20036
Counsel for Appellees
2
OPINION
RENDELL, Circuit Judge:
Under the South Pacific Tuna Treaty (“SPTT”), a
limited number of licenses to fish the tuna-rich waters of the
Pacific Island nations are available to vessels under the
control and command of U.S. citizens. Moore & Company,
P.A. (“Moore”), a law firm, commenced this False Claims
Act (“FCA”) action against Korean nationals and LLCs
formed by them, alleging that the LLCs acquired two of these
SPTT licenses by fraudulently certifying to the U.S.
government that they were controlled by U.S. citizens and
that their fishing vessels were commanded by U.S. captains.
Moore first learned of this alleged fraud through discovery in
a wrongful death action that it litigated in federal court
against two of the defendants in this case. The issue before us
is whether the District Court, in dismissing Moore’s action,
properly interpreted the FCA’s public disclosure bar and its
“original source” exception, particularly the 2010
amendments to these provisions.
The FCA empowers a person, or “relator,” to sue on
behalf of the United States those who defraud the
government, and to share in any ultimate recovery. 1 But the
FCA’s public disclosure bar forecloses a relator’s action
when the alleged fraud has been publicly disclosed in at least
1
This type of action is commonly referred to as a qui tam
suit.
3
one of several enumerated sources—unless the relator is an
original source of certain information underlying the action.
In 2010, Congress amended the public disclosure bar
as part of the Patient Protection and Affordable Care Act
(“PPACA”). In doing so, it removed the language that
explicitly stated that a court was deprived of “jurisdiction”
over the FCA action if the bar applied to that action; reduced
the number of enumerated public disclosure sources; and
expanded the definition of “original source” by allowing a
relator who “materially adds” to the publicly disclosed
information to qualify.
Each of these three changes is implicated in this case,
as Moore argues that the District Court erred by (1)
construing the amended bar as a jurisdictional limitation, so
that it improperly dismissed the action under Rule 12(b)(1)
rather than Rule 12(b)(6); (2) ruling that the allegations or
transactions of the alleged fraud were publicly disclosed; and
(3) concluding that Moore was not an original source. We
agree that the public disclosure bar is no longer jurisdictional
and that the motion therefore should have been decided under
Rule 12(b)(6) rather than Rule 12(b)(1). We further conclude
that the alleged fraud was publicly disclosed, but that Moore
was nevertheless an original source of information underlying
the action.
At issue on appeal is not whether Moore has alleged an
actionable fraud.2 Rather, what is contested is whether the
2
In addition to moving under Rule 12(b)(1) to dismiss the
complaint for lack of jurisdiction, the defendants moved
under Rule 12(b)(6) to dismiss the complaint as not alleging
4
alleged fraud was disclosed through any of the qualifying
public disclosure sources, and if so, whether Moore has
materially added to those public disclosures by contributing
details of the alleged fraud that it independently uncovered
through discovery in the wrongful death action in federal
court. The answers to these questions turn on how we apply
the public disclosure bar as amended by the PPACA. We will
begin with a discussion of the significance of the bar’s new
provisions.
I. The 2010 Amendments to the FCA’s Public
Disclosure Bar
The FCA is a relic of the Civil War, but its public
disclosure bar was engrafted on the Act more recently. The
original FCA did not require a relator to possess firsthand
knowledge of a previously unknown fraud. As a result, in the
early 1940s, some enterprising individuals filed FCA actions
based not on their own independent knowledge of a fraud but
on information revealed in the government’s criminal
indictments. S. Rep. No. 99-345, at 10–11 (1986). To
counteract these “parasitic lawsuits,” Congress added a
provision in 1943 that denied jurisdiction over FCA actions
that were “based upon evidence or information in the
possession of the United States, or any agency, officer or
employee thereof, at the time such suit was brought.” 31
U.S.C. § 232(C) (1946). But this “government knowledge
defense” did not just eradicate the parasitic lawsuits; it
an actionable fraud. The District Court, however, did not
reach this issue, as it granted the defendants’ Rule 12(b)(1)
motion based on the public disclosure bar.
5
eliminated most FCA lawsuits, for courts strictly interpreted §
232(C) as barring FCA actions even when the government
knew of the fraud only because the relator had reported it. See
United States ex rel. Findley v. FPC-Boron Employees’ Club,
105 F.3d 675, 680 (D.C. Cir. 1997) (“[B]y restricting qui tam
suits by individuals who brought fraudulent activity to the
government’s attention, Congress had killed the goose that
laid the golden egg and eliminated the financial incentive to
expose fraud against the government.”).
Against this backdrop, Congress amended the FCA in
1986, replacing the government knowledge defense with the
less restrictive public disclosure bar. This bar precluded a
relator from bringing an action that was based on allegations
or transactions of fraud that had been publicly disclosed in
certain enumerated sources, but added an exception if the
relator was an “original source” of the information underlying
the action:
(4)(A) No court shall have jurisdiction over an
action under this section based upon the public
disclosure of allegations or transactions in [i] a
criminal, civil, or administrative hearing, [ii] in
a congressional, administrative, or Government
Accounting Office report, hearing, audit, or
investigation, or [iii] 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.
31 U.S.C. § 3730(e)(4)(A) (2006). An “original source” was
defined as “an individual who has direct and independent
knowledge of the information on which the allegations are
6
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).
Although the original public disclosure bar was less
restrictive than the government knowledge defense, it was by
no means a low bar for relators to clear. Indeed, given its
broad language, as well as different courts’ varying
interpretations of that language, relators faced a formidable
hurdle.
In 2010, Congress amended the bar as part of the
PPACA so that it now reads as follows:
(4)(A) The court shall dismiss an action or
claim under this section, unless opposed by the
Government, if substantially the same
allegations or transactions as alleged in the
action or claim were publicly disclosed—
(i) in a Federal criminal, civil, or
administrative hearing in which the
Government or its agent is a party;
(ii) in a congressional, Government
Accountability Office, or other Federal
report, hearing, audit or investigation; or
(iii) 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.
7
(B) For purposes of this paragraph, “original
source” means an individual who either (i) prior
to a public disclosure under subsection
(e)(4)(A), has voluntarily disclosed to the
Government the information on which
allegations or transactions in a claim are based,
or (2) who 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
Government before filing an action under this
section.
31 U.S.C. § 3730(e)(4)(A), (B) (2012) (emphases
added).
The italicized language has radically changed the
“hurdle” for relators. First, the bar’s preliminary language no
longer explicitly states that a court is deprived of
“jurisdiction” over the FCA action if the bar applies.
Compare 31 U.S.C. § 3730(e)(4)(A) (2006) (“No court shall
have jurisdiction over an action under this section . . . .”), with
id. § 3730(e)(4)(A) (2012) (“The court shall dismiss an action
or claim under this section, unless opposed by the
Government . . . .”). Second, information that was disclosed
in a criminal, civil, or administrative hearing now qualifies as
a public disclosure only if the information was disclosed in a
federal case to which the government was a party. Compare
31 U.S.C. § 3730(e)(4)(A) (2006) (listing a “criminal, civil,
or administrative hearing” as a public disclosure source), with
id. § 3730(e)(4)(A)(i) (2012) (listing “a Federal criminal,
civil, or administrative hearing in which the Government or
8
its agent is a party” as a public disclosure source). As a result,
information that was disclosed in a federal case between
private parties no longer constitutes publicly disclosed
information.
Lastly, Congress expanded the definition of “original
source” in § 3730(e)(4)(B). The salient question is no longer
whether the relator has “direct and independent knowledge”
of the information on which the allegations in the complaint
are based. 31 U.S.C. § 3730(e)(4)(B) (2006). Rather, original
source status now turns on whether the relator has
“knowledge that is independent of and materially adds to the
publicly disclosed allegations or transactions.” Id. §
3730(e)(4)(B) (2012). Significantly, a relator no longer must
possess “direct . . . knowledge” of the fraud to qualify as an
original source. See United States ex rel. Stinson, Lyons,
Gerlin & Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d
1149, 1160 (3d Cir. 1991) (holding under the pre-PPACA bar
that a law-firm relator lacked direct knowledge because it had
learned of the fraud “through two intermediaries,” one of
which was “the discovery procedure by which the
memoranda [exposing the alleged fraud] were produced”).
The focus now is on what independent knowledge the relator
has added to what was publicly disclosed.
In short, with its 2010 amendments, Congress
overhauled the public disclosure bar. Although no direct
legislative history seems to exist, the textual changes alone
evince Congress’s intent to lower the bar for relators, at least
9
as to some of its components. With these changes in mind, we
turn to the issues presented in this case.3
II. Nonjurisdictional Character of the Amended Public
Disclosure Bar
We first address Moore’s contention that, by virtue of
Congress’s change to the bar’s preliminary language, the
District Court should have decided the case under Rule
12(b)(6) for failure to state a claim rather than under Rule
12(b)(1) for lack of jurisdiction.4 While the pre-PPACA bar
stated that “[n]o court shall have jurisdiction over an action
under this section based upon the public disclosure of
allegations or transactions [in certain enumerated sources],”
31 U.S.C. § 3730(e)(4)(A) (2006), the post-PPACA bar states
that “[t]he court shall dismiss an action or claim under this
3
The District Court had jurisdiction under 28 U.S.C. § 1331,
and we have jurisdiction under 28 U.S.C. § 1291. We review
de novo the District Court’s decision on a motion to dismiss.
McTernan v. City of York, Penn., 577 F.3d 521, 526 (3d Cir.
2009).
4
In considering a Rule 12(b)(1) motion to dismiss for lack of
jurisdiction, “the court may [usually] consider and weigh
evidence outside the pleadings to determine if it has
jurisdiction,” and “[t]he plaintiff has the burden of persuasion
to convince the court it has jurisdiction.” Gould Electronics
Inc. v. United States, 220 F.3d 169, 178 (3d Cir. 2000). By
contrast, in considering a Rule 12(b)(6) motion to dismiss for
failure to state a claim, a court generally considers only the
allegations in the complaint, accepting them as true, and the
defendant bears the burden of showing that the plaintiff has
not stated a claim. Id.
10
section, unless opposed by the Government, if substantially
the same allegations or transactions as alleged in the action or
claim were publicly disclosed [in certain enumerated
sources],” id. § 3730(e)(4)(A) (2012). With little analysis, the
District Court declared that this amended provision, like its
predecessor, presented a jurisdictional bar. We disagree and
join the other circuits that have ruled that the amended
version does not set forth a jurisdictional bar. See United
States ex rel. Osheroff v. Humana, Inc., 776 F.3d 805, 810
(11th Cir. 2015) (“We conclude that the amended
§ 3730(e)(4) creates grounds for dismissal for failure to state
a claim rather than for lack of jurisdiction.”); United States ex
rel. May v. Purdue Pharma L.P., 737 F.3d 908, 916 (4th Cir.
2013) (“It is apparent . . . that the public-disclosure bar is no
longer jurisdictional.”).
As our sister circuits have reasoned, first, the amended
bar makes no mention of jurisdiction, and unless Congress
has “‘clearly state[d]’ that the [statutory limitation] is
jurisdictional . . ., ‘courts should treat the restriction as
nonjurisdictional in character.’” Sebelius v. Auburn Reg’l
Med. Ctr., 133 S. Ct. 817, 824 (2013) (quoting Arbaugh v. Y
& H Corp., 546 U.S. 500, 515–16 (2006)). Second, in
amending the bar, Congress removed the jurisdictional
language that prohibited a court from entertaining the suit if
the public disclosure bar applied. See Brewster v. Gage, 280
U.S. 327, 337 (1930) (“The deliberate selection of language
so differing from that used in the earlier acts indicates that a
change of law was intended.”). Third, Congress left
undisturbed similar jurisdictional language in neighboring
provisions. See, e.g., 31 U.S.C. § 3730(e)(1) (2012) (“No
court shall have jurisdiction over an action brought by a
former or present member of the armed services under
11
subsection (b) of this section against a member of the armed
forces arising out of such person’s service in the armed
forces.”). Finally, if a court holds that a relator’s claim is
publically disclosed, the amended bar nonetheless permits the
government to oppose the court’s dismissal of the action, an
option that effectively dispels any notion that the bar is still
jurisdictional. See Gonzalez v. Thaler, 132 S. Ct. 641, 648
(2012) (“Subject-matter jurisdiction can never be waived or
forfeited.”).
For these reasons, we conclude that the amended bar is
not jurisdictional. Accordingly, the District Court should have
decided the defendants’ motion to dismiss on public
disclosure grounds under Rule 12(b)(6), not Rule 12(b)(1).
III. Public Disclosure
We next address whether the fraud alleged by Moore
was publicly disclosed. Moore brought this FCA action
against Majestic Blue Fisheries, LLC; Pacific Breeze
Fisheries, LLC; and Joyce Jungmi Kim, alleging they
defrauded the government in that, in order to procure the
SPTT fishing licenses, the LLCs fraudulently certified to the
U.S. Coast Guard that they were controlled by U.S. citizens
and that their eponymous fishing vessels (“F/V Majestic
Blue” and “F/V Pacific Breeze”) were commanded by U.S.
captains.5 According to Moore, the LLCs, in fact, were
controlled by Dongwon Industries, a South Korean tuna
company, and their vessels, F/V Majestic Blue and F/V
5
Moore also brought this action against Dongwon Industries
Co., Ltd., Jayne Songmi Kim, and Jaewoong Kim, but they
were never served and have not entered appearances.
12
Pacific Breeze, were commanded by Korean fishing masters
who worked for Dongwon.6
We must decide whether “substantially the same
allegations or transactions [of fraud] as alleged in [Moore’s]
action or claim were publicly disclosed” in any of the
enumerated public disclosure sources. 31 U.S.C. §
3730(e)(4)(A) (2012). We first consider whether the sources
on which the defendants rely in arguing that the alleged fraud
was publicly disclosed qualify as public disclosure sources
under § 3730(e)(4)(A). We next determine whether
“substantially the same allegations or transactions” of fraud
alleged by Moore were publicly disclosed through these
qualifying sources. Id.
As stated earlier, to be publicly disclosed, the alleged
fraud must have been revealed through at least one of three
sources: (1) “a Federal criminal, civil, or administrative
hearing in which the Government or its agent is a party”; (2)
“a congressional, Government Accountability Office, or other
Federal report, hearing, audit, or investigation”; or (3) “news
media.” Id. § 3730(e)(4)(A)(i)–(iii). Here, the defendants
argue, as they did in the District Court, that the alleged fraud
was publicly disclosed in “news media” and “Federal
report[s].”
As “news media,” the defendants proffered a mixture
of two Internet news articles, a podcast, and a blog, but the
6
To obtain an SPTT license, a vessel must be granted a U.S.
Coast Guard certificate of documentation. This certificate is
available only to vessels that are under the control and
command of U.S. citizens.
13
District Court concluded that only the two news articles
qualified. The first article, “Flogging and Mutiny in the 21st
Century, Proudly Waving the Stars and Stripes,” which was
posted on maritimeaccident.org, describes the experience of
Doug Pine, an American who had served as a “captain” of the
F/V Majestic Blue (“Maritime Accident article”). (App. 726.)
The second, “Coast Guard Probes Island Mariner’s Account
of Fiasco at Sea,” which was posted on
vashonbeachcomber.com, also describes Pine’s experience
aboard the F/V Majestic Blue (“Vashon Beachcomber
article”). (App. 731.) Moore concedes that these two articles
qualify as “news media.”7
7
On appeal, the defendants argue that the District Court erred
in deciding that the podcast and the blog did not qualify as
news media. The podcast was an interview with Doug Pine,
and the blog consisted mostly of posted “Responses” by
various individuals to Pine’s story about his experience on the
F/V Majestic Blue. We need not address whether these
sources qualify as news media because we conclude that the
alleged fraud was publicly disclosed through the two news
articles and the documents obtained by Moore through
Freedom of Information Act requests.
We also recognize that the defendants attached the two
news articles to their motion to dismiss, and that because
these articles were not attached to Moore’s complaint, a court
would not usually consider such evidence in deciding a Rule
12(b)(6) motion. Moore, however, has conceded that these
news articles qualify as news media and has not challenged
their authenticity, and so we will judicially notice them for
the limited purpose of determining “what was in the public
realm at the time, not whether the contents of those articles
14
The District Court also decided that certain
information that Moore had obtained through Freedom of
Information Act (“FOIA”) requests constituted “Federal
report[s].” This information included the LLCs’ allegedly
fraudulent certifications to the U.S. Coast Guard that they
were controlled by U.S. citizens and that their vessels, F/V
Majestic Blue and F/V Pacific Breeze, were commanded by
U.S. captains, as well as certain emails sent by a man named
“K.Y. Hwang” of “Dongwon Industries.”8 (App. 608.)
In deciding that these FOIA documents constituted
federal reports, the District Court relied on Schindler Elevator
Corp. v. United States ex rel. Kirk, 563 U.S. 401 (2011).
There, the Court analyzed whether FOIA documents
constitute “report[s]” under the pre-PPACA bar and decided
that “[a] written agency response to a FOIA request falls
within the ordinary meaning of ‘report,’” and that “[a]ny
records the agency produces along with its written FOIA
response are part of that response.” Id. at 410–11. The District
Court concluded that Schindler’s interpretation of “report” in
the pre-PPACA bar applied with equal force to the post-
PPACA bar because a “report” is also a public disclosure
source in the post-PPACA bar. Compare 31 U.S.C. §
3730(e)(4)(A) (2006) (listing “a congressional,
administrative, or Government Accounting office report” as a
public disclosure source (emphasis added)), with id. §
3730(e)(4)(A)(ii) (2012) (listing “a congressional,
were in fact true.” Benak ex rel. Alliance Premier Growth
Fund v. Appliance Capital Mgmt. L.P., 435 F.3d 396, 401
n.15 (3d Cir. 2006).
8
Moore attached this information to its complaint.
15
Government Accountability Office, or other Federal report”
as a public disclosure source (emphasis added)).
While Moore recognizes that a government “report” is
also a public disclosure source in the post-PPACA bar, it
contends that the Court’s interpretation of that word in
Schindler does not apply to the post-PPACA bar because the
pre-PPACA bar is “a much different statute.” (Moore’s Br.
26.) It further urges us to follow the “guiding philosophy”
behind the 2010 amendments to the public disclosure bar,
which, it asserts, is that the bar applies only when federal
officials are likely to see the public disclosures. (Id.)
We reject Moore’s argument. The PPACA did not alter
the bar in any way that would render Schindler’s
interpretation of “report” inapplicable to the FOIA documents
under consideration here. Moreover, even before Schindler
was decided, many courts, including our own, had similarly
interpreted “report” in the pre-PPACA bar. See, e.g., United
States ex rel. Mistick PBT v. Housing Auth. of Pittsburgh, 186
F.3d 376, 383 (3d Cir. 1999) (concluding that FOIA
documents “fell within the ordinary meaning of the term
‘report’”); United States ex rel. Grynberg v. Praxair, Inc.,
389 F.3d 1038, 1051 (10th Cir. 2004) (“It is generally
accepted that a response to a request under the FOIA is a
public disclosure.”). When Congress overhauled the bar in
2010, it could have reacted to these cases by excluding FOIA
documents as “report[s].” Cf. Merck & Co., Inc. v. Reynolds,
559 U.S. 633, 648 (2010) (“We normally assume that, when
Congress enacts statutes, it is aware of relevant judicial
precedent.”). But it did not: it left “report” largely unaltered
16
as a public disclosure source.9 Congress thus did not amend
this source in any way that would cast doubt on the view held
by many courts that a “report” includes FOIA documents, a
view later confirmed by the Court in Schindler.
In addition, Moore’s “guiding philosophy” argument
rings hollow when we consider that § 3730(e)(4)(A) includes
many documents that the government will likely never see.
For example, “news media” is a source that “include[s] a
large number of local newspapers and radio stations” and
therefore “likely describes a multitude of sources that would
seldom come to the attention of the Attorney General.”
Graham Cty. Soil & Water Conservation Dist. v. United
States ex rel. Wilson, 559 U.S. 280, 300 (2010).
We next consider whether substantially the same
“allegations or transactions” of fraud alleged by Moore were
publicly disclosed via the two news articles and the FOIA
documents. “An allegation of fraud is an explicit accusation
of wrongdoing. A transaction warranting an inference of
fraud is one that is composed of a misrepresented state of
facts plus the actual state of facts.” United States ex rel. Zizic
v. Q2Administrators, LLC, 728 F.3d 228, 235–36 (3d Cir.
2013). Formulaically this appears as follows: “X
(misrepresented state of facts) + Y (true state of facts) = Z
(fraud).” United States ex rel. Dunleavy v. Cty. of Del., 123
F.3d 734, 741 (3d Cir. 1997). A defendant must therefore
show that substantially the same “allegation[]” of fraud (Z) or
“transaction[]” of fraud (X + Y) was publicly disclosed
through the sources enumerated in § 3730(e)(4)(A).
9
Congress did amend this source so that only “Federal”
reports qualify. The FOIA is, of course, a federal statute.
17
Here, Moore’s “allegation” of fraud (Z) is that the
defendants fraudulently procured certificates of
documentation from the U.S. Coast Guard so that they could
obtain the SPTT fishing licenses. As for the “transaction” of
that fraud, it alleges that the defendants certified to the U.S.
Coast Guard that U.S. citizens controlled the LLCs and
commanded their vessels (the mispresented state of facts, or
X) when in fact Dongwon both controlled the LLCs and
commanded their vessels (the true state of facts, or Y). The
defendants have shown that substantially this same
“transaction” was publicly disclosed.
In the applications for certificates of documentation
that the LLCs filed with the U.S. Coast Guard and that were
obtained by Moore through FOIA requests, Majestic Blue
LLC and Pacific Breeze LLC certified that “non-citizens do
not have authority within a management group, whether
through veto power, combined voting, or otherwise, to
exercise control over the LLC[s],” and that their eponymous
fishing vessels “will at all times remain under the command
of a U.S. citizen.” (App. 233–34, 236–37.)
However, the two news articles indicate that Majestic
Blue LLC is not controlled by U.S. citizens, nor is its vessel
commanded by a U.S. captain. The Vashon Beachcomber
article describes how Doug Pine accepted a position on the
F/V Majestic Blue “as captain of the Korean-managed ship,”
states that the F/V Majestic Blue is “operated by a Korean
company,” and even names that company as “Korea’s
Dongwon Corporation.” (App. 731.) The Maritime Accident
article reveals how the Korean fishing master, not Captain
Pine, commanded the vessel:
18
When the [F/V Majestic Blue] was registered in
the US, the Korean captain became the
fishmaster and Captain Pine joined as Captain.
It was an uncomfortable relationship.
....
Pine found it difficult to exercise his
authority almost from the moment he first
boarded the vessel: “The first day I was aboard
I asked for the crew list[.] It was ordered by
rank. I was Number Two, the fishmaster was
number 1. The second officer refused a direct
order to change it. The Korean officers refused
to obey any routine command activity.
In fact, Pine was supposed to simply be a
“paper captain” to meet the requirements of the
US flag and to accept the authority of the
fishmaster, the former captain. Pine was unable
to manoeuver the vessel or use the navigation
equipment on the bridge.
(App. 726.)
Less apparent, though still publicly disclosed, is the
true state of facts (the “Y”) for Pacific Breeze LLC and its
vessel, revealed through emails sent by K.Y. Hwang of
Dongwon Industries and obtained by Moore via FOIA
requests. (Notably, these emails also support the true state of
facts for Majestic Blue LLC and its vessel.) In one email,
K.Y. Hwang informs the recipient that he is “from Dongwon
Industries” and is “in charge of care for F/V Majestic Blue &
Pacific Breeze.” (App. 608.) He writes that he has received a
19
message from the LLCs’ general manager and that he is
worried about the looming expiration of the vessels’ SPTT
licenses. In a second email, addressed to the LLCs’ general
manager, he states that “[w]e [Dongwon] are studying the
possibility of our US flagged fishing vessel’ [sic] operation in
Atlantic Ocean.” (App. 609–10.) Relying on these emails,
Moore itself alleges in its complaint that “[c]learly,
Dongwon, rather than any U.S. Citizen, maintained
operational control over the LLCs and made all major
decisions for Majestic Blue and Pacific Breeze.” (App. 47.) It
further contends that “[b]y Dongwon’s own admission [], the
Vessels are part of Dongwon’s ‘US flagged fishing vessel
operation’ and were not really owned or controlled by U.S.
Citizens despite Defendants’ contrary certifications to the
U.S. Government.” (App. 48.)
In sum, we have little difficulty concluding that the
transaction setting forth the alleged fraud was publicly
disclosed via the two news articles and the FOIA documents.
IV. Original Source
Moore can nonetheless clear the bar if it qualifies as an
“original source.” The post-PPACA bar defines an original
source as one “who has knowledge that is independent of and
materially adds to the publicly disclosed allegations or
transactions.” 31 U.S.C. § 3730(e)(4)(B) (2012). In support of
its case for original source status, Moore relies on information
that it obtained from discovery in a federal civil case. In June
2010, the F/V Majestic Blue sank in the South Pacific,
resulting in the death of its captain, David Hill. Moore
represented Hill’s wife in a wrongful death action in federal
court against Majestic Blue LLC and Dongwon. In discovery
20
in that litigation, Moore obtained documents and deposed
individuals including K.Y. Hwang, and Joyce Kim and Jayne
Kim, the LLCs’ sole shareholders. From this discovery,
Moore not only first learned of the alleged fraud but also
uncovered details as to how it unfolded. Moore argues, as it
must, that this information that it obtained in the wrongful
death action is independent of, and materially adds to, the
publicly disclosed transaction of fraud. We agree.
A. Independent of
The District Court held that Moore was not an original
source because the information that it had obtained through
discovery in the wrongful death action did not constitute
“independent knowledge.” In doing so, it analyzed Moore’s
knowledge according to our jurisprudence under the pre-
PPACA bar whereby we had required that a relator’s
knowledge must be independent not just from information
that qualified as a public disclosure under § 3730(e)(4)(A),
but also from information readily available in the public
domain. See United States ex rel. Atkinson v. Pa. Shipbuilding
Co., 473 F.3d 506, 522 (3d Cir. 2007) (stating that while
“reliance solely on ‘public disclosures’ under § 3730(e)(4)(A)
is always insufficient under § 3730(e)(4)(B) to confer original
source status, reliance on public information that does not
qualify as a public disclosure under § 3730(e)(4)(A) may also
preclude original source status depending on . . . . the
availability of the information and the amount of labor and
deduction required to construct the claim” (citation and
quotation marks omitted)). Informed by this pre-PPACA
interpretation, the District Court concluded that Moore’s
knowledge was not independent because the information
21
obtained in the civil litigation was in the “public domain” and
not “obscure.” (App. 23.)
Although the District Court was correct in interpreting
our pre-PPACA jurisprudence, it erred in concluding that this
interpretation of independent knowledge should also apply to
the post-PPACA bar. As noted earlier, the pre-PPACA bar
defined an original source as “an individual who has direct
and independent knowledge of the information on which the
[complaint’s] allegations are based.” 31 U.S.C. §
3730(e)(4)(B) (2006). This definition does not indicate what
the knowledge must be independent from and makes no
reference to the public disclosure sources enumerated in §
3730(e)(4)(A). Accordingly, we reasoned that the relator’s
knowledge needed to be independent from information
readily available in the public domain. See Atkinson, 473 F.3d
at 522–23.
But the PPACA’s new definition of original source
requires an entirely different analysis. An original source is
now defined as one “who has knowledge that is independent
of and materially adds to the publicly disclosed allegations or
transactions.” 31 § 3730(e)(4)(B) (2012) (emphasis added).
This definition therefore states that a relator’s knowledge
must be independent of, and materially add to, not all
information readily available in the public domain, but,
rather, only information revealed through a public disclosure
source in § 3730(e)(4)(A).
Indeed, the text plainly requires courts to compare the
relator’s knowledge with the information that was disclosed
through the public disclosure sources enumerated in
§ 3730(e)(4)(A). By using the definite article “the” before
22
“publicly disclosed allegations or transactions” in §
3730(e)(4)(B), Congress has referred back to the public
disclosures in § 3730(e)(4)(A). See New Oxford American
Dictionary 1748 (2d ed. 2005) (defining “the” as a word
“denoting one or more people or things already mentioned”).
Congress also tied the definition of “original source” in §
3730(e)(4)(B) to public disclosures in § 3730(e)(4)(A) by
employing the identical phrases “allegations or transactions”
and “publicly disclosed” in both provisions. Compare 31
U.S.C. § 3730(e)(4)(A) (2012) (“The court shall dismiss an
action . . . if substantially the same allegations or transactions
as alleged in the action or claim were publicly disclosed [in
the following enumerated sources].” (emphases added)), with
id. § 3730(e)(4)(B) (defining original source as one “who has
knowledge that is independent of and materially adds to the
publicly disclosed allegations or transactions.” (emphasis
added)); cf. Rockwell Int’l Corp. v. United States, 549 U.S.
457, 471 (2007) (deciding that the word “allegations” that
was used in both § 3730(e)(4)(A) and § 3730(e)(4)(B) of the
pre-PPACA bar meant different things because §
3730(e)(4)(B) did not also refer to “transactions” and “[h]ad
Congress wanted to link original-source status to information
underlying the public disclosure, it would surely have used
the identical phrase, ‘allegations or transactions’”).10
10
It would also make little sense to apply our interpretation of
“independent knowledge” under the pre-PPACA bar to the
post-PPACA bar. In addition to “independent of,” “materially
adds to” modifies “the publicly disclosed allegations or
transactions.” So if “the publicly disclosed allegations or
transactions” included not just public disclosures under §
3730(e)(4)(A) but also other information in the public
domain, we would ask whether the relator’s knowledge
23
Applying this new definition of original source to the
information that Moore gained through discovery in the
wrongful death action as to how Dongwon established and
controlled the LLCs, information that we will describe in
more detail below, we conclude that Moore possesses
knowledge that is “independent of . . . the publicly disclosed
allegations or transactions.” 31 U.S.C. § 3730(e)(4)(B)
(2012).
B. Materially Adds
Through the wrongful death action, Moore contends
that it learned, and thus alleged, numerous details that
“materially add[]” to the publicly disclosed transaction of
fraud, as is required for the original source exception to
apply. As we will describe in more detail below, Moore
discovered information such as what specific individuals were
involved in the alleged fraud and how they initiated and
perpetrated the alleged transgression.
We have not previously interpreted “materially adds.”
The word “add” means to “put (something) in or on
something else so as to improve or alter its quality or nature.”
New Oxford Dictionary, supra, at 18. And “material” is
defined as “significant, influential, or relevant.” Id. at 1045.
So to “materially add[]” to the publicly disclosed allegation or
materially adds to that information in the public domain. This
would often lead to circular inquiries. Here, for example, we
would ask whether Moore’s knowledge that it gleaned from
discovery in the wrongful death action materially adds to that
same information.
24
transaction of fraud, a relator must contribute significant
additional information to that which has been publicly
disclosed so as to improve its quality.
The defendants concur with this definition but argue
that Moore falls outside of it. Citing cases from other circuits,
they contend that the information that Moore obtained
through the wrongful death action merely provides additional
details that are immaterial because they only support the
transaction of fraud that was already publicly disclosed. See,
e.g., United States ex rel. Osheroff v. Humana, Inc., 776 F.3d
805, 815 (11th Cir. 2015) (holding relator was not original
source because he provided only additional background
information to the publicly disclosed fraud). According to the
defendants, because the essential elements of the fraud’s
transaction were publicly disclosed in the news articles and
the FOIA documents, Moore’s additional details as to how
the fraud originated and transpired do not materially add to
the publicly disclosed transaction of fraud.
Yet that cannot be the meaning of the term, for that
would read out of the statute the original source exception.
The exception, of course, comes into play only when some
facts regarding the allegation or transaction have been
publicly disclosed. The salient issue, then, is how to
distinguish additional but immaterial information from
information that “materially adds” to the publicly disclosed
allegation or transaction of fraud.
Rule 9(b)’s pleading requirement is of some
assistance. Under Rule 9(b), which applies to FCA actions,
“[i]n alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake.”
25
Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153, 155 (3d
Cir. 2014) (quoting Fed. R. Civ. P. 9(b)). A plaintiff alleging
fraud must therefore support its allegations “with all of the
essential factual background that would accompany the first
paragraph of any newspaper story—that is, the who, what,
when, where and how of the events at issue.” In re
Rockefeller Ctr. Props., Inc. Securities Litig., 311 F.3d 198,
217 (3d Cir. 2002) (citation and quotation marks omitted). In
our view, this standard also serves as a helpful benchmark for
measuring “materially adds.” Specifically, a relator materially
adds to the publicly disclosed allegation or transaction of
fraud when it contributes information—distinct from what
was publicly disclosed—that adds in a significant way to the
essential factual background: “the who, what, when, where
and how of the events at issue.”11 Id.
Moore has satisfied that standard with certain
information that it learned through discovery in the wrongful
death action. Indeed, with this information, it has contributed
significant, specific details that were not publicly disclosed as
to how Dongwon surreptitiously established and controlled
Majestic Blue LLC and Pacific Breeze LLC.
For example, based on the discovery that it obtained in
the wrongful death action, Moore alleged that in 2008,
Jawoong Kim, a former Dongwon executive and brother of
the company’s chairman, approached his daughters, Joyce
and Jayne Kim, who are U.S. citizens, and asked them to
form U.S. LLCs to “buy” two fishing vessels from Dongwon.
11
To be clear, this standard is intended to apply when a
relator’s original source status is at issue at any stage of the
litigation—not just at the motion to dismiss stage.
26
The Kim sisters then formed Majestic Blue LLC and Pacific
Breeze LLC and assumed from Dongwon record ownership
of the F/V Majestic Blue and the F/V Pacific Breeze. But the
Kim sisters served only as straw owners of the two LLCs:
they capitalized each LLC with a mere $50.00, and they knew
nothing about the business operations of the LLCs, relying
entirely on their father Jawoong Kim to manage the
companies.12
Moore also alleged that Dongwon never actually
“sold” the vessels to the LLCs. To “buy” the vessels from
Dongwon, the Kim sisters signed agreements in which the
LLCs agreed to pay $4.4 million for each vessel. Yet these
agreements did not hold the Kim sisters personally
responsible for paying the LLCs’ debt, despite the LLCs’
negligible capital. Nor did Dongwon take out a mortgage on
the vessels. And neither the Kim sisters nor the LLCs ever
paid any money to Dongwon for these vessels.
12
In footnote 7 supra, we declined to say whether the podcast
interview with Doug Pine qualified as “news media.” In that
interview, Pine stated generally that two sisters with U.S.
citizenship owned the LLCs and that their U.S. citizenship
was being exploited by Dongwon. But even if the podcast
qualified as news media, the specific information that Moore
obtained in discovery about the Kim sisters and Dongwon is
distinct from, and adds significantly to, the vague information
disclosed by the podcast. Unlike the podcast, Moore’s
discovery documents revealed the sisters’ names and their
lack of knowledge about the LLCs; their father’s name, his
affiliation with Dongwon, and his initiation of the alleged
fraud; and details as to how the LLCs were structured and
poorly capitalized.
27
Moore further alleged that Dongwon created a fake
“manager” of the LLCs to initiate the SPTT license
application process. At one point, “William Phil,” who
claimed to be the LLCs’ manager, emailed the National
Marine Fisheries Service and the U.S. Coast Guard about
obtaining the SPTT licenses. (App. 43.) “William Phil,”
though, was “a pseudonym for three Korean nationals who
are also employees of Dongwon who operated under the false
name in order to sound more like an American citizen.” (Id.)
In fact, Joyce Kim testified in a 2011 deposition that she had
never even heard of him.
We conclude that this information added to the
publicly disclosed information in a material way. While the
information set forth in the two news articles and the FOIA
documents publicly disclosed the basic elements of the
fraud’s transaction (i.e, the “X + Y”), the information that
Moore acquired from discovery in the wrongful death action
added significant details to the essential factual background
of the fraud—the who, what, when, where, and how of the
alleged fraud—that were not publicly disclosed.
V. Conclusion
Having alleged information that is independent of and
materially adds to the publicly disclosed information, Moore
is an original source under the post-PPACA public disclosure
bar. We will accordingly reverse the District Court’s
September 23, 2014, order dismissing Moore’s action insofar
as that order applied to Moore’s claims arising under the post-
28
PPACA FCA and will remand the case for further
proceedings.13
13
We note that there will remain pending in the District Court
on remand the defendants’ Rule 12(b)(6) motion to dismiss
for failure to state a claim that the District Court did not rule
on in light of its grant of the defendants’ Rule 12(b)(1)
motion.
29