United States ex rel. John Doe v. Staples, Inc. ( 2014 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 6, 2014 Decided December 2, 2014
No. 13-7071
UNITED STATES EX REL. JOHN DOE,
APPELLANT
v.
STAPLES, INC., ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:08-cv-00846)
Joseph A. Black argued the cause for appellant. With him
on the briefs was Joyce E. Mayers.
David W. Ogden argued the cause for appellees. With
him on the brief were Daniel S. Volchok, D. Bradford Hardin
Jr., Gideon M. Hart, James L. Volling, John F. Henault Jr.,
Robert P. Fletcher, and Leslie Paul Machado. John M.
Peterson entered an appearance.
Before: TATEL and BROWN, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge TATEL.
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TATEL, Circuit Judge: This False Claims Act case is about
pencils—Chinese pencils, to be precise. Anonymous relator
John Doe alleges that defendants—including three major
office-supply retailers—imported pencils that they knew were
made in China, but to avoid paying substantial antidumping
duties imposed on Chinese-made pencils, falsely declared to
United States Customs officials that they were made elsewhere
in Asia. The district court determined that the essential
elements of the alleged fraud were already in the public
domain, and so, as required by the False Claims Act, dismissed
the case for lack of jurisdiction. For the reasons set forth in this
opinion, we affirm.
I.
Enacted in 1863 to fight rampant fraud in Civil War
procurement contracts, the False Claims Act (FCA) remains
the government’s “primary litigative tool for combatting
fraud.” S. Rep. No. 99-345, at 2, 4 (1986). The FCA penalizes
false claims for payment from the government, and, as alleged
here, false statements to avoid payments owed to the
government. See 31 U.S.C. § 3729(a)(1)(A) & (G). Since its
enactment, the FCA has empowered not only the Attorney
General, but also private citizens acting on the government’s
behalf—known as qui tam relators—to sue persons who
defraud the United States. Id. § 3730(a) & (b)(1). If a qui tam
relator initiates the suit, the government may elect to intervene
and prosecute the action with the relator’s participation. Id.
§ 3730(b)(2). If the government declines to intervene, the
relator may proceed on his own, though the action remains “in
the name of the Government.” Id. § 3730(b)(1). In either case,
the relator shares in any recovery. Id. § 3730(d). Because FCA
defendants are liable for treble damages and relators can
receive nearly a third of the pie, that share can amount to tens
of millions of dollars. Id. & id. § 3729(a). The FCA’s qui tam
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provisions thus encourage private citizens to expose false
claims and so serve as a critical supplement to government
enforcement.
By the same token, however, the FCA can encourage
opportunistic lawsuits based solely on information already
known to the government. See, e.g., United States ex rel.
Marcus v. Hess, 317 U.S. 537 (1943) (reviewing infamous qui
tam action in which relator copied allegations of fraud from
government’s criminal indictment). Accordingly, “in an effort
to strike a balance between encouraging private persons to root
out fraud and stifling parasitic lawsuits,” Congress established
the FCA’s jurisdictional provision—the so-called “public
disclosure bar.” Graham County Soil & Water Conservation
District v. United States ex rel. Wilson, 559 U.S. 280, 295
(2010). Although Congress has amended this provision several
times, the version of the public disclosure bar that governs this
case strips courts of jurisdiction over qui tam suits that are
“based upon the public disclosure of allegations or
transactions” through certain channels—including, as relevant
here, administrative reports and news media—unless the
relator “is an original source of the information.” 31 U.S.C.
§ 3730(e)(4)(A) (1986). An original source is “an individual
who has direct and independent knowledge of the information
on which the allegations are based and has voluntarily
provided the information to the Government before filing
[suit].” Id. § 3730(e)(4)(B).
This qui tam case involves an alleged fraud on the United
States government through false statements made to U.S.
Customs and Border Control (Customs) to avoid antidumping
duties—protective tariffs imposed on goods priced below fair
market value—applicable to Chinese-made pencils. See 68
Fed. Reg. 43082 (July 21, 2003) (“Certain Cased Pencils from
the People’s Republic of China”). Relator, a self-styled
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pencil-industry insider, filed suit in the U.S. District Court for
the District of Columbia, alleging that defendants Staples,
OfficeMax, Target, and Industries for the Blind knowingly
purchased Chinese-made pencils from suppliers in Indonesia,
Hong Kong, and Vietnam, but when the pencils arrived in the
United States, falsely declared to Customs that the pencils’
country of origin was other than China.
According to the complaint, Relator learned of
defendants’ false representations by examining manifest data
that all shippers must submit to Customs. By Relator’s
account, a company called PIERS Global Intelligence
Solutions compiles this data in an online database, which
includes shipments’ designated country of origin and importer
of record. With respect to the pencils’ true country of origin,
Relator alleged that “Chinese pencils can be readily identified
by their overall appearance and quality that is a result of the
unique manufacturing processes used in China.” Compl. 8.
Based on certain telltale characteristics, he asserted,
defendants’ pencil buyers would surely have known that their
pencils were made in China “without the need for direct
contact with the factories actually producing the pencils.” Id.
Relator also alleged that he confirmed the pencils’ Chinese
origin through his own investigation of defendants’ foreign
suppliers. With the help of pencil-industry informants, the
investigation apparently revealed that defendants’ suppliers
either make no pencils themselves or do not make the pencils
they sell to U.S. buyers. Relator ultimately grounded his
allegations on the pencils’ appearance, however, asserting with
respect to each defendant’s product that, “[b]ased on their
physical characteristics, these pencils were produced in
China.” Id. at 13, 22-24.
After the government declined to intervene, defendants
moved to dismiss the complaint for lack of jurisdiction and for
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failure to state a viable FCA claim. In support of their
jurisdictional argument, defendants invoked the FCA’s public
disclosure bar, contending that the material facts of the alleged
scheme were already in the public domain. They also argued
that Relator failed to demonstrate that he qualifies for the
original-source exception to the bar.
The district court agreed, concluding that the essential
elements underlying Relator’s allegation of fraud—i.e.,
defendants’ misrepresentations to Customs and the pencils’
actual country of origin—were “both based on publicly
disclosed information.” United States ex rel. Doe v. Staples,
Inc., 932 F. Supp. 2d 34, 40 (D.D.C. 2013). The court noted
that Relator based his allegations regarding defendants’
misrepresentations on the PIERS database, a form of “news
media” within the meaning of the FCA that is “readily
accessible to the public,” and which itself derives from
publicly available shipping information in the Customs
manifest system. Id. As to the pencils’ true country of origin,
the district court observed that Relator based his allegations on
the pencils’ physical appearance, id. at 38, 40, explaining that
the “giveaway characteristics” of Chinese pencils had already
been described in publicly accessible reports produced by the
United States International Trade Commission, which
constitute “administrative reports” within the meaning of the
FCA. Id. at 40-41. Finally, concluding that Relator failed to
show that he qualifies as an original source of the information,
the district court dismissed the case for lack of subject matter
jurisdiction. Id. at 41-42.
Relator now challenges the district court’s conclusions
that his FCA claim is based on publicly disclosed information
and that he failed to demonstrate original-source status. “We
review de novo the district court’s dismissal for lack of subject
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matter jurisdiction.” United States ex rel. Oliver v. Philip
Morris USA Inc., 763 F.3d 36, 40 (D.C. Cir. 2014).
II.
Seeking to prevent suits “by those other than an ‘original
source’ when the government already has enough information
to investigate the case” or where “the information ‘could at
least have alerted law-enforcement authorities to the likelihood
of wrongdoing,’” United States ex rel. Davis v. District of
Columbia, 679 F.3d 832, 836 (D.C. Cir. 2012) (citation
omitted), the FCA’s public disclosure bar blocks qui tam suits
that are “based upon the public disclosure of allegations or
transactions,” 31 U.S.C. § 3730(e)(4)(A) (1986). In this
circuit’s seminal opinion on the public disclosure bar, United
States ex rel. Springfield Terminal Railway v. Quinn, 14 F.3d
645 (D.C. Cir. 1994), we explained that the government has
“enough information to investigate the case” either when the
allegation of fraud itself has been publicly disclosed, or when
both of its underlying factual elements—the misrepresentation
and the truth of the matter—are already in the public domain.
In Springfield Terminal, the relator alleged that an
arbitrator working for the National Mediation Board had
fraudulently billed the government for arbitration services
never actually rendered. Id. at 647. After concluding that the
allegations were “based upon” certain pay vouchers that had
been publicly disclosed in a related civil action, the district
court dismissed the case for lack of jurisdiction. Id. at 648.
Reversing, we recognized that the relator had relied in part on
public information, but explained that Congress sought to
prohibit qui tam suits only when both essential elements of
fraud—the false statement and the true facts—had been
publicly disclosed. Id. at 655. We illustrated this principle with
a simple algebraic formula: “[I]f X + Y = Z, Z represents the
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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.” Id. at 654. Because the publicly
disclosed pay vouchers reflected only the false statement (the
arbitrator’s claim for payment) and not the true facts (the
services actually rendered), we held that the public disclosure
bar did not apply. Id. at 655-56. That said, we stressed that a
qui tam action cannot be sustained where both elements of the
fraudulent transaction—X and Y—are already public, even if
the relator “comes forward with additional evidence
incriminating the defendant.” Id. at 655.
In this case, the parties agree that X, the alleged
misrepresentation, is defendants’ declarations to Customs that
their imported pencils were made somewhere other than China.
Relator, moreover, concedes that this information was publicly
disclosed in the PIERS database. The only question, then, is
whether Y, the alleged fact that defendants’ pencils actually
were made in China, was likewise in the public domain.
Echoing the district court’s conclusion, defendants argue that
this fact was disclosed in two public reports produced by the
United States International Trade Commission (ITC) before
Relator brought this suit. Those reports, defendants maintain,
constitute “administrative reports” within the meaning of the
FCA and describe the physical characteristics of Chinese
pencils, including many of the telltale characteristics that form
the basis of Relator’s charge that the pencils were made in
China. According to defendants, then, both essential elements
of the alleged fraud—X and Y—were already in the public
domain. For his part, Relator agrees, as he must, that the ITC
reports qualify as administrative reports within the meaning of
the FCA. See Schindler Elevator Corp. v. United States ex rel.
Kirk, 131 S. Ct. 1885, 1891 (2011) (explaining that “report”
8
maintains its “broad ordinary meaning” in the FCA). He
insists, however, that the reports disclose insufficient
information to demonstrate that defendants’ pencils were made
in China.
We agree with the district court and defendants. In his
complaint, Relator detailed a series of physical characteristics
that, he alleged, result from “unique manufacturing processes
used in China” and so allow one to “readily identif[y]” Chinese
pencils. Compl. 8. Those characteristics include apex-to-apex
bonding (a distinctive method of joining a pencil’s halves),
substandard wood, off-center leads, low-quality erasers,
inferior paint, unmatchable price, and loose ferrules—a
reference to the small metal band that fastens the eraser to the
pencil shaft. The ITC reports also identify several of these
features as characteristic of Chinese pencils. For example, the
reports note that U.S. pencil producers had informed the ITC
that “Chinese pencils use lower quality wood, did not sharpen
or erase well, had loose ferrules and erasers, and had leads that
would break easily.” Certain Cased Pencils from Thailand,
USITC Pub. 2816, Inv. No. 731-TA-670, at II-49 (Oct. 1994)
(Final). They also report that Chinese pencils have an inferior
“finish, paint covering, centering of lead, and attachment of
ferrule and eraser.” Id. at II-54.
To be sure, as Relator points out, the complaint catalogues
characteristics of Chinese pencils that are unmentioned in the
ITC reports, including the pencils’ price and bonding method,
and generally describes their features in greater detail. Yet our
inquiry focuses not on the additional incriminating information
a relator supplies, but instead on whether “the quantum of
information already in the public sphere” was sufficient to “set
government investigators on the trail of fraud.” Springfield
Terminal, 14 F.3d at 654-55. In this case, answering that
question is easy. Relator himself asserted not only that Chinese
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pencils “can be readily identified by their overall appearance,”
Compl. 8, but also that defendants’ pencils have “certain well
known unique features common to pencils manufactured in
China, and distinct from pencils manufactured elsewhere,”
Pl.’s Opp’n to Staples’s Mot. to Dismiss 14 (emphases added).
He stated, moreover, that these features “include any one of the
following: apex-to-apex bonding[,] leads that are off center[,]
and general inferior finishing.” Id. (emphasis added). As noted
above, two of these three “unique” characteristics—off-center
leads and inferior finishing—were disclosed in the ITC reports.
See USITC Pub. 2816, at II-54.
Relator tells us that he included allegations about the
pencils’ appearance only to prove that defendants had notice of
their products’ Chinese origin, not to show that the pencils
actually were made in China. Appellant’s Br. 11-12; see also
31 U.S.C. § 3729(a)(1)(G) (penalizing “any person who
knowingly makes . . . a false record or statement” to avoid
payments owed to the Government) (emphasis added). But his
subjective intent is beside the point. As the district court
explained, if the pencils’ distinctive features “put defendants
on notice of their Chinese origin ‘without the need for direct
contact with the factories actually producing the pencils,’” as
Relator alleged in his complaint, “these characteristics were
also sufficient to ‘enable the government adequately to
investigate the case and to make a decision whether to
prosecute.’” Staples, 932 F. Supp. 2d at 41 (quoting Springfield
Terminal, 14 F.3d at 654).
Of course, we recognize that lopsided leads may not in fact
distinguish Chinese pencils from those made everywhere else
in the world. But Relator alleged that this feature, in addition to
others disclosed in the ITC reports, is unique to Chinese
pencils, and “the party invoking federal jurisdiction bears the
burden of establishing its existence.” Steel Co. v. Citizens for a
10
Better Environment, 523 U.S. 83, 104 (1998). Instead of
pleading facts that establish federal jurisdiction, Relator has
thus pled himself out of court. See Sparrow v. United Air Lines,
Inc., 216 F.3d 1111, 1116 (D.C. Cir. 2000) (“[I]t is possible for
a plaintiff to plead too much: that is, to plead himself out of
court by alleging facts that render success on the merits
impossible.”).
In any event, the ITC reports disclose more than just the
physical features of Chinese pencils. They also explain that
U.S. pencil makers identified three of the four
defendants—Staples, Target, and OfficeMax—as “possible”
importers of Chinese pencils. Cased Pencils from China,
USITC Pub. 3820, Inv. No. 731-TA-669, at I-7, I-11 (Nov.
2005) (Second Review). Combined with defendants’
declarations in the PIERS database that their pencils were
made only in, say, Indonesia or Hong Kong, that information
could likewise “have alerted law-enforcement authorities to
the likelihood of wrongdoing.” Springfield Terminal, 14 F.3d
at 654 (citation omitted).
In short, Relator’s suit is “based upon” publicly disclosed
“allegations or transactions,” thus triggering the public
disclosure bar. 31 U.S.C. § 3730(e)(4)(A). Relator’s arguments
to the contrary are unpersuasive.
First, Relator maintains that his private investigation of
defendants’ foreign suppliers contributed critical independent
information, without which no allegation of fraud was
possible. Indeed, he asserts, even though defendants’ pencils
display the “Chinese characteristics described in the ITC
reports,” it is “still possible” that they were made elsewhere.
Appellant’s Br. 20. As should be clear by now, this contention
flatly contradicts what Relator pled in his complaint. By his
own pleadings and concessions, the material elements of the
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fraud, X and Y, were already public, so Relator’s private
intelligence cannot defeat the FCA’s jurisdictional hurdle.
Relator next argues that even if the ITC reports disclose
sufficient information to unequivocally identify Chinese
pencils, they nowhere reveal that defendants’ pencils were
made in China since that determination requires physical
inspection of defendants’ product. But this theory not only
ignores the ITC reports’ revelation that the principal
defendants in this case might be importing Chinese pencils, it
also overlooks key language in the public disclosure bar and
defies its basic purpose. That provision divests courts of
jurisdiction to hear qui tam suits that are “based upon the
public disclosure of allegations or transactions.” 31 U.S.C.
§ 3730(e)(4)(A) (emphasis added). And with respect to each
defendant, the linchpin of Relator’s allegations was that
“[b]ased on their physical characteristics”—characteristics
described in public reports—“these pencils were produced in
China.” Compl. 13, 22-24. Under Relator’s theory, however,
anyone armed with the information in the ITC reports could
troll the aisles of any office-supply store for pencils with loose
ferrules or off-center leads. The would-be plaintiff could then
determine whether the retailer had paid the required
antidumping duties by reference to other public information,
and if it had not, then voilà, the plaintiff would be entitled to
millions of dollars in qui tam compensation. But these sorts of
lawsuits, brought by “opportunistic plaintiffs who have no
significant information to contribute of their own,” are
precisely the kind the public disclosure bar seeks to prevent.
Springfield Terminal, 14 F.3d at 649.
Finally, Relator contends that even if his suit rests on
public disclosures, the bar does not apply because he qualifies
as an original source of the information. See 31 U.S.C.
§ 3730(e)(4)(A). But because Relator declined to raise this
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argument in the district court—apparently due to a “firm
conviction” that his allegations did not reflect public
information, Appellant’s Br. 32—he has forfeited it. As we
have explained, a relator may not wait until his case is on
appeal before invoking the original-source exception to the
public disclosure bar, but rather must set forth “sufficient
jurisdictional facts in a timely fashion.” United States ex rel.
Settlemire v. District of Columbia, 198 F.3d 913, 920 (D.C.
Cir. 1999). Thus, although a relator is free to “assert below that
the jurisdictional bar [does] not apply because, in his view, the
public disclosures [do] not fall under 31 U.S.C.
§ 3730(e)(4)(A),” he “does not have a right to recast his claim
on appeal so as to avoid the consequences of that decision.” Id.
III.
Because Relator’s claim is jurisdictionally barred, we
have no reason to determine whether the complaint failed to
state a viable FCA claim. We therefore affirm the district
court’s dismissal for lack of subject matter jurisdiction.
So ordered.