United States Ex Rel. Oliver v. Philip Morris USA Inc. , 763 F.3d 36 ( 2014 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 7, 2014 Decided August 26, 2014
No. 13-7105
UNITED STATES OF AMERICA, EX REL. ANTHONY OLIVER,
APPELLANT
v.
PHILIP MORRIS USA INC., A VIRGINIA CORPORATION
FORMERLY KNOWN AS PHILIP MORRIS, INC.,
APPELLEE
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 briefs were Carl S. Kravitz and Jason M. Knott.
Elizabeth P. Papez argued the cause for appellee. With
her on the brief were Eric M. Goldstein, Eric T. Werlinger,
and Thomas J. Frederick.
Before: TATEL, GRIFFITH and PILLARD, Circuit Judges.
Opinion for the Court filed by Circuit Judge PILLARD.
2
PILLARD, Circuit Judge: Anthony Oliver, President and
CEO of a tobacco company called Medallion Brands
International Co., brought this qui tam action against Philip
Morris USA Inc., alleging that Philip Morris violated the
False Claims Act (“FCA”), 31 U.S.C. §§ 3729-3733 (2006).
Oliver alleges that Philip Morris was required to provide the
government with “Most Favored Customer” pricing, but
failed to do so, instead selling its product for less to affiliates
operating in the same markets as government purchasers even
as it fraudulently affirmed to the government that its price was
the lowest. The district court concluded that it lacked subject
matter jurisdiction due to the FCA’s “public disclosure bar,”
because Oliver’s suit was based on transactions that had been
publicly disclosed. We disagree. Neither the contract term
obligating Philip Morris to provide the government with Most
Favored Customer pricing nor Philip Morris’s fraudulent
certifications that it complied was publicly disclosed.
Accordingly, we vacate the district court’s decision and
remand this case for further proceedings.
I.
The Navy Exchange Service Command (“NEXCOM”)
and the Army and Air Force Exchange Service (“AAFES”)
(collectively, the “Exchanges”) operate facilities that provide
goods and services to customers in the military community.1
The Exchanges enter into contracts with vendors that contain
Most Favored Customer provisions. Pursuant to those
government contracts, vendors must certify to the Exchanges
that the prices, terms, and conditions they offer the Exchanges
are comparable to or more favorable than the prices the
1
Because we are reviewing the grant of a motion to dismiss, we
accept Oliver’s allegations, and draw all reasonable inferences in
his favor. United States ex rel. Davis v. District of Columbia, 679
F.3d 832, 834-35 (D.C. Cir. 2012).
3
vendors charge their other customers. Defendant Philip
Morris has, since at least 2002, entered into contracts with and
sold cigarettes to the Exchanges. Oliver estimates that, in a
single year, the Exchanges purchased approximately 1.8
million cartons of Marlboro cigarettes from Philip Morris at
improperly inflated prices. Philip Morris’s contract obligated
it to comply with the Most Favored Customer provisions and
to certify its compliance.
Oliver filed this qui tam action in 2008, alleging that
Philip Morris violated the False Claims Act.2 According to
the complaint, Philip Morris sold cigarettes to its affiliates at
lower prices than it charged the Exchanges for identical
cigarettes, and those affiliates resold the cigarettes at prices
that undercut the Exchanges’ pricing. Oliver says such sales
violated the Most Favored Customer provisions even as Philip
Morris continued to certify that it was providing the
Exchanges with the best price for its cigarettes, in
contravention of the FCA.
The FCA creates civil liability for persons who present
false and fraudulent claims for payment to the government or
who use a false statement to get a false or fraudulent claim
paid by the government. 31 U.S.C. § 3729(a)(1)-(2). The
FCA authorizes the government to recover a statutory penalty
for each violation, as well as treble the amount of damages it
actually sustains. Id. § 3729(a). The FCA also authorizes qui
2
The False Claims Act was amended on March 23, 2010 by the
Patient Protection and Affordable Care Act. Pub. L. No. 111-148,
§ 10104(j)(2), 124 Stat. 119, 901-902 (2010). Those amendments
do not apply to pending suits filed before their enactment. Graham
Cnty. Soil & Water Conservation Dist. v. United States ex rel.
Wilson, 559 U.S. 280, 283 n.1 (2010). Accordingly, throughout
this opinion we refer to the version of the FCA that was in effect at
the time Oliver filed his complaint.
4
tam actions, whereby private individuals, called “relators,”
bring actions in the government’s name; the Act establishes
incentives for such private suits by allowing successful
relators to share in the government’s recovery. Id.§ 3730(b)(1), (d).
The FCA encourages insiders to expose fraudulent
conduct, but does not reward relators who seek to profit by
bringing suits to complain of fraud that has already been
publicly exposed. See, e.g., Graham Cnty. Soil & Water
Conservation Dist. v. United States el rel. Wilson, 559 U.S.
280, 294-95 (2010); United States ex rel. Springfield Terminal
Ry. Co. v. Quinn, 14 F.3d 645, 649-51 (D.C. Cir. 1994). To
that end, the FCA contains a public disclosure bar that limits
the ability of a private party to bring a qui tam suit where the
fraud is already publicly known. That bar prevents parasitic
lawsuits brought by opportunistic litigants seeking to
capitalize on public disclosures. The version of the statutory
public disclosure bar applicable to this suit divests courts of
subject matter jurisdiction over an action “based upon the
public disclosure of allegations or transactions” made in
specified types of fora, “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).3
3
A person who is an original source of the information may sue as
a qui tam relator under the FCA even to recover for fraud that has
been publicly disclosed. An “original source” is someone 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.” 31 U.S.C.
§ 3730(e)(4)(B). The district court concluded that Oliver had failed
to demonstrate he was an “original source” of the information on
which his allegations were based. United States ex rel. Oliver v.
5
The district court granted Philip Morris’s motion to
dismiss Oliver’s claim on the ground that the allegedly
fraudulent transactions his complaint identifies had already
been publicly disclosed. United States ex rel. Oliver v. Philip
Morris USA Inc., 949 F. Supp. 2d 238, 240, 244-49 (D.D.C.
2013). The court concluded that a Philip Morris
memorandum, referred to in the litigation as the “Iceland
Memo,” disclosed Philip Morris’s affiliates’ practice of
selling cigarettes on the duty-free market at prices lower than
those it charged the Exchanges, as well as the fact that the
Exchanges had objected to the pricing differential. Id. at 248.
The Iceland Memo is a Philip Morris inter-office
transmittal sheet dated December 28, 1999, relating to a letter
(not included in the record) that the director of Morale,
Welfare & Recreation (“MWR”) at a United States naval
station in Iceland apparently wrote to a duty-free wholesaler
of Philip Morris cigarettes as part of MWR’s unsuccessful
efforts to buy cheaper Philip Morris cigarettes from the duty-
free source. J.A. 71. The Memo recounts that a Philip Morris
sales representative intervened and advised the wholesaler not
to ship cigarettes to the MWR facility. See id. The Memo
states, in relevant part:
P[hilip] M[orris] USA is responsible for U.S. Military
markets worldwide and is the source for product to
MWR facilities . . . . P[hilip] M[orris] I[nternational]
Duty-Free list prices are lower than P[hilip] M[orris]
Philip Morris USA Inc., 949 F. Supp. 2d 238, 249-51 (D.D.C.
2013). Because we conclude that the information supporting
Oliver’s claim had not been publicly disclosed, we do not reach the
question whether Oliver was an “original source.” See Springfield
Terminal, 14 F.3d at 651; see also United States ex rel. Holmes v.
Consumer Ins. Grp., 318 F.3d 1199, 1203 (10th Cir. 2003).
6
USA Military tax-free prices and we frequently
receive inquir[i]es from the Service Headquarters on
why they can’t purchase tax-free product at these
lower prices. Our response is that P[hilip] M[orris]
USA is the U.S. Federal Government’s source of
product, and we ensure that the product conforms to
the proper Surgeon General warnings.
Id. The bottom of the Memo contains a handwritten note
stating that “this issue was resolved,” but does not specify
how. Id.The district court acknowledged that the Iceland Memo
did not explain that the pricing differential was contrary to the
Most Favored Customer provisions. Id. at 248-49.
Nevertheless, that court concluded that those provisions, too,
were publicly disclosed because they were “legal
requirements that the [g]overnment is presumed to know.” Id.
at 249 (citing Schindler Elevator Corp. v. United States ex rel.
Kirk, 131 S. Ct. 1885, 1890 (2011)). The court further
concluded that Philip Morris’s certification of compliance
with the Most Favored Customer provisions could be inferred
from the fact that the Exchanges continued to purchase
cigarettes from Philip Morris. Id. at 249. Because the FCA
framed the public disclosure bar as jurisdictional, the
dismissal was for want of subject matter jurisdiction over
Oliver’s action. Id. at 240.
II.
Oliver timely appealed, and we have jurisdiction pursuant
to 28 U.S.C. § 1291. We review de novo the district court’s
dismissal for lack of subject matter jurisdiction. Fisher-Cal
Indus., Inc. v. United States, 747 F.3d 899, 902 (D.C. Cir.
2014).
7
The 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.” 31
U.S.C. § 3730(e)(4)(A). As we explained in Springfield
Terminal, the word “transactions” refers to two or more
elements that, when considered together, give rise to an
inference that fraud has taken place. See 14 F.3d at 654. As
this court elaborated in a much-quoted formulation:
[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 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 [X and Y] were in
the public domain.
Id. Thus, “where only one element of the fraudulent
transaction is in the public domain (e.g., X), the qui tam
plaintiff may mount a case by coming forward with either the
additional elements necessary to state a case of fraud (e.g., Y)
or allegations of fraud itself (e.g., Z).” Id. at 655.
III.
We begin by restating Oliver’s allegations using the
Springfield Terminal formulation: 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) gives rise to the conclusion Philip Morris committed
fraud (Z). The court lacks jurisdiction over Oliver’s suit only
8
if X and Y, i.e., both the pricing disparities and Philip
Morris’s false certifications of compliance with the Most
Favored Customer provisions, were in the public domain.4
We need not resolve whether the pricing disparities were
publicly disclosed in the Iceland Memo, because we conclude
that the “Y” of Oliver’s suit was not publicly disclosed.
Philip Morris has made no attempt to show that its allegedly
false certifications of compliance with the Most Favored
Customer provisions were in the public domain. Instead, both
Philip Morris and the district court focused on the public
disclosure of the Most Favored Customer provisions. See
Oliver, 949 F. Supp. 2d at 249. The district court concluded
that if the Most Favored Customer provisions were publicly
disclosed, Philip Morris’s certifications could be inferred
from the fact that the Exchanges continued to purchase Philip
Morris cigarettes. Id. Even assuming arguendo that the
certifications could be inferred from the disclosure of the
Most Favored Customer provisions, Oliver’s suit is not barred
4
The parties do not argue that the Iceland Memo itself contains
direct “allegations” of fraud (Z). For a disclosure to constitute an
“allegation” it must contain an explicit assertion that fraud as such
has taken place. See Springfield Terminal, 14 F.3d at 654. As
Oliver points out, Philip Morris did not contend below, and the
district court did not find, “that the Iceland Memo contained a
conclusory assertion sufficient to constitute an ‘allegation’ under
the FCA.” Appellant Br. 22. In other words, the Iceland Memo did
not announce the fraud in the form of Z, as opposed to X + Y. See
Oliver, 949 F. Supp. 2d at 249 (“[T]he 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).” (emphasis added)). Nor does Philip Morris attempt
to argue on appeal that explicit allegations of fraud as such were
publicly disclosed. See Oral Arg. Tr. 12:22-14:9, 28:19-29:4; see
also Appellee Br. 20, 32-33.
9
because the Most Favored Customer provisions were not
publicly disclosed.
Philip Morris makes three alternative arguments that the
Most Favored Customer provisions were publicly disclosed.
First, Philip Morris encourages us to affirm the district court’s
conclusion that the Most Favored Customer provisions were
in the public domain because they were “legal requirements
that the [g]overnment is presumed to know.” Id. Second,
according to Philip Morris, the Iceland Memo not only
publicly disclosed the pricing disparities, but also that the
government was complaining about those disparities, which
was adequate to alert government authorities of the likelihood
of fraud. Finally, after oral argument, Philip Morris urged us
to rely on new evidence that the Most Favored Customer
provisions were publicly available. We consider each
argument in turn.
A.
Both the plain language and history of the FCA
demonstrate, contrary to Philip Morris’s contention, that the
government’s awareness of the Most Favored Customer
requirements does not amount to their public disclosure. We
believe that “a ‘public disclosure’ requires that there be some
act of disclosure to the public outside of the government. The
mere fact that the disclosures are contained in government
files someplace, or even that the government is conducting an
investigation behind the scenes, does not itself constitute
public disclosure.” United States ex rel. Rost v. Pfizer, Inc.,
507 F.3d 720, 728 (1st Cir. 2007), overruled on other grounds
by Allison Engine Co. v. United States ex rel. Sanders, 553
U.S. 662 (2008).
The plain text of the public disclosure bar delineates three
channels through which information can be made public for
10
purposes of invoking the bar. To count as “public,” a
disclosure must be made either: “[1] in a criminal, civil, or
administrative hearing, [2] in a congressional, administrative,
or [General] Accounting Office report, hearing, audit, or
investigation, or [3] from the news media.” 31 U.S.C.
§ 3730(e)(4)(A). “[T]he FCA’s public disclosure bar . . .
deprives courts of jurisdiction over qui tam suits when the
relevant information has already entered the public domain
through certain channels.” Graham Cnty., 559 U.S. at 285(emphasis added). By its express terms, the public disclosure
bar only applies when allegations or transactions have been
made public through one of those channels. See United States
ex rel. Williams v. NEC Corp., 931 F.2d 1493, 1499 (11th Cir.
1991). The government’s own, internal awareness of the
information is not one such channel. See 31 U.S.C.
§ 3730(e)(4)(A); see also United States ex rel. Meyer v.
Horizon Health Corp., 565 F.3d 1195, 1200 n.3 (9th Cir.
2009) (collecting cases holding that disclosure to the
government, without more, is not a public disclosure for
purposes of the public disclosure bar).
The history of the FCA strongly bolsters this conclusion.
Congress revised the FCA in 1986 to remove a jurisdictional
bar that previously applied when the government had
knowledge of the facts underlying a relator’s suit. Before the
amendment, the FCA precluded qui tam actions based on
“evidence or information in the possession of the United
States . . . at the time such suit was brought.” Schindler
Elevator Corp. v. United States ex rel. Kirk, 131 S. Ct. 1885,
1894 (2011) (internal quotation marks omitted). The 1986
amendment replaced that “government knowledge” bar with
the version of the public disclosure bar applicable to Oliver’s
lawsuit. See id. As a result of that change, the inquiry shifted
from whether the relevant information was known to the
government to whether that information was publicly
11
disclosed in one of the channels specified by the statute. See
Graham Cnty., 559 U.S. at 300 (“The statutory touchstone . . .
is whether the allegations of fraud have been ‘publicly
disclosed,’ not whether they have landed on the desk of a DOJ
lawyer.” (citation and internal brackets omitted)). The
statutory amendment makes clear that the government’s
knowledge of its own legal requirements is not a public
disclosure. See, e.g., Rost, 507 F.3d at 729-30. A contrary
interpretation would essentially reinstate a jurisdictional bar
Congress expressly eliminated.
According to Philip Morris, the Supreme Court’s
decision in Schindler supports its contention that the public
disclosure bar can be applied when innocuous-seeming facts
are publicly disclosed and the government has knowledge of a
non-public federal legal requirement that renders them
fraudulent. Philip Morris relies on the Court’s statement that
it concluded that FOIA requests were reports for purposes of
the public disclosure bar, in part because under a contrary
interpretation “anyone could 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.” Schindler, 131 S. Ct. at 1894. But Philip Morris’s
reliance on Schindler is misplaced. In Schindler, the Court
held that a federal agency’s responses to FOIA requests were
“reports” for purposes of the public disclosure bar, because an
agency’s written response together with attached records
sought in the FOIA request falls within the ordinary
understanding of the statutory term “administrative . . .
report.” Id. at 1893. Nothing in Schindler supports Philip
Morris’s suggestion that suits should be barred any time the
government is aware of a legal requirement. The
government’s awareness of the Most Favored Customer
12
provisions at issue in this case does not justify the imposition
of the public disclosure bar.
B.
We next conclude, contrary to Philip Morris’s
contentions, that the Iceland Memo did not publicly disclose
the requirements of the Most Favored Customer provisions.
The Iceland Memo, standing alone, does not communicate
that there was anything legally impermissible about the prices
Philip Morris was charging the Exchanges. See J.A. 71. That
memo makes no mention of the Most Favored Customer
clauses, nor does it discuss more generally Philip Morris’s
obligation to charge the Exchanges its lowest price for
cigarettes. Id.Philip Morris contends that the Iceland Memo makes
clear that the Exchanges were frequently complaining about
their apparent overpayments, and that those protestations
support an inference that Philip Morris was fraudulently
charging the Exchanges higher prices than other customers in
violation of its contractual undertaking to the contrary. The
Memo, however, nowhere states that the Exchanges
complained; rather, it merely reports that Philip Morris
“frequently receive[d] inquir[i]es” from the Exchanges about
why they could not purchase cigarettes at the lower prices
offered by duty-free wholesalers instead of buying them from
Philip Morris under their contracts. J.A. 71. The mere fact
that the Exchanges inquired, or even complained, about
pricing does not amount to public disclosure of facts
supporting the elements of a claim of fraud. It is reasonable
for a purchaser to object to buying at a price that is higher
than the best price not only when the pricing is fraudulent or
otherwise unlawful, but also when the purchaser simply wants
to ensure it receives the most competitive deal. Contrary to
13
Philip Morris’s assertions, the Iceland Memo did not publicly
disclose the allegedly fraudulent aspect of the prices Philip
Morris charged the Exchanges.
C.
Finally, we reject Philip Morris’s belated efforts to
resurrect arguments it abandoned on appeal. Before the
district court, Philip Morris argued that the Most Favored
Customer provisions were available to the broader public and
thus helped to bring the transaction on which Oliver’s claim is
based under the public disclosure bar. See Oliver, 949
F. Supp. 2d at 249 n.8. The district court expressly rejected
that argument because Philip Morris failed to show the timing
of the putative internet publication of the Most Favored
Customer clause that Philip Morris submitted and, in
particular, that it was publicly available before 2008, when
Oliver filed his suit. Id. Philip Morris did not follow up by
seeking to provide to the district court evidence to pin down
the publication date, nor did it raise on appeal any argument
based on internet publication of the clause. After oral
argument, however, Philip Morris submitted to us a letter
proffering new evidence purporting to show that the Most
Favored Customer provisions were publicly available on the
Exchanges’ websites before 2008.
We typically do not consider new evidence on appeal.
See, e.g., United States ex rel. Davis v. District of Columbia,
679 F.3d 832, 837 n.3 (D.C. Cir. 2012); see also Williams v.
Romarm, SA, --- F.3d ---, No. 13-7022, 2014 WL 2933222, at
*7 (D.C. Cir. July 1, 2014) (“[T]he 28(j) process should not
be employed as a second opportunity to brief an issue not
raised in the initial briefs. The letters are more appropriately
used to cite new authorities released after briefing is complete
or after argument but before issuance of the court’s
14
opinion.”). Even though legal arguments going to our subject
matter jurisdiction are not subject to waiver, we have held that
we will not consider jurisdictional facts that were not timely
presented concerning jurisdiction over an FCA claim. See
United States ex rel. Settlemire v. District of Columbia, 198
F.3d 913, 920 (D.C. Cir. 1999). We see no reason here to
depart from our regular practice. Philip Morris has provided
no explanation for its failure to timely present its new
evidence to the district court, nor for its delay in providing
that evidence to us. We are, in any event, in no position to
assess on appeal its authenticity or its bearing on the issue for
which it was submitted. As we have explained:
[A]n appellate court ordinarily has no factfinding
function. It cannot receive new evidence from the
parties, determine where the truth actually lies, and
base its decision on that determination. Factfinding
and the creation of a record are the functions of the
district court; therefore, the consideration of newly-
discovered evidence is a matter for the district court.
The proper procedure for dealing with newly
discovered evidence is for the party to move for relief
from the judgment in the district court under rule
60(b) of the Federal Rules of Civil Procedure.
Nat’l Anti-Hunger Coal. v. Exec. Comm. of President’s
Private Sector Survey on Cost Control, 711 F.2d 1071, 1075
(D.C. Cir. 1983) (internal quotation marks omitted). Thus, we
decline to make an exception here and do not consider Philip
Morris’s new evidence.
IV.
We decline Philip Morris’s invitation to affirm the
district court’s decision on the alternative ground that Oliver’s
complaint fails to state a claim for which relief can be
15
granted. The district court did not evaluate whether Oliver
had stated a claim; we remand for the district court to
consider that question in the first instance. See, e.g.,
Singleton v. Wulff, 428 U.S. 106, 120 (1976).
* * *
For the foregoing reasons, the district court’s order
dismissing the complaint for lack of jurisdiction is vacated
and the case is remanded for further proceedings consistent
with this opinion.
So ordered.